Oracle Corporation et al v. SAP AG et al

Filing 544

Declaration of Tharan Gregory Lanier in Support of 543 MOTION for Partial Summary Judgment Defendants' Notice of Motion and Motion For Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim [UNREDACTED VERSION OF D.I. 431] MOTION for Partial Summary Judgment Defendants' Notice of Motion and Motion For Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim [UNREDACTED VERSION OF D.I. 431] DECLARATION OF THARAN GREGORY LANIER ISO DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING PLAINTIFFS' HYPOTHETICAL LICENSE DAMAGES CLAIM [UNREDACTED VERSION OF D.I. 433] filed bySAP AG, SAP America Inc, Tomorrownow Inc. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, # 9 Exhibit I, # 10 Exhibit J, # 11 Exhibit K)(Related document(s) 543 ) (Froyd, Jane) (Filed on 11/5/2009)

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Robert A. Mittelstaedt (SBN 060359) Jason McDonell (SBN 115084) Elaine Wallace (SBN 197882) JONES DAY 555 California Street, 26th Floor San Francisco, CA 94104 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] [e-mail] Tharan Gregory Lanier (SBN 138784) Jane L. Froyd (SBN 220776) JONES DAY 1755 Embarcadero Road Palo Alto, CA 94303 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Scott W. Cowan (Admitted Pro Hac Vice) Joshua L. Fuchs (Admitted Pro Hac Vice) JONES DAY 717 Texas, Suite 3300 Houston, TX 77002 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Attorneys for Defendants SAP AG, SAP AMERICA, INC., and TOMORROWNOW, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION ORACLE USA, INC., et al., Plaintiffs, v. SAP AG, et al., Defendants. Case No. 07-CV-1658 PJH (EDL) DEFENDANTS' NOTICE OF MOTION AND MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING PLAINTIFFS' HYPOTHETICAL LICENSE DAMAGES CLAIM [UNREDACTED VERSION OF D.I. 431] Date: October 28, 2009; Time: 9:00 a.m. Courtroom: 3, 17th Floor Judge: Hon. Phyllis J. Hamilton
DEFENDANTS' NOTICE OF MOTION AND MOTION FOR PARTIAL SUMMARY JUDGMENT Case No. 07-CV-1658 PJH (EDL)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. III. I. II.

TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY OF ARGUMENT ................................................. 1 UNDISPUTED FACTS ...................................................................................................... 2 A. SAP and Oracle Are Direct, Vigorous Competitors ............................................... 2 B. Plaintiffs Never Would Have Granted a Copyright License to Defendants Covering the Allegedly Infringing Activities ......................................................... 3 C. The Parties Would Not Have Even Negotiated for a Copyright License Covering the Allegedly Infringing Activities ......................................................... 4 ARGUMENT ...................................................................................................................... 6 A. Legal Standard for Partial Summary Judgment under Rule 56............................... 6 B. A "Hypothetical License" Is Not a Permitted Form of Damages for Copyright Infringement When the Parties Never Would Have Agreed to a License .................................................................................................................... 7 1. The Copyright Act Sets Specific Remedies ................................................ 7 2. Causation Principles Apply to Actual Damages and Infringer's Profits .......................................................................................................... 8 3. Actual Damages May Be Measured Using a "Hypothetical License" Only If, but for Infringement, the Parties Would Have Agreed to a License ........................................................................................................ 9 4. A "Hypothetical License" Is Different from a "Reasonable Royalty." ................................................................................................... 10 C. Plaintiffs Are Not Entitled to Actual Damages in the Form of a Hypothetical License Because the Parties Never Would Have Agreed to Such a License ...................................................................................................... 11 1. Oracle Executives' Undisputed Testimony Establishes that Plaintiffs Would Not Have Granted a License.......................................... 11 2. Direct Competition between the Parties and the Lack of Any Equivalent Licenses Further Proves that Plaintiffs Would Not Have Granted a License...................................................................................... 12 3. Even Had Plaintiffs Been Willing to Negotiate, the Parties' Differing Bases for a License Establish that They Would Not Have Reached an Agreement ............................................................................. 13 4. Case Law Supports a Finding that Plaintiffs Are Not Entitled to a "Hypothetical License" Form of Actual Damages.................................... 14 D. Plaintiffs Are Not Entitled to a Hypothetical License Based on "Saved Acquisition Costs" Because this Theory Is Inconsistent with the Copyright Act and Ninth Circuit Precedent ........................................................................... 16 CONCLUSION ................................................................................................................. 20

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TABLE OF AUTHORITIES Page(s) Cases American Employers Group, Inc. v. Employment Dev. Dep't, 154 Cal. App. 4th 836 (2007) .................................................................................................... 13 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)..................................................................................................................... 6 Baker v. Urban Outfitters, Inc., 254 F. Supp. 2d 346 (S.D.N.Y. 2003)........................................................................................ 10 Banner Entm't, Inc. v. Superior Court, 62 Cal. App. 4th 348 (1998) ...................................................................................................... 13 Big Seven Music Corp. v. Lennon, 554, F.2d 504 (2d Cir. 1977)........................................................................................................ 9 Business Trends Analysts, Inc. v. Freedonia Group, Inc., 887 F.2d 399 (2d Cir. 1989)................................................................................................ passim Celotex Corp. v. Catrett, 477 U.S. 317 (1986)................................................................................................................. 6, 7 Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147 (1st Cir. 1994) ........................................................................................................ 8 Deltak, Inc. v. Advanced Sys., Inc., 767 F.2d 357 (7th Cir. 1985).......................................................................................... 17, 18, 19 Encyclopedia Brown Prods., Ltd. v. Home Box Office, Inc., 25 F. Supp. 2d 395 (S.D.N.Y. 1998).......................................................................... 9, 10, 12, 19 Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505 (9th Cir. 1985)............................................................................................... passim Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d 957 (9th Cir. 1994).......................................................................................................... 6 Harper & Row v. Nation Enters., 471 U.S. 539 (1985)............................................................................................................... 8, 19 House, Inc. v. Thomas Nelson, Inc., No. CV 85-4225-PAR, 1987 WL 30581 (C.D. Cal. Aug. 28, 1987)......................................... 19 Jarvis v. K2, Inc., 486 F.3d 526 (9th Cir. 2007)............................................................................................... passim Mackie v. Rieser, 296 F.3d 909 (9th Cir. 2002)............................................................................................... passim McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557 (7th Cir. 2002).......................................................................................... 12, 14, 15 Minks v. Polaris Indus., Inc., 546 F.3d 1364 (Fed. Cir. 2008).................................................................................................. 10 Multitherm Corp. v. Fuhr, Civ. A. No. 89-6151, 1991 WL 146233 (E.D. Pa. July 24, 1991).......................................................... 19 Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099 (9th Cir. 2000)...................................................................................................... 6 - ii -

