Microsystems_Opp_Microsoft_Mot_For_Part_Summary_Judgment_Re_Sun_Claim_Liquid_Damages_Under_sec_11.2(A)_2_12_1999.

20. Sun Microsystems, Inc.'s Opposition To Microsoft's Motion For Partial
Summary Judgment Re: Sun's Claim For Liquidated Damages Under
section 11.2(A)
Legal document filed with the court on February 12th, 1999.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

1. Introduction

The March 11, 1996 Technology License and Distribution Agreement ("TLDA") grants Microsoft Corporation ("Microsoft") a limited license to the source code of Sun Microsystems Inc.'s ("Sun") JAVA™ technology. The parties agreed in section 11.2(a) of the TLDA that if an officer, director or General Manager of a product group of Microsoft willfully and intentionally made Sun's source code generally available to the public, Microsoft would pay Sun $35 million in liquidated damages.

On at least three separate occasions, Microsoft has posted Sun's source code on Microsoft's publicly accessible website. Microsoft admits this. Microsoft also admits that "the posting was not authorized." Motion at 3. In arguing for summary judgment, Microsoft attempts to escape section 11.2(a) by making four factual assertions: (1) Microsoft did not make Sun's source code generally available to "the public"; (2) section 11.2(a) is not applicable because Microsoft did not post all of Sun's source code on Microsoft's website; (3) Microsoft's disclosures of Sun's source code were not caused by a Microsoft officer, director or General Manager of a product group; and (4) Microsoft's disclosures of Sun's source code were not willful or intentional.

Microsoft's motion must be denied because the factual allegations it makes are either demonstrably incorrect, or the motion raises genuine issues of material fact. The motion also must be denied under Fed. R. Civ. P. 56(f), because Sun has been prevented from completing necessary discovery in support of its Seventh Claim for Relief.

2. Statement of Facts
1. Microsoft Agreed That It Would Pay Sun $35 Million Each Time Microsoft Makes Sun's Source Code Generally Available To The Public.

The TLDA grants Microsoft a limited license to the source code to Sun's JAVA technology. "Source Code" is defined in the TLDA as "the human readable form of computer software, including any corresponding comments and annotations." Day. Decl. Ex. 1 (TLDA § 1.21). The technology licensed to Microsoft consists of: "the Java Runtime Interpreter, Java Classes, Supplemental Java Classes, Java Compiler, and all Upgrades." Id. (TLDA § 1.25). The

TLDA defines "Java Classes" as:

"java.lang (language classes); java.io (stream input/output); java.net (networking classes); java.util (general utilities); java.applet (applet classes); java.awt (abstract window toolkit); java.awt.image (image handling classes); and java.awt.peer (implementation classes for awt)."

Id. (TLDA § 1.3 and Exhibit A(I)(A)).

The functionality of the "Java Classes" is expressed through the invocation of an underlying set of classes known as the "sun.*" classes. Schroer Decl. ¶ 19. The sun.* classes are an inherent part of Sun's implementation of the Java Classes, and without their presence, the Java Classes that rely on them cannot provide the functionality they are intended to provide. Id. Each of Sun's deliveries to Microsoft included the source code to the sun.* classes. Id.

The TLDA contains a liquidated damages clause that requires Microsoft to pay Sun $35 million each time Microsoft makes Sun's source code generally available to the public:

"if, at any time during the Term and for a period of ten (10) years thereafter, an officer, director or General Manager of a product group of [Microsoft] intentionally and willfully makes the Source Code to the Technology generally available to the public, it shall be obligated to pay SUN the amount of Thirty Five Million ($35,000,000) in liquidated damages."

Id. (TLDA § 11.2(a)). The TLDA grants Microsoft a limited license to distribute certain Sun source code to Microsoft's "Tools Customers." Microsoft is permitted to distribute to its tools customers only that source code which Sun authorizes its own tools customers to distribute, and is further limited by the requirement to restrict the uses to which such source code can be put by Microsoft's Tools Customers.

Sun does not distribute or disclose to its tools customers the source code to the sun.* classes, and Sun does not permit its tools customers to redistribute the source code to the sun.* classes. Patch Decl. ¶ 18. Microsoft concedes in its motion that Microsoft is not authorized to distribute or otherwise make generally available to the public the source code to the sun.* classes. Motion at 3.

