Sas Inst., Inc. v. World Programming Ltd.

• Decision Date: 24 October 2017
• Docket Number: Nos. 16-1808, 16-1857.,s. 16-1808, 16-1857.
• Citation: 874 F.3d 370
• Parties: SAS INSTITUTE, INC., Plaintiff–Appellant, v. WORLD PROGRAMMING LIMITED, Defendant–Appellee, The Mathworks, Inc.; BSA The Software Alliance, Amici Supporting Appellant, Electronic Frontier Foundation; Computer & Communications Industry Association; Internet Association ; Engine Advocacy, Amici Supporting Appellee, SAS Institute, Inc., Plaintiff–Appellee, v. World Programming Limited, Defendant–Appellant, The Mathworks, Inc.; BSA The Software Alliance, Amici Supporting Appellee, Electronic Frontier Foundation; Computer & Communications Industry Association; Internet Association ; Engine Advocacy, Amici Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

874 F.3d 370

SAS INSTITUTE, INC., Plaintiff–Appellant,

v.WORLD PROGRAMMING LIMITED, Defendant–Appellee,The Mathworks, Inc.; BSA The Software Alliance, Amici Supporting Appellant,Electronic Frontier Foundation; Computer & Communications Industry Association; Internet Association ; Engine Advocacy, Amici Supporting Appellee,SAS Institute, Inc., Plaintiff–Appellee,

v.World Programming Limited, Defendant–Appellant,The Mathworks, Inc.; BSA The Software Alliance, Amici Supporting Appellee,Electronic Frontier Foundation; Computer & Communications Industry Association; Internet Association ; Engine Advocacy, Amici Supporting Appellant.

Nos. 16-1808, 16-1857.

United States Court of Appeals, Fourth Circuit.

Argued: September 15, 2017

Decided: October 24, 2017

ARGUED: Pressly McAuley Millen, Womble Carlyle Sandridge & RICE, LLP, Raleigh, North Carolina, for Appellant/Cross-Appellee. Wayne F. Dennison, Brown Rudnick LLP, Boston, Massachusetts, for Appellee/Cross-Appellant. ON BRIEF: Raymond M. Bennett, Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina, for Appellant/Cross-Appellee. Rebecca M. Lecaroz, Brown Rudnick LLP, Boston, Massachusetts; Mark R. Sigmon, Sigmon Law, PLLC, Raleigh, North Carolina, for Appellee/Cross-Appellant. Mitchell L. Stoltz, Kit Walsh, Michael Barclay, Electronic Frontier Foundation, San Francisco, California, for Amicus Electronic Frontier Foundation. Jonathan Band, Jonathan Band PLLC, Washington, D.C., for Amici Computer & Communications Industry Association, Internet Association and Engine Advocacy. David C. Frederick, Michael E. Joffre, Julian J. Ginos, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Amicus The MathWorks, Inc. Andrew J. Pincus, Paul W. Hughes, Jonathan Weinberg, Mayer Brown LLP, Washington, D.C., for Amicus BSA The Software Alliance.

Before WILKINSON, DUNCAN, and THACKER, Circuit Judges.

WILKINSON, Circuit Judge:

SAS Institute (SAS) and World Programming Limited (WPL) are competitors in the market for statistical analysis software. SAS alleges that WPL breached a license agreement for SAS software and violated copyrights on that software. We agree with the district court that the contractual terms at issue are unambiguous and that SAS has shown that WPL violated those terms. We thus affirm the district court's judgment finding WPL liable for breach of the license agreement. With respect to the district court's ruling on the copyright claim, we vacate that portion of the district court's judgment and remand with instructions to dismiss it as moot.

I.

This case arises out of competition in the market for software used to manage and analyze large and complex datasets. SAS, a North Carolina company, sells an integrated system of business software collectively known as the "SAS System." Users operate the SAS System by writing instructions, or SAS programs, in a computer programming language known as the SAS language. While anyone can write a SAS program, software such as the SAS System is required to make a SAS program function. SAS licenses its full suite of software to both individuals and corporations, and has also offered the SAS Learning Edition, which is a lower-cost version of the SAS System marketed as an educational tool to enable students to learn the SAS language. The Learning Edition provides the same general functionality as the full SAS System, but is programmed to process only a limited amount of data. To complete installation of the Learning Edition, a user must click "Yes" to indicate agreement with the terms of the license. As discussed in more detail below, these terms include a prohibition on "reverse engineering," as well as a restriction requiring use only for "non-production purposes."

