Posts by sergenian

David A. Sergenian is a co-founding partner of Sergenian Ashby LLP. His practice concentrates in the areas of copyright, trademarks, trade secrets, partnership and startup disputes, and general commercial litigation. In addition, he has extensive experience in patent law, securities litigation, entertainment litigation, and employment actions. He has represented clients on “both sides of the v.,” including numerous Fortune 500 companies, in litigations, trials, arbitrations, and alternative dispute resolutions. Prior to co-founding Sergenian Ashby LLP, David co-founded Pierce Sergenian LLP. Prior to that, he was an attorney at the law firms of Glaser Weil Fink Howard Avchen & Shapiro LLP; Quinn Emanuel Urquhart & Sullivan LLP; and Gradstein, Luskin & Van Dalsem. Before entering law school, he worked as a film and video editor in feature films, documentaries, and television. He currently serves as outside General Counsel to The French Conservatory of Music in Beverly Hills.

Synopsys v. Ubiquiti (N.D. Cal.)

A Discovery Ruling in Synopsys, Inc. v. Uniquiti Networks, Inc., 2018 WL 577941, Case No. 17­–cv–00561 (N.D. Cal. Jan. 29, 2018), Raises a Novel Issue as to Liability for “Cross-Border” Circumventions of the Digital Millennium Copyright Act

by David A. Sergenian

The 1998 Digital Millennium Copyright Act (“DMCA”), 17 U.S.C. § 1201(a)(1), and (2), prohibits circumvention of copyright protection systems. Although it has not yet been the subject of a published opinion, presumably the DMCA, like the Copyright Act, does not reach conduct that takes place entirely abroad. Assuming this is correct, if an end user in the United States circumvents a copyright protection system by accessing unlicensed software residing on a server in a foreign country, does the DMCA reach this type of conduct? This is the issue that a Northern District of California magistrate judge was required to consider in Synopsys, Inc. v. Ubiquiti Networks, Inc., 2018 WL 577941, Case No. 17–cv–00561 (N.D. Cal. Jan. 29, 2018). Although the standard for determining cross-border liability under the DCMA in this opinion was considered solely in the context of determining relevance of discovery requests, it highlights an issue that is likely to be more fully addressed by a district court in the future.

Background

Synopsys is a leading producer of semiconductor design software. Ubiquiti designs networking technology, including semiconductor chips. Synopsys alleges that since 2014, Ubiquiti has used counterfeit license keys for Synopsys’ electronic design automation (“EDA”) software without a license. Synopsis further alleges that Ubiquiti violated the DMCA by fraudulently representing to Synopsys that it was interested in entering into a license agreement to obtain Synopsys software, when it in fact was planning to use counterfeit license keys. 2018 WL 577941 at *1.

Synopsys’ EDA software contains a tracking function that transmits to Synopsys information about computers that use counterfeit license keys, including the computers’ MAC addresses, IP addresses, and server host names. This function, known as “call-home” or “phone-home” data, allegedly showed that Ubiquiti used counterfeit license keys more than 39,000 times. Id. at *2.

Ubiquiti installed Synopsys’ software on a server in Taiwan and provided its employees with remote access. Accordingly, even if a Ubquiti employee accessed the software from a remote location, such as the United States, the call-home data Synopsys received would indicate the identifying information of the server located in Taiwan. As a result, the vast majority of the call-home data Synopsis received showed that the user was located in Taiwan. Id.

Synopsys issued inspection demands to Ubiquiti, demanding a forensic examination of Ubiquiti’s Taiwan computers. Ubiquiti refused to comply with the inspection demands, and Synopsys filed a motion to compel. Id. at *1.

Ubiquiti argued that this established that the alleged violating use occurred entirely in Taiwan, and therefore data on its Taiwan computers was not relevant. Synopsys argued that the majority of infringing use occurred in the United States, notwithstanding call-home data indicating use in Taiwan, and therefore the data on the Taiwan computers was relevant. Id. at *2.

