IP Law Daily SAS keeps $79 million software licensing judgment on appeal; copyright claims deemed moot
Wednesday, October 25, 2017

SAS keeps $79 million software licensing judgment on appeal; copyright claims deemed moot

By Joseph Arshawsky, J.D.

SAS Institute, Inc.’s (SAS) judgment against World Programming Limited (WPL), after a jury trial for over $79 million (including treble damages) for violations of its software license agreement has been affirmed by the U.S. Court of Appeal in Richmond, Virginia. The appeals court rejected WPL’s res judicata argument premised on its victory in the United Kingdom, and denied SAS injunctive relief. Finally, the court rejected SAS’s copyright claims as moot because it obtained all of the relief it would have been entitled to under the copyright laws (SAS Institute, Inc. v. World Programming Limited, October 24, 2017, per curiam).

SAS and WPL are competitors in the market for statistical analysis software, where users write "SAS programs" in "SAS language" to run on the "SAS system." WPL purchased several copies of SAS Learning Edition, which it used to develop World Programming System (WPS), a competitive product that would also run SAS programs. The license terms for SAS Learning Edition included a prohibition on "reverse engineering," as well as a restriction requiring use only for "non-production purposes." SAS filed lawsuits first in the U.K. and then in federal district court in Raleigh, North Carolina, asserting claims for copyright infringement and breach of the Learning Edition license agreement, along with state law claims.

On July 9, 2014, the U.K. judgment became final in favor of WPL on grounds that software copyright did not cover the aspects of the program that were reproduced, and on the breach of license agreement on grounds that parties could not contract around the EU Directive on software copyright. In the U.S., following summary judgment rulings, the case proceeded to trial on SAS’s claims for fraudulent inducement and violations of the North Carolina Unfair or Deceptive Trade Practices Act (UDTPA), as well as calculation of damages for breach of contract, resulting in a $79 million treble damage award. Following trial, the district court trebled the jury’s damages award, denied SAS’s request for a permanent injunction, and denied WPL’s motion for judgment as a matter of law or a new trial. Both parties appealed, and the Fourth Circuit affirmed in part, reversed in part, and remanded.

Res judicata. The court did not need to reach whether res judicata was preserved, as it found that the doctrine did not bar this case. In resolving claims preclusion, the issue the court seized upon was the "identity of the cause of action." The many legal and factual differences between the U.K. and U.S. cases meant that applying the doctrine would deprive SAS from having its claims heard in any adequate forum, and would undermine both U.S. and North Carolina policies. WPL did not establish that the violations of U.S. copyright could have been litigated in the U.K. court or that losses based on sales of WPS within the United States could have been recovered in the U.K. action. On policy, the E.U. Directive that was dispositive of the contract claims in the U.K. case has no equivalent in North Carolina. The U.S. approach is more protective of intellectual property, and North Carolina court are "more protective of the sanctity of contract." Similarly, issue preclusion does not apply as the issues involved in both cases involved different governing law. Thus, the court turned to the merits.

Breach of license agreements. WPL argued that summary judgment against it was inappropriate on the breach of license agreements, because the contractual terms "reverse engineering" and "non-production" were ambiguous. The court rejected the argument, in both cases turning to dictionary definitions, and found there was no ambiguity here. Regarding "reverse engineering," WPL argued that the phrase has a narrow meaning, restricting only "decompiling or otherwise accessing and recreating the source code of a program." By contrast, SAS favored a broader definition that would encompass any attempt "to analyze a product to learn the details of its design, construction, or production in order to produce a copy or improved version."

The court found SAS’s definition was consistent with the ordinary English meaning of the words, and WPL did not point to any technical dictionaries that included its narrower interpretation. Moreover, the broad definition gives effect to every word in the contract, consistent with North Carolina law on contract interpretation. Finally, the court rejected turning to extrinsic evidence in the absence of any ambiguity. WPL analyzed the Learning Edition to learn how it worked in order to better recreate its functionality in its own product, and therefore summary judgment on breach of the Learning Edition agreements was affirmed.

Regarding the "non-production purposes" limitation, the court agreed with the trial court’s interpretation of the phrase to forbid "the creation or manufacture of commercial goods." The court again relied on dictionary definitions.

Injunctive relief. The court rejected SAS’s claims for injunctive relief on several grounds. First, the award of over $79 million "is already going to catch WPL’s attention in any future calculation of risk irrespective of an injunction," and therefore it will deter future violations. SAS failed to demonstrate irreparable injury. The compensatory award included not only past damages, but anticipated future damages. An injunction was not warranted on grounds that WPL could not pay damages, or enforcement would be difficult – if anything an injunction "would frustrate, rather than facilitate, WPL’s ability to pay damages." SAS did not offer detailed or meaningful information about WPL’s financial condition. Nor did SAS meet its burden of demonstrating the impossibility of enforcing its judgment in the U.K. Finally, "To hold that the possessor of a $79 million judgment has received an inadequate remedy would be astonishing." The court could not ignore the hardships an injunction would place on WPL’s ability to operate in the future. Finally, an injunction would hurt WPL’s existing customers who would have to migrate to SAS, so the public interest disfavors an injunction.

Copyright claim. "To begin, it is far from certain that the district court made an error of law by granting summary judgment to WPL on SAS’s copyright claim," the court said. This case involves a murky area, where WPL copied functionality, which may not be copyrightable, as opposed to copying source code. Even if the copyright claim prevailed, the additional equitable factors, discussed above, would still disfavor injunctive relief. Since the only additional remedy that SAS could obtain with a copyright claim is injunctive relief, the court dismissed the copyright claim as moot.

The case is No. 16-1857.

Attorneys: Raymond Michael Bennett (Womble Carlyle Sandridge & Rice, PLLC) for SAS Institute, Inc. Wayne F. Dennison (Brown Rudnick LLP) for World Programming Ltd.

Companies: SAS Institute, Inc.; World Programming Ltd.

MainStory: TopStory Copyright TechnologyInternet MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews

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