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KDH Electronic Systems, Inc. v. Curtis Technology Ltd.

December 23, 2008

KDH ELECTRONIC SYSTEMS, INC., ET AL.
v.
CURTIS TECHNOLOGY LTD., ET AL.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM AND ORDER

This case involves a contract dispute between plaintiffs KDH Electronics, Inc. and KDH Defense Systems, Inc. (collectively, "KDH") and defendants Dr. Thomas Curtis, Michael Curtis and Curtis Technology (collectively, "Curtis"). The subject of the contract is the development of an underwater radar system, and the programming necessary for the system's design and manufacture. The parties entered into a Teaming Agreement in January of 2006. This agreement outlines the roles played by each party in the design, testing, and manufacture of the radar system, known as the T-3 System. Under the Teaming Agreement, the plaintiffs were responsible for preparing funding proposals and marketing the T-3 System, and the defendants assumed the role of technical researcher, designer and developer.

The Court decides here the nature of the defendants' obligation to provide to the plaintiffs source code necessary for the T-3 System's operation. The defendants acknowledge their obligation to give the plaintiffs source code but contend that they may prevent KDH from viewing or manipulating those portions of source code that pre-existed the design of the T-3 System. The Court concludes that the defendants may not so obscure any portions of the source code. Under the Teaming Agreement, KDH owns the source code necessary for the operation of the T-3 System whether or not it pre-existed the design of the T-3 System.*fn1

I. Background

KDH designs and manufactures products sold to the United States Navy and other defense organizations. Recently, KDH decided that it would attempt to design, build and sell an underwater radar system for use in detecting human swimmers. This system is referred to as the T-3 System. To complete such a system, KDH hired Dr. Thomas Curtis, Michael Curtis and their company, Curtis Technology, Ltd., to develop the programming to make the system functional. Dr. Curtis has contributed to the development of radar technology over the course of several decades, is widely published on the subject, and has participated in the design and development of radar technology in projects spanning the globe.

A Teaming Agreement ("the Agreement") embodies the relationship between KDH and Curtis. Under the Agreement, Curtis was to provide certain source and object codes to KDH for the design, testing and manufacture of the T-3 System. These codes are referred to in the Agreement as the "Curtis Deliverables" and include source code for both the sonar head and graphical user interface of the T-3 System. Curtis did in fact develop these codes, along with a prototype of the T-3 System, but KDH claims that the technology developed by Curtis and belonging to KDH has not been provided to KDH for further testing and production of the T-3 System.

On May 12, 2008, the plaintiffs filed the complaint requesting, among other relief, a preliminary injunction ordering the defendants to turn over all engineering and programming information developed by the defendants for the T-3 System. The complaint alleges that Curtis has breached its obligations under the Teaming Agreement by delaying production and testing, by registering for patents on KDH's property, and by revealing confidential information to KDH competitors. Compl., ¶¶ 31-36.

After the filing of the complaint, the parties entered into two consent orders designed to provide the information needed for design, redesign, testing and manufacturing to KDH in order for KDH to ready the T-3 System prototype in time to perform a test required by the Navy, to whom KDH ultimately intended to sell the T-3 System. On June 3, 2008, the parties entered into a consent order ("June Order") which stated that Curtis would produce to the plaintiffs all "Technical Information," the "Curtis Deliverables," the "Archive Materials"...and any and all patent applications filed by the defendant(s) related to the T-3 System." Pl.'s Mem. Ex. 3. These items are defined in the Teaming Agreement. After several conferences involving the Court and the parties, a second consent order was entered on August 10, 2008, ("August Order"), which required Curtis to provide all of the source code which Curtis "believe[d]" to constitute the source code defined in an addendum to the Agreement, along with "all of the remaining source code used to write or amend the operating programmes used in the T-3 System, being the 'Process File.'" August Order, ¶¶ 1, 4.

II. The Evidentiary Hearing

On September 26, 2008, the Court held an evidentiary hearing on the issues of ownership over the T-3 System source code and the inclusion of dynamic link libraries ("DLLs") by Curtis in the code that it had already provided to KDH. The hearing took place following the plaintiffs' filing of a letter with the Court, which stated that Curtis had failed to conform to the terms of the two consent orders and that a continued delay of performance would undermine KDH's ability to market the T-3 System for sale to the U.S. Navy. This letter requested a hearing in order to facilitate a judicial resolution of the issues surrounding ownership of the source code. Pl.'s Letter, Sept. 15, 2008. Both parties have agreed that the Court has all of the information necessary to make a final decision on this issue and that a resolution of the ownership of the T-3 System's source code is necessary to the progress of this case. See, Tr. Hr'g at 10-11, Sept. 26, 2008.

The following are the Court's findings of fact from the evidentiary hearing. At the hearing, the parties testified concerning KDH's ownership rights under the Teaming Agreement and the information that Curtis had previously provided to KDH pursuant to the two consent orders.

"Source code" is coded information, which can be read by human beings and which software engineers use to create sets of instructions ultimately interpreted by a computer in the execution of different applications. Tr. Hr'g 77, Sept. 26, 2008. In the case of the T-3 System, source code is used by each component part of the system in instructing those components to function in specific ways. See Id. at 27.

The parties are not in dispute as to the fact that the data disks provided by Curtis in September, 2008, contained a version of the T-3 System's source code with certain portions placed in DLLs. Id. at 46, 82, 141. DLLs are libraries of code that may be used by several different applications. Id. at 108. DLLs can also function as a black box, permitting the programs to run, but hiding the actual code used by the program. Id. at 109, 142. The portions of source code placed in DLLs on the discs provided by Curtis contained codes that Curtis had developed over the course of several decades and to which Curtis felt KDH was not entitled. Id. at 47, 139-41. These portions of code were common to other sonar systems developed by Curtis in the past. Id. at 140.

Source code is necessary to the development and production of the T-3 System. Id. at 26. Currently, the T-3 System is designed as a prototype. Id. As the prototype is tested, KDH expects that certain portions of source code will need to be rewritten in order to improve the system's functioning or to combat incorrect functioning. Id. When KDH and its agent, Sonatech Engineering, received the T-3 System prototype for testing, the system did not perform as expected. Id. at 80. For example, KDH's President testified that the production-quality version of the T-3 System is likely to involve different hardware, necessitating a more compact design than the current prototype. Id. The use of new components, different from those used in the prototype, will involve changes to the system's source code, which will be redesigned to provide instructions to the system as to the operation of those new components. Id. at 26-27.

Furthermore, the prototype recently tested by KDH only surveils across a 180 degree arc; plans for the production model of the T-3 System involve a 360 degree arc. Id. In order to redesign the system to properly process and display the added 180 degrees, engineers will need access to the source code in order to modify how the sonar head operates. Id. Thus far, engineers attempting to manipulate the prototype's programming have been frustrated by the existence of DLLs in the source code provided by Curtis. Id. at 83. Curtis has offered to assist the KDH engineers with understanding the source code he provided to them via telephone conferencing or in person. Id. at 143.

III. Discussion

A. Ownership of Source Code Under the ...


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