Summary
adjudicating a motion for summary judgment
Summary of this case from ExpertConnect, L.L.C. v. FowlerOpinion
14 Civ. 4902 (CM)
04-17-2015
SAKS INCORPORATED, Plaintiff, v. ATTACHMATE CORPORATION, Defendant.
DECISION AND ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT; GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT; DENYING DEFENDANT'S MOTION TO STRIKE THE TESTIMONY OF UNDISCLOSED WITNESSES; AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO UNSEAL THE RECORD :
Numerous motions and cross motions are presently pending before the court. (Dockets ##69, 74, 89, 92.) This opinion will dispose of all pending motions.
Facts Pertinent to this Opinion
I. Saks' Licensing of Attachmate's Software
Defendant Attachmate produces and licenses computer software to customers in nearly 60 countries worldwide. One of Attachmate's product lines is called "terminal emulation software" (TES), which allows a customer to display and use, on her local computer, software that is physically located on a remote mainframe computer. Attachmate is one of several manufacturers of TES. Plaintiff Saks Incorporated (Saks) has purchased licenses for and has used various TES products, from Attachmate and others. Specifically, Saks purchased Attachmate products from the mid-1990s until March 2008. By that time, advances in computing had diminished the need for TES, and Saks stopped purchasing Attachmate's product.
Between 2004 and March 2008, when it made its final purchase, Saks purchased licenses for versions 8.0 and 8.1 of Attachmate "Extra! Mainframe Server Edition" software (EMSE), a suite of products that included the EXTRA! X-treme TES. These licenses cost between $75 and $95 each. It is undisputed that, at all relevant times, Saks owned 2,361 valid licenses for versions 8.0 and 8.1 of EMSE Software. Saks also owned thousands of valid licenses for other versions of Attachmate's software, but they are not relevant to this lawsuit.
Users of Attachmate's TES can deploy it in one of two ways. They can (1) install the software directly onto an employee's laptop or desktop device, or they can (2) install the software on a network server, which can be accessed by multiple devices. Whenever the software is installed, the customer must "click" to acknowledge that it has read and agrees to be bound by the terms of Attachmate's End User License Agreement (EULA). This is no different than when an iPhone user clicks on "I Agree" prior to installing a software update. In each case, the creator of the software licenses the product on terms set forth in its license agreement. The customer does not get to negotiate those terms but is always free to decline them - in which case, the customer cannot use the licensor's product.
Several provisions of the EULA are relevant to this dispute and to the motions pending before the court.
Section 2, entitled "License Grant," warns the user in bolded text, "You may not exercise any of the rights granted by this License Agreement until you obtain an applicable Licensed Unit(s) Certificate which permits you to use and install up to the number of authorized SOFTWARE units printed therein in accordance with this License Agreement."
Section 2(b) of the EULA provides that a customer may install and use the software on as many Client Devices as the number stated on the Licensed Unit(s) Certificate. However, the licensee is permitted to install a single copy of the software on a "network server," provided that the user has acquired licenses for each device that "ha[s] the ability to access and use, directly or indirectly, the SOFTWARE from such network server."
The net effect of these two provisions is to require a separate license for each separate device that uses (deploys) the EMSE software. In the event that the user elects to install the software on devices directly, it has to obtain a license for each computer on which the software was installed. And if the user chooses to install the software on a network server, it has to purchase a license for each separate computer that "ha[s] the ability to access and use" the software from the server over the network. The phrase "ability to access and use" is not otherwise defined; under settled principles of contract construction (contra proferentem), to the extent that it is ambiguous (and it is), it must be construed against Attachmate, which drafted the EULA without any input from Saks or any other customer. See Westchester Resco Co., L.P. v. New England Reinsurance Corp., 818 F.2d 2, 3 (2d Cir. 1987); Guy Stickney, Inc. v. Underwood, 410 P.2d 7, 9 (Wash. 1966).
Section 11 of the EULA gives Attachmate the right to audit a customer's computers and records for compliance with the EULA as often as twice a year, and states, "If an audit reveals that you possess or at any time possessed unlicensed copies of the [software], you will promptly pay Attachment the applicable license fees for such unlicensed copies."
II. The December 2013 Audit
In December 2013 - nearly six years after Saks purchased its last copy of the EMSE TES - Attachmate exercised its right under Section 11 of the EULA and commissioned Deloitte & Touche LLP to perform an audit of Saks' computer environment. The following findings from the audit are undisputed:
1. 1,133 of Saks' more than 9,000 computers had EMSE software installed on their hard drives.It is equally undisputed that the audit did neither of the following:
2. 7 of Saks' network servers had EMSE software installed thereon. (Calvaruso Decl. Exs. 23-29.)
3. Saks owned 2,361 licenses for relevant versions of the EMSE software as of the date of the audit.
1. The audit did not generate any data demonstrating that Saks had installed, displayed, distributed, or used the EMSE software on more than 2,361 computers.
2. The audit did not generate any data reflecting how many devices within the Saks computer environment had "the ability to access and use" the copies of the EMSE software installed on 7 Saks' network servers.
At the close of the audit, Attachmate took the position that Saks was in breach of Section 2(b) of the EULA because it did not have a separate license for every computer that "ha[s] the ability to access and use" the software that was installed on its 7 servers. According to Attachmate, the audit revealed that Saks had "deployed" the EMSE TES to 6,001 separate computing devices. As the court understands Attachmate's argument, the audit had not revealed that the software had actually been "accessed and used" on these additional computers, but rather that at the conclusion of the audit 6,001 computers had "the ability to access and use" the software "from [the] network server[s]."
Taking the position that the "applicable license fee" for these 3,640 unauthorized devices (the 6,001 devices on which EMSE software was "deployed" minus the 2,361 licenses owned by Saks) under Section 11 of the EULA was $1,259.60 per device - a hefty increase over the $95 maximum cost Saks paid for the licenses on the open market - Attachmate demanded that Saks pay it in excess of $6 million including applicable interest.
In order to avoid litigation, and without conceding that it had in fact not obtained all necessary licenses, Saks offered to pay Attachmate $95,095 (Calvaruso Decl. Ex. 43.) It will not surprise the reader to learn that Attachmate declined Saks' offer. (Calvaruso Decl. Ex. 8 (Slonecker Dep. Tr.) at 183:13-184:17.)
Saks thereupon commenced this action, (Docket #2), seeking a declaration that it had not breached the EULA (First Cause of Action). Saks alleged that it had limited access to the EMSE TES, such that only the 1,133 computers on which it was admittedly installed, plus approximately 300 additional Saks devices that have a desktop icon providing access to the EMSE software on Saks' remote servers, had the ability to access and use the software, while Saks had in excess of 1,433 separate licenses for the software. (Docket #2 ¶11.)
Saks also sought a declaration that it had not infringed Attachmate's copyright in the EMSE software (Second Cause of Action).