2. On At Least Three Separate Occasions, Microsoft Made The Source Code To The Sun.* Classes Generally Available To The Public On Its Website.

In October 1997, Sun downloaded from Microsoft's publicly accessible website, www.microsoft.com, Microsoft's SDKJ 2.0 (beta) software toolkit. Schroer Decl. ¶ 7. Sun found that SDKJ 2.0 (beta) contained source code to the sun.* classes, and that the source code could be easily accessed and viewed. Id. The source code made available to the public in SDKJ 2.0 (beta) is identified in Exhibit A to the Schroer Declaration.

On October 7, 1997, Sun's Alan Baratz notified Microsoft Executive Vice President Paul Maritz of this breach of the TLDA:

"Sun has learned that Microsoft has made source code for some of the Sun classes generally available to the public by publishing Microsoft's SDK 2.0 beta on Microsoft's Website where it is subject to downloading. This release of Sun's source code is prohibited by the agreements between Microsoft and Sun and may result in incalculable injury to Sun."

Day Decl., Ex. 8. Mr. Baratz provided Microsoft an opportunity to cure this breach, and asked that Mr. Maritz ensure the future protection of Sun's source code:

"I am writing to you in confidence to afford Microsoft the opportunity to immediately remove Sun's source code from SDK 2.0 and take all other steps necessary to protect the confidentiality of Sun's source code and all portions of it."

Id.

In letters dated October 8 and 16, 1998, Microsoft Vice President David Vaskevitch responded on behalf of Mr. Maritz, and on behalf of Microsoft, that Microsoft did in fact post Sun's source code on Microsoft's website. Day Decl., Exs. 9, 10. Mr. Vaskevitch contended, however, that Microsoft was within its rights to do so under the TLDA. Id. In its summary judgment motion, Microsoft now concedes that "the posting was not authorized." Microsoft Motion at 3.

On October 14, 1997, Sun amended its Complaint to state a claim for relief based on section 11.2(a), thus placing all of Microsoft's officers on notice of Microsoft's first violation of the TLDA. 10/14/97 First Amended Complaint ¶¶ 120-123.

In February and March 1998, months after Sun provided Microsoft with notice and the opportunity to cure its first violation, Sun discovered that Microsoft did it again -- twice. In February, 1998, Sun downloaded from Microsoft's publicly accessible website Microsoft's SDKJ 2.01 software toolkit. Schroer Decl. ¶ 14. Sun found that SDKJ 2.01 contained source code to the sun.* classes that could be easily accessed and viewed. Id., Exs. A, C, D. In March, 1998, Sun downloaded from Microsoft's publicly-accessible website Microsoft's SDKJ 3.0 (pre-release 1) software toolkit. Schroer Decl. ¶ 15. Sun found that SDKJ 3.0 (pre-release 1) contained source code to the sun.* classes that could be easily accessed and viewed. Id., Exs. A, C, D. The source code made available to the public in these toolkits is identified in Exhibit A to the Schroer Declaration.

Microsoft admitted in response to a Sun request for admission that Microsoft's postings made Sun's source code to the sun.* classes available to "the public." Day Decl., Ex. 7. Sun's request asked Microsoft to admit that, "during the term of the TLDA it posted source code for some of the sun.* classes on a Microsoft website accessible to the public." Id. Subject to an objection that the phrase "some of the sun.* classes" is vague and ambiguous, Microsoft responded affirmatively: "Microsoft admits this request for admission." Id. Microsoft also admitted in deposition testimony that posting its toolkits on its website makes them generally available to the public. Day Decl., Ex. 11.

3. Sun Has Been Unable To Conduct Necessary Discovery In Support Of Its Seventh Claim For Relief.

Sun's Seventh Claim for Relief seeks liquidated damages Pursuant to TLDA section 11.2(a). Beginning on September 3, 1998, Sun repeatedly attempted to schedule a deposition of Microsoft concerning facts relevant to Sun's Seventh Claim. Day Decl., Ex. 16. On September 29, 1998, Sun provided Microsoft with a draft Rule 30(b)(6) deposition notice, asking Microsoft to make all necessary witnesses available for deposition on October 1, 1998. Day Decl., Ex. 17. The notice identified the following ten topics, all of which go to the heart of Microsoft's current motion:

1. Any and all persons responsible for posting to and removing from Microsoft's Website any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY.
   
2. The posting, and the reason for posting, any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY to Microsoft's Website.
   
