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Oracle Corp. v. SAP AG

United States Court of Appeals, Ninth Circuit

August 29, 2014

ORACLE CORPORATION, a Delaware corporation; ORACLE INTERNATIONAL CORPORATION; ORACLE SYSTEMS CORPORATION; ORACLE USA INC.; ORACLE EMEA LIMITED; J.D. EDWARDS EUROPE LIMITED; SIEBEL SYSTEMS, INC., Plaintiffs-Appellants,
v.
SAP AG, a German corporation; SAP AMERICA INC.; TOMORROWNOW INC., a Texas corporation, Defendants-Appellees

Argued and Submitted May 13, 2014, San Francisco, California

Page 1082

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Northern District of California. D.C. No. 4:07-cv-01658-PJH. Phyllis J. Hamilton, District Judge, Presiding.

SUMMARY[*]

Copyright Law

The panel affirmed in part and vacated in part the district court's judgment after a jury trial on damages for infringement of enterprise software copyrights owned by Oracle Corp. and other plaintiffs.

The jury awarded Oracle $1.3 billion as the fair market value of a hypothetical license from Oracle encompassing the defendants' infringement of Oracle's copyrights. The district court granted judgment as a matter of law on the ground that Oracle failed to provide enough evidence to permit the jury to establish an objective, non-speculative hypothetical-license price. The district court ordered a new trial, conditioned on Oracle's rejection of a $272 million remittitur measured by the copyright holder's lost profits plus infringer's profits, rather than by hypothetical-license damages. Oracle rejected the remittitur. The district court ruled that, if a second trial were conducted, Oracle would not be able to argue for, or present evidence of, hypothetical-license damages. Oracle and the defendants stipulated to a $306 million judgment.

Affirming the district court's grant of JMOL, the panel held that in order to recover hypothetical-license damages, Oracle did not have to show that it actually would have granted a license to defendants. The panel also held that the hypothetical-license damage award was based on undue speculation. The panel affirmed the district court's grant of defendants' motion for new trial conditioned on Oracle's rejection of a remittitur, as well as the district court's ruling that Oracle could not pursue hypothetical-license damages at a second trial.

The panel vacated the district court's ruling selecting $272 million as the remittitur amount because that amount was below the maximum amount sustainable by the proof. The panel remanded with instructions to condition any new trial on Oracle's rejection of a $356.7 million remittitur.

The panel affirmed the district court's denial of Oracle's motion to exclude testimony by defendants' damages expert during a second trial. The panel declined to reach additional issues concerning a second trial.

Kathleen M. Sullivan (argued) and William Balden Adams, Quinn Emanuel Urquhart & Sullivan LLP, New York, New York; Dorian Estelle Daley and Jennifer Gloss, Oracle Corporation, Redwood City, California; Steven Christopher Holtzman and Fred Norton, Boies Schiller & Flexner LLP, Oakland, California; Geoffrey Mathew Howard, Bingham McCutchen LLP, San Francisco, California, for Plaintiffs-Appellants.

Tharan Gregory Lanier (argued) and Jacqueline K.S. Lee, Jones Day, Palo Alto, California; Gregory Andrew Castanias, Tara Stuckey Morrissey, Jones Day, Washington, D.C.

Before: Susan P. Graber, William A. Fletcher, and Richard A. Paez, Circuit Judges. Opinion by Judge W. Fletcher.

OPINION

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W. FLETCHER, Circuit Judge.

Oracle Corporation and SAP AG are competitors in the enterprise software market. In 2007, Oracle et al. (collectively, " Oracle" ) brought suit against SAP et al. (collectively, " SAP" ) alleging that TomorrowNow, an enterprise software company recently acquired by SAP, was engaging in systematic and pervasive illegal downloading of Oracle's software. SAP eventually stipulated to liability, and the parties went to trial solely on damages.

The jury awarded Oracle $1.3 billion as the fair market value of a hypothetical license from Oracle encompassing SAP's infringement of Oracle's copyrights. SAP moved for judgment as a matter of law (" JMOL" ) on two grounds: (1) that Oracle failed to show that it actually would have granted a license; and (2) that Oracle failed to provide enough evidence to permit the jury to establish an objective, non-speculative hypothetical-license price. The district court granted JMOL, making clear in a later order that it agreed with only the second of the two grounds.