Finally, Saks alleged that, if it in fact needed to purchase more licenses pursuant to Section 11 of the EULA, Attachmate breached the contract by refusing to accept Saks' offer to buy additional licenses (Third Cause of Action).
Attachmate filed an answer (Docket #11), generally denying Saks' allegations and asserting two counterclaims: one for copyright infringement (First Counterclaim) and one for breach of express and implied contract (Second Counterclaim). Two breaches were specified: (1) failure to pay Attachmate the required license fees for all deployments of its software, whether via servers or installation on individual devices, and (2) failure to monitor or control installation, access to, interaction with, and/or use of the Attachmate Products.
Both counterclaims plead specific facts about (1) Attachmate's business, (2) Attachmate's software, including specifically the EMSE software in suit, and the copyright obtained therein, (3) Saks' acquisition of licenses to use that software, (4) the relevant terms of the EULA, (5) the December 2013 audit, including that Saks was "grossly out of compliance" with the EULA, "with over 3,600 improper deployments of the" EMSE Version 8.0 software, for which Saks had not paid. (Counterclaim ¶33.) The counterclaim also asserted that Saks had failed to implement internal controls on copying, distributing, and access to the Attachmate products, as required by the EULAs.
Saks replied to the counterclaims, (Docket #13), denying them and interposing, inter alia, several affirmative defenses, including: copyright preemption, copyright misuse, unclean hands, laches and acquiescence and estoppel.
Saks interposed an affirmative defense of copyright preemption to Attachmate's claim for breach of contract, but it has since apparently abandoned that affirmative defense in the face of Attachmate's motion for summary judgment dismissing it - see infra at 14.
III. The Present Motions
Before the court for decision are the following motions:
1. Attachmate's Motion for Partial Summary Judgment Dismissing Saks' Breach of Contract Claim (Third Cause of Action) and its Affirmative Defenses of copyright preemption, copyright misuse, laches/acquiescence, estoppel, and unclean hands. (Docket #69.)
2. Saks' Cross Motion for Partial Summary Judgment Dismissing Attachmate's Claim for Copyright Infringement. (Docket #74.)
3. Saks' Motion to Strike Attachmate's Motion for Partial Summary Judgment Insofar as It Asserts an Unpleaded Claim for Conduct Substantially Pre-dating the 2013 Audit. (Docket #74.)
4. Attachmate's Motion to Strike the Testimony of Saks Witnesses who were recruited to give evidence relevant to the expanded version of Attachmate's claim. (Docket #92.)
5. Saks' Motion to Unseal. (Docket #89.)
Motions 3 and 4, the cross-motions to strike, are mirror image motions: they deal with whether Attachmate has properly placed before the court a more expansive claim than the one it originally pleaded, and if it has, whether Saks can offer evidence in opposition to that claim from witnesses not previously identified. I will deal with that first; then I will turn my attention to the real deal.
Disposition of the Cross-Motions to Strike
It is unquestionably the case that the counterclaim as pleaded asserts breach of contract and copyright infringement based on the circumstances reported at the conclusion of the December 2013 Deloitte Audit. The specific factual allegations of the counterclaim are grounded in the findings of the audit, which is asserted to have reported on Saks' "deployment" of Attachmate's EMSE TES as of the date of the audit (Counterclaim ¶¶30-33). Those specific factual allegations, in turn, were realleged and incorporated into the two counterclaims. (Id. ¶¶39, 45.) The counterclaim pleads no fact tending to show that Saks was out of compliance with the license except at the time of the 2013 compliance audit. And indeed, it is undisputed that, prior to December 2013, Attachmate did not exercise its right to demand a compliance audit.
Nonetheless, in moving for partial summary judgment, Attachmate asserts that, during discovery, it learned of additional instances when Saks had deployed the EMSE TES without obtaining a license, going back as far as December 2004 and extending through either 2008 or 2012. (Attachmate Mem. in Support of Partial Summary Judgment at 4-6.)
According to the case management order entered in this action (Docket #9), Attachmate had until October 10, 2014 to amend its pleading as of right. It did not file an amended counterclaim asserting these newly-discovered facts during the period when it had the right to do so.
Once that period runs, a party litigating in front of this court is remitted to its remedies under the Federal Rules of Civil Procedure. Rule 15 permits a party to make a motion for leave to amend a pleading. Such a motion must be accompanied by a copy of the proposed amended pleading, so that it can be assessed (by the opposing party and by the court) for both sufficiency and futility. According to Rule 15, leave to amend is to be "freely" granted; however, if the motion is made belatedly (including after a motion for summary judgment has been filed), and will delay resolution of a lawsuit already well underway, the court has discretion to deny the motion. Fershtadt v. Verizon Commc'ns Inc., 262 F.R.D. 336, 338 (S.D.N.Y. 2009). Where, as here, "a scheduling order has been entered, the lenient standard under Rule 15(a) . . . must be balanced against the requirement under Rule 16(b) that the Court's scheduling order shall not be modified except upon a showing of good cause. A finding of good cause depends on the diligence of the moving party." Grochowski v. Phoenix Const., 318 F.3d 80, 86 (2d Cir. 2003) (internal citations and quotation marks omitted).
New claims cannot be asserted in Final Pre-Trial Orders or in motions for summary judgment or in any other document. Facts developed during discovery may of course be put into a Final Pre-Trial Order - that goes without saying - but if those facts lead to the assertion of a new claim, then nothing in this court's rules or any other rules allows a party to evade the Federal Rules of Civil Procedure. You want to amend your pleading to assert a new claim - you have to make a motion. Period.
Saks argues that Attachmate is asserting new claims without leave when is contends that Saks was in violation of the EULA as far back as 2004 and at times prior to the period encompassed by the 2013 audit; Saks reads the complaint as restricting the counterclaims for breach of contract and copyright infringement to those allegedly discovered during the December 2013 audit. Attachmate counters that is has simply asserted that Saks infringed its copyright in the EMSE software and breached the EULA by failing to obtain the necessary number of licenses, and that these claims are pleaded broadly enough to encompass, not only the facts that were known to Attachmate at the commencement of this lawsuit, but also facts learned during discovery - facts that expand upon the claims originally asserted but do not fundamentally alter the nature of those claims.
This is the sort of motion that could never have been made with a straight face in the halcyon days of Conley v. Gibson, 355 U.S. 41 (1955). Such is the handiwork of Twombly/Iqbal.
This particular situation threads the needle between the need to move for leave to amend and simply adding newly-discovered facts in support of an existing claim.
On the one hand, Attachmate is talking about entirely new breaches of contract and alleged copyright violations. In this post-Twombly/Iqbal era, the only fair reading of the Answer and Counterclaims (which I have now read a good many times) is that the breaches and infringements pleaded are those that were uncovered by the 2013 Audit - period.