The Court’s Analysis

The court first observed that neither party had specified the contours of what a forensic examination of Ubiquiti’s Taiwan computers would entail. Id. Accordingly, the court was unable to rule on the relevance, proportionality, or burden of permitting a particular forensic examination of Ubiquiti’s Taiwan computers for forensic artifacts that might be relevant to the case. Instead, it addressed whether some sort of forensic examination of Ubiquiti’s Taiwan computers could be relevant. Id. at *3.

 The court crystallized the relevancy inquiry as follows:

“[W]hen an end user connects to a remote server and, through that remote server, circumvents a technological measure that controls access to a copyrighted work, where is that circumvention deemed to have taken place, and how (if at all) does that affect whether the circumvention gives rise to DMCA liability?” Id.

Ubiquiti made two arguments. First, relying on Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088 (9th Cir. 1994) (en banc), Ubiquiti argued that the DMCA does not cover circumventions that take place entirely outside the United States. (In Subafilms, the Ninth Circuit held that the Copyright Act does not reach copying that takes place entirely outside of the U.S. Both parties assumed that the DCMA also did not apply to conduct that takes place entirely outside of the U.S.) Ubiquiti argued that its alleged circumventions took place entirely outside the United States. Id.

Second, Ubiquiti argued that the DMCA does not cover circumventions that are “initiated” in the United States but are “completed” in a foreign country. Id. at *3. Neither of the parties identified any precedent that addressed the question of such “cross-border circumventions of the DMCA,” and the court was not aware of any such cases. The parties both argued that the court should apply the Copyright Act by analogy. Although the court expressed some skepticism about this approach, it observed that even if cases addressing violations of the Copyright Act were analogous, Synopsys could make a plausible argument under those cases that Ubiquiti’s alleged conduct is sufficiently related to the United States to give rise to DMCA liability. Id. at *4.

Because the parties had failed to provide sufficient descriptions of how Ubiquiti’s alleged circumvention took place, the court posed a hypothetical set of facts. It assumed that Ubiquiti obtained hacker software in Taiwan that allowed it to access Synopsys’ software. Under this hypothetical, Ubiquiti’s U.S. end users accessed and used Synopsys’ software that was installed on Ubiquiti’s server in Taiwan. Id.

The court turned by analogy to a Second Circuit copyright case, Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008). In Cartoon Network, the Second Circuit was faced with the question of who made a copy of copyrighted content—a DVR user or the cable company that provided DVR capabilities and storage of the copied content on its servers. The Second Circuit held that the copies were made by the DVR user, not the remote server, “because ‘the person who actually presses the button to make the records, supplies the necessary element of volition.’” 2018 WL 577941 at *5 (quoting Cartoon Network, 536 F.3d at 131). By analogy, a Ubiquiti user accessing Synopsys software could be liable for circumvention of the DMCA. Id.

Ubiquiti posed its own hypothetical set of facts at the hearing on Synopsys’ motion. Ubiquiti raised the possibility that “some person or persons outside the United States ‘hacked’ the Synopsys software to remove the license-key-protection system entirely, so that after that one act of circumvention, the software never again checked any license keys.” Ubiquiti users in the U.S. would then run the software without being prompted for a license, and therefore could not be held liable for circumvention under the DMCA. Id. at *6.

The court determined that it was not required to decide whether Ubiquiti would face DMCA liability under Ubiquiti’s hypothetical set of facts. Instead, it determined that discovery into Ubiquiti’s Taiwanese computers was relevant to determine liability. Id.

Perfect 10 Server Test

The court also rejected Ubiquiti’s attempt to rely on the “server test” set forth in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007). In Perfect 10, the plaintiff was the registered owner of copyrights in certain photos. It alleged that Google violated its exclusive rights of public display and distribution by displaying the photos in a Google search result. Google pointed out that the photographs were not stored on its server, but instead were transmitted directly from third-party servers to end users without going through Google. Therefore, Google could not as a matter of law be the infringing party. The Ninth Circuit held that “only a server that actually stored the photographs as electronic information and ‘serves that electronic information directly to the user (“i.e., physically sending ones and zeroes over the Internet to the user’s browser”)’ could infringe the copyright holder’s rights, whereas a search engine like Google ‘that does not store and serve the electronic information to a user’ did not infringe on the copyright owner’s rights.” 2018 WL 577941 at *7 (quoting Perfect 10, 508 F.3d at 1159). The court observed that the Ninth Circuit’s “server test” was inapposite because it did not address the question of distinguishing between end users and remote servers. Id. at *6.

