Sun Microsystems_Opp_to_Microsoft_Mot_For_Partial_Summ_Judgment_Re_Sun_Copyright Infringement Claim_2__12_99
 

17. Sun Microsystems, Inc.'s Opposition to Microsoft's Motion For Partial
Summary Judgment Regarding Sun's Copyright Infringement Claim
Legal document filed with the court on February 12th, 1999.
 

 

Day casebeer madrid winters & batchelder llp Lloyd R. Day, Jr. (90875) Vernon M. Winters (130128) James R. Batchelder (136347) David J. Estrada (168105) Robert M. Galvin (171508) Julie S. Turner (191146) 20400 Stevens Creek Boulevard, Suite 750 Cupertino, CA 95014 (408) 255-3255 cooley godward llp Janet L. Cullum (104336) Five Palo Alto Square, 3000 El Camino Real Palo Alto, CA 94306-2155 (650) 843-5000 Attorneys for Plaintiff SUN MICROSYSTEMS, INC.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

Microsoft's motion for partial summary judgment on Sun's copyright infringement claim is essentially a motion to reconsider this Court's November 17, 1998 preliminary injunction order without any new facts or legal authority. In its preliminary injunction order, the Court rejected Microsoft's argument that Sun's claims arise out of breach of contract rather than copyright infringement. Sun Microsystems, Inc. v. Microsoft Corp., 21 F. Supp. 2d 1100, 1125 (N.D. Cal. 1998). Nothing has changed. Microsoft's argument should be rejected again.

Sun did not grant Microsoft a license to distribute incompatible products incorporating Sun's JAVA™ technology. Sun expressly limited Microsoft's license to the commercial distribution of only compatible products. Since Microsoft exceeded the scope of its copyright license, it infringed Sun's copyrights.

In its motion, Microsoft attempts to recast the terms of its license. According to Microsoft, the scope of its license includes the right to distribute products that are copied or derived from Sun's copyrighted source code, but fail to pass Sun's compatibility test suite. Microsoft claims the compatibility requirements of the parties' license agreement are merely independent covenants, not conditions or limitations on its license. Consequently, Microsoft contends that Sun's copyright infringement claim should be dismissed.

&#Microsoft's arguments, however, are contrary to the stated purpose, express language and underlying structure of the license agreement, as well as the JAVA technology itself. Moreover, Microsoft's arguments directly conflict with the testimony of Microsoft's lead negotiator for the license agreement, who acknowledged that Microsoft is licensed to distribute only such products as pass Sun's compatibility test suite. Microsoft's motion should therefore be denied.

Sun and Microsoft entered into the Technology License and Distribution Agreement ("TLDA") dated March 11, 1996. Exh 1. During the negotiations, Sun told Microsoft repeatedly that "the most important provision of this agreement from Sun's perspective is compatibility." Exh. 28 (9/9/98 Hearing at 307-308, 323).

The purpose of the TLDA is reflected in its recitals. The first recital of the TLDA states, "SUN wishes to license its JAVA technology, while maintaining compatibility among JAVA™ language based products," and the second recital states, "SUN wishes to protect and promote a compatibility logo used in connection with its JAVA technology." Exh. 1.

Article 2.0 of the TLDA, entitled "License Grants," defines the scope of Microsoft's license. Id. In section 2.2(a)(iii) of the TLDA, Sun granted Microsoft a limited license under Sun's Intellectual Property Rights, including copyrights, to "[m]ake, use, import, reproduce, license, rent, lease, offer to sell, sell or otherwise distribute to end users as part of a Product or an upgrade to a Product, the Technology and Derivative Works thereof in binary form." Id. Microsoft's license to distribute Products is further limited in section 2.6(a)(vi) of the TLDA, which expressly provides 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." Id. (emphasis added). In other words, the Products that Microsoft is authorized to distribute commercially must pass Sun's compatibility test suite.