Bruce Slonecker, Attachmate's 30(b)(6) witness, testified at his deposition that this was the gravamen of the counterclaims. (Slonecker Dep. Tr. at 203:13-205:7.) Saks certainly read the pleading in that manner; the proof of the pudding is in the fact that Saks was so unprepared for Attachmate's new factual assertions that it had to cast about for new witnesses who could testify about matters that were not pertinent to the "facts on the ground" as of the December 2013 Audit!
I find is particularly perplexing that Attachmate could at one and the same time assert claims arising out of facts that were manifestly not pleaded and then protest when Saks, seeking to avoid partial summary judgment on one of its claims and several of its defenses, discovered that it had to add new witnesses to deal with those new allegations.
Reinforcing the conclusion that Attachmate is adding new claims, not just new facts in support of old claims, is the fact that its new allegations might well be subject to defenses that would render amendment futile - including specifically statute of limitations - which would not have been defenses to the claims as originally pleaded. The statute of limitations for civil actions brought under the Copyright Act is three years from the date of each infringing act. U.S.C. §507(b); Repp v. Webber, 914 F. Supp. 80, 83 (S.D.N.Y. 1996); Rosner v. Codata Corp., 917 F. Supp. 1009, 1017 (S.D.N.Y. 1996); see also Kregos v. Associated Press, 3 F.3d 656, 661 (2d Cir. 1993). Similarly, the statute of limitations in Washington State for a breach of contract claim is six years, RCW 4.16.040. So Attachmate has no remedy for breaches that occurred prior to June 30, 2008 or infringement that occurred prior to June 30, 2011. This court would not look favorably on an argument that limitations should be tolled on the ground that relevant facts were concealed by Saks; after all, throughout the period when Saks was purchasing and using the EMSE TES, Attachmate had an absolute contractual right to audit its compliance twice a year - a right Attachmate never chose to exercise. Willful blindness will not excuse an untimely-filed claim.
On the other hand, the "newly asserted claims" are simply more of the same - the allegation underlying all is that Saks did not obtain enough licenses for all the computers on which it "deployed" the EMSE TES, which both breached the EULA and infringed the copyright. However, in the absence of a pleading asserting at least some facts about these earlier breaches, it is impossible to tell whether the earlier claims, like the 2013 Audit claim, concern computers that had "the ability to access and use" the software - leading to the difficult issue of precisely what that means - or if the earlier claims rely on the actual installation of the software on a raft of additional computers.
On the whole, I conclude that this particular set of new facts requires a motion to amend the counterclaims. It opened an entirely new line of inquiry into Saks' conduct; it required new witnesses; and it is potentially time-barred, in whole or in part.
The question then becomes whether to permit Attachmate even to move for leave to amend? As noted above, leave to amend may be denied when a motion is made after summary judgment motions have already been filed, and I could surely preclude such a motion from being made for the same reason. The reason for that rule is obvious. Such belated amendments can moot or substantively alter pending summary judgment motions, costing both sides in wasted time and money. They frequently force the court to reopen discovery, further adding to that cost. And by waiting to see how dispositive motions are resolved, the moving party can get a second and undeserved bite at the apple - learning of the flaws in its case and later contouring the complaint to fit the evidence on which it can rely.
In this case, however, the cost in time is relatively little. This lawsuit has proceed quickly - it is rare that discovery in a complex copyright suit can be complete inside of a year, for which I thank the parties. Given the court's trial calendar, it is unlike that this case will be tried before the end of this calendar year. And trial, in the court's view, is how this case will ultimately be resolved. Other than the limited issues decided here, this dispute does not seem amenable to resolution by summary judgment.
The upshot is that reopening discovery could level the playing field and allow Saks to respond to any new claims that Attachmate is able to bring. To the extent that Attachmate demonstrates no good cause for delaying its motion to amend, there are more appropriate means of compensating the cost to Saks - sanctions or awards of costs, for example. It is not appropriate to avoid resolving this dispute on the merits when doing so will not prolong the lawsuit.
Saks insists that amendment would be futile because the new claims are not viable as a matter of fact, but its argument is so intensely fact-based that it would not persuade this court to deny a motion for leave to amend. I have already noted the very real possibility that new claims could be time-barred, but until I am presented with a proposed pleading 1 cannot possibly conclude what may be timely and what is untimely.
In view of the Second Circuit's preference for seeing disputes decided on their merits, and its decided preference for permitting amendment of pleadings, I am directing Attachmate to make a motion for leave to amend the complaint, attaching thereto a proposed amended pleading and explaining why the proposed claims are not futile. In view of how far we have gone, however - Saks having made and fully briefed a motion for summary judgment seeking dismissal of Attachmate's original claim for copyright infringement - I conclude that Counts 1 and 2 in the current counterclaims are limited in scope to the claims motivated by the findings of the 2013 Audit, which is what is presently pleaded. These claims may not be amended; any additional claims for breach of contract or copyright infringement that occurred prior to the situation uncovered by the 2013 Audit must be asserted as separate claims for relief. That allows the court to decide Saks' already-fully-briefed motion - which is only fair.
Saks may have ten business days to respond to the motion for leave to amend. Attachmate has three business days thereafter to file reply papers.
Attachmate's motion to strike the testimony of the Saks witnesses is denied as moot.
Disposition of the Cross-Motions for Summary Judgment
A party is entitled to summary judgment when there is no "genuine issue of material fact" and the undisputed facts warrant judgment for the moving party as a matter of law. Fed. R. Civ. P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). On a motion for summary judgment, the court must view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in its favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Whether any disputed issue of fact exists is for the Court to determine. Balderman v. U.S. Veterans Admin., 870 F.2d 57, 60 (2d Cir. 1989). The moving party has the initial burden of demonstrating the absence of a disputed issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986).
Once the motion for summary judgment is properly made, the burden shifts to the non-moving party, which "must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 250. The non-movant "may not rely on conclusory allegations or unsubstantiated speculation," Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998), but must support the existence of an alleged dispute with specific citation to the record materials, Fed. R. Civ. P. 56(c).
While the Court must view the record "in the light most favorable to the non-moving party," Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir. 1989) (citations omitted), and "resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought," Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975) (citations omitted), the non-moving party nevertheless "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec., 475 U.S. at 586 (citations omitted). Not every disputed factual issue is material in light of the substantive law that governs the case. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.
Although Saks did not make the first motion, I will consider its motion for partial summary judgment first.
I. Saks' Cross-Motion for Partial Summary Judgment
Saks has moved for partial summary judgment dismissing the First Counterclaim, which asserts that Saks has infringed Attachmate's registered copyright in the EMSE TES by making unauthorized copies of the program. The motion is denied, because no decision can be made about whether Saks made an unauthorized copy of the software until the ambiguous contract term "the ability to access and use, directly or indirectly, the [software] from such network server" has been construed by the trier of fact.
