Xerox Corp. v. Apple Computer, Inc., C-89-4428-VRW.

• Citation: 734 F. Supp. 1542
• Decision Date: 10 April 1990
• Docket Number: No. C-89-4428-VRW.,C-89-4428-VRW.
• Court: U.S. District Court — Northern District of California
• Parties: XEROX CORPORATION, Plaintiff, v. APPLE COMPUTER, INC., Defendant.

734 F. Supp. 1542

XEROX CORPORATION, Plaintiff, v. APPLE COMPUTER, INC., Defendant.

No. C-89-4428-VRW.

United States District Court, N.D. California.

April 10, 1990.

Henry C. Bunsow, Anthony B. Diepenbrock, Theodore G. Brown, III, Susan E. Hollander, Townsend and Townsend, San Francisco, Cal., Ronald Zibelli, Harvey M. Brownrout, Xerox Corp., Stamford, Conn., for plaintiff.

Jack E. Brown, Brown & Bain, P.A., Phoenix, Ariz., Chris R. Ottenweller, Martin L. Lagod, Brown & Bain, Palo Alto, Cal., for defendant.

ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS, DENYING SANCTIONS, AND MODIFYING STAY OF DISCOVERY

WALKER, District Judge.

Xerox Corporation ("Xerox") seeks declaratory and other relief against Apple Computer, Inc. ("Apple") regarding certain copyrighted works.¹ Xerox claims in part that Apple derived its Lisa and Macintosh Finder copyright registrations from Xerox' Star copyrighted material. On March 23, 1990, the court heard, and announced this decision on, Apple's motion to dismiss the complaint for lack of a justiciable case or controversy and for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(1) and (6), and for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). All discovery in this matter has been stayed pursuant to an order of the Honorable William W Schwarzer pending a ruling on this motion.

The Rule 12(b) motion is untimely, since it should have been filed before Apple answered the complaint. An untimely motion to dismiss is treated as a motion for judgment on the pleadings. Aldabe v. Aldabe, 616 F.2d 1089 (9th Cir.1980). The court must accept as true all of the well-pleaded facts alleged in the complaint, and may not dismiss the action unless it is convinced that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57 (2d Cir.1985); Austad v. United States, 386 F.2d 147 (9th Cir.1967).

I. ALLEGATIONS OF XEROX' COMPLAINT.

The complaint alleges the following. Xerox' Smalltalk, which was developed in the mid-1970s at its Palo Alto Research Center ("PARC"), was the first computer language that allowed a user to interact with a computer through the use of a mouse (hand-held device). Smalltalk did not utilize on-screen icons (graphical representations of objects). In November of 1979, Steven Jobs, then-president of Apple, visited PARC with other Apple employees for a demonstration of Smalltalk. On June 9, 1981, Xerox granted Apple a license pursuant to which Apple agreed to "participate in a project with the Learning Research Group at PARC/Xerox for the purpose of implementing the Smalltalk-80 language and system on a hardware system to be developed by Apple." Shortly thereafter, Apple began developing its "Lisa" computer for use with Smalltalk. Xerox does not allege that Smalltalk was ever "published"² or registered with the Copyright Office.

Another Xerox research project, Star, was developed at PARC in the late 1970s. Star included a mouse-driven computer that was allegedly the first to introduce fanciful visual displays and graphical images to aid user interaction with the computer. Star was first published by Xerox on April 27, 1981 and since then has contained a notice of copyright. Xerox applied for copyright registration of the Star 8010 Professional Workstation program on April 28, 1986, and was granted Registration No. TX 2-428-306. This program was never licensed to Apple.

On May 1, 1987, Apple applied for copyright registration for the Lisa and received Registration No. PA 336-104. Lisa was first published in 1983, two years after publication of Star. On May 1, 1987 and August 25, 1987, Apple applied for copyright registration for its Macintosh Finder program and received Registration Nos. PA 336-105 and TX 2-130-713. In its application, Apple described Macintosh Finder, which was published in 1984, as a derivative work based on Lisa.

On March 17, 1988, Apple sued Microsoft Corporation and Hewlett-Packard Company in this court for copyright infringement of, among other works, Lisa and Macintosh Finder and for unfair competition. In that suit, Apple asserted that Lisa and Macintosh Finder substantially consist of material wholly original to Apple.

II. SOME FUNDAMENTALS OF COPYRIGHT.

A brief rumination on copyright will frame the court's perspective.

