March 5, 2012
LES Insights
Authored by Jessica C. Hill, D. Brian Kacedon, and John C. Paul
Under the United States Copyright Act, damages may be recovered in the form of statutory damages or actual damages suffered by the copyright owner as a result of the infringement plus any profits of the infringer attributable to the infringement. Actual damages are generally measured by the loss in fair market value of the copyright, measured by (1) the profits lost by the copyright holder due to the infringement or (2) the value of the use of the copyrighted work to the infringing party. Certain courts, including the Ninth Circuit, also recognize a retroactive license fee (or "hypothetical license") as another measure of the fair market value of the copyright.
In March 2007, Oracle filed a copyright-infringement suit against SAP. After more than three and a half years of litigation, the Northern District of California heard the case in November 2010. Before trial, SAP conceded liability to all claims not previously dismissed, leaving the amount of damages as the only issue for decision by the jury.
At trial, the court instructed the jury to consider for actual damages both a calculation of the fair market value of a license and a calculation of the lost profits/infringer's profits. The court, however, further instructed the jury to state the dollar amount of the damages for the copyright infringement in the form of either a fair-market-value license or lost profits/infringer's profits. The jury awarded Oracle $1.3 billion under a theory of a fair-market-value license.
In response, SAP moved for judgment as a matter of law and for a new trial. In Oracle USA, Inc. v. SAP AG, No. C 07-1658 PJH (N.D. Cal. Sept. 1, 2011),1 the court addressed the jury's verdict of $1.3 billion in damages based on a hypothetical license.
In its motion, SAP argued that the court should grant judgment as a matter of law that Oracle is not entitled to actual damages for copyright infringement in the form of a hypothetical license, because Oracle did not establish that, but for infringement, it would have licensed the asserted copyrighted work to SAP and Oracle did not present evidence sufficient to value such a license. SAP further argued that the reasons that justify granting judgment as a matter of law also support granting SAP's motion for new trial.
Regarding its motion for judgment as a matter of law, SAP argued that the jury's award of a hypothetical license represented an unreasonable, unduly speculative, and punitive award that failed to measure Oracle's actual damages. Specifically, SAP asserted that the evidence showed that Oracle does not license the copyrighted works at issue in any way contemplated by the hypothetical license and that Oracle did not present any objective evidence of the value of a license, such as "benchmark" licenses for comparable use of comparable works (because none existed). Moreover, SAP contended that Oracle provided only one-sided testimony of what Oracle would have charged for this hypothetical license and that Oracle failed to analyze or substantiate what a willing buyer would have agreed to pay for such a license. In response, Oracle asserted that the evidence it presented proved the fair market value of the hypothetical license. Oracle further argued that the court should not consider whether the parties would have actually entered into a license and that it is not true that the benchmark license is the only objective measure of a reasonable license fee.
In its argument for a new trial, SAP asserted that the reasons that justified granting judgment as a matter of law also supported granting the motion for new trial-i.e., that the $1.3 billion verdict vastly exceeded any harm to Oracle and was contrary to the clear weight of the evidence. SAP alternatively argued that the court should reduce the amount of damages (known as remittitur) to an amount no greater than the amount of lost profits and infringer's profits supported by the evidence. In response, Oracle again argued that the substantial evidence supported the hypothetical-license award and that the award was based on the pervasive use of Oracle's copyrighted software, thus justifying the amount of the award. Oracle contended that SAP's request for remittitur was no more than SAP's attempt to substitute SAP's view of the evidence and proper damages for the jury's.
Rejecting Oracle's arguments, the court granted SAP's motion for judgment as a matter of law, reasoning that Oracle offered no evidence of the type on which plaintiffs ordinarily rely to prove they would have entered into such a license, such as past licensing history or a plaintiff's previous licensing practices. Moreover, the court found the evidence Oracle presented insufficient to establish an objective, nonspeculative license fee. Importantly, the court reasoned that determining a hypothetical license price requires an objective, not a subjective, analysis and that excessively speculative claims must be rejected. The court specifically pointed to (1) Oracle's failure to present evidence of benchmark licenses or evidence of any analogous licensing situations by other companies and (2) the clear evidence that the parties would never have agreed to a license. Indeed, the court held that without evidence of benchmarks, Oracle cannot recover an award for a foregone license, because any such award would be based on a subjective, not an objective, analysis of fair market value.
For the same reasons, the court also granted SAP's motion for a new trial, holding that Oracle could either accept a reduction of the jury's damages award to $272 million (which the court found was the maximum amount of lost profits and infringer's profits sustained by the evidence) or the court would order a new trial to determine the amount of actual damages in the form of lost profits/infringer's profits. On February 6, 2012, Oracle rejected the reduced damages award issued by the court and requested a new trial under the court's order.
An award of actual damages under the Copyright Act in the form of a fair-market-value license must be grounded in objective evidence. Specifically, the copyright holder must present evidence of benchmark transactions such as past licensing history or a plaintiff's previous licensing practices to prevail under a hypothetical-license theory. Indeed, it is insufficient for a copyright holder to rely on subjective or speculative evidence as a basis for such claims.
Endnotes
1 The Oracle v. SAP Order: link no longer available
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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