Court: District Court, E.D. North Carolina; October 21, 2014; Federal District Court
Plaintiff, a North Carolina corporation, produces software and filed a lawsuit in the U.K. against defendant, a competing software company based in England and Wales, on September 14, 2009, for copyright infringement and breach of a licensing agreement. The plaintiff initiated a parallel suit in this court on January 19, 2010, asserting similar claims and adding allegations of tortious interference and violations of the North Carolina Unfair and Deceptive Trade Practices Act. The defendant moved to dismiss for lack of personal jurisdiction, failure to state a claim, and forum non conveniens. The court granted the motion to dismiss on March 18, 2011, but the Fourth Circuit reversed this decision on February 16, 2012, remanding the case. Subsequently, the defendant resubmitted its motion to dismiss, excluding the forum non conveniens argument, and later withdrew all grounds except for failure to state a claim. The court later denied the defendant's motion to dismiss based on a recommendation from Magistrate Judge Gates. On May 7, 2013, the plaintiff sought to amend its complaint to include a claim of fraud related to licenses obtained by the defendant, which the court granted. The U.K. litigation progressed, with the court issuing an interim judgment on July 23, 2010, but deferring resolution on certain issues to the Court of Justice of the European Union for interpretation of European Directives concerning software protection.
On May 2, 2012, the Court of Justice of the European Union (CJEU) ruled that copyright does not protect the functionality of computer programs, nor the programming languages or data file formats used for their functions, as per various European Directives. A licensee can discern the underlying ideas and principles of a computer program when engaging in permitted actions such as loading or running the program. However, reproducing elements from a copyrighted user manual in a new computer program's manual may infringe copyright. Following this ruling, the U.K. court issued a final judgment on January 25, 2018, largely favoring the defendants, except for a claim regarding infringement of SAS manuals. The plaintiff's appeal was upheld by the Court of Appeal, and the Supreme Court of the United Kingdom denied the plaintiff's request for appeal on July 9, 2014. The plaintiff had filed for partial summary judgment regarding breach of contract and tortious interference on April 14, 2014, the same day the defendant sought summary judgment on all claims.
The plaintiff is identified as the largest privately-held software company, known for the 'SAS System,' which provides a suite of business software for data management and analysis. The core component is 'Base SAS,' alongside other separately licensed components. The SAS System operates through programs written in the 'SAS Language,' which was developed by Anthony J. Barr starting in 1966. The SAS Language is a high-level language that does not require a license to write programs, and its compiler/interpreter, essential for running SAS Language programs, is a distinct program from the SAS Language itself.
The source code for the SAS compiler/interpreter was initially developed in IBM/360 assembler by Barr, Goodnight, and Sail between 1968 and 1976, with the first commercial version, 'SAS72', released in 1972. Following the success of their program, the group founded the SAS Institute in 1976 to market the software. Over the years, the SAS System evolved, with its source code rewritten primarily in 'C', alongside portions in 'Assembler' and 'Java'. The Institute sells licenses for the SAS System rather than the software itself and registers its software and manuals with the U.S. Copyright Office. A specific version, SAS Learning Edition, was developed for educational purposes, limited to datasets of 1,500 records, and is subject to a restrictive license agreement.
In contrast, the defendant, established in 2002 by Sam Manning and others, aimed to create a competitive product named the 'World Programming System' (WPS). Initially developed in Java, WPS was entirely rewritten in 'C' by 2006 to enhance processing speed and compatibility with mainframe computers. The defendant marketed WPS as enabling users to run SAS programs independently of the SAS Institute, promising data and reports that match the SAS System precisely.
In the document titled 'World Programming System: IBM Technical Evaluation' under the section '3rd Party Dependencies,' the defendant outlined the development stages of the World Programming System (WPS). Initially, the defendant reviewed SAS manuals from the plaintiff's website, which lacked comprehensive details on SAS Language behavior. To supplement this, the defendant utilized SAS Learning Edition, acquiring multiple copies over the years: two in 2003, one in 2005, two in 2007, and seven in 2009. Each copy had an expiration date, and installation required agreement to a license agreement stipulating that the software could only be used non-exclusively on one workstation at a time, for non-production purposes, and prohibited reverse engineering or decompilation.
