IP Law Daily Computer support provider’s copying of Oracle software was infringement
Tuesday, January 9, 2018

Computer support provider’s copying of Oracle software was infringement

By Robert Margolis, J.D.

The Ninth Circuit Court of Appeals in San Francisco has affirmed judgment for Oracle USA, Inc. on its claims for copyright infringement against Rimini Street, Inc., a provider of third-party support for Oracle’s enterprise software, finding that certain of Rimini’s conduct in copying Oracle software to service clients was not permitted by Oracle licenses. The court reversed judgments for Oracle on state law claims under computer access statutes, and modified and/or remanded to the district court the portions of the judgments concerning damages and injunctive relief in light of its rulings (Oracle USA, Inc. v. Rimini Street, Inc., January 8, 2018, Fogel, J.).

Oracle owned or was the exclusive licensee for certain PeopleSoft, J.D. Edwards, and Siebel-branded enterprise software products. Oracle did not sell the software outright to end users; instead, it licensed the use of the software to customers through software licensing agreements. Oracle also provided customer support services to customers through separate contracts. Rimini provided similar software support services to customers licensing Oracle’s enterprise software programs. It competed directly with Oracle to provide these services. To do so, Rimini needed to provide software updates to its customers in the same manner as Oracle. This necessarily required Rimini to copy Oracle’s copyrighted software, which, unless permitted by license, constitutes copyright infringement.

Oracle sued Rimini, alleging that Rimini copied several of Oracle’s copyright-protected programs onto its own systems to provide support services to customers. Oracle alleged causes of action for copyright infringement and violation of California and Nevada computer access statutes. The jury returned a verdict for Oracle that Rimini infringed Oracle’s copyright as to the J.D. Edwards and Siebel software programs. Previously, the court had granted summary judgment to Oracle as to the PeopleSoft and Oracle Database ("Database") programs. Rimini appealed as to all four.

J.D. Edwards and Siebel. As to J.D. Edwards and Siebel, Oracle alleged two theories of copyright infringement: (1) "direct use," based on the way Rimini created development environments purportedly under a client’s license for that particular client; and (2) "cross use," based on the creation of development environment, under the color of a client’s license, for use in servicing other clients. The jury found infringement under both theories and the court affirmed.

Rimini challenged the jury’s infringement verdict on two grounds. First, it contended that the Oracle licenses permitted its conduct. Next, Rimini argued that a liability finding against it would condone copyright misuse. The court rejected both arguments.

As to the permitted use argument, Rimini did not dispute that its accused acts violated Oracle’s copyright absent a license. Because Rimini itself did not have a license, its license defense rested on whether its conduct was within the scope of either J.D. Edwards’ or Siebel’s license. The court analyzed both and held that those licenses did not protect Rimini. The J.D. Edwards license read: "Customer shall not, or cause anyone else to . . . (iii) copy the Documentation or Software except to the extent necessary for Customer’s archival needs and to support the Users." The Siebel license read: "Customer" may "reproduce, exactly as provided by [Oracle], a reasonable number of copies of the Programs and the Ancillary Programs solely for archive or emergency back-up purposes or disaster recovery and related testing."

As to direct use, the court rejected Rimini’s argument that the jury instruction construed "direct use" out of the license. The court had instructed the jury that the above-described license terms permitted Rimini to copy Oracle software to service the particular customer for whom Rimini was working, but not to service other customers. Indeed, Rimini did not object to that language. The district court did not err, however, when its instructions did not expressly approve other forms of direct use for which the jury found Rimini liable, the court held.

As to cross use, Rimini argued that it is not infringement because any organization that would hire Rimini to service its software would itself have a license to create development environments. Therefore, by using development environments created for customer A in servicing customer B, Rimini was doing something that customer B’s license would have permitted, but with more efficiency and reduced costs by not having to duplicate efforts. The court found this argument to be unconvincing, holding that the language of the licenses permits use only for the particular client covered by the license.

The court similarly disposed of Rimini’s appeal based on copyright misuse. Rimini argued that finding infringement "would foreclose competition in the aftermarket for third party maintenance." But the court agreed with Oracle that its licenses permit third parties to develop their own competing software and/or provide support services, so long as they do not disregard Oracle’s exclusive rights.

PeopleSoft. The district court had granted summary judgment on Oracle’s copyright claim with respect to PeopleSoft. The PeopleSoft license is similar to that of J.D. Edwards and Siebel, but also added a restriction that the license is "solely for Licensee’s internal data processing operations at its facilities[.]" Oracle’s claim, thus, was slightly different, that any use by Rimini, whether "direct use" or "cross use," on Rimini’s own computers, as opposed to the licensees’ computers, was outside the scope of the license. The court agreed that such use was outside of the licenses and affirmed summary judgment. The court rejected Rimini’s argument that its client’s "facilities" can include Rimini’s own servers. Similarly, the court held that the copyright misuse doctrine was not triggered by Oracle’s license prohibiting "local hosting."

Database. The court affirmed the district court’s grant of summary judgment to Oracle with respect to the Database copyright infringement claim. The only argument Rimini made that was different than the aforementioned (and rejected) arguments made for the other products was that its acts were authorized by the Oracle License and Service Agreements ("OLSAs"). The court held that Rimini waived the argument by not challenging the district court’s legal conclusion that it could not assert the OLSAs as a defense.

Prejudgment interest. The court affirmed the district court’s award of $22,491,636.16 in prejudgment interest on the copyright claims, holding that the district court correctly calculated that amount based on the Treasury rate on the date the infringement began, in 2006, rather than the rate in 2016, when judgment was entered. The statutory rate was more than 5% in 2006, and under 1% in 2016. Because the jury’s damages amount is based on the license fees Oracle should have received from the time Rimini began infringing, this was the correct date (and corresponding rate) to use, the court held.

Injunction. The district court issued a permanent injunction based on a liability finding as to both the copyright infringement claims and the state law computer act claims. Because Rimini’s liability for computer act violations was reversed, the court remanded to the district court to assess the injunction factors solely as they concern the infringement claims.

The case is Nos. 16-16832 and 16-16905.

Attorneys: Paul D. Clement (Kirkland & Ellis LLP) for Oracle USA, Inc. Blaine H. Evanson (Gibson, Dunn & Crutcher LLP) for Rimini Street, Inc.

Companies: Oracle USA, Inc.; Rimini Street, Inc.

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