This article previously appeared in Technology and Commercial Contracts Newsletter, November 2011.
A US District Court Judge has overturned the highest ever award
for copyright infringement in US history. The $1.3 billion jury
award in favour of Oracle against its competitor SAP was described
by Judge Phyllis Hamilton as "grossly excessive" and as
having no basis in law.
The long-running legal battle between the two software giants began
in 2007, when Oracle sued SAP for copyright infringement. It
alleged that a subsidiary of SAP, TomorrowNow, had illegally
accessed, downloaded and used Oracle's proprietary software
code. Prior to the trial in November 2010, SAP accepted all
liability, and so the only issue to be tried was the appropriate
measure of damages.
The $1.3 billion jury award was based on a "hypothetical
licence fee" that SAP would have paid to Oracle had it
lawfully licensed its software. The judge however rejected this
measure of damages, as the evidence showed that Oracle "had
never given any entity a licence to copy [its] application
software...thus [it] could not reasonably claim that SAP's
infringement diminished the licensing value of the infringed
works." Oracle's own evidence at trial confirmed that it
would never have granted such a licence to a competitor to allow it
use its software; any such licence would have been
"unique" and "unprecedented." Any claim for
damages based on a lost licence fee would have to be supported by
evidence of similar licensing practices in the past, which Oracle
could not show. As such, damages could not be based on the value of
a hypothetical licence that would never have been granted.
The judge was therefore satisfied that the award grossly exceeded
the actual harm to Oracle. Rather than providing evidence of lost
customers, and the associated loss of profits, Oracle instead
presented evidence of the "purported value of its intellectual
property as a whole" elicited in "self-serving
testimony" from its executives. This could not be used to
calculate damages. The law requires that any award must be based on
objectively verifiable evidence, ie the loss of profit that Oracle
suffered as a result of SAP's copyright infringement, which the
judge calculated as $272 million. If Oracle reject this amount, a
new trial will be ordered.
The US Department of Justice has separately filed charges against
TomorrowNow – which has been shutdown by SAP –
for criminal copyright infringement and unlawful access to
Oracle's computers. SAP have pleaded guilty to all charges, and
have negotiated a plea bargain with the Department of Justice,
which is subject to an up-coming court review.
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