The defendant used SAS Learning Edition to compare WPS output with SAS to ensure behavioral consistency, addressing any discrepancies by adjusting WPS to emulate SAS's functionality, including its unique behaviors.
Additionally, the defendant made attempts to license the full SAS System. In August 2003, Manning expressed interest in licensing a base version for a client project. However, the plaintiff requested further details, leading Manning to perceive the reply as a rejection. In April 2008, the defendant sought a license again through a reseller, resulting in correspondence from the plaintiff that included a Master License Agreement.
Robinson signed and returned the Master License Agreement to the plaintiff but could not confirm who reviewed it, suggesting that it was standard practice for the defendant to review legal agreements. During a call with Sparkes, Robinson indicated that the defendant sought to license the plaintiff's software for SAS syntax verification. However, on May 23, 2008, Sparkes informed Robinson that the plaintiff would not enter into a licensing agreement for the SAS System and would not countersign the Master License Agreement, directing him to alternative resources for SAS syntax information.
In 2003, the defendant began a collaboration with CA Technologies, which was interested in using WPS as a cost-effective alternative to the SAS System for its MICS software. The development process involved iterative testing and bug reporting between CA and the defendant. In early 2008, CA granted the defendant access to its SAS System to expedite this process. However, CA's Master License Agreement prohibited sharing the SAS System with anyone outside its personnel. In August 2010, the plaintiff's general counsel notified CA that it had violated its license agreement by allowing the defendant access, leading to an agreement between the plaintiff and CA to terminate their relationship with the defendant.
Additionally, the defendant provided services to other customers on CA’s mainframe, including troubleshooting for a customer named SDDK, where a consultant checked outputs on the CA System to compare SAS and WPS results.
The defendant's software is used in the U.S., with a reseller named Minequest and licenses to companies like General Motors. The court discusses the standard for summary judgment, stating it is appropriate when there is no genuine dispute over material facts, allowing only one reasonable conclusion based on the evidence presented.
Summary:
A jury issue arises when evidence allows for multiple reasonable inferences, leading to the denial of summary judgment. Summary judgment is not meant for weighing evidence or determining truth but to establish if a genuine issue exists for trial. Credibility assessments are reserved for juries, and courts must interpret facts favorably for the nonmoving party while ensuring inferences are reasonable and not based on speculation. Disputes that could affect the case's outcome prevent summary judgment, requiring courts to evaluate the materiality and genuineness of fact issues. The moving party must first show no genuine material fact exists; if successful, the nonmoving party must provide specific evidence to demonstrate a genuine issue needing trial.
Regarding principles of comity, the plaintiff has pursued litigation in the U.K., where a final decision has been reached, raising questions about its preclusive effect on the current case. The defendant argues that the U.K. judgment precludes several issues based on comity and collateral estoppel, while the plaintiff contends it affects a more limited scope. The court notes the lack of application of the full faith and credit statute or Constitutional clause to foreign judgments, leading to a reliance on more flexible comity principles. Comity involves recognizing another nation's judicial acts, balancing international duty and convenience with domestic rights. The court will evaluate whether foreign proceedings align with U.S. justice standards, noting that a state can refuse to recognize a foreign judgment if it conflicts with its public policy. Comity serves as an affirmative defense, requiring the party seeking recognition to prove its appropriateness. Although Fourth Circuit precedent on this matter is lacking, other federal courts have allowed foreign judgments to preclude litigation if both comity and collateral estoppel conditions are met.
To apply the doctrine of collateral estoppel, the court must confirm that the issue in the current case is identical to that in a previous case. Distinct issues can arise from differing mixed questions of fact and law, particularly when the legal standards applied differ. In the context of motions for summary judgment regarding a breach of contract claim related to the SAS Learning Edition license agreement, both parties assert entitlement to summary judgment. The plaintiff claims four breaches: unauthorized corporate use, allowing multiple users, using the software for production purposes, and reverse engineering to create a competing product. Under North Carolina law, a breach of contract claim requires proof of a valid contract, identification of specific breaches, the facts behind those breaches, and resultant damages. A similar claim was previously adjudicated in a U.K. court, where it was found that the SAS Learning Edition license permitted use only by the individual who installed it, and that additional usage violated the license terms. However, the U.K. court referenced European Directives, specifically Article 5(3) of Directive 91/250/EEC, which allows a user to observe and test a program without authorization, and concluded that contractual restrictions contrary to this provision are null and void under Article 9(1). Consequently, the U.K. court ruled that none of the defendant's actions constituted a breach of contract.