Conclusion

The court’s analysis seems correct in a “micro” sense: the court was not in a position to determine the issue of whether Ubiquiti’s conduct was subject to the DCMA because the factual record was undeveloped. Presumably, Ubiquiti’s counsel had the ability to support its hypothetical with declarations. Whether it intentionally chose not to submit declarations for strategic reasons is not clear. In any event, the court’s ruling that Ubiquiti was not entitled to categorically refuse discovery of its Taiwanese computers was reasonable. The court cautioned that it was not issuing a blanket order permitting unfettered discovery, and that discovery into Ubiquiti’s Taiwanese computers was subject to standard discovery factors, including proportionality, burden, and the defendants’ legitimate interests in maintaining the integrity of their systems and the confidentiality of their data. Id. at *7.

However, it is questionable whether the court’s analogy between a DVR user in Cartoon Network and a Ubiquiti employee using Synopsys software is apt. In the case of the DVR user, there can be no doubt that the DVR user alone decided to copy the copyrighted work. In the case of the Ubiquiti employee, it was almost certainly not an individual employee who made the decision to use Synopsys’ software, and he or she may have been wholly unaware that it was being used (not to mention that it was being used without authorization from Synopsis). This is consistent with how most larger companies handle software licenses: i.e., they are licensed in bulk and, typically, an I.T. department will be responsible for ensuring that the end users’ software is licensed.

Of course, as the court itself made clear, the issue was only raised in the context of determining relevancy for the purposes of deciding the bounds of permissible discovery. Ubiquiti ultimately may be able to evade liability under the DCMA by substantiating its hypothetical set of facts in which none of its U.S. personnel intentionally circumvented Synopsys’ copyright protection systems. Furthermore, it may prevail on an argument that its end users lacked the necessary volition to engage in conduct that violates the DCMA.

 

 

 

Fathers & Daughters v. Zhang (D. Or.)

Order Granting Summary Judgment in Fathers & Daughters Nevada, LLC v. Zhang (D. Or. Jan. 17, 2018), Illustrates the Importance of Determining the Proper Plaintiff in a Copyright Action

by David A. Sergenian

A decision on a defendant’s summary judgment motion in a copyright action involving unauthorized downloading of a motion picture illustrates the importance of ensuring that the plaintiff has standing to sue under the Copyright Act prior to filing suit.

Background

In Fathers & Daughters Nevada, LLC v. Zhang, 2018 WL 447620, Case No. 3:16–cv­–1443 (D. Or. Jan. 17, 2018), plaintiff Fathers & Daughters Nevada, LLC (“F&D”) sued individual defendant Lingfu Zhang for violation of F&D’s purported exclusive rights under the Copyright. F&D was the registered owner of the copyrights in the 2015 film Fathers & Daughters, starring Russell Crowe and Amanda Seyfried. Id. at *2. F&D alleged in its lawsuit that Zhang downloaded Fathers & Daughters over the internet using BitTorrent software. Id. at *6.

In his summary judgment motion, Zhang argued that F&D was not the legal or beneficial owner of the relevant exclusive rights under the Copyright Act, and therefore lacked standing to sue. In 2013, F&D entered into a sales agency agreement with Goldenrod Holdings (“Goldenrod”) and its sub-sales agent Voltage Pictures, LLC (“Voltage”). Id. at *2. The agreement authorized Goldenrod and Voltage to license most of the exclusive rights of the film, including rights to license, rent, and display the motion picture in theaters, on television, in airplanes, on ships, in hotels and motels, through all forms of home video and on demand services, through cable and satellite services, and via wireless, the internet, or streaming. F&D reserved all other rights, including merchandising, novelization, print publishing, music publishing, soundtrack album, live performance, and video game rights. Id. at *1. Goldenrod subsequently entered into a distribution agreement with Vertical Entertainment, LLC (“Vertical”). Id. at *3.

The court granted the summary judgment motion, determining that F&D lacked standing to sue under the Copyright Act. Id. at *4.