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TABLE OF AUTHORITIES (continued) Page On Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001)................................................................................................ passim Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700 (9th Cir. 2004)............................................................................................... passim Quinn v. City of Detroit, 23 F. Supp. 2d 741 (E.D. Mich. 1998)....................................................................................... 19 Roeslin v. District of Columbia, 921 F. Supp. 793 (D.D.C. 1995) ................................................................................................ 20 Shapiro, Bernstein & Co. v. 4636 S. Vermont Ave., Inc., 367 F.2d 236 (9th Cir. 1966)........................................................................................................ 8 Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157 (9th Cir. 1977).................................................................................... 7, 17, 18, 19 Steven Greenberg Photography v. Matt Garrett's of Brockton, Inc., 816 F. Supp. 46 (D. Mass. 1992) ............................................................................................... 19 Thornton v. J Jargon Co., 580 F. Supp. 2d 1261 (M.D. Fla. 2008) ..................................................................................... 19 Thoroughbred Software Int'l, Inc. v. Dice Corp., 439 F. Supp. 2d 758 (E.D. Mich. 2006)..................................................................................... 19 Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793 (1998) ...................................................................................................... 13 Statutes 17 U.S.C. § 101 .............................................................................................................................. 18 17 U.S.C. § 105 ................................................................................................................................ 1 17 U.S.C. § 412 .......................................................................................................................... 8, 18 17 U.S.C. § 504 ................................................................................................................ 7, 8, 11, 17 35 U.S.C. § 284 .............................................................................................................................. 10 Federal Rule of Civil Procedure 56.............................................................................................. 1, 6 Other Authorities Notes of Committee on Judiciary, H.R. No. 94-1476.................................................................... 18

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NOTICE OF MOTION PLEASE TAKE NOTICE THAT on October 28, 2009, at 9:00 a.m., or as soon thereafter as this matter may be heard by the above-entitled Court, located at 450 Golden Gate Avenue, San Francisco, California, in Courtroom 3 before the Honorable Phyllis J. Hamilton, Defendants SAP AG, SAP America, Inc. (together, "SAP") and TomorrowNow, Inc. ("TN," and with SAP, "Defendants") will bring their motion for partial summary judgment, pursuant to 17 U.S.C. § 105, Federal Rule of Civil Procedure 56 and Civil Local Rules 7-2, 7-4, 7-5 and 56-1, against Plaintiffs Oracle USA, Inc., Oracle International Corporation and Oracle EMEA Limited ("Plaintiffs" or "Oracle") seeking a ruling that Plaintiffs are not entitled to pursue actual damages in the form of a hypothetical license. This motion is based on the Memorandum of Points and Authorities herein, along with the Declaration of Tharan Gregory Lanier and exhibits attached thereto. RELIEF REQUESTED Defendants respectfully request that the Court grant partial summary judgment that Plaintiffs are not entitled to pursue actual damages in the form of a hypothetical license. MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION AND SUMMARY OF ARGUMENT Plaintiffs' central claim is copyright infringement, for which they seek damages under three different theories. First, Plaintiffs allege that TN, which was never profitable under SAP's ownership, cost them at least $100 million in lost profits. Second, Plaintiffs allege that they are entitled to disgorgement of at least $500 million in SAP's profits somehow attributable to TN's activities. Third, Plaintiffs seek actual damages in the form of a hypothetical license. Plaintiffs have not yet quantified this claim, but base it on a hypothetical negotiation between Oracle and SAP, at a time immediately after the PeopleSoft and TN acquisitions, and estimate that it is in the "billions." See Declaration of Tharan Gregory Lanier in Support of Defendants' Motion for Summary Judgment ("Lanier Decl.") ¶ 8, Ex. H (May 22, 2009 Plaintiffs' Supplemental and Amended Disclosures ("Supplemental Disclosures")) at 46-47. Although each damages claim is overstated, only the hypothetical license claim is the subject of this motion. A hypothetical license is a form of actual damages that measures the harm to a plaintiff
DEFENDANTS' NOTICE OF MOTION AND MOTION FOR PARTIAL SUMMARY JUDGMENT Case No. 07-CV-1658 PJH (EDL)

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who, absent infringement, would have received a licensing fee from the defendant for use of the plaintiff's copyrighted work. In contrast to the "reasonable royalty" of patent law, this form of damages is available in copyright cases only if a plaintiff proves that, but for the infringement, the parties would have agreed to a license. In other words, as with all forms of compensatory damages, Plaintiffs have the burden to prove causation. Where the undisputed facts demonstrate that, but for infringement, the parties never would have agreed to a license for the copyrighted material at issue, a hypothetical license is not available as a matter of law. The undisputed evidence here shows that these parties never would have agreed to a license covering the allegedly infringing activity, in any amount. Plaintiffs contend that such a license would have been akin to giving away their alleged intellectual property. They have never granted such a license to anyone, and would not have granted it to SAP. Oracle and SAP are fierce competitors in applications software, the field in which TN provided maintenance service. Oracle founder and CEO Larry Ellison testified that Oracle would not have granted SAP a license because Oracle was not interested in handing over its multi-billion dollar share of the applications market, acquired after great expense and effort, to its biggest competitor. Oracle's executives explained that even had they considered a license, they would have demanded billions, which Mr. Ellison acknowledged would have been "prohibitively" expensive to SAP. Plaintiffs cannot meet their burden of proving that, but for the alleged infringement, the parties would have agreed to a license permitting the full range of conduct that Plaintiffs now contend caused them significant harm. Plaintiffs cannot escape this causation requirement by characterizing the hypothetical license as based on a "saved acquisition costs" theory because this theory is inconsistent with the Copyright Act and Ninth Circuit precedent. Because there is no genuine issue of material fact with respect to Plaintiffs' hypothetical license claim, summary judgment should be granted. Eliminating this impermissible claim now will promote efficient case management and is essential to resolution of this case. II. UNDISPUTED FACTS A. SAP and Oracle Are Direct, Vigorous Competitors.
DEFENDANTS' NOTICE OF MOTION AND MOTION FOR PARTIAL SUMMARY JUDGMENT Case No. 07-CV-1658 PJH (EDL)

