DAY CASEBEER
MADRID & BATCHELDER LLP
Lloyd R. Day, Jr. (90875)
James R. Batchelder (136347)
David J. Estrada (168105)
Robert M. Galvin (171508)
Karen A. Gibbs (178690)
Julie S. Turner (191146)
20400 Stevens Creek Boulevard, Suite 750
Cupertino, CA 95014
Telephone: (408) 255-3255

Attorneys for Plaintiff
SUN MICROSYSTEMS, INC.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

Under the seemingly innocent guise of a request for simultaneous consideration of pending motions, Microsoft advances several erroneous legal and factual assertions in a transparent effort to delay and possibly avoid reinstatement of the Court's preliminary injunctions. In so doing, Microsoft not only distorts the Ninth Circuit's August 23, 1999 Opinion,¹ but also urges this Court to deviate from well-established precedent that is controlling in this case. Because there is no inconsistency or interdependency between the pending motions for copyright infringement and breach of contract, Sun respectfully submits that the pending motions should be decided in whatever order the Court finds most convenient and expeditious.

Microsoft labors to convince this Court that there are legal "inconsistencies" between Sun's motions for copyright infringement on the one hand, and Sun's motion for summary judgment for breach of contract on the other hand. On the basis of these alleged "inconsistencies," Microsoft urges the Court to decide Sun's motion for breach of contract before or at the same time that it decides Sun's motions for reinstatement of the preliminary injunction and summary judgment of copyright infringement. As demonstrated below, Microsoft's professed "inconsistencies" are based on a false premise, namely, that the same conduct cannot both (1) breach a contract and (2) infringe copyrights by exceeding the scope of a copyright license contained in that contract. This false premise advanced by Microsoft is refuted not only by common sense, but also by a series of cases that address this very point - cases that Microsoft chose to ignore in its brief. See e.g., Kepner-Tregoe, Inc. v. Vroom, No. 98-7258, 1999 WL 594894 (2d Cir. Aug. 9, 1999); S&H Computer Sys., Inc. v. SAS Institute, 568 F. Supp. 416, 421 (M.D. Tenn. 1983).

Microsoft also advances the false premise that, even if the same conduct could both breach a contract and infringe copyrights by exceeding the scope of a copyright license contained in that contract, a plaintiff suing under one of these theories waives its right to sue under the other. Microsoft relies on cases in which the allegedly infringing conduct is expressly authorized under a license agreement, and the sole issue is whether the license granted in the agreement is still in effect. In such circumstances, the licensor must choose whether to ratify the agreement and sue for breach of contract, or dispute the existence of the license and sue for copyright infringement. That is not this case. Neither Sun nor Microsoft disputes the existence of a license under the agreement. Rather, the issue here is the scope of that license; that is, whether Microsoft is authorized to distribute commercial Products that incorporate Sun's Upgraded Technology, but fail to pass the Sun test suite that accompanied the Upgrade. As the Ninth Circuit held in S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087-88 (9th Cir. 1989), "[t]he critical question is not the existence but the scope of the license." If the agreement does not authorize Microsoft to distribute commercial Products that incorporate Sun's Upgraded Technology, but fail to pass the test suite that accompanied the Upgrade, then Microsoft's distribution of such products exceeds the scope of its license and infringes Sun's copyrights. In such circumstances, where the disputed issue is the scope of license, and not its existence, the licensor may ratify the agreement and sue for copyright infringement. That is why, in such circumstances, a claim for breach of contract is not inconsistent with a parallel claim for copyright infringement. Kepner-Tregoe, supra, 1999 WL 594894; S & H Computers, supra, 568 F. Supp. at 421.

Nor is Sun required to elect to pursue one claim in favor of another. A party is free to plead alternative and even inconsistent facts and remedies. See Fed.R.Civ.P. 8(e)(2); Wright & Miller, Federal Practice & Procedure § 1283. All that the law prohibits is a double recovery for the same underlying wrong. See Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1370-72 (7th Cir. 1990)(plaintiffs are entitled to present alternative theories of liability to the jury, so long as appropriate instructions are given to prevent double recovery for any element of damage). Thus, Sun may pursue both its claim for copyright infringement and its claim for breach of contract, as well as all of the remedies they separately afford, so long as it does not obtain a double recovery for the same wrong. Kepner-Tregoe, supra, 1999 WL 594894.

