Trebled Damages Means No Injunction for Knock-Off Software

McDermott Will & Emery

McDermott Will & Emery

The US Court of Appeals for the Fourth Circuit affirmed in part, reversed in part and remanded a district court finding that a defendant was liable for breach of a software license agreement and therefore infringed the plaintiff’s copyright in the subject software. SAS Institute, Inc. v. World Programming Ltd., Case No. 16-1857 (4th Cir., Oct. 24, 2017) (Wilkinson, J).

SAS sells an integrated system of business software known as the “SAS System,” which users operate by writing instructions in a computer programming language known as SAS. Essentially, the SAS System is required to make an SAS program function. WPL, a UK company and competitor of SAS, develops statistical reporting software. WPL purchased several copies of the SAS Learning Edition, a low-cost version of the SAS System marketed as an educational tool to enable students to learn the SAS System, and used the SAS Learning Edition to develop a competing product called World Programming System. The license terms on the SAS Learning Edition included a prohibition on “reverse engineering,” as well as a restriction limiting use to “non-production purposes.” SAS sued WPL, first in the United Kingdom, asserting claims for copyright infringement and breach of the Learning Edition license agreement, and subsequently in federal district court in North Carolina, asserting copyright infringement and breach of the license agreement, along with other state law claims.

The UK court determined that under the EU Directive on software copyright, SAS’s software copyright did not cover aspects of the program that were reproduced and the parties could not contract around the Directive. The UK court entered a final judgment for WPL on all claims except for copyright infringement of the SAS manuals. In the United States, the district court determined that the input and output formats WPL copied were not protected under copyright, but that WPL had breached the license restriction against reverse engineering. WPL appealed the district court’s ruling that the UK litigation did not preclude the US suit, and the grant of summary judgment on the breach of contract claim, damages, attorneys’ fees and evidentiary rulings. SAS appealed the court’s denial of injunctive relief and the court’s copyright ruling.

On the issue of res judicata (based on the UK case), the Fourth Circuit reasoned that many of the legal and factual differences between the UK and US cases meant that applying the doctrine would deprive SAS from having its claims heard in an adequate forum and would undermine US and North Carolina public policies in favor of the UK and EU policies. WPL was unable to establish that the violations of US copyright could have been litigated in the UK court. 

With respect to the breach of license agreement, the Fourth Circuit rejected WPL’s argument that summary judgment against it was inappropriate because the terms “reverse engineering” and “non-production” were ambiguous. The Court found that SAS’s definition of the terms, supported by dictionary definitions, favored a broad definition giving effect to every word in the contract and was consistent with North Carolina law on contract interpretation. The Court affirmed summary judgment on the breach of the Learning Edition agreements, finding that WPL violated the unambiguous reverse engineering prohibition.

The Fourth Circuit disagreed with SAS on the issue of denial of injunction relief based on the breach of contract and fraud claims it had prevailed on below. The Court found that SAS failed to demonstrate an irreparable injury from WPL’s actions. First, the Court noted that SAS did not leave the court penniless; it received a trebled damages award of more than $79 million, which included not only SAS’s lost profits, but also future damages after trial. The Court also determined that an injunction was not warranted on the grounds that WPL could not pay damages or that enforcement of the monetary award would be difficult. The Court reasoned that an injunction would have “a significant negative impact on WPL’s sales” and would frustrate, rather than facilitate, WPL’s ability to pay damages.

On the copyright claim, the only relief SAS sought that it had not already received was the requested injunction. Since the Fourth Circuit determined that SAS was not entitled to injunctive relief even if it were to prevail on the copyright claim, the Court dismissed the copyright claim as moot.


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