According to the complaint, when Oracle completed its 18-month PeopleSoft acquisition
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in January 2005, it "emerge[d] as the second-largest provider of business software applications in the world and the first to rival SAP AG in market share, size, and geographic and product scope." D.I. 418 (¶ 62); see also Lanier Decl. ¶ 1, Ex. A (March 27, 2009 Safra Catz Deposition ("Catz Depo.")) at 158:13-159:6. Oracle's PeopleSoft acquisition was directed at SAP. See D.I. 418 (¶ 74); see also Lanier Decl. ¶ 1, Ex. A (Catz Depo.) at 158:13-159:6. Mr. Ellison testified that Oracle purchased PeopleSoft specifically to "expand our applications business," Lanier Decl. ¶ 3, Ex. C (May 5, 2009 Larry Ellison Deposition ("Ellison Depo.")) at 58:6-10, and publicly declared that, as a result of the acquisition, "we're going to give SAP a good run for their money in this business." Id. ¶ 9, Ex. I (December 10, 2004 "This week in OpenWorld news" CNET News.com). Oracle's top executives, including Mr. Ellison and co-Presidents Charles Phillips and Safra Catz, believe that Oracle's main competitor in the applications market is SAP. See id. ¶¶ 1-3, Ex. C (Ellison Depo.) at 114:16-24; Ex. B (April 17, 2009 Charles Phillips Deposition ("Phillips Depo.")) at 96:15-16; Ex. A (Catz Depo.) at 19:10-25 (Oracle does not "have any more significant competitor than SAP"). Mr. Phillips has publicly described SAP as Oracle's "enemy." Id. ¶ 2, Ex. B (Phillips Depo.) at 57:12-58:18. SAP executives also acknowledge that Oracle is SAP's "main competitor" in applications software. Id. ¶¶ 5-6, Ex. E (September 25, 2008 Henning Kagermann Deposition ("Kagermann Depo.")) at 167:25-168:7; Ex. F (October 2, 2008 Leo Apotheker Deposition ("Apotheker Depo.")) at 58:10-23. As one response to Oracle's over $10 billion PeopleSoft acquisition, SAP purchased TN for $10 million. See D.I. 418 (¶ 75). At that time, TN was a small software service company, based in Bryan, Texas, that provided maintenance and support for PeopleSoft software, and later, J.D. Edwards and Siebel software. See D.I. 418 (¶¶ 67, 86). TN had just achieved its first profitable year, with a net income of approximately $52,600. See Lanier Decl. ¶ 7, Ex. G. B. Plaintiffs Never Would Have Granted a Copyright License to Defendants Covering the Allegedly Infringing Activities.

In their recent Supplemental Disclosures, Plaintiffs described the hypothetical license they are pursuing as one resulting from a negotiation between Oracle and SAP in January 2005, following Oracle's PeopleSoft acquisition and SAP's TN acquisition. See id. ¶ 8, Ex. H
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(Supplemental Disclosures) at 47. In motion practice, Plaintiffs described the hypothetical license as one "reached between `keen competitors' like Oracle and SAP" that "would [have] allow[ed] SAP's service subsidiary to use Oracle applications and service support intellectual property to aggressively compete against Oracle for applications customers and market share," and that would have had "nothing in common with any agreement Oracle has with any business Partner." D.I. 253 at 14. According to Plaintiffs, this license would have had to cover any "attempt[] to convert the customer to a competing software platform and . . . daily wholesale copying and cross-use of Oracle's application software and support materials." D.I. 253 at 2; see also Lanier Decl. ¶¶ 1-2, Ex. A (Catz Depo.) at 10:20-11:7, 20:6-25:18; Ex. B (Phillips Depo.) at 118:8-120:18. Mr. Ellison testified that such a license would have required "basically hav[ing] all of our IP, to make the IP equally accessible to their team and our team" and would have included "everything we're currently doing." See Lanier Decl. ¶ 3, Ex. C (Ellison Depo.) at 74:5-75:24. Plaintiffs have never granted such a license to anyone. See D.I. 256 (¶¶ 1, 3-4); D.I. 253 at 10. In January 2005, had SAP or TN approached Oracle for a license to support TN's operations, Oracle would have said no. Mr. Ellison, who would have been ultimately responsible for making such a licensing decision, testified that Oracle would not have even "entertained" an offer from TN. Lanier Decl. ¶ 3, Ex. C (Ellison Depo.) at 74:5-11, 81:10-82:2. As Ms. Catz explained, Oracle would have refused to grant a license to SAP or TN if "we thought it wasn't a good business plan for us," among "many" other circumstances. See id. ¶ 1, Ex. A (Catz Depo.) at 47:3-15. According to Mr. Ellison, granting such a license to SAP or TN would have been tantamount to "saying good-bye to the applications business forever . . . we might as well say, okay, we're exiting this business." Id. ¶ 3, Ex. C (Ellison Depo.) at 80:3-81:9; 83:18-84:6. Having just spent over $10 billion, 18 months in litigation and $100 million in legal fees to establish its foothold in the applications business, Oracle had no intention of exiting it. See id. ¶¶ 1, 3, Ex. A (Catz Depo.) at 26:24-27:15, 158:13-159:23; Ex. C (Ellison Depo.) at 81:6-9. C. The Parties Would Not Have Even Negotiated for a Copyright License Covering the Allegedly Infringing Activities.

Hasso Plattner, SAP's co-founder, confirmed that SAP would not have even considered
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the type of license contemplated by Oracle executives. When asked at deposition to contemplate a hypothetical negotiation, Mr. Plattner's response made it clear that the parties never would have made it to the negotiating table: Q. . . . Let's say that the two sides are just sitting down to try and negotiate that license under those circumstances I just described. Would you [as Oracle] then be taking into account how much you've paid? MR. LANIER: Same objections. THE WITNESS: Then I can do what I want. MR. HOWARD: Q. And would you then -A. And -Q. Would you then take into account how much you've paid if you're Oracle for the PeopleSoft business? A. Then we don't have to sit together. Id. ¶ 4, Ex. D (June 2, 2009 Hasso Plattner Deposition ("Plattner Depo.")) at 68:10-22. Mr. Plattner explained that even had the parties reached the negotiating table, he would have expected the asking price for a hypothetical license to be "lower than the price" that the licensor normally charges a customer for maintenance, "because somebody else is doing the job" for the licensor and therefore "it's an indirect charge." Id. ¶ 4, Ex. D (Plattner Depo.) at 56:2158:2. He also stated that he would not have expected the asking price to be based on the amount of "money that [the licensor] spent to develop the software in the first place." Id. ¶ 4, Ex. D (Plattner Depo.) at 57:23-58:2. He also would not have expected the asking price to have been based on "the purchase price that Oracle [had] just paid to PeopleSoft in setting that license fee" for the same reason that "the history of the development of cost [sic] at GM is not relevant to the price GM can charge for a car now." Id. ¶ 4, Ex. D (Plattner Depo.) at 65:19-66:21. Oracle executives' testimony underscores Plaintiffs' fundamentally different approach to the hypothetical negotiation. In answering questions concerning the basis for and value of a hypothetical license, Mr. Phillips testified that the license would have had to have cost at least $34 billion in light of the "impact on our business by granting a competitor intellectual property." Id. ¶ 2, Ex. B (Phillips Depo.) at 118:8-120:6. Ms. Catz testified that she would have required
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SAP or TN to pay more than $12.6 billion to account for the PeopleSoft acquisition (and related legal fees). See id. ¶ 1, Ex. A (Catz Depo.) at 46:7-47:15, 158:13-159:23. Mr. Ellison testified that the price of such an expansive license would have had to have been at least $8 billion, to cover 70% of the over $10 billion PeopleSoft customer base Mr. Ellison believes Oracle would have lost to SAP as a result of the license, and as much as $30 billion to cover exiting the applications business. See id. ¶ 3, Ex. C (Ellison Depo.) at 76:16-78:11, 80:3-81:9. He acknowledged, however, that Defendants would have viewed this price as extremely, even "prohibitively" expensive. Id. ¶ 3, Ex. C (Ellison Depo.) at 74:2-75:9. III. ARGUMENT A. Legal Standard for Partial Summary Judgment under Rule 56.

