Actuate Corporation v. Construction Specialties Inc

Filing 47

ORDER GRANTING DEFENDANTS 31 MOTION FOR PARTIAL SUMMARY JUDGMENT, AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS 34 MOTION FOR LEAVE TO AMEND ITS COMPLAINT. Amended Pleadings due by 6/12/2012. Motions due by 7/13/2012. Signed by Judge Claudia Wilken on 6/8/2012. (ndr, COURT STAFF) (Filed on 6/8/2012)

1

IN THE UNITED STATES DISTRICT COURT

2

FOR THE NORTHERN DISTRICT OF CALIFORNIA

3
4

ACTUATE CORPORATION,

5

Plaintiff,

6

No. C 10-4444 CW
ORDER GRANTING
DEFENDANT’S MOTION
FOR PARTIAL
SUMMARY JUDGMENT,
Docket No. 31, AND
GRANTING IN PART
AND DENYING IN
PART PLAINTIFF’S
MOTION FOR LEAVE
TO AMEND ITS
COMPLAINT, Docket
No. 34

v.

7

CONSTRUCTION SPECIALTIES, INC.,

8

Defendant.

9

United States District Court
For the Northern District of California

10

________________________________/

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Defendant Construction Specialties, Inc. (CS) moves for
partial summary judgment as to Plaintiff Actuate Corporation’s
claims based on CS’s alleged failure to pay a license transfer
fee, pursuant to its agreement to license Actuate software, when
it transferred that software from one server to another.
No. 31.

Docket

Actuate opposes the motion for partial summary judgment

and moves for leave to amend its complaint to add allegations
based on facts purportedly uncovered during the course of
discovery.

Docket No. 34.

Defendant opposes that motion.

Having

considered all of the parties’ submissions and oral argument, the
Court grants CS’s motion for partial summary judgment, and
Actuate’s motion for leave to amend is granted in part and denied
in part.
BACKGROUND
Actuate owns and licenses software developed to meet the
needs of large business enterprises.

CS is engaged in the

1

manufacture of specialty architectural products.

2

licenses for use of its software on a “per CPU” basis for

3

unlimited users or on a “Named User” basis for a specified number

4

of users.

5

on a single machine.

6

Actuate offers

A CPU is defined as a single core of a single processor

On May 21, 1999, CS purchased, for the first time, a single

7

CPU license for Actuate’s software.

8

in Support of Actuate’s Opp. to CS’s Mot. for Summ. J., ¶ 6.

9

license agreement, dated March 8, 1999, contained a “No copies”

United States District Court
For the Northern District of California

10

provision under section 1.03.

Declaration of Dylan Boudraa

Id. at ¶ 6 and Ex. B.

The

It stated,

13

No copies. Except as expressly allowed by the terms
of this license, You shall not copy or modify any
portion of the Software other than that You may make
(1) copy of the computer program portion of the
Software solely for archival or backup purposes.

14

Id. at Ex. B.

11
12

15

On September 13, 2000, CS purchased another CPU license, for a

16

total of two.

17

on a single two-CPU server, referred to as the old production

18

server.

19

On July 11, 2004, CS installed the Actuate software, residing on

20

the old production server, onto the new one.

21

S. Hilliard in Support of CS’s Mot. for Summ. J., Ex. J, Forensic

22

Analysis Summary Report.

23

The software under both CPU licenses was installed

On March 17, 2004, CS obtained a new production server.

Declaration of Craig

Licensing agreements dated July 13, 2003 and June 10, 2004

24

applied to the Actuate software on the new production server

25

through the remainder of 2004.

26

section 1.03 in both agreements was the same as that quoted above.

27

Boudraa Dec., Exs. E and F.

The “No copies” provision in

Actuate concedes that section 1.03 of

28
2

1

the license agreements “remained relatively unchanged” from May

2

21, 1999 to May 15, 2005.

3

of this motion, the agreements with the identical section 1.03 are

4

referred to as the Version Seven agreement.

5

Boudraa Dec. at ¶ 8.

CS does not dispute that on July 12, 2005, it upgraded its

6

Actuate software to Version 8SP1.

7

accepted a license agreement dated May 15, 2005.

8

the agreement required that,

9
10
United States District Court
For the Northern District of California

For the purpose

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

At the time of the upgrade, CS
Section 1.4 of

Prior to the initial installation of any Software, You
shall notify Actuate in writing in accordance with the
procedure set forth at http://www.actuate/license of
the model name and number, location, CPU speed, and
CPU type of the server on which any server component
of the Software is to be installed. Once installed,
You must obtain Actuate’s written consent before You
move any Software from any CPU to another CPU, which
may be subject to a CPU upgrade transfer license fee
. . . If Actuate grants its consent, You may reinstall
the Software on the new CPU on the condition that You
delete the Software from the previous CPU within five
(5) days of successful installation.
Boudraa Dec., Ex. F.
However, Actuate has not produced any evidence that, at any
time after July 12, 2005, CS moved its software from one CPU to
another, such that it would have been required to pay a license
transfer fee pursuant to the software licensing agreement.
On October 1, 2010, Actuate filed suit against CS, alleging
causes of action for copyright infringement and for breach of
contract.