The district court ordered a new trial, conditioned on Oracle's rejection of a $272 million remittitur measured by the copyright holder's lost profits plus infringer's profits, rather than by hypothetical-license damages. Oracle rejected the remittitur. The district court ruled that, if a second trial were conducted, Oracle would not be able to argue for, or present evidence of, hypothetical-license damages. Oracle and SAP stipulated to a $306 million judgment.

Oracle appeals from several rulings by the district court: (1) a grant of JMOL to SAP; (2) a grant of SAP's motion for a new trial conditioned on Oracle's rejection of a remittitur; (3) a ruling that Oracle could not pursue hypothetical-license damages at a second trial; (4) a ruling selecting $272 million as the remittitur amount; and (5) four rulings on issues relevant to a second trial.

We affirm the first three rulings. We vacate the fourth ruling and remand to the district court. We conclude that the district court erred in setting the remittitur at $272 million. That amount was below " the maximum amount sustainable by the proof," D & S Redi-Mix v. Sierra Redi-Mix & Contracting Co., 692 F.2d 1245, 1249 (9th Cir. 1982). We therefore vacate and remand with instructions to condition any new trial on Oracle's rejection of a $356.7 million remittitur. We affirm one of the four rulings relating to the second trial; we do not reach the questions presented by the other three rulings.

I. Background

Oracle and SAP are self-described " fierce" competitors in the enterprise software industry. In 2005, when Oracle acquired PeopleSoft, another enterprise software company, for $11 billion. PeopleSoft had itself recently acquired J.D. Edwards, another enterprise software company. In acquiring PeopleSoft, Oracle hoped to gain PeopleSoft's nearly 10,000 customers. In reaction to Oracle's acquisition, SAP initiated a marketing program called Safe Harbor and later, in a modified form, Safe Passage. For convenience, we will refer to this program as Safe Passage.

As a key component of Safe Passage, SAP acquired TomorrowNow Inc. (" TomorrowNow" ) in 2005 for $10 million. Founded by former employees of PeopleSoft, TomorrowNow provided software maintenance services to PeopleSoft's customers, including J.D. Edwards' customers, at half the price charged by Oracle.

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After Oracle acquired Siebel Systems, another enterprise software company, for $6 billion in 2006, TomorrowNow expanded its maintenance services to include Siebel software. SAP hoped to leverage TomorrowNow's relationship with its maintenance service customers to persuade some of those customers to switch over to SAP software.

In 2006, an Oracle employee noticed thousands of suspicious downloads of Oracle software. After an investigation, Oracle concluded that TomorrowNow had illegally downloaded millions of PeopleSoft, J.D. Edwards, Siebel, and Oracle database files. TomorrowNow continued to provide maintenance services to Oracle customers using these downloads until sometime in 2008.

Oracle brought suit in federal district court in 2007, alleging copyright infringement and other federal and state claims. Shortly before trial, SAP stipulated to liability on Oracle's copyright claims, and Oracle dismissed with prejudice all of its non-copyright claims.

The district court conducted a thirteen-day jury trial limited to damages for copyright infringement. The district judge instructed the jury that it could award either (1) hypothetical-license damages or (2) plaintiff's lost profits and infringer's profits. Oracle's expert testified, based on a hypothesized negotiation that would have taken place before the infringement began, that the fair market value of a license allowing use of the downloaded software for the period of infringement would have been $1.656 billion. In November 2010, the jury returned a verdict for Oracle for $1.3 billion, based on what it found was the fair market value of a hypothetical license granted by Oracle.

SAP objected to the amount of the damage award and moved for JMOL. The district court granted JMOL, making clear in a later order that its sole ground for denying the motion was that " the evidence Oracle presented was insufficient to establish an objective non-speculative license price."

SAP also moved for a new trial. The district court granted the motion conditioned on Oracle's rejection of a $272 million remittitur. The district court determined that $272 million was " the maximum amount . . . sustainable by the proof." In granting SAP's motion, the district court made clear that in a new trial, if one were conducted, Oracle would not be allowed to argue for, or present evidence of, hypothetical-license damages.

Oracle rejected the $272 million remittitur. In advance of a second trial, the district court denied a number of Oracle's evidentiary motions. In order to expedite an appeal, the parties stipulated to a $306 ...


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