Epic Systems Corporation v. Attachmate Corporation
Filing
172
OPINION and ORDER denying 135 Motion to Exclude Epic's Damages Expert; granting 143 Motion for Leave to File Reply Brief. Signed by District Judge Barbara B. Crabb on 7/8/2016. (kwf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - EPIC SYSTEMS CORPORATION,
OPINION AND ORDER
Plaintiff,
15-cv-179-bbc
v.
ATTACHMATE CORPORATION,
Defendant.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Plaintiff Epic Systems Corporation filed this civil action against defendant
Attachment Corporation after defendant accused plaintiff of facilitating wide-spread
unauthorized use of certain Attachmate software. Plaintiff is seeking a declaration that its
use of the Attachmate software did not violate either defendant’s copyrights or the parties’
licensing agreements. Plaintiff also included claims that defendant’s sales practices violated
the Wisconsin Deceptive Trade Practices Act and that defendant’s audit and subsequent
accusations of unauthorized use violated the implied duty of good faith and fair dealing
under Washington law.
Defendant responded by filing counterclaims for copyright
infringement and breach of contract.
On June 21, 2016, I entered an order denying defendant’s’s motion for partial
summary judgment on plaintiff’s claims and granting in part and denying in part plaintiff’s
motion for summary judgment on defendant’s claims. In that order, I concluded that there
was a genuine issue of material fact with respect to whether plaintiff breached the parties’
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licensing agreement by allowing its remote trainees to access defendant’s RUO v. 14.0
program without a license and a genuine issue of material fact with respect to whether
plaintiff infringed defendant’s copyrights. The case is set for trial on July 25, 2016.
Now defendant has filed a motion to exclude plaintiff’s damages expert, Richard Bero,
from testifying at trial. Defendant has also filed a motion for leave to file a reply brief in
support of its motion to exclude, which I am granting on the ground that it is not opposed
by plaintiff. Defendant argues that Bero’s opinions are irrelevant in light of the legal
standards governing how damages must be calculated in this case, not grounded in credible
facts or evidence and constitute impermissible legal conclusions. After reviewing Bero’s
report and the parties’ briefs, I conclude that Bero’s opinions are admissible.
OPINION
A. Legal Standard Governing Damages
In order to determine whether Bero’s damages opinions are admissible and relevant,
I must first identify the correct standard for calculating damages in this case, an issue which
neither party has squarely addressed. The parties refer to a variety of standards throughout
their briefs, but most of these references are far too vague to be useful. For example,
defendant contends that it is entitled to the “benefit of the bargain” it entered into with
plaintiff, but it fails to explain how, from a practical standpoint, the court can determine
what the expected benefit was in this particular context. Moreover, to the extent the various
standards cited by the parties are different from one another, the parties fail to provide the
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court any guidance about why one standard is better than the others identified. After
reviewing the parties’ arguments as well as the case law addressing damages calculations in
similar contexts, I conclude that the best way to calculate the damages is on the basis of the
estimated “fair market value” of plaintiff’s unauthorized use.
Calculating damages based on “fair market value” is the preferred approach taken in
cases involving the unauthorized use of copyrights, including software protected by
copyrights. McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566 (7th Cir.
2003) (applying fair market value method in case involving unauthorized use of software
protected by copyright); Deltak, Inc. v. Advanced System, Inc., 767 F.2d 357, 364 (7th Cir.
1985) (applying fair market value method in copyright case). As the Court of Appeals for
the Second Circuit has put it, awarding damages based on fair market value is appropriate
when there is no evidence of “lost sales, lost opportunities to license [to third-parties], or
diminution in value of the copyright.” On Davis v. Gap, 246 F.3d 152 (2d Cir. 2001).
In calculating the fair market value of an unauthorized use, courts will attempt to
determine the price to which a willing buyer and a willing seller would have agreed had they
engaged in an ex-ante “hypothetical negotiation” for the specific type of unlicensed use at
issue. McRoberts Software, Inc., 329 F.3d at 566; Jarvis v. K2 Inc., 486 F.3d 526, 533-34
(9th Cir. 2007) (“[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 to a willing seller for plaintiffs’ work.”); Gaylord v.