In the First Counterclaim Attachmate alleges that Saks infringed its copyright by installing copies of the software on its network servers without purchasing a separate license for every device that had the "ability to access and use" the software from one of Saks' seven network servers. (See Counterclaim ¶¶32-41.) Attachmate admits that Saks had a valid license for the software that was installed on the non-server 1,133 computers that were found to contain the EMSE TES during the audit. Bruce Slonecker, Attachmate's 30(b)(6) witness, testified that the any alleged problem with license compliance was due to "the Citrix [server] deployment. If Citrix deployment went 100 percent away, there wouldn't be a problem . . .." (Slonecker Dep. Tr. at 204:9-17.) In other words, Saks claims that it had enough valid licenses to "cover" all the actual installations or copies of the EMSE software on individual computers. Any wrongdoing (which Saks also denies) consisted of Saks' allowing users to "access and use" copies made under license without obtaining a separate license for each "accessible" device. The question is whether that can serve as the basis for a claim of copyright infringement. The answer is: maybe.
The Copyright Act grants copyright owners the exclusive right to reproduce, adapt, distribute, perform and display a copyrighted work. 17 U.S.C. §106. In order to infringe Attachmate's copyright, Saks must have made an unauthorized copy or reproduction of the software. Boisson v. Banian, Ltd, 273 F.3d 262, 267 (2d Cir. 2001); Fournier v. Erickson, 202 F. Supp. 2d 290, 294 (S.D.N.Y. 2002).
I am advised by the parties that, when the EMSE software is installed, either onto a computing device or onto a network server, a copy of that software is made. (Docket #103). I am further advised, and I see no contrary evidence in the record, that if a computer were to use the EMSE TES by accessing a Saks network server, the software would not be copied onto the hard drive of that computer - meaning that no "copy" would be made as a result of such use. (Saks Mem. in Support Partial Summary Judgment at 11; Docket #104; Calvaruso Decl. Ex. 20 (Attachmate's Response to Request for Admission #4).)
It is undisputed that Saks actually installed the software onto 1,133 non-server computers and no more than 10 network servers - in other words, that Saks had installed no more than 1,143 copies of the software at the time of the audit.
It is also undisputed that Saks held enough valid licenses to make at least 2,361 copies of the software.
If the only issue were whether Saks made no more copies than it had licenses to make copies, Saks would easily prevail. It had more than twice as many licenses as it needed to make 1,143 copies of the software. It will come as no surprise to the reader to learn that this is the precise argument Saks makes in support of its motion for partial summary judgment on Attachmate's copyright infringement claim.
But Saks oversimplifies the issue. And while Attachmate does not argue its case very effectively, I think the court can do better.
To the extent that the software was installed onto an individual computer or device, as opposed to a network server, Attachmate has no claim for copyright infringement, because every such installation (copying) was authorized by an EULA. I reject out of hand Attachmate's nonsensical suggestion, raised in its response, that the court should attribute the bought-and-paid-for licenses first to computers on which no software was installed - if only because it is undisputed that any "deployment" of the software (to use Attachmate's term) via "accessing" the network server would not involve making a copy. The sine qua non of copyright infringement is the making of an illegal copy of a copyrighted work. "In order to establish a claim of copyright infringement, a plaintiff with a valid copyright must demonstrate that[] the defendant has actually copied the plaintiff's work . . .." Peter F. Gaito Architecture, LLC v. Simone Dev. Corp., 602 F.3d 57, 63 (2d Cir. 2010).
The real issue raised by Attachmate's copyright infringement claim is whether Saks was authorized to install (i.e., make a copy of) the EMSE software onto its seven network servers. The fact that it had paid for enough licenses to effect those installations is a necessary component of Saks' defense to copyright infringement, but it is not sufficient to make out a viable defense. That is because the express terms of Section 2(b) of the EULA only permitted Saks to install the software onto a server if it had a license for every computer and device that "had the ability to access and use the software on the server." The terms of the EULA, in other words, differ as between copies of the software installed on servers and copies installed directly onto laptops and other devices. As to the latter, purchase of the EULA confers permission to install (make the copy):
For the number of SOFTWARE units stated on a Licensed Unit(s) Certificate, you may install and use up to the same number of each Client Component [software] on an equivalent number of Licensed Client Devices [laptops or desktops].But as I read the EULA, having all the necessary licenses for accessible computers is a precondition to being able to make a copy of the software on the server in the first place:
If you wish to install and use a single copy of any Client Component on a network server, you may do so provided you have acquired the Licensed Unit(s)
Certificate for the number of Devices that have the ability to access and use, directly or indirectly, the SOFTWARE from such network server. (Emphasis in original.)Giving these words their plain meaning, unless and until Saks acquired a Licensed Unit(s) Certificate for the number of devices that had the ability to access and use the EMSE software it intended to install on a network server, it lacked permission to install the software on a network server. ("You may install the software on a server provided [i.e., if] you already have enough Licensed Unit Certificates to cover accessible computing devices.") Therefore, if Saks did not have the necessary number of licenses, the copy of the EMSE TES that it admittedly wrote onto the hard drive of each of its network servers was an unauthorized copy - which would make it an infringing copy.
The reader will immediately perceive that whether Saks had enough licenses to cover the number of computers that "ha[d] the ability to access and use . . . the SOFTWARE from such network server" is the principal (possibly the only) issue in litigation here; and its resolution depends on how one construes that pesky ambiguous contract term. If Saks is correct that only computing devices that were configured so as to be able to access the EMSE TES, or even that could readily be configured to do so by ordinary computer users, qualify as "Devices that have the ability to access and use the SOFTWARE," then Saks will win - because the undisputed evidence demonstrates that Saks had more than enough licenses to cover all the computers that were in fact configured to access the EMSE software over the network. But if Attachmate is correct that every computer that could be reconfigured (even if only by an IT professional with specialized knowledge) to make it able to access the EMSE TES is a "Device[] that ha[s] the ability to access and use . . . the SOFTWARE from such network server[,]" then Saks will lose - because it is equally undisputed that, as of the date of the 2013 Audit, Saks had a lot more computers than it had licenses.
Saks' argument - that all Attachmate asserts is breach of the EULA - is superficially appealing, but in light of the above analysis it does not work. It is indeed hornbook law that a breach of a license agreement does not constitute copyright infringement unless the underlying act would infringe in the absence of any license at all. Storage Tech. Corp. v. Custom Hardware Eng'g & Consulting Inc., 421 F.3d 1307, 1316 (Fed. Cir. 2005); see also MDY Indus., LLC v. Blizzard Entertainment, Inc., 629 F.3d 928, 940 (9th Cir. 2010). The act constituting the breach of license must therefore be in and of itself an infringing act. But making an unauthorized copy of the EMSE TES by installing it on a network server without permission IS an infringing act - it is the making of an unlicensed copy, because the precondition to copying under the license was obtaining enough certificates to cover all "accessible" devices.
