Respecting Foreign Judgments and $79 million for clicking “I agree”

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:

  1. Whether federal or state law governs the respect that must be accorded to the judgment of a foreign court in diversity cases.
  2. 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.”

17 thoughts on “Respecting Foreign Judgments and $79 million for clicking “I agree”

  1. 7

    How can the U.S. gain prestige on the global stage in the eyes of States of the East and the European blocks if it does not at least “respect” their “disrespect” for individual rights, the rule of law, and the distinctly American ideas and principles of freedom?

    How could the U.S. possibly expect to curry favor with those who disrespect American ideals if it does not at least respect that disrespect?

    Surely civility and integrity demand deference to their contempt, no?

  2. 6

    Does your argument ignore the fact that the United States and the UK is a signee to the Berne Convention? Isn’t this also a case that the Fourth Court of Appeals simply decided not to respect that fact?

    1. 6.1

      How is the Berne Convention implicated in the contract matter?

  3. 5

    A possible way to ensure that US law is applied is to require an agreement with an affiliate that is a US legal entity. In the agreement, have the US entity provide a warranty that it will not permit its affiliates to reverse engineer. While it may be legal under UK law to reverse engineer by a company in the UK, the US entity would still be liable for breach of warranty.

    1. 5.1

      That sounds very much like the Chinese requirement that foreign companies wishing to conduct business in China work through a Chinese subsidiary or partner which underlies a lot of our current trade dispute. This does not sound like a solution.

  4. 4

    Is there a “provision of law” clause in the contract?

    1. 4.1

      The circuit court indicates that the parties chose North Carolina law.

      1. 4.1.1

        Thanks – an interesting twist then is why the UK court did not respect that contract choice…

  5. 3

    If the US were to “respect” the decisions of foreign courts when the foreign courts are applying very different laws to the facts, well, simply put, that would be moronic. The key determining law is basically the opposite in the UK, so why should the US respect a decision based on the opposite law? This would lead to ultimate, world-wide forum shopping.

    1. 3.1

      While I agree (somewhat) with your initial thoughts, temprand, I do not follow the conclusion of “ultimate, world-wide forum shopping.

      One should recognize that in the present fact pattern (the US NOT “respecting” a decision based on opposite law), we SEE forum shopping in play.

      The plaintiff has had multiple bites at the same apple – the first bite in one forum not going how they wanted, so they engaged in forum shopping, finding a forum more amenable.

      Your conclusion does not fit, because forum shopping happens (or would happen) down both avenues.

  6. 2

    Surprised this cert petition does not even attempt to raise the question of whether or not provisions in contracts for software that prohibit “the observation, study or testing of the functioning of the [copyrighted] program” are unenforceable as against public policy and/or beyond the valid scope of IP protection. [The Sup. Ct. has previously held certain patent licensing contract provisions unenforcable on that basis.] Or why the cert petition does not at least question the SCOPE of contractual “reverse engineering” prohibitions.

    1. 2.1

      Do you have cases and cites for those propositions?

      1. 2.1.1

        Paul must be referring to Lear v. Adkins and Kimble v. Marvel, as well as cases going back to the Motion Picture Patenrts case (overruling A.B. Dick v. Henry). In principle, this contract conflicts with Lasercomb as well. (a 4th Circuit decision!).

        1. 2.1.1.1

          Kimble v. Marvel – yet another doozy from the Supremes (whose thinking reflects a ‘well, we know this is wrong as the underlying basis clearly has changed, but we re going to rule against the patent owner anyway”)

    2. 2.2

      Note that the former would effectively remove the legal difference between the two countries.

      1. 2.2.1

        I certainly agree Paul (and would add that I have always stressed that laws are for (and of) the choice of each individual Sovereign.

        However, even as comity is not something that must be mandated, I am struck that here the court would not even allow to be presented something that may be helpful (vis a vis rules of evidence and all) (emphasis added):

        A jury found WPL liable — although WPL was barred from presenting any evidence regarding its reliance upon the UK and EU safe harbors.

        especially when one also considers:

        purchased a copy of SAS’s popular software and began to study its functionality (all in the UK).

  7. 1

    Fascinating interplay!

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