Order on Cross-motions for Summary Judgment on Copyright Claim Court order issued on May 8, 2000.

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA

The cross-motions of Sun Microsystems, Inc. ("Sun") and Microsoft Corporation ("Microsoft") for summary judgment of Sun's third claim for relief based upon alleged copyright infringement was heard on June 25, 1999. The court has read the moving and responding papers and heard the oral argument of counsel.¹ For the reasons set forth below, the court denies Sun's motion and grants Microsoft's motion.²

I. BACKGROUND

A. Nature of Motion

Sun moves for summary judgment of copyright infringement. Sun seeks an order adjudicating that Microsoft's distribution of software products containing an implementation of the Java virtual machine, which failed to pass Sun's JCK 1.1a test suite, exceeded the scope of the copyright license granted in the Technology Distribution and License Agreement ("TLDA") entered into by parties and, therefore, constitutes copyright infringement.

Microsoft also moves for summary judgment as to Sun's claim for copyright infringement. It contends that the compatibility provisions of section 2.6 of the TLDA are covenants independent of the license grants in sections 2.1 and 2.2 and, as a consequence, Sun cannot maintain a claim for copyright infringement based upon alleged breaches of these covenants.

On August 23, 1999, the Ninth Circuit, in an order vacating a preliminary injunction previously entered in this case based upon copyright infringement, held that Sun's copyright claim raised the preliminary contractual issue of whether the compatibility terms in the TLDA are license restrictions or separate covenants, the breach of which only support claims for breach of contract. See Sun Microsystems, Inc v. Microsoft Corp., 188 F.3d 1115, 1121-1122 (9th Cir. 1999).

B. The Compatibility Provisions of the TLDA

Sun and Microsoft entered into the TLDA in the early morning hours of March 12, 1996 after intense negotiation. Pursuant to the TLDA, Sun granted to Microsoft a non-exclusive development license "under the Intellectual Property Rights of SUN to make, access, use, copy, view, display, modify, adapt, and create Derivative Works of the Technology in Source Code form for the purposes of developing, compiling to binary form and supporting Products." TLDA § 2.1(a).³ Sun also granted Microsoft a non-exclusive distribution license to "make, use, import, reproduce, license, rent, lease, offer to sell, sell or otherwise distribute to end users as part of a Product or an upagrade to a Product, the Technology and Derivative Works thereof in binary form." TLDA § 2.2(a)(iii).

The TLDA places compatibility requirements on Microsoft's commercially distributed implementations of the Java Technology. See TLDA § 2.6(a)(vi) ("Licensee agrees that any new version of a Product that Licensee makes commercially available to the public after the most recent Compatibility Date shall only include the corresponding Compatible Implementation (subject to Licensee's right to exclude the Supplemental Java Classes pursuant to Section 2.7); provided, that any version of a Product which, as of such Compatibility Date, is being beta tested by third parties, shall be exempt from such requirement."). The TLDA also places similar compatibility obligations on any Java compiler that Microsoft develops and distributes. See TLDA § 2.6(b)(iv) ("[A]ny new version of a Product that includes the Java Language compilation function that Licensee makes commercially available to the public after the most recent Compatibility Date shall include a mode which a Tool Customer may use to permit such Product to pass the Java Language Test Suite⁴ that accompanied the Significant Upgrade.").

As to the Java Virtual Machine, section 2.6(a) sets forth a compliance validation scheme resulting in Microsoft's development and eventual delivery of a "Compatible Implementation." According to the TLDA, Sun may develop and deliver Upgrades to the Java Technology. See TLDA §§ 2.6(a)(iii), 3.1. Sun may designate two such Upgrades per year as "Significant Upgrades" and, subject to the backwards compatibility obligations of section 2.6(a)(iii), require Microsoft to deliver a "Java Reference Implementation" that is compatible with the Significant Upgrade. TLDA §§ 2.6(a)(iv), 2.6(a)(v). Compatibility under the TLDA hinges on passing the Test Suite accompanying the Significant Upgrade. See TLDA § 2.6(a)(iv) ("[Microsoft] shall deliver to SUN... an upgrade to the Java Reference Implementation (each, a 'Compatible Implementation') that passes the test suite that accompanied the Significant Upgrade...."). The TLDA marks that date that Microsoft delivers the Compatible Implementation⁵ in response to a Significant Upgrade as the "Compatibility Date." Id. Microsoft agrees that commercial distribution of a Product shall only include the Compatible Implementation of the Technology corresponding to the most recent Compatibility date. TLDA § 2.6(a)(vi).