The signers of our Constitution were as experienced in practical endeavors as they were in political activities. From an appreciation of both, the signers determined to permit the establishment of property rights in the realm of ideas. Hence, Article I, Section 8 of the Constitution provides that Congress shall have the power:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to Their respective Writings and Discoveries.

Under the laws enacted pursuant to this clause, copyright protection is not available for many useful ideas (e.g., supermarkets, self-service gasoline stations, discount retailing, theories about historical facts). See A. Alchian & W. Allen, Exchange and Production 292-293 (3d ed. 1983); M. Nimmer & D. Nimmer, Nimmer on Copyright § 2.11A, at 2-157 to 2-159, § 2.18H, at 2-213 (1989). Originators of such nonprotected ideas must derive their profits ("Ricardian rents") by being the first or most innovative to produce or deliver goods and services embodying nonprotected ideas (see A. Alchian and W. Allen, supra, at 189-191). But for creators of protected ideas, copyrights offer an additional reward by legally sanctioning a monopoly in accordance with the terms set by Congress.³ As a monopolist, a copyright holder will charge more and produce less than the price or output which would obtain under competitive conditions, but the resulting monopoly rent from copyright affords an incentive for socially beneficial creative activity:

The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in "Science and useful Arts." Sacrificial days devoted to such creative activities deserve rewards commensurate with the services rendered.

Mazer v. Stein, 347 U.S. 201, 219, 74 S.Ct. 460, 471, 98 L.Ed. 630 (1954).

The underlying economic and legal issue in copyright is the tradeoff between the social benefits of increased production of useful ideas brought about by giving a copyright holder the monopoly protection afforded copyrighted works and the social costs imposed by raising the marginal cost of using copyrighted works. See R. Posner, Economic Analysis of Law 359-363 (3d ed. 1986). Courts are repeatedly called upon to resolve the tensions inherent in this tradeoff.⁴

The main vehicle for enforcement of rights under the Copyright Act is the infringement action, 17 U.S.C. § 501 et seq. (1988). Rather than allege that Apple infringed the Star copyright, Xerox takes a different tack. Xerox seeks to have this court declare that Xerox owns the Star copyright and that Apple's copyrights allegedly derived from the Star copyright and are invalid. At oral argument, Xerox' counsel analogized its approach to a quiet title proceeding, which Xerox contends it may pursue in lieu of a remedy for infringement. By this light, an infringement action would presumably be in the nature of a trespass action. Such analogies will bear only so much weight, and for the reasons stated below the court is as unwilling to import remedies from other fields of law as it is to create new remedies in copyright law where none previously existed.

The point of this preliminary digression is that where fundamental social values conflict—in this case the social costs and creative incentives of copyright—and that conflict is resolved by statute, the mechanisms for resolution provided for in that statute call for particular obedience. Legal remedies are not mere forms of action carved from analogies; they have substantive implication. Xerox argues that an infringement action would not afford the relief it desires. But that claim, even if true, does not authorize this court to permit Xerox to fashion a substitute remedy.

While its interactive nature and other features have prompted questioning of the adequacy of traditional copyright protection in the case of computer software (see, e.g., U.S. Congress, Office of Technology Assessment, Computer Software and Intellectual Property—Background Paper, OTA-BP-CIT-61 (March 1990)), this action is no place to take up such matters.⁵ In this court's view, the bulk of Xerox' complaint fails because it fails to adhere to the path established by Congress to reach the relief sought.

III. DISCUSSION.

A. Count I: Declaratory Judgment as to Sole Ownership of the Star Copyrighted Work.

In Count I, Xerox seeks a declaratory judgment that it is the sole owner of the entirety of the Star work including all overlapping features found in Apple's Lisa and/or Macintosh Finder works. Xerox alleges that Apple has wrongfully claimed originality and ownership of substantial portions of Xerox' Star and Smalltalk and that Xerox has been unable to license Star to other companies (with the exception of Sun Microsystems Inc. and Metaphor Computer Systems, Inc.), since potential licensees are concerned about the possibility of being sued by Apple for copyright infringement. Apple maintains that the mere fact that it has registered its works and asserted rights stemming from its copyrights does not mean that it has claimed ownership of any material that "overlaps" with material in Star.

This court may issue a declaratory judgment "in a case of actual controversy within its jurisdiction." 28 U.S.C. § 2201(a). A potential defendant may sue preemptively for declaratory relief if the claim that would be asserted against it...