Sun also granted Microsoft a license to display Sun's JAVA COMPATIBLE Logo in association with products that pass Sun's test suite. Id. (TLDA, Exh. E). As a distributor of Sun's JAVA technology, Microsoft is required to brand certain products with Sun's JAVA COMPATIBLE Logo. Id. (TLDA, Exh. E § 3). Thus, the requirement to pass Sun's test suite not only maintains compatibility among each of the products distributed by Sun's distributors, but also protects and promotes the JAVA COMPATIBLE Logo.

Sun's complaint alleges that Microsoft's distribution of products that incorporate Sun's copyrighted source code, but fail to pass Sun's test suite, "is outside the scope of Microsoft's license under the [TLDA], is unauthorized, and constitutes copyright infringement." Second Amended Complaint, ¶ 118. In his recent deposition, Robert Muglia, Microsoft's lead negotiator for the TLDA, agreed. According to Mr. Muglia, "In order for the technology to be licensed under this contract, we need to have run the test suites and passed them." Exh. 5 (Muglia Tr. at 117) (emphasis added). Mr. Muglia also testified that "we have to have passed the tests, the appropriate tests, in order to release a product under the license grants of the TLDA." Id. (Muglia Tr. at 116) (emphasis added).

There is no genuine dispute that Microsoft has commercially distributed products which are copied or derived from Sun's source code for its copyrighted JDK computer program. See Sun's 1/22/99 Motion for Summary Judgment of Copyright Infringement at 3-4. It is also beyond dispute that Microsoft has commercially distributed products that fail to pass Sun's JCK 1.1a test suite. Id. at 4-5.

Microsoft concedes, as it must, that a licensee may be liable for use of licensed material "outside the scope of the license." See Motion at 4; see also Sun Microsystems, 21 F. Supp. 2d at 1119 (citing S.O.S. , Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9^th Cir. 1989)). In fact, Microsoft itself has successfully asserted copyright infringement claims against its licensees for exceeding the scope of their licenses. See, e.g., Microsoft Corp. v. Harmony Computers & Elecs., Inc. 846 F. Supp. 208, 214 (E.D.N.Y. 1994) ("[Microsoft's] claim that defendants exceeded the scope of its license agreements states a claim for copyright infringement rather than breach of contract.").

Microsoft attempts to avoid this clear legal authority by arguing that the compatibility provisions which it violated are only separate covenants, not limitations on the scope of its license. Microsoft's resurrected argument, however, has not improved with age.

1. The Compatibility Requirements Of The TLDA Define And Limit The Scope Of Microsoft's Copyright License.

Under the TLDA, Microsoft is licensed to distribute commercial products that implement Sun's JAVA technology in a manner that passes Sun's test suites. It is also required to display Sun's brand -- the JAVA COMPATIBLE Logo -- with certain Products it distributes. The Recitals of the TLDA explain the underlying purpose of the agreement: "SUN wishes to license its JAVA technology, while maintaining compatibility among JAVA language based products; and . . . SUN wishes to protect and promote a compatibility logo used in connection with its JAVA technology . . . ." Exh. 1 (emphasis added).

The scope of Microsoft's license under the TLDA is defined in Article 2.0, entitled "License Grants." Id. Pursuant to section 2.2(a)(iii), Sun granted to Microsoft a nonexclusive license to "make, use, import, reproduce, license . . . sell or otherwise distribute to end users as part of a Product or an upgrade to a Product, the Technology and Derivative Works thereof in binary form." Id. Section 2.6(a)(vi) further limits the scope of Microsoft's license to distribute Products as follows: "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 . . . ." Id. Thus, in the "License Grant" of the TLDA, the scope of Products Microsoft is licensed to distribute commercially is expressly limited to only such Products as pass Sun's compatibility test suite.

Maintaining compatibility among the products distributed by Sun's licensees is of paramount importance. Exh. 28 (9/9/98 Hearing at 201). If a distributor like Microsoft implements the JAVA technology in an incompatible manner, programs written for the standard JAVA programming environment may not run on its products. Alternatively, if programs are written using incompatible development tools, those programs may fail to run properly on the compatible implementations of Sun's other licensees and distributors. Id. (9/9/98 Hearing at 214-16, 243-44).

