Week Forty-Three

Week of October 23, 2017 through October 27, 2017

United States v. Shawntanna Thompson (Motz 10/26/2017): The Fourth Circuit held that a prior North Carolina conviction for assault inflicting serious bodily injury constitutes a “crime of violence,” as defined in the residual clause of § 4B1.2 of the United States Sentencing Guidelines, under both the degree-of-risk test and the similar-in-kind test. Thus, the court affirmed the district court’s imposition of an increased sentence under the residual clause of § 4B1.2. Full Opinion

SAS Institute, Inc. v. World Programming Limited (Wilkinson 10/24/2017): The Fourth Circuit held that accessing the Learning Edition of software to learn how it works in order to create a competing product and better recreate its functionality in the competing product violated contractual clauses prohibiting reverse engineering and use for non-production purposes. Accordingly, the Fourth Circuit affirmed the district court’s judgment finding WPL liable for breach of the license agreement. However, the court vacated the district court’s judgment on the appellant’s copyright claim and remanded with instructions to dismiss it as moot. Full Opinion

Campbell-McCormick, Inc. v. Clifford Oliver et. al, (King 10/24/2017): The Fourth Circuit held that, where the district court dismissed all direct claims but retained jurisdiction over and stayed third-party claims, leaving them to be resolved at another time, the district court’s order was not a final decision under 28 U.S.C. § 1291. Furthermore, the court held that the right to keep one’s state law claims in federal court pursuant to 28 U.S.C. § 1367 was not sufficiently important to give rise to collateral order jurisdiction, even assuming the rule’s other requirements are met, where the district court simply declined—in its broad discretion—to exercise supplemental jurisdiction over pendent state law claims. The court thus dismissed the appeal for lack of appellate jurisdiction, including jurisdiction under the collateral order doctrine. Full Opinion

US v. Julian Zuk (Niemeyer 10/24/2017): The Fourth Circuit declined to extend United States v. Guevara, 941 F.2d 1299 (4th Cir. 1991), holding that waiver of appeal rights do not always have to be reciprocal in plea bargaining. Because the plea agreement specifically reserved the Government’s rights to appeal, the appeal was not barred by an implied appellate waiver. The court further held it was improper for the district court in its sentencing determination to focus almost entirely on the defendant’s autism spectrum condition under § 3553(a)(2)(D), give only passing attention to the other sentencing purposes identified in § 3553(a), and to only do so when responding to the government’s argument. Imposing a sentence for time served of 26 months primarily because of a diagnosis of mild autism hardly punishes, fails in a message of deterrence, does not adequately protect the public, undoubtedly does not promote respect for the law, and results in a grave sentencing disparity. Thus, the court vacated the district court’s sentence of time served of 26 months and remanded for resentencing.  Full Opinion


Highlight Case

SAS Institute, Inc. v. World Programming Limited, No. 16-1808

Decided: October 24, 2017

The Fourth Circuit held that the contractual terms “reverse engineering” and “non-production” were unambiguous under North Carolina Law, and that accessing the Learning Edition of software to learn how it works in order to create a competing product and better recreate its functionality in the competing product violated contractual clauses prohibiting reverse engineering and use for non-production purposes.

SAS Institute (“SAS”), a North Carolina company, and World Programming Limited (“WPL”), a United Kingdom company, are competitors in the market for statistical analysis software. SAS alleges that WPL breached a license agreement for SAS software and violated copyrights on that software. SAS sells an integrated system of business software known as the SAS System. SAS licenses its full suite of software to both individuals and corporations, and offers its Learning Edition as an educational tool to enable students to learn the SAS language. The Learning Edition had the same general functionality as the full system, but was programmed to process only a limited amount of data. To complete installation of the Learning Edition, a user must click “Yes” to indicate agreement with the terms of the license, such as a prohibition on “reverse engineering” as well as restriction requiring use for only “non-production purposes.” While developing a competing software (“WPS”), WPL acquired several copies of the SAS Learning Edition, ran SAS programs through both the Learning Edition and WPS, and then modified WPS’s code to make the two achieve more similar outputs. Several former SAS customers have replaced their SAS System software with WPS.