To summarize: the issue on the copyright infringement claim is whether Saks was authorized to install the software (to make a copy of the software) on its network servers. Unless it was authorized to install the copies created on the server hard drives were infringing copies. Whether Saks was so authorized depends on how an ambiguous phrase in the EULA is interpreted. For that reason - even though every other fact relevant to this issue appears to be undisputed - Saks' motion for partial summary judgment must be denied.
On the final page of its memorandum in support of partial summary judgment, Saks also argues that summary judgment should be granted on Attachmate's jurisdictional and equitable defenses. Saks merely asserts this point, almost without argument and (as to the equitable defenses) without citation to the record or any case law. This portion of Saks' motion for partial summary judgment is also denied.
II. Attachmate's Motion for Partial Summary Judgment
Attachmate moves for summary judgment (1) dismissing Saks' breach of contract claim; and (2) dismissing a number of Saks' affirmative defenses to the counterclaims. The motion is granted in part and denied in part.
A. The Motion For Summary Judgment Dismissing Saks' Breach of Contract Claim is Denied
Saks' Third Claim for Relief asserts that Attachmate (1) was contractually obligated to sell Saks licenses for the number of computers that had the "ability to access and use . . . the SOFTWARE over [the] network server[s]," but (2) refused to do so even though Saks tendered payment in an effort to cure any breach. Attachmate argues that this claim should be dismissed. It will not be dismissed on motion; triable issues of fact concerning the meaning of the relevant contract provision preclude that result.
Section 11 of the EULA, the section allegedly breached, states that, "If an audit reveals that you possess or at any time possessed unlicensed copies of the SOFTWARE you will promptly pay Attachmate the applicable license fee for such unlicensed copies." This is - aside from the phrase "applicable license fee" - an unambiguous contract provision. It refers specifically to copies (not "deployments") of the EMSE TES, and requires that, whenever an audit reveals the existence of an unauthorized copy of the software, Saks must pay the "applicable license fee." Because Section 11 compels Saks to pay the license fee for each "unlicensed cop[y]," Saks is correct that this imposes on Attachmate the corresponding obligation to accept the tender of the "applicable license fee" if Saks lives up to its Section 11 obligation and offers the "applicable license fee" to Attachmate.
Saks tendered Attachmate $95,095 (Calvaruso Decl. Ex. 43) - an amount that Saks claims would cover any deficiency in the number of licenses it owed over the number of computers requiring licenses for EMSE software. Attachmate's rejection of Saks' offer could constitute a breach of Attachmate's obligation under Section 11 to permit Saks to cure by offering to purchase additional licenses. Whether it did so depends on several factors that are in dispute, including both the number of computers that were able to "access and use" the software from the network servers (which number cannot be ascertained at present) and the meaning of yet another ambiguous term - "applicable license fee."
If the "applicable license fee" is whatever Attachmate says it is at the time it demands recompense from an errant customer - in this case, $1,295 per device - and if that amount times whatever number of additional licenses Saks needed to buy exceeded $95,095, then Attachmate did not breach its Section 11 obligations by refusing Saks' tender.
Even if Attachmate was free to set any price it wished for licenses (and so Saks would owe $1,295 per license) for unauthorized copies that were uncovered during an audit, Saks has a perfectly plausible argument that it tendered to Attachmate well more than anything it was obligated to pay under Section 11. The contract term (which must be construed against Attachmate, its drafter) only requires that Saks tender money for unlicensed "copies" - not unlicensed "deployments" or "accesses." The undisputed evidence demonstrates that no copy of the software is made on remote computers that can access and use the software over Saks' networks - the only "copies" are on the network servers themselves. Saks offered Attachmate at least $95,000. If Saks had in fact installed 10 copies of the EMSE software on its servers and the fee for each copy was $1,295, then Saks would owe $12,950; Saks offered a sum more than 7 times that amount. On that view of the evidence, Attachmate breached Section 11 of the EULA - even though, unless Saks paid for every computer that proves to have the "ability to access and use . . . the SOFTWARE from [the] network server[,]" (however that term is eventually defined), any copy that remains on the network server would continue to be "unauthorized" under the literal terms of the EULA.
This issue, too, will not be resolved short of trial.
B. The Affirmative Defenses
Attachmate seeks summary judgment dismissing about half of the affirmative defenses asserted by Saks.
(1) Copyright Preemption
Saks has not controverted Attachmate's argument that Attachmate's breach of contract counterclaim is not preempted by the Copyright Act. Saks is therefore deemed to have abandoned the affirmative defense - which is fine, because Attachmate was correct, for the reasons set forth at pages 8-10 of Attachmate's Memorandum of Law in Support of its Motion for Partial Summary Judgment.
(2) Copyright Misuse
Attachmate moves for summary judgment dismissing the affirmative defense of copyright misuse on the ground that this doctrine (1) is not recognized as a defense to infringement claims in the Second Circuit; and (2) applies only when antitrust violations are alleged, which is not the case here.
This aspect of Attachmate's motion is denied.
While the Second Circuit Court of Appeals has never formally endorsed the affirmative defense of copyright misuse, a number of district courts in this circuit have refused to strike such a defense, so it is incorrect to suggest that this defense is not recognized in this Circuit. In its reply brief, Attachmate admits that whether the defense will be recognized, and in what circumstances, is an open question. (Docket #88 at 4.) Since the Circuit has not foreclosed a district court from considering a copyright misuse defense on proper facts, I will not accept Attachmate's invitation to decide, before the Court of Appeals does, that no such defense can ever be made out.
For the second proposition, Attachmate cites a single case from the Western District of North Carolina. It is true that, historically, the defense of copyright misuse has been successfully asserted most often in cases where anticompetitive effects were alleged. But as Saks points out, other courts (also outside this circuit, but including at least two Circuit Courts of Appeals) have concluded that the defense can be asserted when "the copyright is being used in a manner violative of the public policy embodied in the grant of a copyright." Lasercomb Am. Inc., v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990); see also Practice Mgmt. Info. Corp. v. Am. Med. Ass'n., 121 F.3d 516, 521 (9th Cir. 1997). In particular, the Seventh Circuit noted, in Assessment Technologies of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 647 (7th Cir. 2003), that "for a copyright owner to use an infringement suit to obtain property protection . . . that copyright law clearly does not confer, hoping to force a settlement . . . is an abuse of process."
There remain genuine issues of material fact concerning this defense. Of course, if the trier of fact concludes that Saks violated Attachmate's copyright by making unauthorized copies of the EMSE TES on its network servers, this defense will necessarily be dismissed. Furthermore, the court may take the issue away from the jury at trial if the evidence demonstrates a good faith basis to believe that a copyright violation was committed. But it would be premature to reach such a conclusion on a motion for summary judgment in this hotly contested case.