Standing as Legal Owner

The first argument that F&D made was that because it is the registered owner of the copyrights in the film, it is therefore the legal owner of the copyrights and has standing to sue. Id. However, the court found that “[t]his simplistic view of ownership of a copyright misunderstands that copyright ‘ownership’ can be transferred through an exclusive license (or otherwise) and can be transferred in pieces.” Id. (citing Righthaven LLC v. Hoehn, 716 F.3d 1166, 1170 (9th Cir. 2013)). The first issue the court addressed was an examination of the sales agency agreement to determine whether it was an exclusive license. The court found that the agreement clearly granted an exclusive license to Goldenrod and Voltage “for the rights that were transferred.” Id. The court observed that it was immaterial that F&D did not grant all exclusive rights to Goldenrod and Voltage because, as the 9th Circuit has stated, “The Copyright Act ¼ eradicated much of the doctrine of indivisibility by permitting a copyright owner to transfer [a]ny of the exclusive rights comprised in a copyright, including any subdivision of any of the[se] rights, to someone else.” Id. (quoting Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1002 (9th Cir. 2015)). Because an exclusive license transfers ownership of a copyright during the term of the license, the legal owner of the copyright during the term of the license is the exclusive licensee. Id. at *5.

F&D argued that because the license to Vertical did not include all of F&D’s rights in Fathers & Daughters, including the right to display the movie on airlines and ships, and rights to the movie clips and stock footage, F&D remained the legal owner of the copyright and had standing to sue. Id. at *5. The court rejected this argument, pointing out that under the Copyright Act and Ninth Circuit jurisprudence, “after a copyright has fully transferred an exclusive right, it is the transferee who has standing to sue for that particular right.Id. The court noted that the Ninth Circuit “may have created some confusion in this analysis” by holding in Minden “that in an agreement where the copyright holder expressly retains legal ownership: (1) a copyright owner can retain some ‘limited degree’ of an ‘exclusive right,’ (2) a copyright owner can license the remaining portion of that ‘exclusive right’ to another, and (3) the licensee would have standing to sue as the recipient of an exclusive license of the right transferred to the licensee.” Id. at *5 n. 2. The court observed that the analysis in Minden was contrary to the rationale in Righthaven and leading treatises’ conclusion that after an exclusive right has been transferred pursuant to an exclusive, the registered owner loses all rights to enforce those exclusive rights. In any event, the court did not need to address the apparent conflict between Minden and Righthaven because F&D did not retain ownership of the rights at issue. Id.

Accordingly, because it was  an exclusive licensee of some of F&D’s exclusive rights, Vertical was the exclusive owner of all rights transferred to it under the exclusive license. Therefore, the sole remaining issue with respect to which party was the legal owner of the copyrights at issue was whether the exclusive rights transferred to Vertical include the rights relevant to the lawsuit. Id. at *6. The court had little trouble with this issue, as Zhang was accused of illegally downloading a copy of Fathers & Daughters over the internet, and Vertical’s exclusive rights included distribution “‘via the internet, ‘World Wide Web’ or any other form of digital, wireless and/or Electronic Transmission ‘and/or other non-tangible delivery or fixed and mobile devices, platforms, and services, whether now known or hereafter devised.’” Id.

Standing as Beneficial Owner

An owner of a copyright who transfers exclusive rights may still have standing to sue on those rights if the owner qualifies as a “beneficial owner” of those rights. The classic example is an owner who grants an exclusive license in exchange for percentage royalties based on sales or license fees. Id. at *2. Accordingly, the court had to determine if F&D retained a right to sue Zhang as a beneficial owner of the copyrights in the movie. Id. at *7.

In deciding this issue, the court observed that the sales agency agreement had been heavily redacted and that it was impossible to determine whether F&D received any share of adjusted gross receipts. Curiously, F&D did not supply the court with an unredacted copy of the sales agency agreement, or any other evidence that would show a genuine dispute of fact as to whether F&D could be a considered a beneficial owner because it shared in the profits. Although presumably that was the case, the court refused to engage in speculation in the absence of admissible evidence. Id.

