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Phoenix Technologies Ltd. v. VMware, Inc.

United States District Court, N.D. California

May 11, 2017

VMWARE, INC., Defendant.


          HAYWOOD S. GILLIAM, JR. United States District Judge.

         Pending before the Court is Defendant VMware, Inc.'s (“VMware”) second motion in limine seeking to preclude Plaintiff Phoenix Technologies, Inc. (“Phoenix”) from introducing evidence or argument that “(1) [] departs from its contention, throughout the case, that both VMware's ESX and ESXi products infringe Phoenix's copyrights, or (2) [] the removal of the Linux [operating system] from ESX to create ESXi introduced a ‘new' infringing feature in ESXi.” Dkt. No. 187 at 5. Phoenix opposes. Dkt. No. 19. Having carefully considered the papers filed in connection with this motion and oral arguments made by the parties at the pretrial conference and a subsequent telephonic conference, the Court GRANTS VMware's motion in limine for the reasons set forth below.

         I. HISTORY

         To clarify the basis for VMware's motion, the Court first recounts Phoenix's shifting characterization of its theory of infringement.

         Phoenix filed its complaint on March 27, 2015, alleging that several VMware products infringed Phoenix's copyright in four ways. See Dkt. No. 1. Specifically, Phoenix alleged that

VMware's unauthorized and infringing [u]ses include, but are not limited to, its [u]se of the 440BX Program (or derivatives thereof) in VMware vSphere, VMware ESX, VMware ESXi, GSX Server, VMware Server and other VMware products that incorporate these technologies (the “Infringing Products”). VMware introduced the different Infringing Products at different points in time beginning no later than 2001. These Infringing Products violate the MLA for at least the following reasons:
(a) They are not “Licensee's Products” because they are designed to run on servers instead of “standard PC platforms;”
(b) Certain VMware server products are not “Licensee's Products” because they operate with their own host kernel, without a host operating system, and are thus not compatible with “standard PC operating systems;”
(c) They support processors other than the Intel Pentium processor, in violation of the limitation set forth in the MLA;
(d) They support multiple processors beyond the limitation of two processors as set forth in the MLA.

Id. ¶ 68.

         VMware then propounded an interrogatory asking Phoenix to “[i]dentify each [VMware] product that [Phoenix] contend[ed] infringe[d] [Phoenix's] copyright and for which [Phoenix] [sought] damages.” Dkt. No. 295-7 at 5. In response, on April 13, 2016, Phoenix identified VMware's GSX Server, VMware Server, ESX, and ESXi products, and stated that they each infringed through the “[u]nlicensed use of [Phoenix] BIOS beyond the terms of the MLA and its amendments, as set forth in the Complaint.” Id. at 6-7. Phoenix's response further stated that “the basis for [Phoenix's] contention that each product or product version infringes involves expert issues that will be the subject of the reports of Phoenix's experts. Phoenix incorporates by reference all such expert reports and testimony.” Id. at 7. At the time of this response, of course, there were not yet any expert reports to incorporate.

         On May 13, 2016, fourteen days after the close of fact discovery, [1] two Phoenix experts, Dr. Nathaniel Polish and Dr. Robert Zeidman, filed reports noting a distinction between ESX and ESXi not alleged in Phoenix's complaint. Dkt. Nos. 120-4 ¶¶ 60-65, 122-2 ¶ 67. For example, Dr. Polish stated that ESXi's “removal of the Linux OS Service Console further demonstrates that ESXi neither installs on nor operates with any standard PC operating system.” Dkt. No. 122-2 ¶ 67. Dr. Zeidman stated that “VMware's ESXi product functions entirely independently of any standard operating system, let alone a standard PC operating system, as that term is defined by Dr. [] Polish . . . [because] VMware's ESX product is also installed on physical servers without a standard operating system, but incorporates and relies upon a Linux-based operating system to launch, ” while “ESXi eliminates this use of Linux and therefore operates without the use of any standard operating system.” Dkt. No. 120-4 ¶ 65. Similarly, Phoenix's damages expert, Dr. Matthew Lynde, testified that for purposes of drafting his expert report he “was asked to assume” that ESXi was the infringing product, rather than ESX, and that “[i]f [he] were asked to assume that ESX were in breach of the [] license agreement [as well], that would require further economic analysis.” Dkt. No. 193-11 at 10:15, 14:16-19.