(3) Unclean Hands
As my colleagues in Pittsburgh and San Francisco have aptly noted, "the defense of copyright misuse is a species of," unclean hands, Microsoft Corp. v. Fredenburg, No. CIV. 05-1710, 2006 WL 752985, at *1 n.1 (W.D. Pa. Mar. 22, 2006), and "finds its origin in the equitable defense of unclean hands." In re Napster, Inc. Copyright Litig., 191 F. Supp. 2d 1087, 1102 (N.D. Cal. 2002). Attachmate recognizes this; its argument in support of summary judgment dismissing the unclean hands defense is nothing more than, "Saks's Unclean Hands Defense Falls With Its Misuse Defense." (Docket #88 at 6.) The inverse is equally true: if the misuse defense survives summary judgment, so must the unclean hands defense.
Genuine issues of material fact preclude summary judgment on this defense as well.
(4) Laches and Acquiescence
Saks' laches defense is grounded in Attachmate's longstanding failure to exercise its right to audit Saks' computer system for compliance with the EULA. However, the defense must be dismissed because no claim for laches can lie when an action for damages is brought within the statute of limitations.
Attachmate asserts two counterclaims: one for copyright infringement and one for breach of contract, both arising out of the 2013 Audit. These are not equitable claims; Attachmate seeks damages from Saks. Laches cannot be invoked to defeat a claim for damages brought within the limitations period. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1973-74 (2014); Gray v. Reeves, 125 P. 162, 164 (Wash. 1912).
(5) Estoppel
Saks' estoppel defense also must be dismissed, because Saks has adduced no evidence whatever that Attachmate engaged in any conduct "which amounts to a false representation or concealment of material facts [with the] intention that such conduct will be acted upon by [Saks]." Flo & Eddie, Inc. v. Sirius XM Radio Inc., No. 13 CIV. 5784, --- F. Supp. 3d ----, 2015 WL 235241, at *4 (S.D.N.Y. Jan. 15, 2015) (quoting Int'l Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 594 (2d Cir. 1996)).
Saks identifies two things on which it purportedly relied to its detriment. The first is the fact that Attachmate should have suspected Saks' "noncompliance" and brought suit against it earlier for its infringing conduct. This court in Flo & Eddie rejected the failure to bring suit against infringers as "affirmative conduct" on which a party could reasonably rely. Furthermore, estoppel cannot be invoked as a way around the hard and fast rule of Petrella that a suit for copyright infringement is not barred if it challenged conduct that is not barred by limitations - even if suit could have been brought earlier but was not.
The second thing on which Saks claims to have relied is a statement that an Attachmate employee purportedly made to a third party reseller. Aside from the fact that the statement was not made to anyone at Saks, and that the record is devoid of any evidence that anyone from Saks became aware of the statement (which appears in an email) prior to this litigation, there is no evidence that Saks ever did anything in reliance on the statement - let alone relied to its detriment.
The affirmative defense of estoppel is dismissed.
Disposition of Saks' Motion to Unseal
Attachmate has designated more or less everything in the record on these motions as highly confidential and has filed its papers under seal. Saks has moved to unseal the record on these motions, and to de-designate the entire discovery record as non-confidential. Attachmate opposes the motion in part.
I am not about to wade through all of the parties' discovery responses and document production and decide on a document by document basis what is confidential and what is not. As the Second Circuit has noted, "[A]n abundance of statements and documents generated in federal litigation actually have little or no bearing on the exercise of Article III judicial power." United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995). To the extent that Saks seeks an order de-designating every bit of information produced during discovery as "highly confidential," its motion is denied.
However, this opinion will not be filed under seal, and none of the briefs or evidentiary submissions filed in support of or in opposition to the motions will be permitted to remain under seal either, with one exception. Those documents do implicate the Article III judicial power. Attachmate is abusing confidentiality by asserting "trade secret" status for its litigation strategy and the business model that motivates it - even though those matters confer no competitive edge on Attachmate, which is what a trade secret is supposed to do. These are simply things that, for reasons best known to itself, Attachmate does not want its licensees and the public to know. "But implicit in the notion of 'confidential business information' is something beyond the mere fact that the particular datum has not previously been made available to the public." Salomon Smith Barney, Inc. v. HBO & Co., No. 98CIV8721, 2001 WL 225040, at *3 (S.D.N.Y. Mar. 7, 2001). Because Attachmate has not come close to making the showing required to keep these materials confidential, Saks motion is granted to the extent of unsealing (with the exception noted below) the materials filed at Dockets ##69, 75, 92.
There is a strong presumption that the public should be able to access every single document filed with this court of law. SEC v. TheStreet.com, 273 F.3d 222, 231 (2d Cir. 2001). As Attachmate admits, that presumption is even stronger when the documents relate to dispositive motions, like the ones that have been filed before this court. (See Docket #95 at 3); see also Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 121 (2d Cir. 2006). That is because adjudication of summary judgment motions is a formal act of government, "the basis of which should, absent exceptional circumstances, be subject to public scrutiny." In re Parmalat Sec. Litig., 258 F.R.D. 236, 243 (S.D.N.Y. 2009).
However, Fed. R. Civ. P. 26(c) provides, "The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense . . .." This rule "confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required." Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). In particular, a court may issue an order "requiring that a trade secret or other confidential research, development, or commercial information . . . be revealed only in a specified way . . .." Fed. R. Civ. P. 26(c)(1)(g). The fact that the parties stipulate to the entry of a protective order (as they have in this case, see Docket #18) does not, however, resolve the issue for all time. A stipulated protective order is but a temporary measure, one that postpones the need for a proponent of secrecy to make a showing of good cause. Parmalat Sec. Litig., 258 F.R.D. at 243.
The party seeking protection for its data bears the burden of establishing good cause for the issuance and continuation of a protective order. Gamhale v. Deutsche Bank AG, 377 F.3d 133, 142 (2d Cir. 2004); Lachica v. City of New York, No. 94 CIV. 7379, 1995 WL 77928, at *1 (S.D.N.Y. Feb. 23, 1995). Therefore, while Saks has made the motion to unseal, it is Attachmate that bears the burden of demonstrating to this court why the records on this motion - and this opinion, which discusses the contents of those records - should remain under seal.
The court receives this motion against the backdrop of a tremendous increase in the number of requests for filing documents under seal. Nearly every commercial case in this court is litigated under protective orders, and in many cases (including this one) virtually anything of substance is designated "highly confidential" by the parties. This case presents an extreme example of what has become an all-too-familiar paradigm. Attachmate has designated nearly all of the 1,000 documents produced in response to Saks' first request for documents as "CONFIDENTIAL" or "HIGHLY CONFIDENTIAL"; it has done the same with the entire transcripts of the six depositions Saks took of Attachmate witnesses. (Saks Mem. in Support of Motion to Unseal at 3-4.) Saks, naturally, has countered by designating portions of the transcripts of its own witnesses' depositions as "CONFIDENTIAL." (Id. at 4.) Attachmate filed its motion for partial summary judgment and all supporting papers under seal. (Docket #69.) Saks was thus effectively required to file its opposition to Attachmate's motion, its own memorandum supporting its cross-motion for partial summary judgment and opposing Attachmate's motion, its 56.1 statements, and most of its exhibits under seal. (Docket #75.) Attachmate filed its opposition to Saks' cross-motion under seal as well. (Docket #92.) As a result, this publicly-filed lawsuit has been conducted almost entirely in secret.