C. The Remedies Limitations of the TLDA

Section 11.2 of the TLDA states, in relevant part:

b. Licensee agrees that if at any time during the Term an officer, director or General Manager of a product group of Licensee willfully and intentionally breaches a material provision of Section 2.6 of this Agreement and Licensee fails to cure such breach within a period of one (1) year after the date that SUN provides Licensee with notice thereof, SUN shall have the right to terminate this Agreement and terminate the license grants set forth in Section 2, except with respect to any Products, including any upgrades, versions or successors thereto, which are, as of the date of the termination, either (i) commercially available to the public, or (ii) being beta tested by third parties as of the date of termination or (iii) are made commercially available to the public within six (6) months after the date of termination (collectively, "Surviving Products"). Licensee's rights under Section 2 of this Agreement with respect to Surviving Products shall survive any expiration or termination of this Agreement.

* * *

d. Except as expressly stated in this Section 11.2 and in Section 12.6, the parties agree that in the event that either party breaches any material term of this Agreement, the non-breaching party shall deliver notice thereof to the breaching party and the breaching party shall have thirty (30) days from receiving such notice to cure such breach. If the breach continues after such 30-day period, the non-breaching party's sole remedy shall be to seek monetary damages in a court of competent jurisdiction.

II. ANALYSIS

A. The Compatibility Provisions of the TLDA Are Separate Covenants and Not Licenses Restrictions

As observed by the Ninth Circuit, "before Sun can gain the benefits of copyright enforcement, it must definitively establish that the rights it claims were violated are copyright, not contractual, rights." Sun, 188 F.3d at 1122. Microsoft contends that its distribution of Sun's copyrighted code is licensed and that the compatibility obligations set forth in section 2.6 are independent covenants and only become license conditions or restrictions after the TLDA has been terminated. Sun, on the other hand, asserts that Microsoft's alleged breach of the TLDA's compatibility obligations supports claims for both copyright infringement and breach of contract.⁶

"Generally, a 'copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement' and can sue only for breach of contract." Id. at 1121 (quoting Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998) (citing Peer Int'l Corp. v. Pausa Records, Inc., 909 F.2d 1332, 1338-39 (9th Cir. 1990)). Thus, a licensee's breach of a covenant independent of the license grant does not support a claim for copyright infringement. See Effects Associates, Inc. v. Cohen, 908 F.2d 555, 559 (9th Cir. 1990); Graham v. James, 144 F.3d at 236; Fantastic Fakes, Inc. v. Pickwick Int'l, Inc., 661 F.2d 479 (5th Cir. 1981). However, a licensee does infringe the licensor's copyright if it exceeds the scope of the license. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989).⁷

The rules of contract construction embodied in California law control the interpretation of the TLDA to the extent that such rules are consistent with federal copyright law and policy. Sun, 188 F.3d at 1122 (citing S.O.S., 886 F.2d at 1088). Therefore, the court must review the entire TLDA and effect the mutual intention of the parties "as gathered from the four corners of the instrument." Machado v. Southern Pacific Transportation Co., 233 Cal. App. 3d 347, 352 (1991); Brobeck v. Telex, 602 F.2d 866, 871-72 (9th Cir. 1972); see also Cal. Civ. Code § 1641 ("the whole of a contract is to be taken together, as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.").