         Thereafter, in Phoenix's June 6, 2016 Second Supplemental Responses and Objections to VMware's Interrogatory Nos. 7-10, Phoenix stated that while it “[did] not concede that other VMware products comply with the [Master License Agreement (“MLA”)] (as defined in the Complaint), it [would] not seek hypothetical license damages in connection with VMware products other than the ESXi products based on [] information made available to Phoenix in discovery.” Dkt. No. 130-1 at 4:2-5. Instead, Phoenix stated that it intended to seek damages specifically relating to VMware's infringing use of the Phoenix BIOS in VMware's ESXi products, because those products “(1) run on servers instead of ‘standard PC platforms'”; (2) “operate with their own host kernel, without a host operating system, and are thus not compatible with ‘standard PC operating systems'”; (3) “support multiple processors beyond the limitation of two processors”; and (4) require the Phoenix BIOS to “interact[] with a virtual chipset that is not a 440BX chipset.” Id. at 4:26-5:5 (internal quotation marks omitted). Three weeks later, Dr. Lynde submitted a Sur-Rebuttal Expert Report stating that “[t]he 2005 and 2006 dates that [VMware's damages expert] assumes as the dates of the hypothetical negotiation are unsupported and predate the sale of ESXi, the first accused product, by at least 18 months.” Dkt. No. 215-20 at 5.

         On July 22, 2016, Phoenix filed a motion for summary judgment arguing, in part, that VMware's “ESXi software violates [the MLA] licensing restriction” because the MLA's definition of “‘Licensee's Products' can only be construed in one way: the hardware platform on which ESXi runs must have a standard PC operating system.'” Dkt. No. 121 at 16:6-9. Phoenix reasoned that because “ESXi, in contrast to prior versions of [VMware's] software, ‘operates independently from any general-purpose operating system [(“OS”)], '” there was “no room for doubt that the ESXi products violate the ‘Licensee's Products' restriction . . . .” Id. at 16:13-20. Phoenix further stated that ESXi's removal of the general purpose Linux OS that was incorporated into ESX constituted a “significant departure from its prior technology.” Id. at 9:22.

         On August 26, 2016, Phoenix opposed VMware's cross-motion for summary judgment, arguing that VMware “misleadingly conflate[d] [the] ESX and ESXi products, referring to them jointly as ‘ESX/ESXi' in its Motion, [when] VMware's own marketing materials demonstrate[d] these products [were] markedly different.” Dkt. No. 212 at 7:3-5. Instead, Phoenix argued that ESXi was the “only product at issue here.” Id. at 6:20. Furthermore, Phoenix stated that “[t]he only component of VMware's earlier products[, such as ESX, ] that conceivably constituted a ‘standard PC operating system' was the Linux operating system in the service console of the software, ” which VMware removed from ESXi, thereby “eliminating] any colorable claim that the ESXi software runs on ‘platforms with a standard PC operating system' and introduc[ing] new grounds for finding infringement.” Id. at 9:2-6, 9:8-10 (emphasis added).

         On September 16, 2016, Phoenix filed a reply in support of its motion for summary judgment, again arguing that VMware's ESX and ESXi products were “markedly” different “in that [ESXi] eliminated all reliance on a general purpose operating system.” Dkt. No. 158 at 1 n.2. Phoenix therefore contended that VMware's opposition to its motion for summary judgment, in which VMware argued that Phoenix's claims were barred by the doctrines of copyright estoppel and waiver, Dkt. No. 216 at 24-25, “misleadingly conflate[d] ESXi with [ESX], ...

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