Defendant asserts that all findings and conclusions from the U.K. court, particularly that no breach of contract occurred, should preclude plaintiff's motion and warrant summary judgment for the defendant. Conversely, plaintiff maintains that only the U.K. court's factual findings and legal conclusions regarding the contractual terms are binding. Both parties agree that the U.K. court's factual findings are entitled to preclusive effect and that this court should defer to the U.K. court's legal conclusions concerning the SAS Learning Edition license agreement.
The court determines that the U.K. court’s factual findings do not contradict its own, thus avoiding further inquiry into their preclusive nature. It concludes that, based on comity and collateral estoppel principles, the U.K. court’s interpretation of the license terms is indeed preclusive. The court finds no indication that the U.K. proceedings deviated from fundamental justice principles and acknowledges the fairness and impartiality of English courts, which are recognized by American courts.
The U.K. court interpreted the license agreement consistently with North Carolina law, asserting that the license was limited to the individual employee who accepted the terms and restricted to non-production purposes, meaning it was solely for educational use. These interpretations were crucial to the U.K. judgment, which is finalized and valid, and the defendant had a full and fair opportunity to litigate these issues.
As a result, the court concludes that the U.K. court's determinations should be given preclusive effect in this case, thereby precluding the defendant from contesting them.
A contract existed between the plaintiff and defendant, which the defendant breached by using SAS Learning Edition to create WPS and allowing unauthorized employees to access the software. Consequently, the defendant developed a competing product detrimental to the plaintiff. However, a U.K. court ruled that the defendant's use of the Learning Edition complied with Article 5(3) of Directive 91/250/EEC, rendering any violations of the license null and void under Article 9(1), thus negating any breach of contract claims. The defendant argues that this ruling should have preclusive effect. The plaintiff counters that the U.K. decision is not preclusive due to differing legal standards between English law and North Carolina law. For collateral estoppel to apply, the issues must be identical, which is not the case here, as demonstrated in relevant case law. The U.K. court relied on European Directives, which are not binding under North Carolina law. The court faces a choice of law issue: if English law governs, the issues are identical; if North Carolina law applies, the issues differ significantly, as a North Carolina court is not required to apply European Directives to negate the SAS Learning Edition license breaches. North Carolina choice of law rules dictate that the court must apply the state's substantive laws unless the contract specifies otherwise.
North Carolina courts may disregard a choice of law clause if: (a) the selected state lacks a substantial relationship to the parties or the transaction without a reasonable justification for the choice, or (b) applying the chosen state's law would contravene a fundamental policy of a state with a significantly greater interest in the matter. In this case, the first exception is inapplicable as North Carolina has a substantial relationship due to the plaintiff being a North Carolina company. The second exception requires that foreign law must violate fundamental principles of good morals or natural justice to be deemed unenforceable. While the U.K. may have a greater interest in the issue, North Carolina law does not violate any fundamental U.K. policy. Therefore, North Carolina law is applicable. The court further determines that the U.K. court's ruling on the validity of the contractual provisions does not carry preclusive effect due to significant differences in applicable law. The defendant's claim of comity is limited to cases with similar facts and law, which does not apply here. Consequently, the court is not bound by the U.K. court's conclusion regarding the voiding of contractual provisions under EU law but accepts its finding that the defendant exceeded the scope of its SAS Learning Edition license. As undisputed facts confirm a breach of contract by the defendant, summary judgment is granted for the plaintiff and denied for the defendant on the breach of contract claim.