A defendant may move for summary judgment "on all or part of [a] claim," including damages. Fed. R. Civ. P. 56(b), 56(d)(1). Summary judgment is proper when the pleadings, discovery and affidavits show that there is "no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of fact is genuine only if there is sufficient evidence for a reasonable jury to find for the nonmoving party. See id. The moving party bears the initial burden of identifying those portions of the pleadings, discovery and affidavits that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). On an issue for which the opposing party will have the burden of proof at trial, the moving party may "either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine, 210 F.3d at 1102. Once the moving party meets its burden, the nonmoving party must "set out specific facts showing [that there is] a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). Mere allegations or denials do not defeat a moving party's allegations. See id.; Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d 957, 959-60 (9th Cir. 1994). If the nonmoving party fails to produce enough
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evidence to show a genuine issue of material fact, "the moving party is entitled to judgment as a matter of law." Celotex, 477 U.S. at 322-23. B. A "Hypothetical License" Is Not a Permitted Form of Damages for Copyright Infringement When the Parties Never Would Have Agreed to a License.

A plaintiff may not pursue a "hypothetical license" as a form of actual damages for copyright infringement when the undisputed evidence demonstrates that, but for infringement, the parties never would have entered into a license for the copyrighted material at issue. 1. The Copyright Act Sets Specific Remedies.

The Copyright Act sets the exclusive remedies available for infringement: actual damages and infringer's profits, as well as alternative statutory damages. See 17 U.S.C. § 504(b)-(c). Actual damages are generally calculated "by the loss in the fair market value of the copyright," which is determined by either "the profits lost due to the infringement" or "the value of the use of the copyrighted work to the infringer." Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004); see also Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002); Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 512 (9th Cir. 1985). The Ninth Circuit has held that, "in situations where the infringer could have bargained with the copyright owner to purchase the right to use the work," the "value of use" form of actual damages may be determined by using a hypothetical license. Jarvis v. K2, Inc., 486 F.3d 526, 533 (9th Cir. 2007); see also Polar Bear, 384 F.3d at 709 (stating that "a hypothetical lost license fee" may be awarded, "provided the amount is not based on undue speculation") (citation omitted). The amount of the hypothetical license--a separate consideration--is measured by "what a willing buyer would have been reasonably required to pay to a willing seller for plaintiffs' work." Jarvis, 486 F.3d at 533 (quoting Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1174 (9th Cir. 1977)); see also Mackie, 296 F.3d at 917; Frank Music, 772 F.2d at 512. In addition to actual damages, a copyright owner is also entitled to recover "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." 17 U.S.C. § 504(b). To establish the infringer's profits, "the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is
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required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." Id. These two forms of damages have different justifications and serve different purposes. Actual damages, analyzed from the copyright owner's point of view, are awarded to compensate for demonstrable harm caused by infringement. See 17 U.S.C. § 504(b); Polar Bear, 384 F.3d at 708; On Davis v. The Gap, Inc., 246 F.3d 152, 159 (2d Cir. 2001). Infringer's profits are analyzed from the infringer's point of view. If the infringer has earned a profit, it must disgorge the profit so that it does not benefit from its wrongdoing. See id. When proof of actual damages or infringer's profits is insufficient, a copyright owner may elect to receive statutory damages, see 17 U.S.C. § 504(c), subject to having met other statutory requirements. See 17 U.S.C. § 412(2). 2. Causation Principles Apply to Actual Damages and Infringer's Profits.

General "tort principles of causation and damages" apply when analyzing compensatory damages awards for copyright infringement. Polar Bear, 384 F.3d at 708; see also Harper & Row v. Nation Enters., 471 U.S. 539, 567 (1985); Jarvis, 486 F.3d at 533-34; Mackie, 296 F.3d at 915; Frank Music, 772 F.2d at 514 n.8 (citing Shapiro, Bernstein & Co. v. 4636 S. Vermont Ave., Inc., 367 F.2d 236, 241 (9th Cir. 1966)). Under Section 504(b), "actual damages must be suffered `as a result of the infringement,' and recoverable profits must be `attributable to the infringement.'" Polar Bear, 384 F.3d at 708 (quoting 17 U.S.C. § 504(b)). The plain statutory language makes clear that "a causal link between the infringement and the monetary remedy sought is a predicate to recovery of both actual damages and profits." Id. (emphasis added). The plaintiff bears the burden of proving this necessary causal connection between the infringement and any damages sustained. See id., 384 F.3d at 708 ("We take this opportunity to reaffirm the principle that a plaintiff in a § 504(b) action must establish this causal connection"); Jarvis, 486 F.3d at 533-34; Mackie, 296 F.3d at 914-15 (citing Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1170 (1st Cir. 1994)); Frank Music, 772 F.2d at 514. Specifically, the plaintiff must show that "the infringement was the cause-in-fact of its loss by showing with reasonable probability that, but for the defendant's infringement, the plaintiff would not have suffered the loss." Data Gen., 36 F.3d at 1171. Further, the plaintiff must "prove that the
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infringement was a proximate cause of its loss by demonstrating that the existence and amount of the loss was a natural and probable consequence of the infringement." Id. (citing Big Seven Music Corp. v. Lennon, 554, F.2d 504, 509 (2d Cir. 1977)). Finally, courts allow both direct and indirect evidence to establish loss, but must "reject a proffered measure of damages if it is too speculative." Mackie, 296 F.3d at 915 (quoting Frank Music, 772 F.2d at 513); see also Polar Bear, 384 F.3d at 709-11 (stating that damages may not be "based on undue speculation"); Jarvis, 486 F.3d at 534 (stating that excessively speculative claims of damages are to be rejected). 3. Actual Damages May Be Measured Using a "Hypothetical License" Only If, but for Infringement, the Parties Would Have Agreed to a License.