Other Arguments

F&D also argued that it had standing to sue based on a reservation of the right to sue under the sales agency agreement contained in the distribution agreement between Vertical and Goldenrod. The court preliminarily observed that although there was a reservation of the right to sue for copyright infringement in the distribution agreement with Vertical, it was Goldenrod, not F&D, that reserved rights. Id. at *7.

Furthermore, under Ninth Circuit law, agreements and assignments cannot convey simply a right to sue because a right to sue is not an exclusive right under the Copyright Act. Id. The “exhaustive” list of exclusive rights in the Copyright Act comprises the rights “to reproduce the work, to prepare derivative works based upon the work, to distribute copies of the work, to perform the work publicly, to display the work publicly, and to record and perform the work by means of an audio transmission.” Id. at *1 (quoting Minden, 795 F.3d at 1002). Therefore, even if the reservation had been to F&D, it would not have been effective in conferring standing on F&D.

Finally, relying on an undated “Anti-Piracy and Rights Enforcement Reservation of Rights Addendum,” F&D argued that because the document reserved to F&D “all peer-to-peer digital rights (BitTorrent, etc.) in the Picture, including international rights, are reserve to [F&D],” and that F&D was authorized to issue Digital Millennium Copyright Act take-down notices and enforce copyrights against internet infringers, that it had standing to sue for copyright violations. Id. at *7. The court rejected the argument for two reasons.

First, the court observed that the right at issue in the reservation was not the exclusive right to display and distribution, and therefore the rights reserved to F&D were not exclusive rights under the Copyright Act. Id. at *8. Although this is accurate, it appears to ignore another exclusive right: the right to reproduce a work. It appears that the infringing conduct by Zhang was unauthorized downloading of Fathers & Daughters, which surely is a form of reproduction.

The court’s second rationale, however, is more to the point: F&D failed to offer any evidence that the reservation of rights addendum was executed before the copyright action was filed. Because standing to sue for copyright infringement requires evidence of ownership at the time of filing, the court could not conclude, based on the evidence before it, that the reservation of rights addendum was executed by the time the lawsuit was filed. Significantly, no other agreement in the record was undated, and one of the agreements, executed before the lawsuit was filed, authorized Voltage, not F&D, to investigate and pursue infringers. Notably, F&D did not dispute that the reservations of rights addendum was executed after the lawsuit was filed. Id. at *8.

Conclusion

From the plaintiff’s perspective, the court’s decision underscores the importance of joining all potential plaintiffs, or better yet, determining which party has standing to sue. From the defendant’s perspective, the decision illustrates shrewd issue spotting; specifically, how a threshold issue such as standing can defeat an entire claim. It is not clear whether the proper plaintiff, presumably Voltage, will be able to file a timely claim against Zhang. However, given that the statute of limitations for copyright claims is three years, and the film was released in late 2015 in Europe and in 2016 in the United States, presumably a new claim or lawsuit would be timely. (The court declined to consider plaintiff’s counsel’s request to amend the complaint to add additional plaintiffs because the issue was not raised by the motion at issue. Id. at *8.)

 

Oracle v. Rimini (9th Circuit)

Ninth Circuit Rejects License and Copyright Misuse Defenses in Oracle USA, Inc., et al. v. Rimini Street, Inc., et al., __ F.3d __ (9th Cir. Jan. 8, 2018)

by David A. Sergenian

Introduction

A new case from the Ninth Circuit illustrates that policy arguments cannot overcome the express language of a copyright license, as well as the difficulties inherent in asserting a copyright misuse defense. In Oracle USA, Inc., et al. v. Rimini Street, Inc., et al., 2018 WL 315568, __ F.3d __ (9th Cir. Jan. 8, 2018), the Ninth Circuit panel affirmed in part, reversed in part, and vacated in part the district court’s judgment after a jury trial in favor of Oracle USA, Inc., on its copyright infringement and state law claims against Rimini Street, Inc. and its CEO, Seth Ravin. Id. at *3. The opinion addressed issues of copyright infringement, violations, state law claims (California’s Computer Fraud and Abuse Act; the Nevada counter-part, the Nevada Computer Crimes Law; and California’s Unfair Competition Law), damages, interest, fees and costs, and injunctive relief.