3. The posting of any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY to any location from which it can be accessed, downloaded, viewed or copied via electronic or other means by individuals not employed by Microsoft.
   
4. Microsoft's policies, practices and procedures for granting access to SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY to employees of Microsoft.
   
5. Microsoft's policies, practices and procedures for granting access to SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY to individuals who are not employees of Microsoft.
   
6. All agreements Microsoft has entered into with any third parties which grant those third parties access to any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY.
   
7. Microsoft's policies, practices and procedures for ensuring that SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY be maintained securely within Microsoft so as to avoid public disclosure, including the identification of all individuals tasked with creating or enforcing these policies, practices and procedures.
   
8. Whether, through what means, and the reason(s) why any Microsoft officer, director or General Manager of a product group has made available to the public any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY.
   
9. Whether, through what means, and the reason(s) why any Microsoft agent or employee has made available to the public any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY.
   
10. Microsoft's efforts, and the results of those efforts, to track and/or record the extent to which Microsoft has made available to the public any portion of SUN'S SOURCE CODE TO THE JAVA TECHNOLOGY.

Id. Microsoft refused to appear for this deposition until after Microsoft could depose Sun regarding the basis of Sun's Seventh Claim. Day Decl., Exs. 18-21. Sun eventually yielded to Microsoft's demanded chronological ordering of the depositions, and Sun attempted to schedule them. Day Decl., Exs 22-25. Due to Microsoft's delays, however, these depositions still have not occurred. Day Decl., Exs. 26. In a letter dated January 29, 1999, Microsoft acknowledged its failure to respond to Sun's requests to schedule this deposition, and Microsoft acknowledged the importance of the deposition to the matter at hand: "In any event, the situation is essentially the same. We need to get the deposition done." Id.

1. Argument
   
1. Microsoft's Motion Should Be Denied Under Rule 56(f), Because Sun Has Been Unable To Conduct Necessary Discovery.

As Sun has been unable to conduct discovery that goes to the heart of Microsoft's motion, the motion should be denied. Day Decl., ¶ 18.

Under Fed. R. Civ. P. 56(f), the Court may deny or continue a motion for summary judgment when the party opposing the motion "cannot for reasons stated present by affidavit facts essential to justify the party's opposition." Fed. R. Civ. P. 56(f). A motion for summary judgment should be denied or continued pursuant to Rule 56(f) when the party opposing the motion has been unable to conduct relevant discovery. Garret v. City and County of San Francisco, 818 F.2d 1515, 1518-19 (9^th Cir. 1987) (reversing the district court's issuance of summary judgment where a motion to compel discovery on a relevant issue was pending). The Supreme Court held in Celotex Corp. v. Catrett, 477 U.S. 317, 332 (1986) that summary judgment is appropriate only after adequate time for discovery:

"In our view, the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element is essential to that party's case, and on which that party will bear the burden of proof at trial."

(emphasis added).

Since September 3, 1998, Sun has repeatedly attempted to schedule a deposition of Microsoft concerning the posting of Sun's source code on Microsoft's website. Day Decl., Ex. 16, 17. Microsoft refused to appear for Sun's deposition until after Microsoft could depose Sun regarding the basis of Sun's Seventh Claim. Day Decl., Exs. 18-21. Due to Microsoft's delays, however, neither of these depositions has yet occurred. Day Decl., Ex. 26.

The deposition Sun has attempted to schedule will provide material evidence in support of Sun's Seventh Claim. The deposition is particularly critical now that Microsoft has finally attempted to explain and justify its TLDA violations through two new declarations. See Ellison-Taylor Decl. and de Jong-Chen Decl. These declarations contain many factual allegations that are brand-new to Sun, because Microsoft to date has thwarted Sun's attempted discovery of these issues. Microsoft never informed Sun that Mr. Ellison-Taylor and Ms. de Jong-Chen are allegedly responsible for Microsoft's violations of the TLDA. Sun therefore has had no opportunity to depose them about these issues, to collect relevant documents from them, or to conduct other relevant discovery that is certain to grow out of an initial set of depositions.

Pursuant to Rule 56(f), Microsoft's motion should be denied.

2. There Can Be No Genuine Dispute That Microsoft Made Sun's Source Code Generally Available To "The Public."

Microsoft's summary judgment motion is based in part on Microsoft's assertion that, although it posted Sun's source code on Microsoft's website, Microsoft did not make Sun's source code available to "the public." This contrived argument is plainly erroneous.

