Sun Microsystems v. Microsoft Corp.

• Citation: 1999 WL 635783,188 F.3d 1115
• Decision Date: 16 June 1999
• Docket Number: No. 99-15046,99-15046
• Parties: (9th Cir. 1999) SUN MICROSYSTEMS, INC., a DELAWARE CORPORATION, Plaintiff-Appellee, v. MICROSOFT CORPORATION, a Washington corporation, Defendant-Appellant
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1115

188 F.3d 1115 (9th Cir. 1999)

SUN MICROSYSTEMS, INC., a DELAWARE CORPORATION, Plaintiff-Appellee, v. MICROSOFT CORPORATION, a Washington corporation, Defendant-Appellant.

No. 99-15046

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 16, 1999--San Francisco, California

Decided August 23, 1999

Barbara A. Caulfield, Orrick, Herrington & Sutcliffe, Menlo Park, California, for the defendant-appellant.

Lloyd R. Day, Jr., Day, Casebeer, Madrid, Winters & Batchelder, Cupertino, California, for the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California Ronald M. Whyte, District Judge, Presiding. D.C. No. CV-96-20884-RMW.

Before: Mary M. Schroeder, Robert Boochever, and Cynthia Holcomb Hall, Circuit Judges.

SCHROEDER, Circuit Judge:

This case illustrates how fast technology can outdistance the capacity of contract drafters to provide for the ramifications of a computer software licensing arrangement. The license in question runs from plaintiff-appellee Sun Microsystems to defendant-appellant Microsoft. It involves Java, a computer programming language Sun developed to enable the writing of programs that work on any computer operating system. The license agreement was negotiated on a rushed basis in 1996, and by 1997 both Microsoft and Sun had developed what they believed to be significant improvements to Java.

Sun filed this suit for copyright infringement, claiming that Microsoft had exceeded the scope of its license by creating an enhanced version of Java that was fully operable only on Microsoft's operating system, and further, by not adapting its implementation of Java to be compatible with Sun's addition to Java of a component known as the "Java Native Interface" ("JNI"). Sun sought an injunction barring Microsoft from including incompatible Java technology in its products. The district court granted a preliminary injunction to Sun, and Microsoft appeals. The underlying facts, the details of the negotiations, and the nature of the software involved are all more fully described in the district court's detailed opinion. See Sun Microsystems v. Microsoft Corp., 21 F. Supp. 2d 1109 (N.D. Cal. 1998).

Before the district court, the parties bitterly contested the proper interpretation of the terms of the license agreement. Microsoft maintained that the agreement fully authorized all of the conduct that Sun challenged as infringing. Sun's interpretation was, of course, to the contrary. After a careful analysis of the parties' contentions, the district court held that Sun was likely to prevail on the merits of its claim that Microsoft had violated the license agreement.

The parties also disputed whether Sun's suit was properly considered as one for copyright infringement, as Sun contended, or as one for breach of contract, as Microsoft contended. The district court concluded that the claim was properly considered as an infringement action, thereby entitling Sun to a presumption of irreparable harm. See Cadence Design Systems v. Avant! Corp., 125 F.3d 824, 826-27 (9th Cir. 1997), cert. denied, 118 S. Ct. 1795 (1998) (copyright plaintiff that demonstrates likely success on the merits entitled to a presumption of irreparable harm). The district court did not elaborate on why the case was a copyright infringement rather than a contract interpretation dispute, and it is on this point that Microsoft expends most of its ammunition on this appeal. It contends that the disputed compatibility requirements of the license agreement are affirmative covenants rather than limitations on the scope of the license, and that accordingly contractual rather than copyright remedies are appropriate if there has been any breach. The district court apparently did not expressly rule on this issue.

We review the grant of a preliminary injunction generally for abuse of discretion, and "that discretion is abused where the district court based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Roe v. Anderson, 134 F.3d 1400, 1402 (9th Cir. 1998) (internal quotations and footnote omitted). We agree with Sun that significant evidence supports the district court's holding that Sun is likely to prevail on its interpretation of the language of the agreement and to prove that Microsoft's conduct violated it. We agree with Microsoft, however, that the district court should not have invoked the presumption of irreparable harm applicable to copyright infringement claims before it determined that the compatibility requirements were a limit on the scope of the license rather than independent contractual covenants. We therefore vacate the preliminary injunction and remand for further proceedings.