Microsoft's suggestion that Sun's motions for reinstatement and summary judgment rest on "outdated" federal policies of copyright law, and that these policies are somehow inconsistent with and subordinate to California canons of contract construction, is similarly unfounded. The only federal copyright policy cited by Sun - that a copyright license is presumed to prohibit any use not authorized - is not only the law of this Circuit,² but was expressly agreed to by the parties in their agreement.³ There are no "inconsistencies" between the federal and State law relied on by Sun.⁴

Microsoft also misstates the law regarding the presumptions applicable to the pending motions. Microsoft argues that the Ninth Circuit's Opinion establishes that "[u]ntil and unless Sun establishes that the compatibility terms are limitations on the scope rather than contractual covenants, the case is presumed to be a contract case." Microsoft's Memorandum ("Memo") at 4 (emphasis added). The Opinion, however, makes no mention of this novel presumption, and instead simply confirms the well-established proposition that the district court must first interpret the parties' agreement to determine the scope of Microsoft's license, and that Sun must then demonstrate that Microsoft's distribution fell outside that scope, before Sun is entitled to a presumption of irreparable harm.

Finally, Microsoft wrongly argues that Sun's copyright infringement motions are dependent on Sun's entitlement to judgment regarding its compliance with TLDA section 2.6(a)(iii). To the contrary, even if Sun were to have failed to comply with TLDA section 2.6(a)(iii), Microsoft's remedy in such circumstances would have been to reject the proffered delivery and sue for breach. It would not be entitled to accept the delivery, incorporate it into its Products, exceed the scope of its license and infringe Sun's copyrights, then argue in justification of its acts that the delivery it accepted was non-conforming. An alleged breach of contract by Sun, even if proven, does not authorize Microsoft to infringe Sun's copyrights.

Although Microsoft's brief is less than clear on this point, Microsoft appears to advance two false legal principles regarding the relationship between Sun's claims of copyright infringement and contract breach. First, Microsoft appears to argue that the same conduct can never both breach a contract and infringe copyrights by exceeding the scope of a copyright license contained in the contract. Memo. at 2 ("The Opinion suggests that the compatibility terms at issue are either contractual covenants or limitations on the scope of Microsoft's copyright license, but not both").⁵ Second, Microsoft argues that, even if the same conduct could both breach a contract and infringe copyrights by exceeding the scope of a copyright license contained in the contract, a plaintiff suing under one of these theories waives its right to sue under the other. Memo at 5 ("An action for breach of contract is inconsistent with a copyright infringement action"). The falsity of each of these propositions is discussed below.

     Surely, even Microsoft would concede that two contracting parties may agree that the failure to comply with an express restriction will both breach their agreement and exceed the scope of a license contained in the agreement. If contracting parties may agree to that effect, the question presented here is whether the TLDA is such an agreement.⁶

     The fact that TLDA section 2.6 imposes affirmative obligations on Microsoft, such as the obligations to build, test and deliver to Sun a Compatible Implementation of each Significant Upgrade, or the obligation to include a Compatible Implementation in any new version of a Product that Microsoft commercially distributes after a Compatibility Date, does not alter the fact that section 2.6 also restricts Microsoft's authority to distribute commercial Products to those Products that include only a Compatible Implementation. Courts have repeatedly held that covenants creating an affirmative obligation, the violation of which may give rise to a claim for breach, can also limit or restrict the scope of a license. See e.g., MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 517 (9th Cir. 1993) (covenants prohibiting customer from providing third parties access to licensed software held to restrict scope of license); S & H Computers, supra, 568 F. Supp. at 421 and SAS Institute v. S & H Computer Sys., Inc., 605 F. Supp. 816, 827-8 (M.D. Tenn. 1985) (use of licensed source code to develop competing work both breached contractual covenants restricting use and infringed copyright in licensed code); Microsoft Corp. v. Harmony Computers, 846 F. Supp. 208, 213-14 (E.D.N.Y. 1994) (claim for copyright infringement against unbundled distribution of software is supported by licensee's breach of covenant to distribute licensed software with certain systems only).

     Most recently, in Kepner-Tregoe, Inc. v. Vroom, supra, 1999 WL 594894, the Second Circuit affirmed a district court judgment for breach of contract and copyright infringement arising out of the unauthorized use and distribution of copyrighted materials beyond the scope of the license. In Kepner-Tregoe the author, Vroom, granted Kepner-Tregoe exclusive rights to his copyrighted works in exchange for a royalty and a limited right to use the materials for his teaching and private consulting. When Vroom used the materials more broadly, Kepner-Tregoe sued for breach of contract and copyright infringement. Interpreting the teaching clause as limiting Vroom's use to undergraduate and graduate teaching, the district court granted an injunction for copyright infringement against any future use outside the limited scope, awarded damages for copyright infringement, and also awarded Kepner-Tregoe damages for Vroom's past breach of the contractual limitation. On appeal, the defendant specifically challenged the award of damages for copyright infringement and breach of contract as an impermissible double recovery. The Second Circuit affirmed, holding that the two awards were not inconsistent with one another. Id.