Because causation principles apply, analysis of actual damages--be it for lost profits or for a hypothetical license--is a two step process. The first, critical step is the threshold causation inquiry, whether the plaintiff would have made a sale (lost profits) or licensed use (hypothetical license) of the copyrighted work absent the infringement. See Polar Bear, 384 F.3d at 711; Jarvis, 486 F.3d at 533; Business Trends Analysts, Inc. v. Freedonia Group, Inc., 887 F.2d 399, 405-06 (2d Cir. 1989); Encyclopedia Brown Prods., Ltd. v. Home Box Office, Inc., 25 F. Supp. 2d 395, 401 (S.D.N.Y. 1998). The second step, reached only if the plaintiff meets its burden on causation, is to determine the amount of the lost sale or licensed use. See id. When analyzing a hypothetical license, it is at this second step that a court applies the objective willing buyer/willing seller test to determine the amount of a hypothetical license. See Jarvis, 486 F.3d at 533 ("[I]n situations where the infringer could have bargained with the copyright owner to purchase the right to use the work, actual damages are `what a willing buyer would have been reasonably required to pay a willing seller'") (citing Frank Music, 772 F.2d at 512). If a plaintiff does not meet its burden of proving causation, a court does not reach this second step and no actual damages may be awarded, since to do so would be unduly speculative. See id.; see also Mackie, 296 F.3d at 917 (calculating value of hypothetical license using willing buyer/willing seller test where evidence showed that parties would have entered into a license); Polar Bear, 384 F.3d at 710-11 (same). Accordingly, a plaintiff is not entitled to actual damages in the form of a hypothetical license absent a showing that, but for the infringement, the parties would have agreed to a license.
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See Polar Bear, 384 F.3d at 708; Frank Music, 772 F.2d at 514; Business Trends, 887 F.2d at 405-06. Courts consider several factors when analyzing causation, including whether: (1) the parties are direct competitors, (2) they sell goods in the same market, (3) the parties have ever entered into a similar license and (4) the plaintiff has ever granted a similar license. See Polar Bear, 384 F.3d at 711; Business Trends, 887 F.2d at 405-06 (rejecting hypothetical license in case where parties were direct competitors); On Davis, 246 F.3d at 161-62 (allowing hypothetical license where parties were non-competitors who could have agreed on a license); Encyclopedia Brown, 25 F. Supp. 2d at 401-02 (same); Baker v. Urban Outfitters, Inc., 254 F. Supp. 2d 346, 357-58 (S.D.N.Y. 2003) (same). Evidence of direct competition between the parties, by itself, strongly supports the conclusion that a hypothetical license may not be a measure of actual damages. See Business Trends, 887 F.2d at 405-06; Encyclopedia Brown, 25 F. Supp. 2d 395 at 401-02. Where the parties directly compete in the same market and there is no evidence that they would have agreed to a hypothetical license for the allegedly infringed work, a court will not permit an award of actual damages to be measured by a hypothetical license. See Jarvis, 486 F.3d at 533 (hypothetical license award available only where "the infringer could have bargained with the copyright owner"); Business Trends, 887 F.2d at 405, 407. 4. A "Hypothetical License" Is Different from a "Reasonable Royalty."

It is useful to contrast a hypothetical license under copyright law with a reasonable royalty under patent law. Under patent law, damages must be "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use of the invention by infringer . . . ." 35 U.S.C. § 284 (emphasis added). Congress specifically set a "reasonable royalty" as a necessary floor for patent damages; even if a plaintiff alleging patent infringement cannot directly prove damages caused by the infringement, the trier of fact must hypothesize a reasonable royalty negotiation and award at least that amount. See id.; Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) ("The hypothetical negotiation requires the court to envision the terms of a licensing agreement reached as the result of a supposed meeting between the patentee and the infringer at the time [the patent] infringement began.") (emphasis added). By contrast, copyright law does not recognize any royalty floor for recovery of
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compensatory damages; a plaintiff must first establish causation. See, e.g., Polar Bear, 384 F.3d at 708-10 (remanding award where a portion of the amount was too speculative). If a plaintiff is unable to prove any compensatory damages, it may elect statutory damages if it has complied with the necessary registration requirements. See 17 U.S.C. § 504(c). C. Plaintiffs Are Not Entitled to Actual Damages in the Form of a Hypothetical License Because the Parties Never Would Have Agreed to Such a License.

Plaintiffs are not entitled to a "hypothetical license" as a form of actual damages because the undisputed facts show that Oracle never would have been willing to negotiate with its archrival SAP for the type of copyright license Plaintiffs have put at issue here. This is evidenced by Oracle executives' unequivocal testimony, the parties' fierce competition and the lack of any equivalent Oracle licenses. Further, even had Oracle been willing to negotiate such a license, testimony from both sides makes it clear that an agreement never would have been reached because neither side could have even agreed on the basis for negotiations, much less the "prohibitively" expensive price Oracle executives would have demanded. Absent this causal link, Plaintiffs are not entitled to a "hypothetical license" as a form of actual damages. 1. Oracle Executives' Undisputed Testimony Establishes that Plaintiffs Would Not Have Granted a License.

Oracle's top executives testified under oath that Oracle would not have licensed its hardwon software to Defendants. See Lanier Decl. ¶¶ 1, 3, Ex. A (Catz Depo.) at 46:7-47:13; Ex. C (Ellison Depo.) at 80:3-82:2, 83:18-84:6. Mr. Ellison's testimony alone is sufficient to establish that the parties never would have entered into a license for the PeopleSoft, J.D. Edwards and Siebel software at issue, and it is supported by ample testimony from Oracle's co-Presidents. See id., see also id. ¶ 2, Ex. B (Phillips Depo.) at 118:8-120:6. In light of Plaintiffs' view regarding the scope of the hypothetical license, the business reasons behind Oracle executives' refusal to license the software at issue are understandable. According to Mr. Ellison, the license at issue here would have allowed SAP to "basically have all of our IP"--the same IP that Oracle had just fought for almost two years for the right to purchase and that was critical to Oracle's expansion in the applications business dominated by SAP. Id. ¶
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3, Ex. C (Ellison Depo.) at 74:12-75:24 (emphasis added). Plaintiffs' contemplated license would have given Defendants free rein "to use Oracle applications and service support intellectual property to aggressively compete against Oracle for applications customers and market share." D.I. 253 at 14. In short, granting Defendants such a license would have eviscerated the rationale behind acquiring PeopleSoft in the first place; there is no dispute that Plaintiffs would not have granted Defendants such a license. 2. Direct Competition between the Parties and the Lack of Any Equivalent Licenses Further Proves that Plaintiffs Would Not Have Granted a License.