The language and structure of the TLDA suggest that the compatibility obligations are separate covenants and not conditions of, or restrictions on, the license grants.⁸ The license grants in sections 2.1 ("Source Code and Development License to Technology") and 2.2 ("Distribution License to Technology") allow Microsoft to distribute the Technology and Derivative Works of the Technology as part of a Product but say nothing about the license grants being subject to, conditional on, or limited by compliance with the compatibility obligations set forth in Section 2.6 ("Compatibility"). In contrast, the language used in the Trademark License incorporated into the TLDA expressly limits Microsoft's license to use Sun's Compatibility Logo to those Products that have passed the Java Test Suites. The Trademark License Provides

2. GRANT OF LICENSE

SUN grants to Licensee a non-exclusive, non-transferable, personal, license to use the Compatibility Logo ("License") ... with respect to each of the Products that fully meet the certification requirements of Section 3.

* * *

A. CERTIFICATION

This License applies only to versions of Licensee's Products that have successfully passed the Java Test Suites made available by SUN pursuant to the TLDA, and which otherwise fully comply with all other compatibility and certification requirements of the TLDA.

Trademark License §§ 2 and 3. Similarly, in setting both Microsoft's rights with respect to Surviving Products following expiration of the TLDA or a termination of the TLDA for a willful breach, the parties agreed that Microsoft's rights are "subject to its continued compliance with the Test Suites current at the time of expiration or termination...." TLDA § 11.3. The contrast in language between that used for the license grants in sections 2.1 and 2.2 with that used in the Trademark License and for Surviving Products supports the conclusion that the parties regarded the compatibility provisions of section 2.6 as separate covenants rather than limitations on the scope of the licenses.⁹

Moreover, the remedies scheme set forth in section 11.2 fits logically with the parties' intent to treat the compatibility obligations as separate covenants and not as limitations on the scope of the pre-termination license grants of sections 2.1 and 2.2.¹⁰ Section 11.2(d) gives either party a thirty day (30) period after notice to cure any material breach before the non-breaching party can exercise its sole remedy of seeking monetary damages. Section 11.2(b) gives Sun the right to terminate the TLDA for willful and intentional compatibility breaches by Microsoft. The TLDA makes no mention of any right to seek an injunction for breach of a material provision or any suggestion that the parties intended to allow Sun to claim copyright infringement for a compatibility breach occurring before termination of the TLDA.¹¹ Therefore, it seems clear that the parties contemplated at the time of the signing of the TLDA that if Microsoft failed to meet the compatibility requirements of section 2.6, it would have a right to notice and a thirty (30) day period to cure before any damages claim could be made and a one-year period to cure before the TLDA could be terminated. After termination, Section 11.3 conditions Microsoft's license as to Surviving Products on compliance with the Test Suites current at termination. If Sun could sue for copyright infringement immediately upon Microsoft's failure to fully meet the compatibility requirements, the remedies scheme would be frustrated and Microsoft would not get the full benefit of its bargained for cure periods.¹²

In light of the foregoing, the court concludes that the only reasonable interpretation of the TLDA is that the compatibility provisions of Section 2.6 are independent covenants, rather than limitations of the scope of Microsoft's pre-termination license.¹³ Therefore, Microsoft is entitled to an order for judgment in its favor on Sun's copyright claim.

III. ORDER

Sun's motion for summary judgment on its copyright claim is denied and Microsoft's motion is granted. Therefore, Sun's third claim for relief based upon alleged copyright infringement is dismissed.

Copy of Order mailed on __________________________ to:

Lloyd R. Day, Jr.
Day, Casebeer, Madrid & Batchelder
20400 Stevens Creek Boulevard, Suite 750
Cupertino, CA 95014

Counsel for Plaintiff

David T. McDonald
Karl J. Quackenbush
Preston, Gates & Ellis
701 Fifth Avenue, Suite 5000
Seattle, WA 98104-7078

Terrence P. McMahon
Barbara A. Caulfield
Orrick, Herrington, & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025

Allen Ruby
Ruby & Schofield
60 South Market Street, Suite 1500
San Jose, CA 95113