WPL is a United Kingdom company formed to develop statistical reporting software. Shortly after its formation, WPL identified what it saw as a market opportunity to compete with SAS by selling software capable of running SAS language programs. While developing this competing software, now marketed as the World Programming System (WPS), WPL acquired several copies of the SAS Learning Edition, including two copies in 2003, one in 2005, two in 2007, and seven in 2009. Developers at WPL ran SAS programs through both the Learning Edition and WPS, and then modified WPS's code to make the two achieve more similar outputs. Several former SAS customers have replaced their SAS System software with WPS. Learning Edition licenses expire after four years, so none of the copies that WPL purchased are still functional.

In September 2009 and January 2010, respectively, SAS filed lawsuits against WPL in the U.K. and in the Eastern District of North Carolina. In the U.K. litigation, SAS asserted claims for copyright infringement and breach of the Learning Edition license agreement. The U.S. suit also contained claims for copyright infringement and breach of the license agreement, but additionally asserted claims for fraudulent inducement, tortious interference with contract, tortious interference with prospective business advantage, and violation of the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA). The U.S. litigation was initially dismissed for forum non conveniens in March 2011, but that dismissal was reversed by this court in February 2012 and the case was remanded to the district court. See SAS Institute, Inc. v. World Programming Ltd. , 468 Fed.Appx. 264, 264–65 (4th Cir. 2012) (per curiam).

In July 2010, the U.K. High Court rendered an interim judgment on SAS's claims. However, the U.K. High Court concluded that the case turned on interpretation of several provisions of E.U. law, including Council Directive 91/250/EEC and Directive 2001/29/EC (collectively "E.U. Software Directive"), both relating to the legal protection of computer programs. The U.K. High Court referred its interpretive questions to the Court of Justice of the European Union (CJEU). The CJEU ruled that under the E.U. Software Directive "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, and that "a licensee is entitled...to determine the ideas and principles which underlie any element of the program" if he does so while he "carries out acts covered by that license and acts of loading and running necessary for use of the computer program." J.A. 8887–88. However, the CJEU also ruled that "reproduction, in a computer program or a user manual for that program, of certain elements described in the user manual for another computer program protected by copyright is capable of constituting an infringement of the copyright in the latter manual." J.A. 8888.

Based on the CJEU ruling, the U.K. High Court entered a final ruling for WPL on all claims except for copyright infringement of the SAS manuals. The U.K. High Court determined that, to the extent WPS reproduced the SAS System, it reproduced only aspects of the program that are not protected by U.K. copyright law. The U.K. High Court's ruling on SAS's breach of contract claims relied on the mandatory nature of the E.U. Software Directive, as parties to a contract may not contravene the Directive by agreement. Thus, because WPL's behavior was explicitly protected by the Directive, SAS could not enforce any contractual provisions that prohibited it. The Court of Appeal of England and Wales affirmed the U.K. High Court's ruling, and it became final when the Supreme Court of the U.K. refused SAS's request to appeal the judgment further on July 9, 2014.

In the U.S. litigation, SAS filed a motion on April 14, 2014, for partial summary judgment on its claims for breach of contract and tortious interference with contract. That same day, WPS filed a motion for summary judgment on all of SAS's claims. Each motion was granted in part and denied in part. The district court granted summary judgment to SAS on the question of liability for breach of the license agreement, but granted summary judgment to WPL on SAS's claims for copyright infringement of the SAS System, tortious interference with contract, and tortious interference with prospective economic advantage. The district court did not grant summary judgment on SAS's claims for copyright infringement of the SAS manuals,¹ breach of contract, fraudulent inducement, or UDPTA violations. See SAS Institute Inc. v. World Programming Ltd. , 64 F.Supp.3d 755, 783 (E.D.N.C. 2014).

WPL moved for reconsideration of the district court's ruling on the breach of contract issue, but its motion was denied. However, on its own motion, the district court later set aside and corrected portions of its earlier summary judgment rulings. Specifically, the district court set aside portions of its earlier ruling granting certain of the U.K. High Court's findings preclusive effect. Nonetheless, the district court ruled that SAS was still entitled to summary judgment on its breach of contract claim.

The case proceeded to trial on SAS's claims for fraudulent inducement and UDTPA violations, as well as for the calculation of damages from WPL's breach of contract. The jury found damages in the amount of $26,376,635 for the breach of contract, and also found WPL liable for fraudulent inducement and UDPTA violations, resulting in the same damages. The jury also awarded SAS $3,000,000 in punitive damages based on the fraudulent inducement finding. Under UDTPA, the compensatory damages award of $26,376,635 was trebled. SAS had the option to elect either the trebling of damages or the $3,000,000 punitive damages award, and could not recover both. Thus, the total damages awarded to SAS after trebling was $79,129,905. SAS also sought an injunction, which the district court denied. WPL sought attorney's fees under 17 U.S.C. § 505 as a prevailing party on the copyright issue, but this motion was denied.

Both parties appealed. WPL appeals the district court's holding that the...