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Order Denying Microsoft's Motion for Summary Judgment Re: Microsoft's
Right to Engage in Independent Development and Denying Sun's
Counter-motion for Summary Judgment
Court order issued on February 24, 2000.
NO. C 97-20884 RMW (PVT)
ORDER DENYING MICROSOFT'S
MOTION
FOR SUMMARY JUDGMENT RE:
MICROSOFT'S RIGHT TO ENGAGE
IN
INDEPENDENT DEVELOPMENT AND
DENYING SUN'S
COUNTER-MOTION FOR
SUMMARY JUDGMENT
[Re Docket No. 1169]
|
IN THE UNITED STATES DISTRICT COURT
Microsoft's Motion for Summary Judgment Re: Microsoft's Right to Engage in Independent Development and Sun's Counter-Motion were heard on June 24, 1999. Microsoft seeks summary adjudication that Microsoft can distribute without restriction products that implement independently developed works of the Java Technology. Sun in its Counter-Motion requests a summary determination that Microsoft's right to distribute any product or service that incorporates an independently developed work of the Java Technology is limited by the upgrade and compatibility requirements of the TLDA. The court has considered the moving and responding papers1 and the arguments of counsel. For the reasons set forth below, the court denies both motions. I. BACKGROUND Microsoft Corporation ("Microsoft") moves for partial summary judgment confirming its alleged right to engage in independent development under section 8.2 of the Technology License and Distribution Agreement ("TLDA") entered into between it and Sun Microsystems, Inc. ("Sun"). Specifically, Microsoft contends that the TLDA does not and cannot restrict "independent development and distribution of technology that performs the same or similar functions as Sun's licensed technology, but does not use any of Sun's intellectual property." Motion at 1. According to Microsoft, section 8.2 expressly allows development and distribution of independently developed Java Technology without restriction as long as it infringes no intellectual property right of Sun. Sun opposes Microsoft's motion and counter-moves for summary judgment as to the interpretation of section 8.2 and the scope of Microsoft's independent development rights. Sun argues that all of Microsoft's products "incorporating 'independently developed' implementations of the JAVATM Technology" are subject to the compatibility provisions of the TLDA. Opposition at 1. Sun does not contest that Microsoft has the unrestricted right to develop or distribute technology which is different from, but performs the same or similar functions as, Sun's Java Technology.
II. ANALYSIS A. Standards for Interpretation of TLDA Language Interpretation of a contract, including a determination of whether any of its provisions are ambiguous, is a matter of law for the court. United States v. King Feature Entertainment, Inc., 843 F.2d 394, 398 (9th Cir. 1988) (citing Beck Park Apts. v. United States Dept. of Housing, 695 F. 2d 366, 369 (9th Cir. 1982)).2 However, parol evidence must still be considered by the district court, even if the written agreement is clear and unambiguous on its face, to determine whether the language of the contract is "reasonably susceptible" to an interpretation urged by a party. Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2nd 866, 871 (9th Cir.1979) (citing Pacific Gas and Electric Co. v. G.W. Thomas Drayage Co., 69 Cal. 2d 33, 37 (1968)); Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc., 971 F.2d 272, 276-77 (9th Cir. 1992). If, after consideration of such extrinsic evidence, the court finds that the agreement is not reasonably susceptible to an asserted interpretation and is unambiguous, extrinsic evidence may not be used to alter the terms of the contract, and interpretation is a matter of law. Brobeck, 602 F.2d at 871, Brinderson, 971 F.2d at 277. If, however, "the court determines that 1) the wording of the instrument is reasonable susceptible of the interpretation contended for by the proponent of the extrinsic evidence, 2) the extrinsic evidence is relevant to prove the proposed meaning, and 3) the credibility of the proponent's parol evidence is disputed[,]" the parol evidence is admissible with a resulting factual issue as to what the parties intended by the language used. Equitable Life Assur. Soc'y v. Berry, 212 Cal. App 3d 832, 838 (1989). The court in interpreting an