Defendant argues for judgment in its favor regarding the plaintiff's copyright infringement claims, citing principles of comity and collateral estoppel. The defendant contends that the copyright claims, including those for the SAS System and SAS manuals, should be dismissed, as the Copyright Act lacks extraterritorial reach, and the alleged infringements occurred in the U.S. The court highlights that collateral estoppel cannot apply due to significant differences between English and American copyright law, particularly since the U.K. court's conclusions were influenced by European Directives, which the defendant has not sufficiently shown to be similar to U.S. law.
Regarding the SAS System copyright claim, both parties agree that the plaintiff holds valid copyrights. The dispute centers on whether the defendant copied copyrightable elements of the software. The defendant claims its actions, even if they involved copying, fall under fair use and copyright misuse. Copyright protection applies only to original works fixed in a tangible medium but does not extend to ideas, methods, or processes, meaning that if only one expression exists for an idea, it is not copyrightable. The plaintiff alleges infringement through the use of specific software language functions and the copying of output formats generated by those functions, which consist of various programming elements.
Plaintiff, through designee Langston, asserts that the software language functions in question infringe on elements of the SAS Language used by programmers. Plaintiff claims that the defendant's use of these terms constitutes copyright infringement. However, it is uncontested that anyone can write programs in SAS Language without requiring a license, which undermines the infringement claim. The defendant's use of SAS Language terms does not constitute infringement, similar to how using the English language does not infringe on the copyrights of English authors. Furthermore, any similarities in output between the parties' software suggest that the defendant's software is accurately processing SAS Language programs, rather than infringing copyright by copying. Plaintiff's attempt to claim copyright over the idea of a program that interprets SAS Language is invalid under copyright law, which does not protect ideas. The court notes that the parties' programs implement SAS Language differently, as they are written in distinct programming languages. Consequently, the court concludes there is no genuine issue of material fact regarding copyright infringement by the defendant. Therefore, the court does not address the defendant's arguments about fair use or copyright misuse. Plaintiff contends that this case mirrors the Oracle decision, which involved copyright infringement via copying source code, and argues that their software is not merely a compiler/interpreter for SAS Language programs.
The federal circuit's decision in Oracle determined that Google Inc. infringed Oracle America, Inc.'s copyrights by copying the declaring code from 37 API packages, which contained prewritten Java programs organized in a specific taxonomy. Each API package included both declaring code, which allows programmers to invoke specific functionalities, and implementing code, which executes those functionalities. Oracle had licensed these packages under various terms, but negotiations with Google for their use in the Android platform failed. Consequently, Google copied the declaring code verbatim while creating its own implementing code for most programs. The court ruled that Google's actions constituted copyright infringement, as the declaring code and the structure and organization of the packages were not part of the open Java language but rather specific to Oracle's copyrighted works.
In a related argument, the plaintiff contended that certain elements of the SAS Language in its software were similar to the declaring code in Oracle. However, the court found this analogy lacking since the declaring code in Oracle was not merely part of the Java language but a unique invocation of prewritten programs. The plaintiff's assertion, supported by an affidavit from software developer Alan Richard Eaton, aimed to redefine certain procedures in the SAS System as "inputs" rather than elements of the SAS Language, challenging the characterization of the SAS System as an interpreter/compiler.
Plaintiff claims that the defendant infringes on its software copyrights by using the same "inputs." The Fourth Circuit's precedent indicates that a party cannot create factual disputes through affidavits that contradict their own depositions. Specifically, the Eaton affidavit contradicts the plaintiff's prior Rule 30(b)(6) testimony, where it described the SAS System as a combination of compilers and interpreters. Therefore, the court concludes that the defendant is entitled to judgment as a matter of law regarding the software copyright claim since its use of the SAS Language does not constitute infringement.
Regarding the copyright infringement of the SAS manuals, the defendant seeks summary judgment, noting compliance with a U.K. court order that required it to remove infringing manuals globally. The defendant argues that any relief from this court would result in double recovery since damages will be assessed in the U.K. litigation. However, the plaintiff contends that there is no indication that U.K. damages will cover U.S. infringements. Consequently, the defendant's motion for summary judgment on this claim is denied.