It alleged that it held rights and title to federally

registered copyrights covering its Actuate 10 software and earlier
versions thereof.

Compl. at ¶ 9.

Although Actuate’s complaint

alluded to the existence of multiple licensing agreements with CS
over the years, the sole licensing agreement discussed in detail
3

1

in the complaint was the May 15, 2005 agreement that pertained to

2

Version 8SP1 of Actuate’s software.1

3
4
5

Actuate alleged that CS breached the terms of the “License
Agreement” by:
•

Authorizing and/or distributing content generated
by the Copyrighted Work to 687 users of various
capacities, well in excess the 6 Named User
licenses it had purchased;

•

Operating the Copyrighted Work on an unlicensed
CPU;

•

Transferring the Copyrighted Work from one server
to another without paying for license transfer
fees specified in the License Agreement;

•

Making unauthorized copies of the Copyrighted
Work;

•

Installing at least one update without paying the
required maintenance fees as provided under the
License Agreement.

6
7
8
9

United States District Court
For the Northern District of California

10
11
12
13
14
15
16
17
18
19
20
21
22
23

Compl. at ¶ 16.
The complaint’s copyright infringement claim alleges that CS
reproduced, displayed, and distributed unauthorized copies of
Actuate’s copyrighted work, and that such unauthorized copies and
use exceed the permissible license terms.

Compl. at ¶ 21.

Likewise, Actuate alleges that CS committed a breach of contract
by using the copyrighted work and authorizing or distributing
content generated by the copyrighted work without authorization
under the licensing agreement.

Compl. at ¶ 28.

24
25
26
27
28

The complaint indicates that the “License Agreement” was
attached as Exhibit A, but the exhibit was not actually attached
to the complaint faxed to the Court and electronically filed in
the docket. The May 15, 2005 Version 8SP1 agreement, as well as
earlier license agreements concerning prior versions of the
software, were attached to Actuate’s proposed amended complaint.
1

4

1

DISCUSSION

2

I. Motion for Partial Summary Judgment

3

As noted earlier, CS moves for partial summary judgment,

4

contending that Actuate lacks evidence to prevail on its claim

5

based on a failure to pay a license transfer fee.

6

Summary judgment is properly granted when no genuine and

7

disputed issues of material fact remain, and when, viewing the

8

evidence most favorably to the non-moving party, the movant is

9

clearly entitled to prevail as a matter of law.

Fed. R. Civ.

United States District Court
For the Northern District of California

10

P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

11

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

12

1987).

13

The moving party bears the burden of showing that there is no

14

material factual dispute.

15

true the opposing party's evidence, if supported by affidavits or

16

other evidentiary material.

17

815 F.2d at 1289.

18

in favor of the party against whom summary judgment is sought.

19

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

20

587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952

21

F.2d 1551, 1558 (9th Cir. 1991).

22

Therefore, the court must regard as

Celotex, 477 U.S. at 324; Eisenberg,

The court must draw all reasonable inferences

Material facts which would preclude entry of summary judgment

23

are those which, under applicable substantive law, may affect the

24

outcome of the case.

The substantive law will identify which

25

facts are material.

Anderson v. Liberty Lobby, Inc., 477 U.S.

26

242, 248 (1986).

27
28

CS’s motion for partial summary judgment on Actuate’s claim
based on CS’s alleged failure to pay a license transfer fee under
5

1

the Version 8SP1 agreement is granted.

A contract claim requires

2

an agreement between the parties.

3

license transfer fee existed in 2004 when CS moved its Actuate

4

software from its old production server to its new production

5

server.

6

copyright infringement claim is independent of its breach of

7

contract claim.

8

claims turn on a breach of the licensing agreement.

9

partial summary judgment is granted in favor of CS as to Actuate’s

However, no agreement to pay a

At the hearing on the motion, Actuate argued that its

However, on the face of its complaint, both
Thus, because

United States District Court
For the Northern District of California

10

contract claim, it is also granted as to the copyright claim,

11

because it too arises from CS’s alleged failure to pay the license

12

transfer fee under the Version 8SP1 agreement.