With respect to the copyright claims, the opinion focused on two arguments made by the defendants/appellants on appeal: (1) their attempt to broadly read Oracle’s license agreements to provide for a license to copy Oracle software for their future clients; and (2) their argument that Oracle was misusing its copyrights by using its licensing restrictions to restrict competition in the third-party software maintenance market. The Ninth Circuit rejected both arguments.

Factual and Procedural Background

Oracle licenses enterprise software, and also sells its licensees maintenance contracts that are renewed annually. Rimini lawfully competed with Oracle to provide maintenance contracts. To do so, Rimini needed to provide software updates to its customers. This required copying Oracle’s copyrighted software. From late 2006 to early 2007, Rimini obtained this software from Oracle’s website with automated downloading tools in violation of the terms of use of Oracle’s website. The essence of Oracle’s copyright claim was that Rimini copied Oracle’s software under the license of one customer for work for other existing customers or for unknown or future customers, instead of restricting such copying for use with the particular licensed customer. Id. at *2.

After the trial court denied Rimini’s summary judgment motion, the jury found for Oracle on its copyright claim. Rimini asserted two arguments on appeal: (1) Rimini’s copying was permitted under the terms of the licenses Oracle granted to its customers; and (2) holding Rimini accountable for its alleged conduct would condone copyright misuse by Oracle. Id. at *3.

License Defense

The Ninth Circuit had little trouble rejecting Rimini’s license defense. The existence of a license creates an affirmative defense to a claim of copyright infringement. Worldwide Church of God v. Phila. Church of God, Inc., 227 F.3d 1110, 1114 (9th Cir. 2000). However, “[w]hen a licensee exceeds the scope of the license granted by the copyright holder, the licensee is liable for infringement.” LGS Architects, Inc. v. Concordia Homes of Nev., 434 F.3d 1150, 1156 (9th Cir. 2006). The district court instructed the jury Rimini was permitted, as a third party, to make copies of the Oracle software to support its customers by performing archiving, backup, and related testing. However, the district court instructed the jury that the licenses “do[] not mean that a third party like Rimini Street is authorized to make copies of the … software application … to use the customer’s software … to support other customers.” Id. at *4.

With respect to one of the licenses at issue, Rimini argued on appeal that the district court’s jury instruction regarding direct use was improper. The Ninth Circuit held that Rimini waived this argument by failing to request a different jury instruction. Id. at *5–6. The Ninth Circuit also upheld a finding of infringement under a separate, more restrictive license. Id. at *8.

Rimini also argued that it was entitled to engage in “cross use” under the Oracle licenses. “Cross use” refers to the creation of a development environments (also known as a “sandbox”; i.e., an offline version of a company’s software that it uses to test and modify software before the software goes live) for use with other customers who were not yet licensed by Oracle. Rimini claimed that “cross use” is not infringement because any organization that might hire Rimini to service its software would itself have to create a sandbox. Accordingly, Rimini argued, cross use allows it to reduce expenses by reusing the work it had done for one customer when it provided services for another customer. Id. at *4–5.

According to Rimini, the Oracle licenses permitted cross use because (1) each of Rimini’s customers had its own license; (2) each license permits copies to be made for archival and support purposes; (3) the licenses authorize customers to outsource the archival and support work to third parties; and (4) such archival and support work includes the creation of development environments. Id. at *6.

The Ninth Circuit rejected this argument and instead agreed with Oracle that the licenses did not permit Rimini to develop products (i.e., sandboxes) that it could sell for Rimini’s financial gain. The Ninth Circuit held that “[a]ny work that Rimini performs under color of a license held by a customer for other existing customers cannot be considered work in support of that particular customer. The same logic applies to work Rimini performs for unknown, future customers. The licensees may hire a third party such as Rimini to maintain their software for them, but nothing in the licenses permits them to grant a non-party to the license a general right to copy proprietary software.” Id.