Both parties seek summary judgment on the plaintiff’s tortious interference claim related to license agreements with its customers. The elements required to establish tortious interference include the existence of a valid contract, the defendant's knowledge of that contract, intentional inducement by the defendant for the third party not to perform, unjustified actions by the defendant, and resultant damages to the plaintiff. Knowledge of the contract is established if the defendant is aware of the facts giving rise to the plaintiff's rights. Justification for interference is assessed based on the circumstances, the defendant's motives, and the balance between the defendant's interests and the contractual interests of the other party.
Actions motivated solely by malice towards a plaintiff are unjustified. However, interference with a contract can be justified if it serves a legitimate business purpose, particularly when the parties are competitors. The basis of the plaintiff's tortious interference claim hinges on the defendant's access to the SAS System on CA's mainframe. The defendant argues that the plaintiff lacks adequate evidence of its knowledge of the contract between the plaintiff and CA, that it induced CA to breach its obligations, and that its interference was justified. The court finds the defendant's actions justified and does not consider the other arguments. Evidence indicates that the defendant sought to develop a program related to CA's existing SAS Language program, which required access to the SAS System. Although this access violated CA's license agreement, even if the defendant was aware of the contract and induced CA to grant access, the court concludes that the defendant's actions were motivated by a legitimate business purpose aimed at competition. The plaintiff contends that not all competitive acts are justified, referencing a case where the defendant's interference was deemed unjustified due to improper motives. The court in that case ruled that interference is unjustified if it is aimed at achieving an improper end.
Defendant's actions in inducing CA to breach its contract with the plaintiff for the purpose of infringing its copyright are unjustifiable. However, the court found that the plaintiff failed to provide adequate evidence of infringement in the software, indicating that the defendant's interference was justified by its goal of creating a non-infringing competing product. Consequently, the court grants summary judgment in favor of the defendant and denies the plaintiff's motion for summary judgment.
Regarding tortious interference with prospective economic advantage, the plaintiff must demonstrate: (1) a valid contract would have existed with a third party but for the defendant's actions; (2) the defendant maliciously induced the third party not to enter into the contract; and (3) the defendant’s actions caused actual damages to the plaintiff. The defendant does not dispute the existence of valid contracts or the damages incurred by the plaintiff but argues that its conduct was not malicious and served a legitimate business purpose. The court, finding that the defendant acted with legitimate business intentions, grants summary judgment for the defendant on this claim.
In relation to the claim of fraudulent inducement, the plaintiff must establish five elements of fraud: (1) false representation or concealment of a material fact; (2) calculated to deceive; (3) made with intent to deceive; (4) that does deceive; and (5) results in damage. The defendant admitted to acquiring copies of SAS Learning Edition in multiple years and confirmed that the installation process required acceptance of terms that restricted the software's use. These terms prohibited reverse engineering and limited usage to learning purposes only. Given these admissions, the plaintiff's claim of fraudulent inducement faces significant challenges.
The court found no genuine issue of material fact regarding the defendant's breach of the SAS Learning Edition license agreements. The U.K. court's interpretations of these agreements indicate that the defendant used the software in prohibited ways. Evidence presented includes the defendant's misuse of SAS Learning Edition despite signing agreements to the contrary, such as comparing it to WPS and utilizing it to explore SAS System macros. Additionally, the court noted that the defendant's actions demonstrated an intent to deceive the plaintiff, as they misrepresented their adherence to the license terms while using the software for commercial gain. Although the defendant argued that the plaintiff was aware of its competitive intentions and thus should not have licensed the software, the court determined that this did not negate the plaintiff's reliance on the defendant's representations about compliance with the license. Consequently, the defendant's motion for summary judgment on the fraudulent inducement claim was denied. Furthermore, the defendant also sought summary judgment on the plaintiff's claims under the Unfair and Deceptive Trade Practices Act (UDTPA), which requires proof of an unfair or deceptive act or practice.
In the discussed legal case, the court addressed the elements necessary to establish a claim under the Unfair and Deceptive Trade Practices Act (UDTPA) in North Carolina, which requires a practice to be in or affecting commerce, and proximately causing injury to plaintiffs. An unfair practice is defined as one that violates established public policy or is immoral, unethical, oppressive, or substantially injurious to consumers, while a deceptive practice is one that has the capacity to mislead. The court affirmed that a showing of fraud by a plaintiff inherently demonstrates that unfair or deceptive acts have occurred.