SAS filed lawsuits against WPL in the U.K. and the Eastern District of North Carolina. In the U.K. litigation, SAS asserted claims for copyright infringement and breach of the Learning Edition license agreement. The U.S. suit contained the same claims, with several additional claims. The U.K. High Court concluded that the case turned on interpretation of several provisions of E.U. law, including the E.U. Software Directive, relating to the legal protection of computer programs. The U.K. High Court referred its interpretive questions to the Court of Justice of the European Union (“CJEU”). The CJEU ruled that under the E.U. Software Directive, copyright law does not protect the functionality of a computer program, programming language, or format of data files. Based on the CJEU ruling and the mandatory nature of the E.U. Directive, the U.K. High Court entered a final ruling for WPL on all claims except for copyright infringement of the SAS manuals. The Court of Appeal of England and Wales affirmed, and the Supreme Court of the U.K. denied SAS’s request to appeal. The North Carolina district court granted summary judgment to SAS on the breach of contract issues, and to WPL on the copyright issue. It denied SAS’s requested injunctive relief. At trial for fraudulent inducement and UDTPA violations, the jury awarded SAS $26,376,635 for breach of contract, which was trebled to $79,129,905. Both parties appealed.

First, the Fourth Circuit addressed preliminary arguments that the claims were barred. The court held that copyright claims based on the copyright laws of different countries and on different sets of sales transactions were not barred by res judicata. The many factual and legal differences between the U.K. litigation and the present suit would mean that applying res judicata would have the practical effect of preventing the plaintiff’s claims from being heard in any adequate forum, and would undermine the policies of the United States and North Carolina in favor of the policies of the U.K. and European Union. Furthermore, breach of contract claims decided in a country whose public policy is in clear conflict with United States public policy are not barred by res judicata. The parties agreed to be governed by North Carolina law, but the U.K. courts were bound to and applied E.U. law. In addition, the U.S. has taken an approach that is more protective of intellectual property, and North Carolina courts have taken an approach that is more protective of the sanctity of contract, both in clear conflict with E.U. policies. Finally, the court held that legal differences prevent issue preclusion where a U.K. breach of contract ruling is based entirely on an E.U. Directive, a law inapplicable in this action and significantly different from U.S. law.

Turning to the merits, the Fourth Circuit held that the contractual terms “reverse engineering” and “non-production” are unambiguous under North Carolina law. The contract specified that the parties would be governed by North Carolina law, which applies ordinary principles of contract interpretation to resolve disputes, including relying on dictionary definitions to identify the common and ordinary meaning of words and phrases. Based on these definitions, the court held that accessing the Learning Edition of software to learn how it works in order to better recreate its functionality in one’s own products is reverse engineering, which violates the clause prohibiting reverse engineering. Similarly, use of the Learning Edition specifically to produce a competing product constitutes a violation of the “non-production” clause. The court also held that the district court acted within its discretion when it excluded evidence regarding the U.K. litigation and E.U. Software Directive, and allowed an expert to testify broadly on behalf of the plaintiff, relying on the rules of evidence.

Finally, the court held that neither the breach of contract claims nor the copyright claim warranted an injunction. SAS failed to demonstrate an irreparable injury from WPL’s actions because it received $79 million in compensatory damages. In addition, SAS offered only vague concerns that collection might be difficult. The court also balanced the hardships between the parties: while SAS was the world’s largest privately-held software company, WPL would likely be ruined by the imposition of an injunction. Additionally, the public would likely be harmed by the injunction, as WPL’s customers would have to expend significant time and money to replace their existing systems. Finally, the court held that it was not clear that copyright infringement occurred; even if it did, equitable factors weighed strongly against issuance of injunctive relief. Because an injunction was the only relief sought for the copyright claim, and the court declined to impose the injunction, the copyright issue was moot. SAS would not receive the injunction even were it to prevail on its copyright claim, so the legal resolution of that claim would have no effect on the relief afforded the parties.

Accordingly, the Fourth Circuit affirmed the district court’s judgment finding WPL liable for breach of the license agreement. However, the court vacated the district court’s judgment on the copyright claim and remanded with instructions to dismiss it as moot.

Full Opinion

Jennifer M. Greene


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