SAP and Oracle's status as direct competitors further demonstrates that Oracle never would have granted such a license to Defendants. The testimony from Mr. Ellison, Ms. Catz and Mr. Phillips, and the allegations in Plaintiffs' complaint, evidence the fierce competition between Oracle and SAP. There is no question that each considers the other its largest and most formidable competitor in the enterprise software market. See Lanier Decl. ¶¶ 1-3, 5-6, Ex. A (Catz Depo.) at 19:10-25; Ex. B (Phillips Depo.) at 57:12-58:18, 96:15-16; Ex. C (Ellison Depo.) at 114:16-24; Ex. E (Kagermann Depo.) at 167:25-168:7; Ex. F (Apotheker Depo.) at 58:10-23; D.I. 418 (¶¶ 62, 74). The parties' direct competition is a critical and undisputed fact which demonstrates that a hypothetical license is not a proper measure of actual damages here. See Business Trends, 887 F.2d at 405-06 (rejecting hypothetical license in case where parties were direct competitors); Jarvis, 486 F.3d at 533 (stating that hypothetical license measure is available only where "the infringer could have bargained with the copyright owner"). Additionally, there is no evidence, such as comparable past licenses, to suggest that Plaintiffs would have even negotiated, let alone granted, a license to Defendants. See McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 567 (7th Cir. 2002) (allowing hypothetical license where parties were not direct competitors and had past copyright license for work at issue); Encyclopedia Brown, 25 F. Supp. 2d at 401 (same). By its own admission, Oracle has never given any entity a license to "copy Oracle's application software and support materials in order to create their own fixes, patches or updates for customers." D.I. 256 (¶¶ 3-4). And the parties have no history of negotiating similar licenses for the use of comparable enterprise software applications.
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That Oracle has never granted the type of copyright license it insists it would have required from Defendants further demonstrates that Plaintiffs cannot carry their burden of proof. 3. Even Had Plaintiffs Been Willing to Negotiate, the Parties' Differing Bases for a License Establish that They Would Not Have Reached an Agreement.

Even assuming that Oracle and SAP would have been willing to negotiate a license, such negotiations would not have resulted in a license. Based on both Oracle and SAP executive testimony, it is clear that neither side would have agreed on a license because they would have had vastly different views as to the basis of the negotiation. This disconnect demonstrates that there never would have been the requisite "meeting of the minds." See e.g., American Employers Group, Inc. v. Employment Dev. Dep't, 154 Cal. App. 4th 836, 846-47 (2007) ("[T]here is no contract until there has been a meeting of the minds on all material points.") (quoting Banner Entm't, Inc. v. Superior Court, 62 Cal. App. 4th 348, 358) (1998); Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793, 797 (1998) ("If no meeting of the minds has occurred on the material terms of a contract, basic contract law provides that no contract formation has occurred."). Oracle would have viewed the negotiation essentially as one for PeopleSoft's entire customer base and for Oracle's very future in the applications market. See Lanier Decl. ¶¶ 1-3, Ex. A (Catz Depo.) at 158:13-159:23; Ex. B (Phillips Depo.) at 118:8-120:18; Ex. C (Ellison Depo.) at 76:16-81:9. Accordingly, Oracle executives testified that the hypothetical license would have cost from $3-4 billion up to $30 billion. See id. ¶¶ 1-3, Ex. A (Catz Depo.) at 158:13161:5; Ex. B (Phillips Depo.) at 118:8-120:18; Ex. C (Ellison Depo.) at 76:16-81:9. In stark contrast, Mr. Plattner's testimony evidences that SAP would have viewed the negotiation as simply one for the right to service Oracle's customers; indeed, SAP would have expected to get a bargain because TN would have been "doing [Oracle's] job" for it. See id. ¶ 4, Ex. D (Plattner Depo.) at 56:21-58:2. Mr. Plattner further testified that SAP would not have expected the license to have been based on the amount of "money that [the licensor] spent to develop the software in the first place" or "the purchase price that Oracle had just paid to PeopleSoft." Id. ¶ 4, Ex. D (Plattner Depo.) at 57:23-58:2, 65:19-66:21. With such a fundamental disagreement over the basis of the license, it is inconceivable
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that the parties could have overcome this disconnect and reached a meeting of the minds. No evidence suggests otherwise. Rather, as Mr. Plattner pointed out, the parties would have realized that they "don't have to sit together." Id. ¶ 4, Ex. D (Plattner Depo.) at 68:9-22. Mr. Ellison acknowledged this as well, when he testified that neither SAP nor TN would have paid Oracle's "prohibitively" expensive price for a license to use Oracle's software in connection with TN's business. Id. ¶ 3, Ex. C (Ellison Depo.) at 74:12-75:24, 81:10-82:2. 4. Case Law Supports a Finding that Plaintiffs Are Not Entitled to a "Hypothetical License" Form of Actual Damages.

