In a fraud and copyright infringement case involving competing computer software companies, a Carolina-based judge’s ruling trumps a decision made across the pond, according to the 4th U.S. Circuit Court of Appeals.
The SAS Institute Inc., which is headquartered in Cary, North Carolina, accused World Programming Limited in the United Kingdom of violating a click-through license agreement that prohibited the reverse engineering of SAS software and also had a restriction limiting use of the software to “non-production purposes.”
WPL allegedly modeled its own software, which it marketed as the World Programming System, after SAS software. The move prompted SAS to sue WPL in the U.K. and North Carolina in 2009 and 2010, respectively, alleging copyright infringement and breach of the license agreement.
The U.S. litigation also included claims for fraud, tortious interference with a contract and prospective business advantage, and violations of North Carolina’s Unfair and Deceptive Trade Practices Act.
A district court judge initially found that the matter should be heard in the U.K. and dismissed the case, but the 4th Circuit reversed in 2012. As the case was being considered in the lower court on remand, the U.K. court ruled for WPL on all claims except for copyright infringement of the SAS manuals, finding that “neither the functionality of a computer program nor the programming language and the format of data files used in a computer program in order to exploit certain of its functions” are copyright protected under European Union law.
SAS fared better back in the states, where U.S. District Judge Louise Flanagan of Raleigh granted the company summary judgment on its breach of contract claim. A jury later awarded SAS more than $26.3 million in compensatory damages and $3 million in punitive damages, and also found WPL liable for fraudulent inducement and unfair and deceptive trade practices, which trebled the compensatory damages award and upped the verdict to more than $79 million.
On appeal, the 4th Circuit rejected WPL’s main argument that the U.K. litigation should have barred the U.S. case from moving forward. Circuit Judge Harvie Wilkinson wrote that the “many legal and factual differences between the U.K. litigation and the present suit mean that applying res judicata would have the practical effect of preventing SAS from having its claims heard in any adequate forum.” For example, he said, the suit filed here alleged violations of U.S. copyright law and focused solely on sales of WPL’s software in America.
“Applying res judicata in such a mechanical manner based on facial similarities between two suits would also undermine United States and North Carolina policies in favor of the policies of the U.K. and European Union, a result res judicata has not been held to require,” Wilkinson held.
Wilkinson noted a “clear conflict” between E.U. and U.S. public policy, the latter of which is more protective of intellectual property. He also said that North Carolina’s courts are “more protective of the sanctity of contract,” and concluded that allowing the U.K. judgment to preempt the U.S. action would “frustrate these policies goals by barring a North Carolina company from vindicating its rights under North Carolina law on the basis of the E.U.’s contrary policies.”
“No principle of international comity requires this outcome,” he wrote.
In the end, the 4th Circuit upheld all of Flanagan’s rulings save one — her decision to grant summary judgment to WPL on SAS’s claims for copyright infringement of its software, which Wilkinson and the unanimous three-judge panel vacated as moot. They found that SAS had failed to show that it was entitled to an injunction on the claim and even if the company could prove infringement, “it would not follow as a matter of course that SAS should receive an injunction.”
“Finally, it bears emphasis that SAS has not left the court system penniless,” Wilkinson added.
“We asked for an injunction and I think the court ultimately ruled that under the circumstances, this $79 million judgment was sufficient,” said an attorney for SAS, Press Millen of Womble Carlyle in Raleigh.
“We were asking in the injunction that they stop selling [the software in question] in the U.S.,” he added. “Given this ruling, though, clearly any additional sales they make are very much at their peril.”
Attempts to speak with WPL’s attorney, Wayne Dennison of Brown Rudnick in Boston, were unsuccessful.
His client has support from the Electronic Frontier Foundation and Computer & Communications Industry Association, both of which had argued in amicus briefs that the lower court was correct in finding that SAS’s “software interfaces” or the “processes, systems, and methods of operation that code may employ to interface with other software” were beyond the scope of copyright protection.
EFF asserted that if SAS prevailed on the copyright claim the result would stifle advancements in computer technology, arguing that if the company’s “view had been accepted at the birth of modern computing, many important technologies would never have existed or succeeded.”
“Today, open, uncopyrightable interfaces continue to spur the creation and adoption of new technologies,” the nonprofit civil liberties organization added in its brief. “When programmers can freely reimplement or reverse engineer functional interfaces without obtaining a costly license or risking a lawsuit, they can create compatible software that the interface’s original creator might never have envisioned or had the resources to develop.”
But Millen contended that the amici’s argument has not prevailed in the courts and “really does a disservice to the software industry generally to say that a lot of companies have taken as their business model knockoffs and piracies of established software companies.”
“The SAS software represents an enormous investment,” he added, “and the idea that some company, whether inside or outside the U.S. could simply try to create a counterfeit of large swathes of that SAS system and sell it as their own product is just fundamentally wrong.”
The 34-page decision is SAS Institute, Inc. v. World Programming Ltd. (Lawyers Weekly No. 001-189-17). An opinion digest is available at sclawyersweekly.com.
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