     Rather than grapple with this well established precedent, Microsoft chose instead to argue that the Ninth Circuit Opinion "suggests that Sun's breach of contract and copyright claims are mutually inconsistent," and "does not suggest that the compatibility terms could be limitations on the scope of the license 'in addition to,' as opposed to 'rather than,' covenants." Memo. at 4 (emphasis added). Microsoft's attempt to divine the Ninth Circuit's "suggestions" is misguided because Sun's breach of contract claim was not before the Ninth Circuit. But even if the Ninth Circuit's "suggestive" word choice were significant, the Opinion actually "suggests" that the Ninth Circuit recognized that it is not inconsistent for the TLDA's compatibility provisions to be both covenants and limitations on the scope of the license. The Ninth Circuit framed the issue as follows:

[W]e agree with Microsoft that the issue turns on whether the terms Microsoft allegedly breached were limitations on the scope of the license, which would mean that Microsoft had infringed the copyright by acting outside the scope of the license; or whether the terms were merely contractual covenants, which would make this a contract dispute in which the copyright presumption of irreparable harm has no application.

Op. at 9611 (emphasis added). As framed by the Ninth Circuit, the issue for this Court to decide is whether any of the compatibility provisions also limit the scope of Microsoft's authority under the agreement to distribute products that incorporate Sun's copyrighted works, or whether they are "merely" (i.e. nothing more than) covenants.

Microsoft urges this Court to ignore these considerations, and to construe the TLDA instead based on whether the "gist" or "essence" of the case is contract or copyright infringement. Memo at 9. Microsoft's proposed "gestalt" approach to contract construction lacks any support in case law or statute. Microsoft strains to justify this approach by arguing that the Ninth Circuit Opinion "was guided" by a Second Circuit case, which, it turn, "was guided" by cases that inquired into the "gist" or "essence" of the case in order to determine jurisdiction. Id. This case law cited by Microsoft is inapposite because the issue here is contract construction, not subject matter jurisdiction.⁷ The question to be decided by this Court is whether the TLDA limits Microsoft's license to distribute upgraded commercial Products to Products that incorporate only a Compatible Implementation, not whether this case "feels" more like a contract case or a copyright case.

Microsoft appears to argue that, even if the same conduct could both breach a contract and infringe copyrights by exceeding the scope of a copyright license contained in the contract, a plaintiff suing under one of these theories waives its right to sue under the other. Memo at 5 ("An action for breach of contract is inconsistent with a copyright infringement action"). Microsoft cites Nimmer on Copyright in support of this proposition. Id. Yet the section of Nimmer cited by Microsoft addresses a completely different legal principle not at issue in this case - failure to satisfy a condition, such that a license never comes into effect. In such cases, the remedies for a breach of contract claim are inconsistent with the remedies for copyright infringement because the breach of contract claim necessarily assumes that a valid agreement was formed, then breached, whereas the infringement claim rests on the inconsistent premise that the agreement never came into effect.⁸ The licensor therefore must choose between a theory of contract breach (which requires a valid contract) and a theory of copyright infringement (which requires that the contract authorizing the accused conduct never came into effect).⁹

Here, by contrast, Microsoft has infringed Sun's copyrights by exceeding the scope of its license, not because that license never came into effect. It is thus consistent for Sun to sue both for breach of contract and copyright infringement, and no election is necessary. Although Sun may not obtain a double recovery on the same underlying wrong, that is a commonplace issue arising from the fact that the same conduct often gives rise to multiple legal claims. Kepner-Tregoe, supra, 1999 WL 594894. The need to avoid double recovery certainly does not render "inconsistent" Sun's claims for contract breach and copyright infringement, and has no bearing on the motions pending before this Court.

     Microsoft contends that the Ninth Circuit's Opinion establishes that "[u]ntil and unless Sun establishes that the compatibility terms are limitations on the scope rather than contractual covenants, the case is presumed to be a contract case." Memo at 4 (emphasis added.). The Opinion, however, makes no mention of this novel presumption. Rather, the portion of the Opinion quoted by Microsoft states: "[W]hether the compatibility terms in the TLDA are license restrictions or separate covenants, is a preliminary contractual issue that must be resolved under California law favorably to Sun before Sun is entitled to the copyright presumption of irreparable harm." Op. at 9617.

