by Dennis Crouch
An interesting new petition before the Supreme Court focuses on international licensing and copyright issues. What happens when foreign courts give less weight to contracts and copyrights than would a US court? World Programming Ltd. v. SAS Institute, Supreme Court Docket No. 17-1459 (2018). [petition][docket]
Agreeing not to Reverse Engineer, then Reverse Engineering: WPL, a UK software company purchased a copy of SAS’s popular software and began to study its functionality (all in the UK). As part of the process, WPL clicked “I agree” on the SAS clickwrap licenses. Those licenses included a prohibition on reverse engineering and also limited the software use to “non-production purposes.” According to the petition, however, “under U.K. and E.U. law, such observation and study is lawful, and contractual terms restricting such acts are null and void. . . .While WPL was required to agree to that license before installing the SAS System, it also knew that E.U. and U.K. law permitted use of software for observation, study, and testing regardless of contrary contractual restrictions.” Consider Council Directive 2001/29/EEC, ¶ 50, 2001 O.J. (L 167/10) (EC); Council Directive 91/250/EEC, art. 5(3), 1991 O.J. (L 122/42) (EC); Copyright, Designs and Patents Act 1988, c. 48, §§ 50BA(1), 296A(1)(c) (U.K.).
When SAS later sued, the High Court of Justice sided with WPL — rejecting SAS Institute’s copyright infringement claim (functionality of software not protected) and breach of contract claim (contract cannot bar lawful right of study). Thu U.K. Court of Appeal affirmed — finding the contract provision “invalid to the extent that it prohibits the observation, study or testing of the functioning of the program in order to determine the ideas and principles underlying it” and that the software functionality “does not count as a form of [copyrightable] expression.”
After losing in the UK, SAS brought its lawsuit to the USA and won on the same contract claim that was a loser in the UK (but lost on the copyright claim). The US lawsuit also included a fraudulent inducement and unfair trade practices under N.C. UDTPA. A jury found WPL liable — although WPL was barred from presenting any evidence regarding its reliance upon the UK and EU safe harbors. Damages $80 million.
In this process, the district court refused to give any preclusive effect to the UK judgment.
On appeal, the Fourth Circuit held that the UK judgment was properly denied preclusive effect since it was contrary to North Carolina policy. “North Carolina courts [are] more protective of the sanctity of contracts” than are UK or EU courts.
On the copyright claim, the 4th Circuit declined to resolve the copyright question — finding it moot. Here, SAS received all of its sought-for damages from its other claims and the 4th Circuit ruled that it could not prove grounds for injunctive relief. “Thus, the legal resolution of the copyright question would have no effect on the relief afforded the parties” and therefore the issue is moot. “Absent a practical effect on the outcome of this case, the copyright claim is moot.” SAS Inst., Inc. v. World Programming Ltd., 874 F.3d 370 (4th Cir. 2017).
Now, in its petition, WPL asks two questions:
- Whether federal or state law governs the respect that must be accorded to the judgment of a foreign court in diversity cases.
- Whether a district court’s decision on the merits of a claim becomes moot, and must be vacated, if the court of appeals determines that the plaintiff has not proven entitlement to the only remaining relief sought in connection with that claim.
In its argument, WPL reaches back to Hilton v. Guyot, 159 U.S. 113 (1895) where the Supreme Court spelled-out its jurisprudence for respecting foreign judgments. Basically – foreign judgments must be respected by U.S. courts “unless they contravene basic principles of decency and morality.” The difficulty here, though is how a Federal Court should operate when sitting in diversity and weighing the differences between a foreign judgment and the law of a US state’s law. Basically – state law is regularly “less respectful of foreign judgments.”