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Quest Software, Inc v. Directv Operations

September 26, 2011

QUEST SOFTWARE, INC., PLAINTIFF,
v.
DIRECTV OPERATIONS, LLC, DEFENDANT.



The opinion of the court was delivered by: Andrew J. Guilford United States District Judge

ORDER RE DEFENDANT'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT

Plaintiff Quest Software, Inc. ("Plaintiff") licensed its Foglight computer software to Defendant DirecTV Operations, LLC ("Defendant") in 2002. Plaintiff sued Defendant in 2009 for deploying this software in alleged violation Plaintiff's copyrights and the parties' license agreements. Defendant now files two Motions for Partial Summary Judgment (the "Motions"), the first on Plaintiff's claims for copyright infringement and breach of contract, and the second on damages. After considering all arguments and papers submitted, the Courts GRANTS in part and DENIES in part Defendant's Motion for Partial Summary Judgment on Plaintiff's claims for copyright infringement and breach of contract ("First Motion"). The Court GRANTS in full Defendant's Motion for Partial Summary Judgment on damages ("Second Motion").

BACKGROUND

Defendant provides satellite television to nearly 20 million customers in the United States. (First Motion at 2:17-18.) Plaintiff creates and licenses computer systems management software, including a line of software named Foglight. (Complaint ("Compl.") ¶ 5.) Foglight allows users to detect, diagnose, and fix certain problems in computer systems. (Id. ¶ 7.) Defendant used Foglight primarily to monitor the performance of computer servers supporting its customer service call centers. (First Motion at 2:15-18.) Foglight software has nothing to do with Defendant's satellite television service. (Id.)

In 2002, the parties signed a software license agreement ("License Agreement") allowing Defendant to use certain Foglight software. (Id. ¶¶ 10-12.) The License Agreement consisted of two parts -- a standard form software license agreement and a customized addendum ("Addendum") modifying many of the standard terms (Defendant's Statement of Uncontroverted Facts and Law in Support of its Second Motion ("UF2") ¶ 3.) The License Agreement allowed Defendant to use Foglight on its Windows NT servers only. The License Agreement also limited Defendant's use of Foglight to a certain number of central processing units ("CPUs"). (Defendant's Statement of Uncontroverted Facts and Law in Support of its First Motion ("UF1") ¶ 4.)

Plaintiff alleges that Defendant "overdeployed" Foglight by using it on more CPUs than the License Agreement permitted. (UF1 ¶¶ 48-49.) Under the terms of the License Agreement, overdeployment does not constitute an automatic breach. In fact, the License Agreement permits Defendant to overdeploy Foglight provided that Defendant later pays Plaintiff for using the software on additional CPUs. This payment is referred to as the "true-up" payment. (Id.)

Sometime in 2005, Defendant decided to shift its call center CPUs from Windows NT servers to AIX servers. (UF1 ¶ 8.) Hewlett Packard ("HP"), Defendant's server administrator, told Plaintiff that the migration to AIX servers would begin in June 2006 and end in June 2007. (UF1 ¶ 9.) The parties dispute whether, and to what extent, Plaintiff knew and approved of Defendant's use of Foglight on the new AIX servers. Indeed, Defendant's Motions turn primarily on (1) whether Plaintiff knew and approved of Defendant's use of Foglight on AIX servers, and (2) whether Plaintiff knew how many of Defendant's servers were running Foglight. In any event, Plaintiff continued to provide support services to Defendant after Foglight was installed on its AIX servers. (UF1 ¶¶ 17-23.)

In June 2007, Plaintiff requested information from Defendant concerning its computer systems. At Defendant's direction, HP created data reports (the "June 2007 Reports") and sent them to Plaintiff. The June 2007 Reports purported to show the number and type of servers running Foglight software. (UF1 ¶¶ 32-33.) Although the parties dispute the accuracy of the June 2007 Reports, there is no dispute Plaintiff could not have been ignorant of Defendant's overdeployment after receiving them. (Plaintiff's Opposition to Defendant's First Motion ("Opp'n") at 4:7-8.)

In late 2008, Plaintiff sent Defendant an invoice that included (1) true-up fees for the overdeployed licenses; (2) "retroactive" maintenance fees for the overdeployed licenses; and (3) maintenance fees for 2009. (Second Motion at 3:21:25.) Defendant refused to pay the invoice and Plaintiff filed suit.

Based on these facts and others, Plaintiff asserts claims against Defendant for copyright infringement and breach of contract. Defendant now files two Motions for Partial Summary Judgment -- one on Plaintiff's claims for copyright infringement and breach of contract and the other concerning damages.

PRELIMINARY MATTERS

The parties submitted numerous evidentiary objections. In motions with numerous objections, "it is often unnecessary and impractical for a court to methodically scrutinize each objection and give a full analysis of each argument raised." Doe v. Starbucks, Inc., No. 08-0582, 2009 WL 5183773, at *1 (C.D. Cal. Dec. 18, 2009).

The Court has reviewed the parties' objections and relies only on admissible evidence. See F.T.C. v. Neovi, Inc., 598 F. Supp. 2d 1104, 1118 n.5 (S.D. Cal. 2008) ("The parties have each filed evidentiary objections. However, in deciding the present motions, the Court has only relied upon admissible evidence."); See also Schroeder v. San Diego Unified School Dist., Case No. 07-266, 2009 WL 1357414, at *2, n.1 (S.D. Cal. May 13, 2009).