Maintaining compatibility of Microsoft's products is especially important because Microsoft is the single largest distributor of products that implement the JAVA technology, and because it is licensed to use Sun's trademark JAVA COMPATIBLE Logo. Under the Trademark License contained in the TLDA, Microsoft's products are required to pass Sun's test suite and display Sun's trademark. Exh. 1 (TLDA, Exh. E). Because the TLDA provides that Microsoft may distribute products that incorporate Sun's technology and display Sun's seal of approval -- the JAVA COMPATIBLE Logo -- the scope of the license granted to Microsoft was expressly limited to the distribution of products that passed Sun's compatibility test suite. Id.

Microsoft's lead negotiator for the TLDA acknowledged this limitation, even if Microsoft's lawyers do not. According to Mr. Muglia, "In order for the technology to be licensed under this contract, we need to have run the test suites and passed them." Exh. 5 (Muglia Tr. at 117) (emphasis added); see also id. (Muglia Tr. at 116). Mr. Muglia's testimony is consistent with the plain text of the TLDA.

By distributing products that failed Sun's test suite, Microsoft exceeds the scope of its license and infringes Sun's copyrights.

2. The Compatibility Requirement Of Section 2.6(a)(vi) Of The TLDA Is A Limit On The Scope Of Microsoft's License, Not Only A Separate Covenant.

Microsoft asks this Court to redefine the scope of its license under the TLDA. Microsoft argues that the restriction imposed by section 2.6(a)(vi) is only an independent covenant, and not also a limitation on the scope of its license. Thus, according to Microsoft, it is licensed to distribute incompatible products around the world, and Sun's only recourse is a breach-of-contract claim.

Microsoft's argument rests upon the following flawed premise: "To determine the scope of Microsoft's license, the analysis should begin and end with the language of the license contained in section 2.2(a)(iii) and the defined terms therein." Motion at 6. Interpreting the scope of its license based solely on that provision of the TLDA, Microsoft assures this Court that "Sun has no basis for claiming that Microsoft acted outside the scope of the license grant." Id.

The law does not favor such myopic interpretations of a contract. Instead, "[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." Cal. Civ. Code § 1641. The compatibility limitations on Microsoft's license appear in section 2.6, which is contained in Article 2.0, entitled "License Grants." Exh. 1. The fact that the compatibility restrictions appear in a different subsection than the grant clauses in sections 2.1, 2.2, 2.3, 2.4 and 2.5 of the TLDA is a function of the complexity of Article 2.0, not any intent to authorize Microsoft to distribute incompatible products.

None of the cases cited by Microsoft hold that a court should ignore the entirety of the contract when interpreting the scope of a license. See Motion at 6. Moreover, the fact that a limitation on a license appears in a separate subsection from broader grant language is not dispositive. In fact, a number of courts have found a licensee liable for copyright infringement for exceeding the scope of its license because broad grant language was limited elsewhere in the license agreement. See Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 511 (9^th Cir. 1985); Encyclopedia Brown Prods., Ltd. v. Home Box Office, Inc., No. 91 Civ. 4092, 1998 WL 734355, at *8-10 (S.D.N.Y. Oct. 15, 1998); Marshall v. New Kids on the Block Partnership, 780 F. Supp. 1005, 1007-10 (S.D.N.Y. 1991).

Microsoft also argues that section 2.6(a)(vi) is only an independent covenant and not also a limitation on the scope of its license because it contains the words "shall" and "agree." See Motion at 7. Microsoft's "magic words" defense, however, is undercut by its own practices. In Microsoft Corp. v. Harmony, 846 F. Supp. at 213, Microsoft successfully argued that the defendants' distribution of products on a "stand-alone" basis exceeded the scope of their license and infringed Microsoft's copyrights because the license agreements provided that licensees "shall distribute Product(s) only with [licensee's] Customer System(s)." Id. (emphasis added).