Copyright Misuse

The Ninth Circuit also rejected Rimini’s copyright misuse defense. The copyright misuse doctrine prevents holders of copyrights “from leveraging their limited monopoly to allow them control of areas outside the monopoly.” Apple Inc. v. Psystar Corp., 658 F.3d 1150, 1157 (9th Cir. 2011). (quoting A&M Records v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001)) (internal quotation marks omitted). To that end, while it “does prevent copyright holders from using the conditions to stifle competition,” “[t]he copyright misuse doctrine does not prohibit using conditions to control use of copyrighted material.” Id. at 1159. Accordingly, the doctrine is to be “applied … sparingly”; specifically, it operates when copyright holders attempt to impose license agreements that would “prevent[] … licensee[s] from using any other competing product.” Id. at 1157 (emphasis added). Oracle USA, Inc., et al. v. Rimini Street Inc., et al., 2018 WL 315568, at *7.

Rimini argued that holding it liable for copyright infringement would condone misuse of Oracle’s copyright because it would foreclose competition in the aftermarket for third-party maintenance by limiting the copies made by third parties to those made only for archival and emergency backup purposes, and because the software could not be serviced simply by making exact copies. Id.

The Ninth Circuit agreed with Oracle that its licenses do not preclude third parties from developing competing software of providing competing services; they merely “require third parties to do so in ways that do not disregard Oracle’s exclusive rights under copyright law.” Id. The Ninth Circuit observed that the trial court instructed the jury that Rimini was permitted to make copies of Oracle’s software for “testing purposes,” which would include copying Oracle’s software to a sandbox. Id.

The remaining issue for the Ninth Circuit was whether it would be copyright misuse to forbid Rimini from creating a sandbox for licensees before they have customers. In other words, Rimini was asking for a “head start” in making copies. Relying on the right of first publication doctrine, as expressed in Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985), the Ninth Circuit explained that “[j]ust as a copyright holder has the right of first publication,” it also must enjoy the right of ‘first copy.’ Giving a head start to Oracle in creating development environments is entirely consistent with the Supreme Court’s teaching in Harper.” Id.

Commentary

The Ninth Circuit’s ruling that Rimini is not permitted to exploit licensed copies of Oracle’s software to create sandboxes for future licensees upholds the express language of the Oracle licenses. There may be some pragmatic appeal to Rimini’s argument that if future licensees contract with Rimini for maintenance, Rimini would eventually need to copy Oracle’s software to service the new licensee. In this respect, Rimini’s practice of reusing sandboxes created from one licensee’s copy of the software is expedient and efficient. However, nothing in the licenses contemplated such “cross use.” In this sense, the Ninth Circuit’s ruling on the license issue vindicates the expressly-manifested intent of the parties to the license agreements over Rimini’s efficiency argument.

With respect to the Ninth Circuit’s ruling on the copyright misuse issue, Rimini’s position is difficult to square with the rarely successfully-invovoked copyright misuse doctrine. It is, of course, far more efficient for Rimini to reuse the sandboxes it created for one customer for use with other eventual licensees, especially given that the software it was copying, as the word “copy” suggests, is identical. Oracle’s licensing regime forces Rimini to go through the laborious process of recreating new copies of the sandbox for each new client. But however inefficient a process this is for Rimini, it hardly constitutes an extension by Oracle of control outside of the limited monopoly of a copyright, given that Oracle’s copyright grants it the power to dictate who may make copies of its software and for what purposes. As the Ninth Circuit has previously observed, “[w]hile copyright owners may choose to simply exclude others from their work, i.e. not to transfer their rights, see Stewart v. Abend, 495 U.S. 207, 228–29, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990); Fox Film Corp. v. Doyal, 286 U.S. 123, 127, 52 S.Ct. 546, 76 L.Ed. 1010 (1932), courts have long held that copyright holders may also use their limited monopoly to leverage the right to use their work on the acceptance of specific conditions, see, e.g., Metro–Goldwyn–Mayer Distrib. Corp. v. Bijou Theatre Co., 59 F.2d 70, 77 (1st Cir.1932) (holding that if a motion picture license is subject to the condition that its exhibition must occur at specified times and places, the licensee’s exhibitions at other times and places is without authority from the licensor and therefore constitutes copyright infringement).” Apple Inc. v. Psystar Corp., 658 F.3d 1150, 1159 (9th Cir. 2011).