Argued: September 15, 2017
from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Louise W. Flanagan,
District Judge. (5:10-cv-00025-FL)
Pressly McAuley Millen, WOMBLE CARLYLE SANDRIDGE & RICE,
LLP, Raleigh, North Carolina, for Appellant/Cross-Appellee.
F. Dennison, BROWN RUDNICK LLP, Boston, Massachusetts, for
Raymond M. Bennett, WOMBLE CARLYLE SANDRIDGE & RICE, LLP,
Raleigh, North Carolina, for Appellant/Cross-Appellee.
Rebecca M. Lecaroz, BROWN RUDNICK LLP, Boston, Massachusetts;
Mark R. Sigmon, SIGMON LAW, PLLC, Raleigh, North Carolina,
Mitchell L. Stoltz, Kit Walsh, Michael Barclay, ELECTRONIC
FRONTIER FOUNDATION, San Francisco, California, for Amicus
Electronic Frontier Foundation.
Jonathan Band, JONATHAN BAND PLLC, Washington, D.C., for
Amici Computer & Communications Industry Association,
Internet Association and Engine Advocacy.
C. Frederick, Michael E. Joffre, Julian J. Ginos, KELLOGG,
HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C., Washington,
D.C., for Amicus The MathWorks, Inc.
J. Pincus, Paul W. Hughes, Jonathan Weinberg, MAYER BROWN
LLP, Washington, D.C., for Amicus BSA The Software Alliance.
WILKINSON, DUNCAN, and THACKER, Circuit Judges.
WILKINSON, CIRCUIT JUDGE.
Institute (SAS) and World Programming Limited (WPL) are
competitors in the market for statistical analysis software.
SAS alleges that WPL breached a license agreement for SAS
software and violated copyrights on that software. We agree
with the district court that the contractual terms at issue
are unambiguous and that SAS has shown that WPL violated
those terms. We thus affirm the district court's judgment
finding WPL liable for breach of the license agreement. With
respect to the district court's ruling on the copyright
claim, we vacate that portion of the district court's
judgment and remand with instructions to dismiss it as moot.
case arises out of competition in the market for software
used to manage and analyze large and complex datasets. SAS, a
North Carolina company, sells an integrated system of
business software collectively known as the "SAS
System." Users operate the SAS System by writing
instructions, or SAS programs, in a computer programming
language known as the SAS language. While anyone can write a
SAS program, software such as the SAS System is required to
make a SAS program function. SAS licenses its full suite of
software to both individuals and corporations, and has also
offered the SAS Learning Edition, which is a lower-cost
version of the SAS System marketed as an educational tool to
enable students to learn the SAS language. The Learning
Edition provides the same general functionality as the full
SAS System, but is programmed to process only a limited
amount of data. To complete installation of the Learning
Edition, a user must click "Yes" to indicate
agreement with the terms of the license. As discussed in more
detail below, these terms include a prohibition on
"reverse engineering, " as well as a restriction
requiring use only for "non-production purposes."
a United Kingdom company formed to develop statistical
reporting software. Shortly after its formation, WPL
identified what it saw as a market opportunity to compete
with SAS by selling software capable of running SAS language
programs. While developing this competing software, now
marketed as the World Programming System (WPS), WPL acquired
several copies of the SAS Learning Edition, including two
copies in 2003, one in 2005, two in 2007, and seven in 2009.
Developers at WPL ran SAS programs through both the Learning
Edition and WPS, and then modified WPS's code to make the
two achieve more similar outputs. Several former SAS
customers have replaced their SAS System software with WPS.
Learning Edition licenses expire after four years, so none of
the copies that WPL purchased are still functional.
September 2009 and January 2010, respectively, SAS filed
lawsuits against WPL in the U.K. and in the Eastern District
of North Carolina. In the U.K. litigation, SAS asserted
claims for copyright infringement and breach of the Learning
Edition license agreement. The U.S. suit also contained
claims for copyright infringement and breach of the license
agreement, but additionally asserted claims for fraudulent
inducement, tortious interference with contract, tortious
interference with prospective business advantage, and
violation of the North Carolina Unfair and Deceptive Trade
Practices Act (UDTPA). The U.S. litigation was initially
dismissed for forum non conveniens in March 2011,
but that dismissal was reversed by this court in February
2012 and the case was remanded to the district court. See
SAS Institute, Inc. v. World Programming Ltd., 468
Fed.Appx. 264, 264-65 (4th Cir. 2012) (per curiam).