The undisputed evidence that SAP and Oracle were direct competitors in the same market and never would have agreed to a license for the allegedly infringing activities proves that a hypothetical license is not permitted here. Indeed, these factors distinguish this case from those in which plaintiffs were permitted actual damages in the form of a hypothetical license. See McRoberts, 329 F.3d at 567; On Davis, 246 F.3d at 163-64; Polar Bear, 384 F.3d at 710-11; Jarvis, 486 F.3d at 534; Mackie, 296 F.3d at 917. This case is similar to Business Trends, in which the court vacated a hypothetical license award as too "speculative" where the parties directly competed in the same market. Business Trends, 887 F.2d at 405, 407. In Business Trends, the parties directly competed in the publication of economic analyses and forecasts, and both produced a robotics industry study. See id. at 401. Upon a finding that the defendant infringed the plaintiff's robotics study, the lower court awarded damages in the form of a hypothetical license. See id. at 404. The Second Circuit reversed, holding that the "proof in the instant case is inadequate to support such an award" because the parties were direct competitors and there was no evidence that they had any inclination to agree to a license for the allegedly infringing activities. Id. at 407. Like the parties in Business Trends, SAP and Oracle fiercely compete in the same market, and there is no evidence to suggest that they would have agreed to a license for the allegedly infringing activities. Indeed, there is direct testimony to the contrary. As in Business Trends, Plaintiffs here have not adduced, and cannot adduce, any evidence on which to ground a hypothetical license form of damages that would be anything but "speculative and artificial" and, therefore, impermissible.
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This case is distinguishable from McRoberts, where a hypothetical license award was affirmed based on evidence that the parties, which were not direct competitors, had previously entered into similar agreements for the particular copyrighted material. 329 F.3d at 567. In McRoberts, defendant Media 100, a manufacturer of video editing hardware, was a licensed distributor of plaintiff MSI's software, which only functioned on Macintosh computers. See id. at 561-62. Without MSI's permission, Media 100 hired a third party to translate MSI's software so that it was compatible with Windows machines and then sold the translated MSI software. See id. at 562. MSI sued Media 100 for copyright infringement and sought actual damages in the form of the hypothetical license Media 100 would have paid to obtain a Windows-translated version of the software. See id. at 563, 566-67. The Seventh Circuit found that, despite Media 100's claim that it never would have entered into a license for the translated software, there was "ample evidence" on which to base a hypothetical license, including that MSI had "past agreements with Media 100 to develop and modify previous versions" of the software. Id. at 567. In this case, by contrast, the parties are direct competitors that have never previously agreed on a license for the software at issue in this case. Further, unlike the McRoberts defendant, Defendants do not rely on bare assertions that they would not have agreed to a hypothetical license; rather, the evidence, which here principally comes from Oracle, is that neither Plaintiffs nor Defendants would have agreed on a license covering the allegedly infringing activities. Similarly, in Jarvis, Polar Bear, Mackie and On Davis, plaintiffs were permitted to measure actual damages in the form of a hypothetical license where they introduced evidence that they would have entered into a license with the defendants for the intellectual property at issue, but for the infringement. In Jarvis, the Ninth Circuit affirmed a hypothetical license award for infringement of the plaintiff's copyrighted photographs where the plaintiff had licensed photographs to the defendant in the past. See Jarvis, 486 F.3d at 528, 533-34. In so doing, the court noted that a hypothetical license form of actual damages is appropriate where, as in that case, "the infringer could have bargained with the copyright owner to purchase the right to use the work." Id. at 533 (emphasis added). Likewise, in Polar Bear, the Ninth Circuit upheld a hypothetical license award where the parties previously had a license concerning the plaintiff's
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copyrighted video, and the defendant had simply continued to use that video after the license had expired. See Polar Bear, 384 F.3d at 704, 709. Similarly, in Mackie, the Ninth Circuit upheld a hypothetical license award where the parties were not competitors and the plaintiff "had previously given permission to others to use" the copyrighted work for the same use. Mackie, 296 F.3d at 913, 917. And in On Davis, the Second Circuit permitted the plaintiff to recover a hypothetical license fee for the defendant's unauthorized use of plaintiff's copyrighted eyewear in defendant's advertising campaign where the parties were not competitors and there was evidence that the plaintiff obtained a $50 royalty for use of the sunglasses in a different magazine feature. See On Davis, 246 F.3d at 161-62 (distinguishing its facts from those in Business Trends, where "the plaintiff and defendant were competitors in the publication of economic analyses and forecasts--not a relationship where the defendant was a potential licensee of the plaintiff"). In each of these cases, the evidence demonstrated that the parties were not direct competitors and that they had entered into comparable agreements for the copyrighted material at issue in the past or, at the very least, that the plaintiff willingly had licensed the copyrighted material to others for a similar use. None of these circumstances is present here, where SAP and Oracle are fierce competitors and there is no evidence that Oracle has licensed its applications software to others (including SAP or TN) to provide third party maintenance. Moreover, in this case, the very Oracle executives who would have made such a licensing decision testified, under oath, that Oracle never would have granted such a license to Defendants. For these reasons, Plaintiffs cannot carry their burden of proving that the parties would have agreed to a hypothetical license for the allegedly infringing activities but for the alleged infringement. Because there is no genuine issue of material fact regarding Plaintiffs' hypothetical license claim, the Court should grant Defendants' motion for partial summary judgment. D. Plaintiffs Are Not Entitled to a Hypothetical License Based on "Saved Acquisition Costs" Because this Theory Is Inconsistent with the Copyright Act and Ninth Circuit Precedent.