LEGAL STANDARD

Summary judgment is appropriate only where the record, read in the light most favorable to the non-moving party, indicates that "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Material facts are those necessary to the proof or defense of a claim, as determined by reference to substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. In deciding a motion for summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255.

The burden initially is on the moving party to demonstrate an absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. If, and only if, the moving party meets its burden, then the nonmoving party must produce enough evidence to rebut the moving party's claim and create a genuine issue of material fact. Id. at 322-23. If the nonmoving party meets this burden, then the motion will be denied. Nissan Fire & Marine Ins. Co. v. Fritz Co., Inc., 210 F.3d 1099, 1103 (9th Cir. 2000).

ANALYSIS

The Court first considers Defendant's Motion for Partial Summary Judgment on Plaintiff's claims for copyright infringement and breach of contract. The Court then considers Defendant's Motion for Partial Summary Judgment on maintenance fees damages.

1. PLAINTIFF'S FIRST CLAIM, FOR COPYRIGHT INFRINGEMENT

Plaintiff alleges that Defendant infringed its registered Foglight copyrights, in violation of the Copyright Act, 17 U.S.C. Section 101 et seq. (Compl. ¶ 28.) Plaintiff bases this claim on two theories: (1) that Defendant improperly used Foglight software on CPUs with AIX servers, and (2) that Defendant used Foglight on more CPUs than the License Agreement permitted (Id. ¶¶ 16, 20, 27.) Plaintiff also claims that Defendant infringed its copyrights by altering the Foglight software. (Opposition to Defendant's First Motion ("Opp'n") at 9:8-10:27.) The Court considers these arguments in turn.

1.1 Use of Foglight Software on AIX Servers

In its Complaint, Plaintiff alleges that Defendant violated its Foglight copyrights by copying Foglight onto AIX servers without Plaintiff's authorization. (Compl. ¶ 31.) Defendant argues that using Foglight on its AIX servers did not violate Plaintiff's copyrights because Plaintiff impliedly licensed Defendant to do so. (UF1 ¶ 15.) The Court agrees with Defendant.

"The existence of a license creates an affirmative defense to a claim of copyright infringement." Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1114 (9th Cir. 2000). A nonexclusive license, like the one in this case, may be granted expressly or impliedly through conduct. Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990). An implied license may be found where conduct by the copyright holder leads another party to believe that they may use the copyright. See Field v. Google, Inc., 412 F. Supp. 2d. 1106, 1116 (D. Nev. 2006) (citing De Forest Radio Tel. & Tel. Co. v. United States, 273 U.S. 236 (1927)). An implied license to use copyrighted software exists when "(1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute [the] work" or "use, retain and modify the programs." Asset Marketing Systems, Inc. v. Gagnon, 542 F.3d 748, 754-55 (9th Cir. 2008) (footnote and internal quotation marks omitted).

Here, the first requirement is satisfied because Defendant paid Plaintiff to adapt Foglight to AIX servers supporting Defendant's call centers. (UF1 ¶¶ 17-20, 24-26, 37.) The second requirement is also met because Plaintiff delivered Foglight to Defendant and uploaded it to the AIX servers. (Id. ¶ 23.) And the third requirement is satisfied because Plaintiff permitted Defendant to use Foglight on AIX servers. The March 2007 Statement of Work signed by the parties provided that Defendant would "[d]eploy Foglight . . . on as many AIX servers as possible . . . " (Id. ¶ 25.) The efforts of Plaintiff's consultants to load Foglight on the AIX servers further demonstrate that Plaintiff not only knew of Defendant's use Foglight on the AIX servers, but intended Defendant to use Foglight in this manner. (Id. ¶ 26.)

1.2 Overdeployment of Foglight Software

Plaintiff also argues that Defendant violated its Foglight copyrights by running Foglight software on more CPUs than the License Agreement allowed. This argument fails because it states a claim for contract breach, not for copyright infringement.

"Generally, a copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement and can sue only for breach of contract." Sun Microsystems v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir. 1999) (internal quotation marks omitted). A licensee may sue for copyright infringement only when the licensee acts outside the scope of the license. Id. (citing S.O.S., Inc. v. Payday, Inc., 886 F.2d at 1081, 1087 (9th Cir. 1989).

To prove that a licensee acted outside the scope of a license, the licensor "must demonstrate that the violated term . . . is a condition rather than a covenant" under state contract law and federal copyright law. MDY Indus., LLC v. Blizzard Entm't, Inc., 2011 U.S. App. LEXIS 3428, at *15 (9th Cir. Feb 14. 2011). Stated somewhat circularly, conditions are "contractual terms that limit a license's scope . . . the breach of which constitute[s] copyright infringement." Id. at *16. All other license terms are "covenants," which the Ninth Circuit has defined to mean a "contractual promise, i.e., a manifestation or intention to act or refrain from acting in a particular way." Id. (citing Restatement (Second) of Contracts § 2 (1981)).

Here, the overdeployment and true-up provisions in the License Agreement permit Defendant to use Foglight on additional CPUs for an extra fee. These provisions are properly described as covenants because they do not concern the scope of the license, only the number of CPUs the license covers. See, e.g., BroadVision, Inc. v. Medical Protective Co., 2010 U.S. Dist. LEXIS 131106 (S.D.N.Y. Nov. 23, 2010) (applying California law to find that the license provisions permitting excess use of software in exchange for higher fees are covenants, not conditions.) Because the provision restricting ...


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