There is also a claim of unfair competition under California law. The district court entered an injunction on that claim solely on the basis of past conduct. Microsoft correctly contends that under California law an injunction must be based on the prospect of future conduct. We therefore also vacate the injunction insofar as it relates to the unfair competition claim and remand for consideration of that issue.

Factual Background

In March 1996, Microsoft and Sun entered into a "Technology License and Distribution Agreement " ("TLDA") for Java. Microsoft agreed to pay Sun $3.75 million a year for broad rights to use the language. In exchange, Sun granted Microsoft a non-exclusive license to "make, access, use, copy, view, display, modify, adapt, and create Derivative Works of the Technology in Source Code form" and to "make, use, import, reproduce, license, rent, lease, offer to sell, sell or otherwise distribute to end users as part of a Product . . . the Technology and Derivative Works thereof in binary form." Sun Microsystems, 21 F. Supp. 2d at 1113.

Sun had created Java so that programmers could write a single program that would work on any operating system. Because Sun wanted Java to remain cross-platform compatible, the TLDA includes compatibility requirements. Section 2.6(a)(iv) requires Microsoft to produce a compatible implementation of Java within six months of the date that Sun creates a "significant upgrade" to Java. Section 2.6(a)(vi) provides that Microsoft shall make available only products that are compatible implementations. See id. at 1113. Section 2.6(b)(iv) contains the compatibility requirements for compilers. It provides that Microsoft's Java compilers "shall include a mode which a Tool Customer may use to permit such Product to pass the Java Language Test Suite that accompanie[s]" any upgrades of Java that Sun creates. Id. at 1114. To determine compatibility, the TLDA refers to a set of mostly automated tests that Sun had developed.

In late 1997, Sun became concerned that Microsoft was distributing a "polluted" version of Java that Microsoft had modified in ways that made it incompatible with Sun's standards. Sun filed suit against Microsoft on October 7, 1997, alleging, among other things, trademark infringement, unfair competition, and breach of contract. In November 1997, Sun moved for a preliminary injunction barring Microsoft from using Sun's "Java Compatible" logo on products that failed Sun's compatibility tests. On March 24, 1998, the district court entered a preliminary injunction. See Sun Microsystems v. Microsoft Corp., 999 F. Supp. 1301 (N.D. Cal. 1998). Microsoft did not appeal this injunction.

Sun then amended its complaint to add a claim for copyright infringement and filed motions for a preliminary injunction under 17 U.S.C. S 502 for copyright infringement and under California Business & Professions Code S 17200 for unfair competition. The copyright infringement motion sought an order immediately enjoining Microsoft from distributing its development kit for Java programmers, and enjoining it from distributing Internet Explorer or Windows98 unless it could show within ninety days that those products passed Sun's compatibility tests. The unfair competition motion sought to enjoin Microsoft from abusing its dominant position in the software market by conditioning licenses for Microsoft products upon use of Microsoft's version of Java.

On November 17, 1998, the district court granted both motions. It found that Sun was likely to prevail on its claims that Microsoft had failed to comply with several of the TLDA compatibility provisions and had engaged in unfair business practices. The court entered a detailed injunction that pertained to both motions and that barred Microsoft from, among other things: (1) distributing any operating systems or internet browsers containing Java technology unless they supported JNI; (2) distributing any Java development tools unless they supported JNI and included a compiler with a default mode that disabled Microsoft's incompatible modifications; (3) incorporating any additional Microsoft keyword extensions or compiler directives into its Java software development tools; and (4) conditioning licenses to Microsoft products or the right to use the "Designed for Windows" logo on the exclusive use of either Microsoft's Java virtual machine or Microsoft's native code interfaces. See Sun Microsystems, 21 F. Supp. 2d at 1127-28. Microsoft appeals.

Analysis

I. The Copyright Infringement Claim

The standard for a preliminary injunction balances the plaintiff's likelihood of success against the relative hardships to the parties. To receive a preliminary injunction, Sun was required to show "either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Sega Enters. v. Accolade, Inc., 977 F.2d 1510, 1517 (9th Cir. 1992) (citations omitted). These two alternatives represent "extremes of a single continuum," rather than two separate tests. Benda v. Grand Lodge of Int'l Ass'n of Machinists & Aerospace Workers, 584 F.2d...