The quoted portion of the Opinion stands for an unremarkable proposition: the Court must interpret the TLDA to determine the scope of Microsoft's license, and Sun must demonstrate that Microsoft's distribution is outside that scope, before Sun is entitled to a presumption of irreparable harm. The fact that Sun must demonstrate a reasonable likelihood of success in proving its claim does not mean it is subject to a presumption that this case is a "contract case."

Microsoft points to language elsewhere in the Ninth Circuit's Opinion to argue that the Court's opinion imposes a heightened burden on Sun to prove the meaning of the agreement. The Opinion states that "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 does not understand the Ninth Circuit Opinion to purport to alter the burden of proof in copyright cases. Here, the determinative issue - whether the TLDA restricts Microsoft's commercial distribution of upgraded Products to Products that include only a Compatible Implementation - is an issue of contract construction unaffected by burden of proof.¹⁰ Once the Court interprets the TLDA and determines the scope of Microsoft's license, Sun readily concedes that it must demonstrate - under the appropriate standards for preliminary injunction and/or summary judgment - that Microsoft's acts fall outside its licensed scope, and thus infringe Sun's copyrights.¹¹

Microsoft also bases its argument for simultaneous resolution of the pending copyright, contract and damages motions on the assertion that Sun's ability to obtain summary judgment of copyright infringement is dependent on Sun's ability to obtain summary judgment regarding its compliance with TLDA section 2.6(a)(iii). Memo. at 8 ("The test suite that must be passed by Microsoft's Products to comply with compatibility terms of the TLDA does not change from JCT 1.02 to JCK 1.1a unless Sun's JDK 1.1 complied with section 2.6(a)(iii) or Sun's breach is excused.")

Microsoft's assertion is incorrect. Under TLDA sections 2.6(a)(iv) and (vi),¹² Microsoft's license to distribute upgraded commercial Products is expressly restricted to Products that include only a Compatible Implementation; that is, an implementation that passes the test suite that accompanied the Significant Upgrade incorporated in the Product. Microsoft may have contractual remedies if Sun failed to comply with TLDA section 2.6(a)(iii), but copyright infringement is not a proper self-help remedy for any such contract breach. See Sun Microsystems, Inc. v. Microsoft Corp., 999 F. Supp. 1301, 1309 (N.D. Cal. 1998) (stating the same doctrine with respect to trademark infringement, and citing Green River Bottling Co. v. Green River Corp., 997 F.2d 359, 362 (7th Cir. 1993)).

Regardless of whether Sun has complied with TLDA section 2.6(a)(iii), Sun is entitled to summary judgment of copyright infringement because (1) the TLDA expressly reserves to Sun all rights not granted under the agreement to Microsoft, (2) Microsoft's authority to distribute commercial Products that incorporate a Significant Upgrade is limited to Products that include only a Compatible Implementation, and (3) Microsoft exceeded the scope of its license by commercially distributing upgraded Products that do not include a Compatible Implementation.

FOOTNOTES

¹ All citations are to the Ninth Circuit's slip opinion. The opinion is also reported at Sun Microsystems, Inc. v. Microsoft Corp., No. 99-15046, 1999 WL 635783 (9th Cir. Aug. 23, 1999).  back to text

² See, Cohen v. Paramount Pictures, 845 F.2d 851, 853 (9th Cir. 1988); SOS v. Payday, Inc., 886 F.2d 1081, 1087-88 (9th Cir. 1989). The Ninth Circuit did not overrule the holding in SOS, it affirmed it: federal courts "should 'rely on state law to provide the canons of contractual construction' provided that 'such rules do not interfere with federal copyright law or policy.'" Op. at 9617 (quoting S.O.S., supra, 886 F.2d at 1088) (emphasis added).  back to text

³ TLDA section 2.10 states that "SUN retains all right, title and interest in and to the Technology ... subject to Licensee's underlying rights in the Java Reference Implementation and associated Intellectual Property Rights. Section 2.11 states that "[e]ach party agrees that this Agreement does not grant any right or license, under any Intellectual Property Rights of the other party, or otherwise, except as expressly provided in this Agreement, and no other right or license is to be implied by or inferred from any provision of this Agreement or by the conduct of the parties."  back to text