United States, 777 F.3d 1363, 1368 (Fed. Cir. 2015) (“To calculate fair market value, a
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court deciding a copyright case may use a tool familiar from patent law, without necessarily
following every aspect of patent law’s use of that tool. It may hypothesize a negotiation
between the parties before the infringement occurred and determine the reasonable license
fee on which a willing buyer and willing seller would have agreed for the use taken by the
infringer.” (internal quotations and citations omitted)). Determining the fair market value
of a product is a “fact-dependent inquiry” and “the trial court must consider all evidence
relevant to a hypothetical negotiation[.]” Gaylord v. United States, 678 F.3d 1339, 1344
(Fed. Cir. 2012). Some of the factors commonly considered by the courts include “past
arms-length licensing practices by the copyright owner or the infringer for similar uses and
‘benchmark’ licenses by others in the industry may be useful.” Gaylord, 777 F.3d at 1368.
Moreover, “the court is not constrained to accept particular practices of the parties on either
side—either to allow owners to charge what they would like to have charged if unconstrained
by reality or to shield infringers from paying fair market value for what they took.” Id.
(internal citations and quotations omitted).
Although the fair market value method has typically been used in the intellectual
property context, it is also an appropriate method for calculating damages attributable to
plaintiff’s alleged breach of contract. At defendant points out, Washington courts have
ascribed to the traditional method of calculating damages in contract cases, which involves
looking to the injured party’s expectation interest. Ford v. Trendwest Resorts, Inc., 146
Wash. 2d 146, 155, 43 P.3d 1223, 1227 (2002). Awarding damages based on the fair
market value of Epic’s unlicensed use protects Attachmate’s expectation interest because it
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is an approximation of what Epic would have paid to license RUO v. 14.0.
B. Bero’s Opinions
Having identified the proper standard for calculating damages in this case, I can now
address defendant’s objections to Bero’s testimony regarding damages. Defendant raises four
issues with respect to Bero’s opinions. First, Bero should be precluded from offering his
opinion that defendant did not suffer any damages at all (“Opinion No. 1”). Second, Bero’s
damages opinion should be deemed inadmissible to the extent that it is based on an
assumption that plaintiff would have been able to purchase concurrent licenses during an
ex-ante hypothetical negotiation. Third, Bero’s opinion should be excluded because it relies
on “cherry-picked” data. Finally, Bero’s “opinions” are actually just inadmissible legal
arguments. I am rejecting each of these arguments.
1. Bero’s “zero damages” opinion
Defendant’s argument with respect to Bero’s “zero damages” opinion oversimplifies
Bero’s testimony. Although I am inclined to disagree with Bero’s ultimate conclusion that
defendant suffered no damages as a result of plaintiff’s unauthorized use of RUO v. 14.0,
I believe that Bero’s hypothetical negotiation and the data points he considered in reaching
this conclusion are relevant to the task of determining the software’s fair market value.
Moreover, I disagree with defendant’s argument that Bero’s analysis is flawed because he is
not permitted to consider “what might have happened if the defendant had a do-over.”
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When analyzing fair market value based on a hypothetical negotiation, this is exactly what
is required: the court considers what would have happened had a willing seller and willing
buyer engaged in an ex-ante negotiation covering the unlicensed use.
2. Bero’s reliance on a “concurrent license” negotiation
Second, defendant takes issue with Bero’s damages calculation to the extent it is
based on an assumption that plaintiff could have and would have purchased concurrent,
rather than device-based, licenses in a hypothetical negotiation. Defendant contends that
this opinion is irrelevant because the contract required plaintiff to purchase “device-based”
licenses for any computer on which RUO v. 14.0 is used. Accordingly, defendant argues,
Bero must calculate damages based on what it would have cost plaintiff to purchase a
sufficient number of device-based licenses.