Microsoft already admitted in response to Sun's Request for Admission No. 88 that Microsoft did make Sun's source code available to "the public." Day Decl., Ex. 7. Microsoft's admission "conclusively establishe[s]" the facts admitted, and the Court shall exclude any evidence contrary to that admission. Fed. R. Civ. P. 36(b); 999 Corp. v. C.I.T. Corp., 776 F.2d 866, 869 (9^th Cir. 1985). Accordingly, the Court should refuse to consider Microsoft's current argument and supporting evidence (although there is no supporting evidence) that it did not disclose Sun's source code to "the public."

Even if it could be considered, Microsoft's argument is sophistry. Microsoft contends that it did not make Sun's source code generally available to "the public," because the source code was posted with intellectual property notices informing the public that "the source code was not available for unrestricted use." Motion at 11. Such a notice obviously does not prevent any member of the general public from accessing the source code.

Microsoft also contends that "the potential release of this information was confined to Microsoft's tools customers, a particular subset of Microsoft's customer base." Motion at 11-12. As the Court can readily determine by visiting Microsoft's website at http://www.microsoft.com/java/download/dl_sdk31.htm, Microsoft's claim is false. Attached as Exhibit 30 to the Day declaration is a page entitled "Download the Microsoft SDK for Java, Version 3.1," which provides instructions for downloading this Microsoft toolkit. Nothing prevents any member of the general public -- anywhere in the world -- from downloading this toolkit. Likewise, Sun was able to download without impediment Microsoft's SDKJ 2.0 (beta), SDKJ 2.01 and SDKJ 3.0 (pre-release 1). Schroer Decl., ¶¶ 13-15, Exs. C, D.

Microsoft's motion should be denied, as it is indisputable that Microsoft made Sun's source code generally available to "the public."

3. There Can Be No Genuine Dispute That Microsoft Posted "The Source Code To The Technology."

Microsoft urges the Court to rule as a matter of law that "the Source Code to the Technology," as that phrase is used in section 11.2(a), can only mean all -- 100% -- of the source code delivered by Sun to Microsoft under the TLDA. Since Microsoft asserts that it has not posted 100% of the source code to the licensed technology on Microsoft's website, Microsoft claims that Sun's Seventh Claim cannot stand. Motion at 10. Microsoft's interpretation of the TLDA is based on nothing but an ipse dixit assertion that makes no sense and should be rejected.

Microsoft asks the Court to interpret the TLDA in a way that would lead to an absurdity. If Microsoft's interpretation of section 11.2(a) had merit, Microsoft would be permitted to make generally available to the public 99.99% of the source code to the licensed technology without threat of penalty. Yet the harm to Sun would be the same as if Microsoft had distributed all of Sun's source code. Microsoft asks the Court to conclude that this is the result Sun intended when it entered into the TLDA. That is absurd. The reason section 11.2(a) provides for liquidated damages is precisely to avoid such contrived hair-splitting. Because Microsoft's proffered construction of section 11.2(a) would lead to an absurdity, it should be rejected. Ticor Title Inc. Co. v. Rancho Santa Fe Ass'n, 177 Cal. App. 3d 726, 730 (1986).

4. Genuine Issues Exist Whether An Officer, Director Or General Manager Of A Product Group Acted Willfully And Intentionally.

Section 11.2(a) provides that Sun shall be entitled to liquidated damages if Sun's source code is "willfully and intentionally" made generally available to the public by an "officer, director or General Manager of a product group." Day Decl., Ex. 1, TLDA § 11.2(a). Microsoft contends that the undisputed facts establish that neither of these two conditions is met. Microsoft is wrong. Because a reasonable fact-finder could find in Sun's favor, summary judgment must be denied. Celotex Corp., 477 U.S. 317.

Microsoft contends that a finding of "willfulness," as that term is used in TLDA section 11.2(a), requires a finding of a "culpable state of mind." But Microsoft erroneously cites to cases arising in willful tort (Calvillo-Silva v. Home Grocery, 19 Cal. 4th 714 (1998)), bankruptcy (In re Riso, 978 F.2d 1151, 1154 (9^th Cir. 1992)), and willful copyright infringement (Dolman v. Agee, 157 F.3d 708, 714 (9^th Cir. 1998)). Here, the question of whether Microsoft acted "willfully" within meaning of section 11.2(a) is governed by California contract law.