⁴ As Sun made clear in its Motion To Reinstate the Injunction, in deciding whether the TLDA restricts the scope of Microsoft's license to distribute commercial Products that incorporate a Significant Upgrade, the Court must begin by first examining the rights exclusively conferred on Sun under § 106 of the Copyright Act. The Court must then apply California rules of contract construction to determine the extent to which the TLDA as a whole authorizes Microsoft to exploit any of the rights licensed by Sun. See Cohen, supra note 8, at 853; S.O.S., supra note 8, at 1087-88. If one or more provisions of the TLDA limit or restrict Microsoft's use or exploitation of any of the statutory rights licensed by Sun, such as reproduction or distribution, then such provisions may properly be construed to limit the scope of Microsoft's license. See, e.g., Kepner-Tregoe, 1999 WL 594894; Cohen, 845 F.2d at 851-853; MAI Sys., supra at 517,; Gilliam, 538 supra at 14, 21; Microsoft, 846 F. Supp. at 213-14; S & H Computers Sys., Inc. supra,568 F. Supp. at 416, 421; and SAS Institute, 605 F. Supp. at 827-28.  back to text

⁵ Microsoft appears to depend on this incorrect proposition as support for its argument that both Sun's motion for summary judgment of contract breach and its counter-motion for summary judgment regarding damages limitations should be resolved at or before the time that this Court resolves Sun's pending motions regarding copyright infringement. (Memo at 9-10: "the fundamental issue raised by the [damages limitation] motion, whether the language of the agreement reflects an intent that breaches of compatibility terms to be governed by the TLDA provisions as indicated, should be considered in determining whether the parties intended the compatibility terms to be contract covenants or limitations on the scope of Microsoft's license.")  back to text

⁶ This question is addressed at length in Sun's September 3, 1999 Motion To Reinstate November 17, 1998 Preliminary Injunction Under 17 U.S.C. § 502.  back to text

⁷ Even if subject matter jurisdiction were the issue in dispute, the "gist" or "essence" test proposed by Microsoft has been rejected by the Ninth Circuit in favor of the "well-pleaded claim rule." Vestron, Inc. v. Home Box Office Inc., 839 F.2d 1380, 1381 (9th Cir. 1987). Here, Sun has adequately pled a claim for copyright infringement by pleading that it owns copyrights, that it conveyed a non-exclusive license to Microsoft to use and distribute the copyrighted works under limited circumstances, and that Microsoft exceeded the scope of that license by distributing the copyrighted works under circumstances not authorized. Second Amended Complaint, ¶¶ 117-121.  back to text

⁸ Similarly inapposite inconsistencies arose in the two cases cited by Microsoft on this issue, Fosson v. Palace (Waterland), Ltd., 78 F.3d 1448 (9th Cir. 1996) and Video Trip Corp. v. Lightning Video, Inc., 866 F.2d 50 (2d Cir. 1989). See Memo at 4-5. In Fosson, licensee's use of the copyrighted works was authorized by a license agreement, and the only issue was whether licensor could sue for copyright infringement because licensee had failed to make a timely payment. The Second Circuit held that, because the use of the copyrighted works was authorized by a valid license agreement, licensor could not bring a claim for copyright infringement without first rescinding the agreement that authorized the use. Fosson has no application here because, in contrast to the licensee in Fosson, Microsoft's actions are not authorized by the license, and thus Sun need not rescind the agreement to state a claim for infringement.  back to text

In Video Trip, an exclusive licensee sought a preliminary injunction against its licensor's use of the copyrighted works. The Second Circuit affirmed the district court's denial of the licensee's preliminary injunction motion because the licensee's prior material breach had terminated the license agreement, thereby depriving the licensee of any ownership interest in the copyright. Here, in contrast, the issue is whether Microsoft, a non-exclusive licensee, exceeded the scope of its license, thereby infringing the reserved copyright interests of Sun.

⁹ Even in those circumstances, however, the licensor has legal claims under both theories, but must eventually elect its remedies to avoid double recovery. See 3 Nimmer on Copyright § 10.15[A] at 10-122 (1999).  back to text

¹⁰ The interpretation of a written, integrated agreement is a question of law for the Court. United Comm. Ins Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir. 1992). Where, as here, a Court must choose between two conflicting interpretations of an agreement, the burden to prove one interpretation over another falls to neither party. "The meaning of a contract should not depend on who instituted the litigation." Id. at 856 n.2.  back to text

¹¹ In any event, the limited scope of Microsoft's license is admitted by Microsoft's chief TLDA negotiator: "[i]n order for the technology to be licensed under this contract, we need to have run the test suites and passed them" and "we need to have passed the tests, the appropriate tests, in order to release a product under the license grants of the TLDA." 9/3/99 Day Decl., Ex. 1.  back to text