Plaintiffs' executives' testimony and Supplemental Disclosures suggest that Plaintiffs may try to support their hypothetical license claim by relying on the "saved acquisition costs" theory conceived by the Seventh Circuit in Deltak, Inc. v. Advanced Sys., Inc., 767 F.2d 357 (7th Cir.
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1985). The Court should not countenance that argument. Deltak's "saved acquisition costs" theory is inconsistent with the Copyright Act and Ninth Circuit precedent because it is not a measure of actual damages or infringer's profits, and it has been expressly rejected by many courts. Ultimately, Deltak's "saved acquisition costs" theory is an outlier--neither the Ninth Circuit nor any other appellate court besides the Seventh Circuit has ever adopted this theory as a measure of damages. Therefore, it cannot support Plaintiffs' hypothetical license claim. In Deltak, the Seventh Circuit permitted the plaintiff to recover the "value of use" of marketing materials infringed by a direct competitor. 767 F.2d at 361. Rather than focusing on the harm to the plaintiff, the court measured the "value of use" by the defendant's "saved acquisition costs"--that is, the amount the defendant saved by infringing rather than acquiring the underlying copyrights. Id. at 361-63. The court claimed that "saved acquisition costs" were "simply an application" of the Ninth Circuit's "value of use" actual damages measured by what a "`willing buyer'" would have paid a "`willing seller.'" Id. at 360-62 (quoting Krofft, 562 F.2d at 1174). In reality, the court went well beyond the Ninth Circuit's "value of use" concept and adopted a novel theory that allowed disgorgement of the defendant's purported saved costs, unconstrained by the requirement of causation between infringement and alleged harm. See id. In so doing, the court permitted recovery where no other remedy, including statutory damages, was available. Id. at 359-60. Deltak's mutation of "value of use" damages contravenes the plain text of the Copyright Act, which sets specific remedies for infringement. Contrary to the Seventh Circuit's suggestion, "saved acquisition costs" cannot qualify as "actual damages suffered by" the plaintiff, 17 U.S.C. § 504(b), because they measure an alleged benefit to the infringer, not harm to the copyright owner. Nor does this form of benefit to the infringer qualify as infringer's profits. The Copyright Act only allows recovery of infringer's profits "that are attributable to the infringement," 17 U.S.C. § 504(b), which refers not to any "gain in economic theory," but rather to "a more conventional view of profits" as "gross revenue less out-of-pocket costs." Business Trends, 887 F.2d at 405-06; see also 17 U.S.C. § 504(b) ("In establishing the infringer's profits, the copyright owner is required to present proof only of the infringer's gross revenue . . . ."). In short, "saved
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acquisition costs" are neither actual damages nor infringer's profits under the Copyright Act. Deltak's "saved acquisition costs" measure is also inconsistent with Ninth Circuit law. This Circuit allows a hypothetical license only as a measure of actual damages, not as a measure of ill-gotten gain to the defendant. See, e.g., Polar Bear, 384 F.3d at 709; Krofft, 562 F.2d at 1174. In addition, and consistent with the Copyright Act, actual damages and infringer's profits in the Ninth Circuit require "but for" causation, see Polar Bear, 384 F.3d at 708, which Deltak ignores by permitting damages even where the infringement resulted in no lost license. The "saved acquisition costs" remedy is also at odds with Congressional intent. The Deltak court applied this remedy because it was troubled by the seemingly inequitable prospect of awarding no damages to the plaintiff, which could not prove actual damages or infringer's profits and had failed to satisfy the requirements for statutory damages. See Deltak, 767 F.2d at 361. As a result, "saved acquisition costs" effectively served as a "floor" for copyright damages, analogous to a reasonable royalty in patent law, where causation is simply assumed and the only question concerns the amount of the award. This is an unauthorized departure from the exclusive remedies permitted by the Copyright Act and contravenes Congressional intent. Previously, under the 1909 Copyright Act, statutory damages were available in all actions, regardless of registration requirements, and therefore acted as a floor for copyright damages. See Copyright Act of 1909, formerly 17 U.S.C. § 101(b). However, under the 1976 Act, Congress deliberately excluded the recovery of statutory damages for unregistered copyrights in order to induce, "in some practical way," copyright registration. 17 U.S.C. § 412, Notes of Committee on Judiciary, H.R. No. 94-1476. It left open the possibility that a plaintiff who failed to meet the standards set out for obtaining statutory damages may be foreclosed from seeking a remedy that was otherwise available to it. See id. Thus, the Deltak court's creation of an effective floor for recovery in copyright, where such a floor was deliberately removed by Congress, constitutes an attempt to legislate, which is improper even when done "to avoid the anomaly of affording plaintiffs a right without a remedy." Business Trends, 887 F.2d at 406 (quotation omitted). No Ninth Circuit case has adopted Deltak's flawed "saved acquisition costs" theory. In fact, the Ninth Circuit has favorably cited the opinion of the district court, which declined to
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award damages because of the Deltak plaintiff's inability to prove that the defendant's infringing activities caused it harm. See Polar Bear, 384 F.3d at 715. Only one district court in the Ninth Circuit has ever cited the Seventh Circuit opinion, and it did so simply for the "value of use" concept, for which it also cited the Ninth Circuit's Krofft and Frank Music decisions. See Harper House, Inc. v. Thomas Nelson, Inc., No. CV 85-4225-PAR, 1987 WL 30581 (C.D. Cal. Aug. 28, 1987), rev'd on other grounds by 889 F.2d 197 (1989). In that case, the court measured value of use based on a hypothetical license, which it held focuses on "the harm to plaintiff" and is not "a proxy for measuring a defendant's ill-gotten profits." Id. at *3 (citing Krofft, 562 F.2d at 1174). Similarly, although other courts outside the Seventh Circuit have cited Deltak for the proposition that "value of use" is an appropriate measure of actual damages, the vast majority of courts have declined to adopt Deltak's "saved acquisition cost" remedy. Some courts have expressed doubts about the validity of the theory. See, e.g., Quinn v. City of Detroit, 23 F. Supp. 2d 741, 751 (E.D. Mich. 1998) ("[T]he rationale of Deltak has been criticized by other courts and by Nimmer."); Multitherm Corp. v. Fuhr, Civ. A. No. 89-6151, 1991 WL 146233, at *14 (E.D. Pa. July 24, 1991) ("[I]t is not at all clear that the copyright statute allows for damages measured in [Deltak's] fashion."). Other courts have expressly rejected Deltak's attempt to cast "saved acquisition costs" as a measure of actual damages or infringer's profits. See, e.g., Business Trends, 887 F.2d at 405-06 (declining to award "saved acquisition cost[s]" because "entirely hypothetical sales" between competitors were "speculative and artificial"); Encyclopedia Brown Prods., 25 F. Supp. 2d at 401-02; Thoroughbred Software Int'l, Inc. v. Dice Corp., 439 F. Supp. 2d 758, 771-72 (E.D. Mich. 2006), aff'd in part, rev'd in part, vacated in part, and remanded by 488 F.3d 352 (6th Cir. 2007). Most courts that cite Deltak for the traditional "value of use" concept do not even discuss the "saved acquisition costs" theory. See, e.g., Thornton v. J Jargon Co., 580 F. Supp. 2d 1261, 1276-78 (M.D. Fla. 2008); Steven Greenberg Photography v. Matt Garrett's of Brockton, Inc., 816 F. Supp. 46, 49 (D. Mass. 1992). The Second Circuit took this approach in On Davis by holding that Business Trends's rejection of Deltak "[did] not foreclose" actual damages based on a hypothetical license theory. On Davis, 246 F.3d at 163. Ultimately, Deltak's "saved acquisition costs" language has been adopted by only one
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court outside of the Seventh Circuit, and that court adopted it as a measure of infringer's profits (not actual damages) where the parties were not competitors. See Roeslin v. District of Columbia, 921 F. Supp. 793, 796, 799 (D.D.C. 1995). "Saved acquisition costs" are an improper measure of copyright damages, and this theory cannot save Plaintiffs' illegitimate hypothetical license claim. IV. CONCLUSION Where, as here, the undisputed evidence demonstrates that the parties never would have agreed to a copyright license for the allegedly infringed works, summary judgment should be granted to preclude a plaintiff's claim to damages in the form of a hypothetical license. Any other result would allow a plaintiff to present speculative evidence--including its own unilateral, speculative demands for billions of dollars--regarding the terms of an agreement that never could have, or would have, occurred, in the hopes that a jury might find the story sympathetic enough to agree. This is not a rational approach for measuring copyright damages, and it is not one permitted by either the Copyright Act or prevailing case law. On the undisputed facts of record here, a damages theory based on a hypothetical license, including one based on alleged "saved acquisition costs," is forbidden because it is inconsistent with the Copyright Act and Ninth Circuit precedent. For all of these reasons, Defendants respectfully request that the Court grant partial summary judgment that Plaintiffs are not entitled to damages in the form of a hypothetical license. Dated: August 26, 2009 JONES DAY By: /s/ Tharan Gregory Lanier Tharan Gregory Lanier Counsel for Defendants SAP AG, SAP AMERICA, INC., and TOMORROWNOW, INC.

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DEFENDANTS' NOTICE OF MOTION AND MOTION FOR PARTIAL SUMMARY JUDGMENT Case No. 07-CV-1658 PJH (EDL)