So extreme has the practice become that this court requires parties litigating before it to append to their proposed confidentiality orders my own profoundly skeptical statement:
The parties understand that the Court's "so ordering" of this stipulation does not make the Court a party to the stipulation or imply that the Court agrees that documents designated as "Confidential" by the parties are in fact confidential.
It has been this Court's consistent experience that confidentiality stipulations are abused by parties and that much material that is not truly confidential is designated as such. The Court does not intend to be a party to such practices. The Court operates under a presumption that the entire record should be publicly available.
The Court does not ordinarily file decisions under seal or redact material from them. If the Court issues a decision in this case that refers to "confidential" material under this stipulation, the decision will not be published for ten days. The
parties must, within that ten day period, identify to the court any portion of the decision that one or more of them believe should be redacted, provide the court with the purportedly confidential material, and explain why that material is truly confidential. The Court will then determine whether the material is in fact genuinely deserving of confidential treatment. The Court's decision in this regard is final.
If this addendum is acceptable to the parties, the Court will sign their proposed confidentiality stipulation, subject to the addendum. If this addendum is not acceptable, the court will not sign the stipulation, and should allegedly confidential material be produced, the parties will be referred to the magistrate judge for a document by document review and decision on whether that document should be subject to confidential treatment.
I will not sign a protective order that does not contain this clause. And when the moment comes for parties to explain why everything that they had previously designated as "highly confidential" is in fact such a big secret, experience teaches that they almost always admit that everything, or nearly everything, can in fact be filed on the public record.
I am hardly the first jurist to remark on this problem. Over two decades ago, Judge Pratt of the Second Circuit noted the worrying trend toward de facto secret litigation:
Sealing court papers, however, entails great costs. Not only does it shield from public view the raw material underlying formal judicial action, but the mere mechanics of sealing - the special files required, the extra, locked, vault space, the restrictions on access and other special handling requirements, and the direct and indirect expenses that accompany all of this - combine to make sealed documents not only a nuisance to, but a substantial burden on, the judicial system.
. . .
A similar troubling tendency accompanies the increasing frequency and scope of confidentiality agreements that are ordered by the court. These agreements are reached by private parties and often involve materials and information that is never even presented to the court. With the signature of a federal judge, however, they are converted into a powerful means of maintaining and enforcing secrecy. City of Hartford v. Chase, 942 F.2d 130, 137 (2d Cir. 1991) (Pratt, J., concurring).
In this Circuit, a district court makes three inquiries when deciding whether documents must be made available to the public or may be sealed. Stern v. Cosby, 529 F. Supp. 2d 417, 420 (S.D.N.Y. 2007).
First, are the documents indeed judicial documents? The answer to that question is yes: we are talking here about a decision on cross motions for partial summary judgment and the record evidence and briefs filed in support of and in opposition to those motions.
Second, is the presumption so strong that it can only be overcome by extraordinary circumstances? The answer to that question is yes (see above).
Third, do countervailing factors rise to the level of extraordinary circumstances? The answer to that question, in this case, is absolutely not.
Attachmate now admits that much of the record can be unsealed. In particular, Attachmate concedes that the following documents can be unsealed: (1) Attachmate's memorandum of law supporting its motion for partial summary judgment, (2) Attachmate's 56.1 statement supporting its motion for partial summary judgment, (3) the Declaration of Theresa Wang dated 2/23/2015, (4) the Declaration of Brent Slonecker dated 2/20/2015, (5) Attachmate's memorandum of law in opposition to Saks' cross-motion for partial summary judgment, (6) the Declaration of Theresa Wang dated 3/23/2015, (7) the Declaration of Andrea Calvaruso dated 3/9/2015 and all accompanying exhibits except exhibits 5, 7-9, 15, 17, 43-44, 46-53, 60, and 64, (8) Saks' reply memorandum in support of its cross-motion for partial summary judgment, and (9) the Reply Declaration of Andrea Calvaruso dated 3/30/2015. The fact that Attachmate admits that most of the record it originally filed under seal should in fact have been filed openly in the first place is the backdrop against which the court must and will assess its argument for keeping the rest of the record under seal.
Attachmate acts as though Saks did something wrong by not consulting with it prior to making the motion to unseal, so that the parties could confer about what aspects of the motion papers might be able to be filed publicly. 1 disagree. Attachmate made the critical error, by filing the obviously non-confidential materials under seal in the first place.
Attachmate argues that Exhibits 48 and 49 of the Calvaruso Declaration dated 3/9/2015 should remain entirely under seal, and has proposed redactions to the remaining summary judgment papers. The basis for keeping these documents under seal (or unsealing only redacted versions as the case may be) is that the documents contain "confidential business information" on the order of a "trade secret" - which, according to the Restatement (First) of Torts § 757 cmt. b, is "any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." Significantly, not everything that a business would rather keep secret qualifies as the sort of information that the Federal Rules allow a litigant to keep secret.
The information that Attachmate principally seeks to keep under wraps is not the formula for Coca Cola or McDonald's Secret Sauce. It is not a pattern or device of any sort. And it is not a compilation of information, or research or development. In short - with one exception discussed below - it is nothing that is intended to be protected under the Rule 26 "trade secrets" exception.
What Attachmate principally wants to keep secret are its "compliance policies," as well as information about settlement offers and discussions between Saks and Attachmate about the possible resolution of this case (i.e., information pertinent to Saks' claim for breach of contract). Put otherwise, Attachmate does not want the world (especially, I assume, its customers) to know the details of how it seeks to enforce its licenses - such as the amounts it demands from customers, how it negotiates with its customers, and the warnings or explanations it offers concerning its licensing practices.
It goes without saying that this information is of no value to Attachmate's competitors, and while Attachmate mentions competitors in passing, it mounts no effective argument about why public disclosure of this information would give other software sellers any advantage. Instead, Attachmate principally argues that disclosure of this information would give its customers information that they might be able to use to their advantage.
But with one exception, all Attachmate and its witnesses do is parrot conclusory buzzwords; they make no specific, and hence no convincing, argument about why their enforcement "processes" (which boil down to auditing, demanding accountings, suing if the customer won't pay up) are or ought to be kept secret when they are the basis for claims asserted and adjudicated in a court of law. Vague and conclusory allegations of potential harm are insufficient to establish good cause. Wells Fargo Bank, N.A. v. Wales LLC, 993 F. Supp. 2d 409, 413-14 (S.D.N.Y. 2014). It is no secret that licensors take steps to enforce their licenses, that these steps can include periodic audits, and that they bring lawsuits when they become aware of violations. I reject out of hand the barebones assertion made by Attachmate that the procedures it uses to enforce its copyrights and contractual rights are somehow "customized, unique business strategies" deserving of protection by sealing.