Under California contract law, "willfulness" means that the party acted knowingly and freely; it "does not necessarily imply anything blameable, or any malice or wrong toward the other party, or perverseness or moral delinquency, but merely that the thing done or omitted to be done was done or omitted intentionally." Wilson v. Security-First Nat'l Bank, 84 Cal. App. 2d 427, 431 (1948). Nevertheless, even in the tort law context, a "culpable state of mind" means simply that the actor "believes the consequences [of his actions] are substantially certain to result." Vision Air Flight Serv., Inc. v. M/V Nat'l Pride, 155 F.3d 1165, 1176 (9^th Cir. 1998) citing Restatement (Second) of Torts § 8A (1965).

Regardless of which standard of "willfulness" applies, Microsoft's motion must be denied. A reasonable fact-finder can infer that, at a minimum, Microsoft's second and third violations of the TLDA were willful and intentional because they occurred after Microsoft was on notice of the first violation. See Vision Air, 155 F.3d at 1176.

In Vision Air, the owner of two airport refueling trucks sued a carrier for damage caused to its trucks during delivery. Defendant asserted that its liability was limited by contract. Plaintiffs asserted that the limitation of liability provision did not apply, since the damage was caused intentionally. The district court granted summary judgment in favor of defendant. Id. at 1176. The Ninth Circuit reversed in part, holding that a triable issue of fact existed as to whether the second truck was damaged intentionally, because it was off-loaded using the same methods that caused damage to the first truck:

"The severe damage to the first refueler that resulted from off-loading was visible upon removal of the cable strapping as the refueler sat on the pier. Nevertheless, the stevedores proceeded to off-load the second refueler in precisely the same manner as the first. Because the uncontroverted evidence suggests that the stevedores were aware of the damage their chosen method of off-loading inflicted on the first refueler, a rational trier of fact might very well conclude that they knew the second refueler would suffer the same fate with substantial certainty."

Id. Because the workers were on notice that their actions caused the first truck to be damaged during off-loading, the court held that "a reasonable trier of fact [could] conclude that the second refueler was destroyed intentionally." Id. at 1176.

Similarly, Microsoft was on notice of its first violation of the TLDA and Microsoft nevertheless repeated the violation twice thereafter. On October 7, 1997, Sun's Alan Baratz provided written notice to Microsoft Executive Vice President Paul Maritz that Microsoft violated the TLDA by posting Sun's source code on Microsoft's website. Day Decl., Ex. 8. This notice was shared with Microsoft Vice President David Vaskevitch. Day. Decl. Exs. 9, 10. On October 14, 1997, Sun amended its complaint to add a claim for liquidated damages pursuant to section 11.2(a). Sun's complaint put all of Microsoft's officers on notice of Microsoft's first violation.

Months after Sun placed Mr. Maritz, Mr. Vaskevitch and the rest of Microsoft on notice of Microsoft's TLDA violations, Microsoft did it again -- twice. In February and March, 1998, on Microsoft's publicly accessible website, Microsoft made Sun's source code available for download in Microsoft's SDKJ 2.01 and SDKJ 3.0 (pre-release 1) toolkits. Schroer Decl., ¶¶ 14-15, Exs. A, C and D.

Any reasonable fact-finder can conclude that, after receiving notice from Mr. Baratz on October 7, 1997, Messrs. Maritz and Vaskevitch investigated the cause of the first TLDA violation. Any reasonable fact-finder can conclude that these Microsoft officers and others took no action to ensure that future violations would not occur, since there were in fact two additional violations months after the first. Indeed, glaringly absent from the declarations of Mr. Ellison-Taylor and Ms. de Jong-Chen are any attestations that they were made aware of Mr. Baratz's October 7, 1997 letter, or that they were asked by any Microsoft officer to do anything about it.

These facts support a finding that, after Mr. Maritz, Mr. Vaskevitch and all remaining Microsoft officers learned of Microsoft's first public disclosure of Sun's source code, they willfully and intentionally caused a second and third disclosure. As triable issues of fact exist, Microsoft's motion must be denied. Celotex Corp., 477 U.S. 317.

2. Conclusion

Pursuant to Federal Rule of Civil Procedure 56(f), and because triable issues of fact exist, Microsoft's motion for summary judgment should be denied.

Dated: February 12, 1999