agreement is guided by Cal. Civ. Code section 1641 which provides that "[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." The meaning of a particular provision in a contract is determined not only from the words in that provision, "but from a reading of the entire contract." Sunset Securities Co. v. Coward McCann, Inc., 47 Cal. 2d 907, 911 (1957). "Particular clauses of a contract are subordinate to its general intent." Cal. Civ. Code § 1650. B. Sun's Interpretation of the TLDA1. Sun's Analysis of the Contractual Language Sun's contention that Section 8.2 of the TLDA does not allow Microsoft to distribute any product or service that incorporates an independently developed work of the Java Technology without compliance with the upgrade and compatibility requirements of the TLDA is a reasonable construction of the language of the TLDA. Sections 1.6, 1.20, 1.25, 2.6(a)(iv), 2.6(a)(vi) and 2.6(b)(iv) when read with section 8.2 are reasonably construed to require that any Microsoft product or service that incorporates "independently developed" implementations of the Java Technology must meet Sun's compatibility requirements. Section 1.6 defines "Independents Work(s)" as "any work... that is independently developed and performs the same or similar functions as certain technology, but is not a Derivative Work of such technology." Section 1.20 defines "Products(s) as any of Microsoft's products or services or future products or services "which may incorporate, implement, use, emulate an/or embody, in whole or in part, the Technology, Derivative Works of the Technology and/or Independent Works of the Technology. "Technology" (with a capital "T") refers to "the Java Runtime Interpreter, Java Classes, Supplemental Java Classes, Java Compiler, and all Upgrades." TLDA § 1.25. Sections 2.6(a)(iv), 2.6(a)(vi) and 2.6(b)(iv) require that all "Products" meet certain Sun compatibility and upgrade requirements. Nothing in the TLDA expressly says that to be a "Product," Microsoft's product must include Sun's intellectual property.3 Section 8.2 is reasonably construed to allow Microsoft without restriction to independently develop and distribute "technology" that performs the same or similar function as the "Technology." The distinction between technology with a capital "T" from technology with a lower case "t" would appear to preclude independent development and distribution of incompatible Java technology. The phrase "similar to the Technology" suggests Microsoft's independent development rights do not extend to lower case "t" "technology" that is the same as Sun's Java Technology. To read the "notwithstanding" clause in Section 8.2 as overriding the TLDA's definitions of "Independent Works" and "Products" or relieving Microsoft of its compatibility obligations with respect to products implementing Java Technology would appear to violate the principle that "[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. Such an interpretation would also be counter to the TLDA's objective of "maintaining compatibility among JAVA language based products." TLDA Recital 1. "Particular clauses of a contract are subordinate to its general intent." Cal. Civ. Code § 1650. 2. Sun's Extrinsic Evidence Microsoft apparently expressed during negotiations that it wished to freely develop alternative, potentially competitive technologies, such as ActiveX/COM and Visual Basic/Blackbird, which perform similar functions as Sun's Java Technology. Patch 1/15/99 Decl. ¶ 14.4 Microsoft, says Sun, insisted that the TLDA not restrict it from the ability to develop and distribute these alternative technologies. Id. This parol evidence is consistent with Sun's explanation of the purpose of section 8.2 of the TLDA. Lee Patch, Vice President and Associate General Counsel of Sun, was personally involved in the negotiation of the TLDA and declares that during the negotiations, Microsoft specifically agreed that independently developed implementations of the Java technology would have to pass the compatibility obligations of the TLDA.
I.d. at ¶¶ 10-12.5 Sun also offers deposition testimony of Robert Muglia, Microsoft's chief negotiator and Microsoft's Fed R. Civ. P. 30(b)(6) designee on the TLDA, as supporting the distinction made in the TLDA between "works" implementing Java Technology and independent development under section 8.2.