Thomas Burt
Microsoft Corporation
One Microsoft Way, Bldg. 8
Redmond, WA 98052

Counsel for Defendant

FOOTNOTES

¹ The court has considered supplemental memoranda filed by the parties regarding the impact of the decision in Sun Microsystems, Inc. v. Microsoft Corp., 118 F.3d 1115 (9th Cir. 1999) on this current motion and other pending summary judgment motions.  back to text

² The court recognizes that this order is a turn around from the result reached in its tentative order issued on May 25, 1999. However, the court has given further thought to the dispositive issue of whether the compatibility terms are license restrictions or separate covenants, the breach of which only support claims for breach of contract.  back to text

³ Words and phrases capitalized in the TLDA are capitalized when used in this order.  back to text

⁴ The TLDA defines "Java Language Test Suite" as "SUN's publicly available test suites for validating that products which compile the Java Language comply with the then-current Java Language Specification as of the date of the test suites." TLDA § 1.13.  back to text

⁵ According to section 3.3 of the TLDA, Microsoft must deliver to Sun the source code corresponding to the Compatible Implementation.  back to text

⁶ Sun's original complaint asserted a breach of contract claim and not a copyright claim based upon Microsoft's alleged distribution of Products that implement the Java Technology but do not pass Sun's Test Suites.  back to text

⁷ As stated in Rano v. Sipa Press, Inc., 987 F.2d 580 (9th Cir. 1993), a licensor may claim copyright infringement, if the licensee 1) exceeds the scope of the licensing agreement; 2) breaches a condition precedent to the license, or 3) breaches the agreement in such a manner as to justify rescission. 987 F.2d at 586 (citations omitted).  back to text

⁸ The TLDA also shows that when the parties intended to condition or limit the scope of a license, they expressly did so.  back to text

⁹ Sun contends that Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp 208 (E.D.N.Y. 1994) supports its position that a covenant limiting distribution rights can serve as the basis for a copyright infringement claim. However, Harmony did not involve a license agreement that contained a remedies limitation scheme similar to the TLDA's.  back to text

¹⁰ Sun appears to argue that a covenant in a license agreement that restricts or relates to a licensee's exercise of the statutory rights otherwise exclusively conferred to authors under the Copyright Act necessarily conditions or limits the scope of a license. However, Sun's contention ignores the parties' apparent intent to treat Microsoft's compatibility obligations as separate covenants.  back to text

¹¹ There was apparently no discussion during the negotiation of the TLDA suggesting that Sun would have the option of suing for copyright infringement if a Microsoft Product failed the Test Suites. Muglia Dep. (1/27/99) at ¶ 507:24-508:12.  back to text

¹² Although Microsoft's breach of the compatibility obligations and concurrent use of Sun's Java compatibility logo do give rise to a claim for trademark infringement and, thus, injunctive relief before the cure periods set forth in section 11.2, Microsoft's bargained for periods still achieve meaningful protection. See Order Re Sun's Motion to Reinstate November 17, 1998 Preliminary Injunction Under 17 U.S.C. § 502 dated January 24, 2000 explaining that Section 11 of the TLDA only applies to breach of contract claims and not to tort claims such as ones for trademark or copyright infringement. Injunctive relief against the use of a logo or trademark is much less disruptive than an injunction requiring reconfiguration of computer program code in a Product before further commercial distribution.  back to text

¹³ Sun argues that Microsoft's lead negotiator for the TLDA has admitted that compliance with the compatibility requirements of section 2.6 is a license restriction. See Muglia 1/26/99 Depo. at 117:4-6 ("In order for the technology to be licensed under this contract, we need to have run the test suites and passed them."); see also id. at 116:9-11 ("we have to have passed the tests, the appropriate tests, in order to release a product under the license grants of the TLDA."). Sun's argument that this extrinsic evidence rebuts Microsoft's claim has some appeal. However, the comments were not made in connection with the parties' discussion of remedies limitations or the consequences of a compliance failure. An interpretation of the compatibility requirements as license conditions or restrictions seems inconsistent with the remedies provisions negotiated. Therefore, this extrinsic evidence does not persuade the court that the compatibility restrictions can reasonably be construed as license conditions or restrictions.  back to text