Attachmate claims to have developed "certain policies and processes to verify customer installations of Attachmate's products," but Attachmate does not explain what is so secret, special or unique about its strategies, or how those processes make Attachmate's software more attractive to consumers than a competitor's software would be (that is what "competitive advantage" means). From the proposed redactions submitted by Attachmate, nothing about the strategies themselves appears unique, and the court cannot fathom how knowledge of these processes would help Attachmate's competitors, or, for that matter, its customers. The EULA is not a secret document; it spells out Attachmate's rights and the licensee's responsibilities. Attachmate is not competing with anyone in terms of enforcing its license rights. The fact that some of this information might confirm Saks' accusation that Attachmate is a commercial bully is not a reason to keep records containing that information sealed - though it may explain Attachmate's otherwise inexplicable desire to keep private information that could not possibly qualify as a trade secret.
The record on the motions contains no information about enforcement that is even arguably confidential. There are no secret formulas involved in this case. No witness was permitted to answer questions about any customers other than Saks, so Attachmate's customer information remains secret. The parties are not litigating about the copyrighted code itself.
Attachmate seeks to keep secret information about "pricing." Again, there is little or no information about "pricing" in the record on these motions. What information there is should not be kept secret. The market price of a license to use EMSE TES is no secret. The proposed redactions concern particular prices paid in the past for EMSE software or standard bulk discounts offered by Attachmate. Although pricing is important in a market, it hardly qualifies as a trade secret when Attachmate has not explained how its pricing gives it a unique advantage as one might obtain, for example, with a complex pricing or trading algorithm in a financial business.
Further, a key issue in this litigation is what the "applicable license fee" is for purposes of Section 11 of the EULA. Saks alleges that Attachmate is in breach of that section for failing to accept a tender of what Saks believes to be the "applicable license fee." This issue will be litigated publicly, not under seal; and if doing so allows other customers of Attachmate to better understand their rights vis a vis their licensor, that is not a "competitive disadvantage" of the sort that protective orders and Rule 26 were intended to prevent.
The documents relating to the discussions between Saks and Attachmate concerning settlement of this matter are not "confidential business information" and will not be filed under seal. They are highly pertinent to the resolution of Saks' breach of contract claim against Attachmate, because Saks' claim is that, by refusing an offer of settlement that comported with its obligations under Section 11 of the EULA, Attachmate breached the EULA. The world's learning about this claim, and the discussions that led up to it, will not confer any disadvantage on Attachmate vis a vis its competitors - other software sellers. There is no possibility here of "chilling" settlement negotiations, as was the case in In re September 11 Litig., 723 F. Supp. 2d 526, 533 (S.D.N.Y. 2010) - the case cited by Attachmate in its opposition to Saks' motion to unseal. In that case the effort to unseal settlement documents was made while such discussions were ongoing. Here, the settlement discussions that would be revealed by unsealing long ago came to an end, and the failure to consummate a "settlement" is itself alleged as a breach of contract by one of the parties. Contrary to Attachmate's assertion, the public interest in knowing the basis for the court's conclusion that Saks has stated a claim for relief - and eventually, the basis for the resolution of that claim - is very great, because the court's decision is a governmental act. Attachmate's interest in preventing third parties from knowing about those abortive discussions, in the circumstances of this case, where there is a very real claim that Attachmate's refusal to accept an offer in settlement constituted a breach of contract, is correspondingly miniscule. Certainly, Attachmate offers no persuasive reason why the disclosure of the Saks post-audit discussion would have any bearing at all on its relations with other customers.
I do agree that Attachmate could keep under seal any information about employee compensation as it relates to any particular employee. However, no such information is mentioned in this opinion, and frankly, none is relevant to this opinion. I do not see any such information in the redactions proposed by Attachmate. Attachmate proposes to redact evidence that discusses, in general terms, the incentives it provides to members of its compliance team for generating substantial revenue from compliance efforts. I see nothing at all confidential about such material. It speaks to a particular business practice of Attachmate, but as noted above, demanding compliance with contracts and respect for intellectual property is hardly a novel or unique business practice. There is no reason to keep the world from learning whether Attachmate makes such endeavors a profit center; it would be shocking if Defendant did not.
I also agree that Attachmate can redact references in documents about how it chooses which customers to audit and exactly what the auditing process entails. It is arguable whether even that information qualifies as "confidential," since Attachmate's 30(b)(6) witness, Brent Slonecker, testified that Attachmate's auditing and compliance process is meant to be "transparent." (Docket #90 at 7.) A process cannot logically be both transparent and secret.
However, I am prepared to accept keep under seal references in documents that describe the "triggers" that would cause Attachmate to investigate a customer's compliance and possibly lead to a customer audit. This information, if disclosed, has some potential to harm Attachmate's business. Disclosing it could provide customers with a roadmap for evading audits and engaging in unauthorized use of the EMSE software. To be sure, this information is relevant to certain of Saks' equitable defenses, but I have dismissed those defenses. The value to the public of knowing this particular piece of information is outweighed by the harm this information could cause Attachmate if disclosed.
These documents (or sections) are as follows: (1) those sections of pages 23-26 of Saks Memorandum in Support of Partial Summary Judgment identified in the Jost Declaration filed under Seal on April 13, 2015, (2) Calvaruso Decl. Ex. 5 (Dilley Dep. Tr.) at 150:19-24, 151:5-17, 20-153:6, 155:12-156:6, 158:19-25, (3) Calvaruso Decl. Ex. 8 (Slonecker Dep. Tr.) at 23:3-26:25, (4) Calvaruso Decl. Ex. 48-1, (5) Calvaruso Decl. Ex. 48-2, and (6) Calvaruso Decl. Ex. 49. The last three exhibits should not be filed publicly. Saks should publicly file redacted versions of its Memorandum in Support of Partial Summary Judgment and exhibits 5 and 8 of the Calvaruso Declaration. --------
Finally, Attachmate attacks Saks' motivation for making this motion and urges the court to take it into account in deciding the issue. I am unmoved. This court has a longstanding objection to the misuse and overuse of confidentiality to shield litigants from what the public might wish to know. As far as I am concerned, that interest trumps all - including any desire on the part of Saks to alert the marketplace to what it considers inappropriate business behavior.
The clerk of the court is directed to unseal all material filed under Docket ##69, 75, 92 - except the material concerning audit "triggers" discussed above in footnote 6 - forthwith.
CONCLUSION
This constitutes the decision and order of the court. The Clerk of the Court is directed to remove the motions at Docket ##69, 74, 89, and 92 from the court's list of open motions if they appear on that list. Dated: April 17, 2015
/s/_________
U.S.D.J.