Ex. 5(1/226/99[sic] Muglia Tr. 203-206, 210-211). The parol evidence submitted by Sun further supports the conclusion that the language of Section 8.2 of the TLDA is reasonably susceptible to Sun's interpretation that Microsoft's right to distribute any product or service that incorporates an independently developed work of the Java Technology is limited by the upgrade and compatibility requirements of the TLDA. This interpretation does permit, and Sun agrees, that Microsoft has the unrestricted right to develop and distribute technology that does not incorporate independently developed works of the Java Technology but performs the same or similar functions. 3. Sun's Interpretation Does Not Result in Copyright or Patent Misuse Microsoft argues that Sun's interpretation of section 8.2 would result in Sun's having conditioned Microsoft's access to Sun's licensed technology on Sun's regulation of the development and distribution of non-infringing competitive Java implementations. This, according to Microsoft, would constitute copyright and patent misuse because it would restrain competition. The court disagrees. Sun's interpretation suggests that the parties defined the term "Product" without reference to the use of Sun's intellectual property but instead by reference to specific product attributes. Under Sun's interpretation, if a Microsoft product includes an implementation of a Java Runtime Interpreter, Compiler or Classes as defined in Sun's Java specifications, regardless of whether the implementation was derived from any of Sun's protected intellectual property rights, Microsoft agreed that the implementation would meet the upgrade, compatibility and marking requirements of the TLDA. Such a requirement leaves Microsoft free to compete with Sun and its other distributors in creating and distributing compatible implementations of the Java Technology and also free to develop other technologies that perform the same or similar functions as the Java Technology without having any compatibility obligations. The court does not find that Sun's construction of section 8.2 results in misuse. Misuse is a defense that generally relates to the use of patents or copyrights to coerce an unfair commercial advantage beyond the exclusive rights granted by statute. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1988) (patent misuse); Practice Management Info. Corp. v. American Med. Ass'n, 121 F.3d 516, 520 (9th Cir. 1997) (copyright misuse). Under Sun's interpretation, Microsoft is free to compete with Sun and its other licensees both by developing or distributing competing technologies other than Java and by developing competing compatible implementations of the Java technology. No unfair commercial advantage has been exacted by Sun under the TLDA for the licenses it granted to its Java Technology. C. Microsoft's Interpretation of the TLDA 1. Microsoft's Analysis of the Contractual Language Microsoft contends that Section 8.2 of the TLDA merely restates existing law and confirms Microsoft's or any other entity's right to freely develop and distribute software product that do not infringe any intellectual property right of Sun. Section 8.2 states that "notwithstanding any other provision of this Agreement, [Microsoft] has no obligation to ... distribute the Technology ... and ... nothing in this agreement shall be construed as restricting [Microsoft's] ability to ... develop ... or distribute technology that is similar to the Technology and performs the same or similar functions as the Technology." (emphasis added). Microsoft says this language means that it is free to develop and distribute "independently developed" Java runtime and software products unencumbered by the compatibility obligations of the TLDA, so long as such products do not infringe any Sun copyright, patent, or other intellectual property right. The court finds Microsoft's construction reasonable. If section 8.2 were not included in the TLDA, all "Products" as defined in section 1.20, including those that are "Independent Works" as defined in section 1.6, would seemingly be required to pass Sun's compatibility requirements. See TLDA §§ 2.6(a)(iv), 2.6(a)(vi) and 2.6(b)(iv). However, section 8.2 is reasonably susceptible to the interpretation that it provides Microsoft with the option of independently developing any technology, including Java technology, that does not have to pass the compatibility requirements, provided Microsoft does not use any of Sun's intellectual property rights. The last sentence of section 8.2 makes clear that Microsoft has no license to any of Sun's intellectual property if it chooses to do such development. "Licensee agrees that the terms stated in this Section 8.2 does not constitute a license grant by SUN to Licensee to any SUN Intellectual Property Rights and that Licensee's license rights [sic] are set forth in other Sections of this Agreement." TLDA § 8.2. 2. Microsoft's Extrinsic Evidence Microsoft offers testimony of Robert Muglia which directly contradicts the parol evidence offered by Sun. See Poppe Reply Decl. Ex. H (Muglia 1/26/99 Depo. at 77:7-78:1); Muglia 2/26/99 Suppl. Decl. ¶¶ 4-11; see also Ex. J (Andersen 7/15/98 Depo. at 84:25-85:18). Mr. Muglia explained Microsoft's insistence during negotiations that Microsoft maintain its right to independently develop Java technology. During the negotiations with Sun I told Alan Baratz that Microsoft had already undertaken its own independent implementation of the Java technology, including a Java compiler and a Java virtual machine. Members of the Microsoft negotiating team, including myself, told Mr. Baratz and the other Sun negotiators that it was important that Microsoft retain its right to distribute independent implementations of the technology which did not use Sun's intellectual property, and that the final agreement between the parties not restrict that right ... Sun