13

II. Motion for Leave to Amend

14

Actuate moves to amend its complaint to add the following

15

allegations: (1) Actuate violated the Version 8SP1 agreement by

16

“operating an unauthorized copy of the Copyrighted Work on a

17

backup data recovery server, running hot and in parallel to a

18

production server, without paying for the appropriate CPU

19

license,” and (2) in mid-2004, CS violated the Version Seven

20

agreement by transferring its Actuate software from one server to

21

another without paying any license transfer fees.

22

Unlike the original complaint, the proposed amended complaint

23

includes copies of the license agreements covering CS’s CPU’s for

24

Version Seven of the Actuate software in 2004.

25

proposed second and third claims for relief specify that the

26

Version 8SP1 and Version Seven agreements are the basis for the

27

claims, respectively.

28
6

In addition, the

1

The Court’s February 25, 2011 case management order set March

2

17, 2011, as the deadline for the addition of parties or claims to

3

the lawsuit.
Pursuant to Federal Rule of Civil Procedure 16(b)(4), a

5

scheduling order “may be modified only for good cause and with the

6

judge’s consent.”

7

ability to amend its pleading is governed by this good cause

8

standard, not the more liberal standard of Rule 15(a)(2).

9

v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992).

10
United States District Court
For the Northern District of California

4

In order to determine whether good cause exists, courts primarily

11

consider the diligence of the party seeking the modification.

12

at 609; see also Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294

13

(9th Cir. 2000).

14

the propriety of a motion for leave to amend: undue delay, bad

15

faith, futility of amendment, prejudice to the opposing party and

16

whether the plaintiff has previously amended the complaint.

17

Ahlmeyer v. Nev. Sys. of Higher Educ., 555 F.3d 1051, 1055 n.3

18

(9th Cir. 2009).

19

A.

Where a schedule has been ordered, a party’s

Johnson

Id.

Courts also consider five factors when assessing

New “Backup Server” Claim Based on Version 8SP1
Agreement

20
21
22
23
24
25
26
27

Actuate’s request to add its backup server claim is granted.
1.

Diligence and Undue Delay

The discovery deadline has been extended multiple times
pursuant to the parties’ joint stipulations.

Docket No. 19

(August 2, 2011 extension), Docket No. 21 (October 20, 2011
extension) and Docket No. 25 (March 8, 2012 extension).
2012 was the close of fact discovery.

28
7

March 23,

1

On March 22, 2012, Actuate’s expert, Keyur Dani, traveled to

2

CS’s offices to inspect its computers to determine how the company

3

was using its software.

4

that CS’s “Backup Environment was running hot and in parallel to

5

the Production Environment.”

6

Dani’s report dated April 5, 2012, states

Actuate filed its motion for leave to amend on April 17,

7

2012.

Although there were delays in the discovery process and in

8

scheduling the server inspection, the inspection took place before

9

the mutually agreed upon discovery deadline.

Actuate acted

United States District Court
For the Northern District of California

10

diligently in filing the motion to leave to amend less than two

11

weeks after the issuance of its expert report.

12

could have been more diligent, its delay was not undue.
2.

13
14

Although Actuate

Bad faith

Actuate has not acted in bad faith in attempting to add a new

15

allegation as to how the Version 8SP1 agreement was violated.

16

Rather, Actuate is seeking to amend its complaint in light of what

17

discovery has revealed.

18

3.

19

Futility

CS does not argue that an amendment to add this allegation is

20

futile.

21

makes some allowance for a backup copy of the software, but the

22

backup copy must be kept “separate from any actively used computer

23

programs or documentation.”

24
25

The Version 8SP1 agreement does have a provision that

4.

Section 1.6 of 8SP1 Agreement.

Prejudice

CS argues that it will be prejudiced if Actuate is permitted

26

to add its claim based on the back-up server because it would need

27

discovery to address the claim and Actuate has yet to amend its

28

interrogatories to inform it of the amount of damages at issue.
8

1

CS has possession of the computer servers, so it can easily

2

conduct its own investigation.

3

depose the Actuate expert who wrote the report and to depose an

4

Actuate Rule 30(b)(6) witness to learn about the potential damages

5

at issue.

6

discovery and it could amend its interrogatory responses if

7

necessary.

8

be limited and could be conducted without affecting the trial

9

date.

United States District Court
For the Northern District of California

10

On the other hand, CS may need to

Actuate has represented that it does not need further

Assuming that further discovery is required, it will

Thus, the prejudice is not substantial.

Given that Actuate acted without undue delay, and the minimal

11

prejudice to CS, Actuate’s request to add its backup server claim

12

based on the Version 8SP1 agreement is granted.

13

B.

14

Actuate has not demonstrated that it should be permitted to

15
16
17

New Claim as to the Version Seven Agreement

add a claim based on the Version Seven agreement.
1.

Diligence and Undue Delay

On February 15, 2012, Christopher Meyer, head of CS’s Network

18

Operations Group, testified that Version Seven of the Actuate

19

software was installed on the new production server on before July

20

20, 2004, most likely on July 11, 2004.