Obviously, words like "shall" or "agree" do not necessarily mean the parties intended a provision to be just a covenant and not also a limitation on the scope of a license. Rather than discern the intent of the parties based on the entire agreement, Microsoft asks this Court to adopt a series of traps for the unwary, where licenses and remedies drastically change depending solely on whether the parties use the words "shall," "agree," "if," or "subject to." Moreover, Microsoft's argument is contrary to one of the chief purposes underlying federal copyright law -- the protection of an author's rights. See S.O.S., Inc., 886 F.2d at 1088 (rejecting rule of construction that contract should be interpreted against drafter because it conflicts with federal copyright policy). Broad interpretations of copyright licenses, like the one proposed by Microsoft, are disfavored. See Cohen v. Paramount Pictures Corp., 845 F.2d 851, 854-55 (9^th Cir. 1988).

3. Federal Law Recognizes A Copyright Owner's Right To Protect Its Reputational Interests By Bringing Copyright Infringement Actions Against Licensees Who Make Unauthorized Modifications.

The leading case articulating when a licensee infringes a copyright by exceeding the scope of its license, Gilliam v. American Broadcasting Co., 538 F.2d 14 (2d Cir. 1976), is directly on point. In Gilliam, members of the Monty Python comedy group sued ABC for broadcasting heavily-edited versions of their television series. Monty Python's license agreement with the BBC, who in turn licensed ABC, contained provisions limiting the right to alter the scripts Monty Python delivered. Id. at 17. ABC, however, did not comply with those provisions, and made "substantial" edits which caused the program "to lose its iconoclastic verve." Id. at 18-19. Based on these actions, the Second Circuit held that Monty Python was entitled to a preliminary injunction against ABC for copyright infringement.

The Gilliam court stressed the copyright owner's interest in controlling his work:

Whether intended to allow greater economic exploitation of the work, as in the media and time cases, or to ensure that the copyright proprietor retains a veto power over revisions desired for the derivative work, the ability of the copyright holder to control his work remains paramount in our copyright law.

Id. at 21 (emphasis added). Consequently, the court found that "unauthorized editing of the underlying work, if proven, would constitute an infringement of the copyright similar to any other use of a work that exceeded the license granted." Id.

Like Gilliam, Sun expressly retained a "veto power over revisions desired for the derivative work" in the form of test suites. Microsoft was licensed to modify Sun's copyrighted material, so long as the products that Microsoft commercially distributed passed Sun's test suite. Indeed, if anything, Sun's interest in controlling its licensee's derivative works is stronger than in Gilliam. Sun is not only protecting its general reputation, its protecting its JAVA COMPATIBLE trademark as well. See also Sega Enters. Ltd. v. MAPHIA, 857 F. Supp. 679, 689 (N.D. Cal. 1994) (distribution of altered, inferior copies damages copyright owner's, business and reputation); National Bank of Commerce v. Shaklee, 503 F. Supp. 533, 542-45 (W.D. Tex. 1980) (holding licensee liable for copyright infringement for adding advertising material to the text of a copyrighted work).

4. The Fifth Circuit's Decision In Fantastic Fakes, Inc. v. Pickwick Int'l, Inc. Conflicts With Ninth Circuit Precedent And Is Distinguishable.

Microsoft relies heavily on the Fifth Circuit's decision in Fantastic Fakes, Inc. v. Pickwick Int'l, Inc., 661 F.2d 479 (5^th Cir. 1981), to support its contention that the restriction of section 2.6(a)(vi) should be treated as only an independent covenant, and not also a limitation on the scope of Microsoft's license.

In Fantastic Fakes, the copyright owner entered into a license agreement with a record distribution company. The license agreement required the record company to include a copyright notice with the name of the copyright owner on every copy. Id. at 481-82. The record company, however, distributed copies with copyright notices bearing its name, not the copyright owner's. The copyright owner sued for copyright infringement, and the Fifth Circuit affirmed the district court's grant of summary judgment in favor of the record company.