The court identified genuine issues of material fact regarding the plaintiff's claim for fraudulent inducement, resulting in the denial of the defendant's motion for summary judgment on this claim. The court's order granted in part and denied in part the plaintiff's motion for partial summary judgment, granting it concerning breach of contract but denying it regarding tortious interference with contract. The defendant's motion for summary judgment was also partially granted and denied; it was granted for claims of copyright infringement of the SAS System and tortious interference but denied for claims related to copyright infringement of the SAS manuals, breach of contract, fraudulent inducement, and unfair and deceptive trade practices.
Additionally, the court instructed both parties to confer within 21 days to report on trial logistics and suggested alternative dispute resolution methods. They are also required to submit a jointly redacted copy of the sealed order to the court within 14 days. The excerpt notes the timeline of litigation in the U.K., addressing discrepancies in the commencement date and referencing a codified version of a directive relevant to copyright concerns, while indicating no substantive differences from the original version in effect during the alleged infringement.
Plaintiff's evidence, asserting that its software is not a compiler/interpreter of the SAS Language, is deemed insufficient to create a genuine factual dispute, as detailed in section D.2 of the court's discussion. The court references various exhibits submitted by both parties, including those associated with Dennis O. Cohen and Pressly Millen. Notably, certain versions of the SAS Learning Edition license agreement specify a nonassignable, nontransferable, and nonexclusive license for self-training purposes, with variations in wording across different versions. The defendant has argued for the issue preclusive effect of a U.K. judgment but has not raised the affirmative defense of res judicata, which is typically lost if not timely asserted. The court, therefore, focuses solely on the issue preclusive effect. While the defendant disputes the U.K. court's interpretations regarding the SAS Learning Edition license, the court recognizes that federal courts must apply the forum state's law of collateral estoppel. No evidence on English collateral estoppel principles has been submitted. Under North Carolina's collateral estoppel standards, the court finds that the requirements are satisfied, which include the necessity that the issues must be the same, raised and litigated in the prior action, material to the prior action's outcome, and essential for the judgment.
Defendant claims that plaintiff should be barred from arguing that the SAS Learning Edition license agreement has different meanings under North Carolina and English law, based on statements made in U.K. litigation. However, this claim lacks merit as plaintiff does not assert a different meaning; rather, plaintiff contends that European Directives do not nullify certain terms of the agreement. The issue of reverse engineering was not specifically raised in the U.K. case, but the court has already established that defendant violated the license agreement in various ways, including reverse engineering. The definition of reverse engineering is provided, along with relevant case law references.
Defendant also argues that plaintiff has not presented evidence of infringement in the U.S., which is incorrect. Plaintiff provided evidence from a U.S. reseller indicating that General Motors had a trial license for WPS. Defendant attempts to exclude a specific exhibit from consideration due to untimeliness; however, the court finds that this document does not affect the motion's outcome and denies the motion to exclude without prejudice.
Regarding copyright issues, the court indicates it need not resolve whether programming languages are copyrightable, noting that the SAS Language is open for use. To support its copyright infringement claim, plaintiff submitted an affidavit comparing outputs of the SAS System with WPS. Defendant asserts the affidavit is inadmissible and moves to strike it, but the court deems the matter moot since it does not rely on the affidavit for its conclusions. The court allows for future motions regarding the affidavit if plaintiff chooses to use it later. Additionally, the court acknowledges plaintiff's testimony that the SAS System functions beyond just a compiler and interpreter.
The SAS system is identified as more than just a compiler and interpreter; it also creates user environments like Display Manager and Enterprise Guide. No evidence has been presented to show that the defendant's software infringes upon the plaintiff’s software regarding these additional functionalities. The plaintiff references a 2009 U.K. Court of Appeal ruling which determined that U.S. copyright infringement claims were non-justiciable, noting that this position was later reversed by the U.K. Supreme Court in July 2011, after the relevant judgment in this case. Additionally, the plaintiff claims the defendant misrepresented itself as belonging to the "financial services" industry to gain access to SAS manuals but failed to demonstrate any detrimental reliance on this misrepresentation, which is necessary under North Carolina law for claims of this nature.