21

of CS’s Mot. for Summ. J., Ex. B, Meyer Dep., 37:5-41:22.

22

engaged an expert to conduct a forensic analysis of its use of

23

Actuate software before May 15, 2005.

24

Analysis Summary Report.

25

states that a new production server was put into service on or

26

around March 17, 2004, and that Version Seven was used on that

27

server from July 20, 2004 through October 30, 2004.

Hilliard Dec. in Support
CS

Id. at Ex. J, Forensic

The expert report, dated April 5, 2012,

28
9

Id. at 5.

As

1

noted earlier, Actuate filed its motion for leave to amend on

2

April 17, 2012.

3

Although Actuate sought leave to amend soon after receiving

4

CS’s expert report, confirming Meyer’s earlier testimony, it does

5

not dispute that, even before the lawsuit was filed, CS informed

6

it that a new server was installed in 2004.

7

parties entered into the Version 8SP1 agreement.

8

that CS’s pre-litigation statement has no bearing on the operative

9

allegation that its software was transferred without paying

This was before the
Actuate argues

United States District Court
For the Northern District of California

10

license fees.

However, it is clear that the thrust of Actuate’s

11

lawsuit has been alleged violations of the Version 8SP1 agreement,

12

not the earlier Version Seven agreement.

13

show that CS breached the Version Seven agreement and committed

14

copyright infringement under that agreement, it should have acted

15

more diligently to bring the issue into this suit.

16

the complaint, it is apparent that Actuate was aware that CS had

17

not entered into the Version 8SP1 agreement until May 2005.

18

Actuate could have acted much earlier to amend its complaint to

19

add specific allegations as to the Version Seven agreement.

20

Actuate’s failure to do so demonstrates its lack of diligence and

21

undue delay.

22

2.

If Actuate sought to

On the face of

Bad Faith

23

Actuate’s desire to add a claim based on a violation of the

24

copying prohibition in the Version Seven agreement appears to be

25

motivated by CS’s meritorious motion for partial summary judgment

26

on Actuate’s license transfer fee claim based on the Version 8SP1

27

agreement.

28

developed this claim earlier in the litigation, and its argument

There is no reason that Actuate could not have

10

1

that it is seeking to add this claim based on the new expert

2

report is not credible.

3

3.

Futility

CS argues that the claim is futile because it is untimely in

4
5

that the transfer occurred in 2004.

6

contract and copyright claims are four and three years,

7

respectively.

8

stale because it depends on the application of the discovery rule,

9

that is, when Actuate discovered or should have discovered the

United States District Court
For the Northern District of California

10

transfer.

The Court cannot determine whether the claim is

Thus, the claim is not clearly futile.
4.

11

The limitations period for

Prejudice

12

CS argues that it would be prejudiced by the amendment

13

because it requires further discovery to address the statute of

14

limitations and laches issues, as well as damages.

15

Actuate argues that it was not in a position to know whether CS

16

had upgraded its server or transferred software, it would be

17

reasonable for CS to conduct discovery as to when Actuate knew or

18

would have been in a position to know.

19

would burden CS and extend the duration of this lawsuit against

20

it.

21

Although

The reopening of discovery

Actuate’s request to add a claim based on CS’s purported

22

unauthorized copying under the Version Seven agreement is denied

23

due to its lack of diligence, undue delay, and the prejudice that

24

would be imposed on CS if the claim were pursued at this late

25

stage.

26
27
28

CONCLUSION
CS’s motion for partial summary judgment is granted.
Actuate’s motion for leave to amend is granted in part and denied
11

1

in part.

2

pursuant to the Version 8SP1 agreement is granted.

3

Actuate’s motion to add a claim based on the Version Seven

4

agreement is denied.

5

Actuate’s request to add its backup server claim
However,

Actuate shall file its amended complaint, making only the

6

changes authorized in this order, within four days.

The parties

7

shall provide to the Court, within one week, a joint status update

8

regarding the parties’ scheduled mediation date and chosen

9

mediator.

The parties shall conduct all necessary discovery on

United States District Court
For the Northern District of California

10

the new claim within twenty-eight days.

11

additional dispositive motion is warranted, the motion shall be

12

submitted within thirty-five days from the date of this order.

13

additional discovery and motion practice do not delay the trial

14

date, the parties shall appear for a final pretrial conference on

15

August 22, 2012 at 2:00 pm.

16

trial date before the undersigned or consent to a trial before a

17

magistrate judge.

18

In the event that an

Otherwise, the parties may seek a new

IT IS SO ORDERED.

19
20
21

Dated: 6/8/2012

If

CLAUDIA WILKEN
United States District Judge

22
23
24
25
26
27
28
12