The Fifth Circuit based its decision on three conclusions. First, applying Georgia's rules of contract construction, including the rule that ambiguities should be resolved against the drafter -- in Fantastic Fakes, the copyright owner -- the court found that the copyright notice provision in the contract was a covenant, not an express condition. Id. at 483-84. Second, the Fifth Circuit held that it was unwilling to construe a contractual provision requiring a licensee to use a particular form of copyright notice as an implied condition precedent to the license grant, where the licensee's failure to use the specified form of notice did not jeopardize any significant rights of the copyright owner. Id. at 485-86. Finally, the Fifth Circuit held that even if it were to construe the notice requirement as an implied condition to the license, the licensee's use of a different form of notice would not breach the condition because the form of notice actually used was sufficient to protect the ownership interests of the licensor in the copyright. Id. at 487.

Contrary to Microsoft's representation, the Fantastic Fakes court did not "reject [ ] an argument that a covenant can be recast as an affirmative grant defining the ‘scope' of a license agreement." Motion at 8. The Fantastic Fakes court did not address whether the provision at issue limited the scope of the license granted to the licensee. Rather, it only addressed whether the contractual provision in question was a condition precedent to the license or merely a covenant. Fantastic Fakes, 661 F.2d at 483-84. Fantastic Fakes therefore does not even address the issue before this Court.

Moreover, unlike the Gilliam decision, the Ninth Circuit has not embraced the Fifth Circuit's analysis in Fantastic Fakes. The Ninth Circuit has expressly rejected one of the rules of interpretation upon which the Fantastic Fakes court relied, and held that the federal policy in favor of copyright protection preempts state law rules of contract construction. See S.O.S., Inc., 886 F.2d at 1088. Additionally, unlike the decision in Fantastic Fakes, the Ninth Circuit has found a licensee liable for copyright infringement for failure to include a copyright notice. See County of Ventura v. Blackburn, 362 F.2d 515 (9^th Cir. 1966); see also Rano v. Sipa Press, Inc., 987 F.2d 580, 587 (9^th Cir. 1993) (holding Fantastic Fakes is not dispositive).

The factual circumstances in which courts have found certain license provisions to be covenants and not limitations on the scope of license are readily distinguishable from the instant case. To the extent any general principle underlies the case law, it appears to be that courts treat provisions as covenants when they involve minor requirements that do not undermine the essence of the bargain, or can be easily remedied by contractual damages. See, e.g., Fantastic Fakes, 661 F.2d at 483-84 (failure to list correct name in copyright notice did not jeopardize the owner's ability to enforce copyright); Rano, 987 F.2d at 586 (licensee's payment of only 86% of royalties due did not give rise to copyright infringement claim); see also Graham v. James, 144 F.3d 229, 237 (2d Cir. 1998) (treating payment of royalties and notice of authorship as covenants). By contrast, when, as here, the licensee makes unauthorized changes to the copyrighted work itself, courts hold the licensee liable for copyright infringement for exceeding the scope of their license. See S.O.S., Inc., 886 F.2d at 1087-88 (unauthorized copying and modification of software); Gilliam, 538 F.2d at 21 (unauthorized edits to script); National Bank of Commerce, 503 F. Supp. at 542-45 (unauthorized addition of advertising).

Here, by contrast, Microsoft made unauthorized changes to Sun's copyrighted works that cause its commercial products to fail Sun's test suite. As Microsoft's lead negotiator acknowledges, Sun licensed Microsoft to distribute commercially only such products as pass Sun's test suites. See Exh. 5 (Muglia Tr. at 116) ("[W]e have to have passed the tests, the appropriate tests, in order to release a product under the license grants of the TLDA."). Further, as this Court previously found, Microsoft's distribution of products that fail to pass Sun's test suites is "antithetical" to the purpose of the TLDA and the JAVA technology itself. See Sun Microsystems, 21 F. Supp. 2d at 1123; see also Sun Microsystems, Inc. v. Microsoft Corp., 999 F. Supp. 1301, 1309-1310 (N.D. Cal. 1998) ("Microsoft's manipulation of the ambiguities of section 2 of the TLDA. . . cannot be reconciled with the purpose behind the TLDA and the JAVA™ technology itself.").

Because Sun has stated a claim for copyright infringement based on Microsoft actions exceeding the scope of its copyright license, Microsoft's motion for partial summary judgment regarding Sun's copyright infringement claim should be denied.

Dated: February 12, 1999