understood and agreed to these requirements. .... It was always clear that Microsoft was free to create an independent implementation of Java technology that enjoyed neither the benefits nor the burdens of the TLDA. .... Sun's original proposal provided a license under Sun's patent rights, but only if the Licensor's Product included Sun's licensed program code. Microsoft introduced the term "Independent Works" into the TLDA negotiations. Microsoft wanted to be sure that technology which did not use Sun's licensed program code, but which required a patent license from Sun would also be licensed. Accordingly, we specified that technology which required a patent license from Sun, would also be licensed. Accordingly, we specified that technology which required a patent license but made no use of Sun's code, i.e., Independent Works, was covered by the patent license.... Every draft of the TLDA that had "Independent Works" in it also had Section 8.2. That section always made it clear that Microsoft was not giving up any rights or accepting any constraints on its ability to develop or distribute, anytime and anywhere, technology which did not violate a Sun patent or copyright. To avoid any confusion on this point, we used the "notwithstanding" and "nothing in the Agreement shall be construed..." so that it would be clear that these important Microsoft rights were not restricted by the TLDA. .... We were very clear with Sun that Microsoft would not give up its right to create its own competing technology that did not use Sun's intellectual property and was not licensed by Sun. Muglia 2/26/99 Suppl. Decl. ¶¶ 4, 6, 8, and 9. Microsoft also proffers deposition testimony of Alan Baratz, Sun's principal negotiator, which supports Microsoft's interpretation of what section 8.2 allows. Q. "Nothing in this Agreement shall be construed as restricting Licensee's ability to acquire, license, develop, manufacture or distribute technology that is similar to the Technology and performs the same or similar functions as the Technology." What is your understanding of what that meant? A. What that meant is that -- what that meant was that if Microsoft wanted to pursue a cleanroom implementation of this or similar technology, then they could do that, as anybody else could choose to do. So long, of course, as they didn't violate Sun's copyrights or patents. Poppe Reply Decl. Ex. 1 (Baratz 7/29/98 Depo. at 432:14-433:1). Microsoft's extrinsic evidence supports its interpretation of section 8.2 of the TLDA. C. Effect of Conflicting Parol Evidence After considering the conflicting parol evidence offered by each party, the court finds the TLDA, specifically section 8.2, is reasonably susceptible to each party's interpretation. Therefore, the evidence offered by each party is admissible to establish its interpretation of the language of the TLDA. See Pacific Gas and Electric Co. v. G.W. Thomas Drayage Co., 69 Cal. 2d 33, 37 (1968) ("The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible."); Trident Ctr. v. Connecticut Gen. Life Ins., 847 F.2d 564 (9th Cir. 1988). Since the trier of fact must consider this conflicting evidence, summary judgment cannot be granted. See Walter E. Heller, Inc. v. Tecrim Corp., 196 Cal. App. 3d 149, 158 (1987) ("When two equally plausible interpretations of the language of a contract may be made, as in our case, parol evidence is admissible to aid in interpreting the agreement, thereby presenting a question of fact which precludes summary judgment if the evidence is contradictory."). III. ORDER In light of the foregoing, the court denies Microsoft's Motion for Summary Judgment Re: Microsoft's Right to Engage in Independent Development which seeks an order that Microsoft can distribute without restriction products that implement independently developed works of the Java Technology. The court also denies Sun's Counter-Motion that Microsoft's right to distribute any product or service that incorporates an independently developed work of the Java Technology is limited by the upgrade and compatibility requirements of the TLDA.
Copy of Order mailed on _______ February 24, 2000 _______ to:
Lloyd R. Day, Jr. Counsel for Plaintiff
David T. McDonald
Terrence P. McMahon
Allen Ruby
Thomas Burt Counsel for Defendant
FOOTNOTES 1 The court has also 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 parties agree that the TLDA is a fully integrated agreement and that parol evidence cannot be used to establish a collateral understanding of the parties. See § 12.3 of TLDA. Under California law, if a contract was intended to be a complete and final expression of the parties' agreement, parol evidence cannot be used to show a collateral agreement or understanding of the parties. Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc., 971 F.2d 272, 276-77 (9th Cir. 1992). back to text 3 The motivation behind the current motions appears to arise from Microsoft's possible plans to develop and distribute products developed from the use of Sun's Java specifications which Microsoft claims are not protectable by Sun as its intellectual property. Sun, on the other hand, claims that is specifications are copyright protected but, whether they are or not, the TLDA was drafted so as to avoid such disputes. That is why, according to Sun, "Product" was defined without reference to use of Sun's intellectual property but rather with reference to specific product attributes. back to text 4 It is not clear whether ActiveX/COM and Visual Basic/Blackbird, in fact, involve the same or similar functions as Java. back to text 5 Patent rights to Java Technology were licensed to Microsoft by the TLDA. See TLDA §§ 1.7, 2.1 and 2.2. back to text |
Order Denying Microsoft's Motion for Summary Judgment Re: Microsoft's
Right to Engage in Independent Development and Denying Sun's
Counter-motion for Summary Judgment
Court order issued on February 24, 2000.