First, I disagree with defendant’s premise that the RUO v. 14.0 licensing agreement
required plaintiff to purchase device-based licenses. Although the licensing agreement does
state that a licensee “must acquire and dedicate a desktop license for each single computer
on which the software is used,” it also states in the very next paragraph that a licensee “must
acquire concurrent licenses for the maximum number of users who will use or access the
Software at the same time.” Obviously, a licensee is not required to purchase both a
device-based license and a concurrent license for the same use.
Therefore, these two
provisions can only be read as identifying the two types of licenses available and as requiring
licensees to purchase one or the other.
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Moreover, although the fact that plaintiff had purchased “device-based” RUO v. 14.0
licenses in the past at a certain price is relevant to the fair market value of the unlicensed use
at issue, it is not conclusive. Those prior agreements may have been appropriate for the type
of use negotiated in those cases, but inappropriate for the unlicensed use at issue here.
Ascertaining fair market value based on a “hypothetical negotiation” is by definition a
speculative endeavor and requires the court to identify the contours of an agreement that
never actually occurred. Although past negotiations are relevant to what the parties would
have agreed to in this case, the parties are not necessarily bound by those past agreements’
terms, particularly when there is good reason for why those other agreements would not fit
the particular unauthorized use at issue.
Gaylord, 777 F.3d at 1368 (prior licensing
agreements between parties are relevant “[b]ut the use of past licenses as evidence must
always take account of economically relevant differences between the circumstances of those
licenses and the circumstances of the matter in litigation[.]”)
3. Bero’s reliance on “cherry-picked” data
Third, defendant argues that Bero’s opinion is unreliable because he relied on
“cherry-picked” data. For example, defendant contends that in assuming plaintiff would not
have purchased device-based licenses, Bero ignores “numerous contemporaneous documents
that show [defendant] was unwilling to sell [plaintiff] concurrent licenses in 2011.”
Defendant also contends that “in calculating the 2:1 price ratio between concurrent and
device prices, Bero disregards evidence that the price ratio of a concurrent license to a device
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license was typically 5:1.” However, the fact that Bero may have excluded certain data
points from his analysis does not render his opinion inadmissible. “[O]bjections as to
whether an expert considered certain factors that the opposing side deems irrelevant
generally go to the weight of the expert’s opinion, not its admissibility.”
Jordan v.
Dominick’s Finer Foods, 115 F. Supp. 3d 950, 963 (N.D. Ill. 2015) (citing Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993); Bazemore v. Friday, 478 U.S.
385, 400 (1986)). Defendant is free to attack Bero’s failure to consider alternative data
points through cross-examination and by presenting its own damages calculations that take
into account the data points defendant believes were improperly ignored.
4. Opinion disguised as “legal arguments”
Finally, defendant contends that Bero’s criticism defendant’s damages calculation is
nothing more than inadmissible legal argument. Although I agree with defendant with
respect to some of Bero’s criticisms—for example, when he simply states that defendant’s
damages calculation “does not establish proximate cause”—I believe that other points Bero
raised are relevant to the court’s inquiry into what would have occurred during a
hypothetical negotiation. For example, Bero notes that plaintiff had a “hard cap” on its
Citrix licenses, which effectively limited the total number of concurrent remote users to
2,325. Bero also points out that although the list price of a device-based license was $305,
the “Level D” price, which is what plaintiff paid in the past, was only $118 per device.
These data points are relevant to the price the parties would have agreed to in a hypothetical
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negotiation, and therefore, they are admissible for the purpose of ascertaining damages.
ORDER
IT IS ORDERED that defendant Attachmate Corporation’s motion for leave to file
a reply brief, dkt. #143, is GRANTED, and defendant’s motion to exclude plaintiff Epic
Systems Corporation’s damages expert, dkt. #135, is DENIED.
Entered this 8th day of July, 2016.
BY THE COURT:
/s/
BARBARA B. CRABB
District Judge
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