Eleventh Circuit Vacates in Insurance Database Hacking Case

The Eleventh Circuit issued an opinion in Compulife Software Inc. v. Binyomin Rutstein, et al., a copyright infringement. The case is “about high-tech corporate espionage.” Compulife Software, “which has developed and markets a computerized mechanism for calculating, organizing, and comparing life-insurance quotes, alleges that one of its competitors lied and hacked its way into Compulife’s system and stole its proprietary data.”

The complaint below alleged copyright infringement, trade secret misappropriation, false advertising, and claims under Florida law; the magistrate judge ruled for the defendant during a bench trial. The Eleventh Circuit panel of Judges Kevin Newsom, Adalberto Jordan, and Randall Hall vacated the decision below in part, finding that the magistrate judge erred as to copyright infringement and trade secrets.

Compulife and the defendants are competitors in the industry of “generating life-insurance quotes” Compulife sells access to its database of insurance premium information, the Transformative Database. Compulife customers are often insurance agents, buying database access to use to provide information for their respective customers.

The defendants run the National Association of Accredited Insurance Professionals (NAAIP), but the court found that “NAAIP is not a real entity, charity, not-for-profit, or trade organization, and it is not incorporated anywhere.” They offered a similar service to Compulife “and, the evidence shows, [they] at least partially copied from – Compulife’s web quoter, which they call a ‘Life Insurance Quote Engine.’” Any insurance agent can sign up and get a free website on NAAIP. Defendants have thousands of these types of sites, which it hosts on its servers in Israel. Defendants also operate the website, BeyondQuotes, which also includes the Life Insurance Quote Engine like the NAAIP site.

The plaintiffs alleged that defendants hired a hacker to scrape data from the Transformative Database, in addition to having “gained access to the Transformative Database under false pretenses.” They claimed that defendants’ “websites don’t report their own quotes but merely reproduce Compulife’s own proprietary data.”

The magistrate judge at the court below found that although “Compulife had a valid copyright in the text of its HTML source code and that its Transformative Database was a protectable trade secret…[that] Compulife hadn’t met its burden to prove…that the defendants’ copied code was ‘substantially similar’ to its own and, further, that the defendants hadn’t misappropriated any trade secrets.” The plaintiff’s false advertising claims were also rejected stating that plaintiffs did not identify any false or misleading advertising.

The Eleventh Circuit found error with the district court’s judgment on copyright infringement and trade-secret misappropriation but agreed with the magistrate on false advertising and state law claims.

The court states that the magistrate made errors by concluding that the plaintiff failed to prove actionable or legal copying. According to the Eleventh Circuit panel, the judge below “should have required the defendants to prove that those elements were not protectable.” The court also found that the judge erred in determining that the HTML works were not “substantially similar” with a focus on length, which the Eleventh Circuit said was a misunderstanding of the law. Lastly, the court declared that the magistrate’s “analysis was insufficient to permit meaningful appellate review.”

The Eleventh Circuit, turning to the trade secrets claims, said the magistrate erred because they “failed to consider the several alternative varieties of misappropriation contemplated by [Florida’s trade secrets statute.]” and “erred in reasoning that the public availability of quotes on Compulife’s Term4Sale site automatically precluded a finding that scraping those quotes constituted misappropriation.” The court claims that “the defendants’ use would amount to misappropriation” given these other considerations. The Eleventh Circuit added that the magistrate incorrectly concluded that the scraping automatically precluded a finding of misappropriation.