2010, the U.K. High Court rendered an interim judgment on
SAS's claims. However, the U.K. High Court concluded that
the case turned on interpretation of several provisions of
E.U. law, including Council Directive 91/250/EEC and
Directive 2001/29/EC (collectively "E. U.Software
Directive"), both relating to the legal protection of
computer programs. The U.K. High Court referred its
interpretive questions to the Court of Justice of the
European Union (CJEU). The CJEU ruled that under the E.
U.Software Directive "neither the functionality of a
computer program nor the programming language and the format
of data files used in a computer program in order to exploit
certain of its functions" are copyright protected, and
that "a licensee is entitled…to determine the
ideas and principles which underlie any element of the
program" if he does so while he "carries out acts
covered by that license and acts of loading and running
necessary for use of the computer program." J.A.
8887-88. However, the CJEU also ruled that
"reproduction, in a computer program or a user manual
for that program, of certain elements described in the user
manual for another computer program protected by copyright is
capable of constituting an infringement of the copyright in
the latter manual." J.A. 8888.
on the CJEU ruling, the U.K. High Court entered a final
ruling for WPL on all claims except for copyright
infringement of the SAS manuals. The U.K. High Court
determined that, to the extent WPS reproduced the SAS System,
it reproduced only aspects of the program that are not
protected by U.K. copyright law. The U.K. High Court's
ruling on SAS's breach of contract claims relied on the
mandatory nature of the E. U.Software Directive, as parties
to a contract may not contravene the Directive by agreement.
Thus, because WPL's behavior was explicitly protected by
the Directive, SAS could not enforce any contractual
provisions that prohibited it. The Court of Appeal of England
and Wales affirmed the U.K. High Court's ruling, and it
became final when the Supreme Court of the U.K. refused
SAS's request to appeal the judgment further on July 9,
U.S. litigation, SAS filed a motion on April 14, 2014, for
partial summary judgment on its claims for breach of contract
and tortious interference with contract. That same day, WPS
filed a motion for summary judgment on all of SAS's
claims. Each motion was granted in part and denied in part.
The district court granted summary judgment to SAS on the
question of liability for breach of the license agreement,
but granted summary judgment to WPL on SAS's claims for
copyright infringement of the SAS System, tortious
interference with contract, and tortious interference with
prospective economic advantage. The district court did not
grant summary judgment on SAS's claims for copyright
infringement of the SAS manuals,  breach of contract,
fraudulent inducement, or UDPTA violations. See SAS
Institute Inc. v. World Programming Ltd., 64 F.Supp.3d
755, 783 (E.D. N.C. 2014).
moved for reconsideration of the district court's ruling
on the breach of contract issue, but its motion was denied.
However, on its own motion, the district court later set
aside and corrected portions of its earlier summary judgment
rulings. Specifically, the district court set aside portions
of its earlier ruling granting certain of the U.K. High
Court's findings preclusive effect. Nonetheless, the
district court ruled that SAS was still entitled to summary
judgment on its breach of contract claim.
case proceeded to trial on SAS's claims for fraudulent
inducement and UDTPA violations, as well as for the
calculation of damages from WPL's breach of contract. The
jury found damages in the amount of $26, 376, 635 for the
breach of contract, and also found WPL liable for fraudulent
inducement and UDPTA violations, resulting in the same
damages. The jury also awarded SAS $3, 000, 000 in punitive
damages based on the fraudulent inducement finding. Under
UDTPA, the compensatory damages award of $26, 376, 635 was
trebled. SAS had the option to elect either the trebling of
damages or the $3, 000, 000 punitive damages award, and could
not recover both. Thus, the total damages awarded to SAS
after trebling was $79, 129, 905. SAS also sought an
injunction, which the district court denied. WPL sought
attorney's fees under 17 U.S.C. § 505 as a
prevailing party on the copyright issue, but this motion was
parties appealed. WPL appeals the district court's
holding that the U.K. litigation did not preclude the U.S.
suit, the grant of summary judgment on the breach of contract
issue, certain evidentiary rulings made below, the amount of
the damages, and the district court's denial of
attorney's fees on the copyright claim. SAS appeals the
district court's denial of injunctive relief and the
district court's copyright ruling. For the reasons that
follow, all of WPL's appeals fail, and we affirm those
portions of the district court's judgment. SAS also fails
to demonstrate that it is entitled to injunctive relief, and
we affirm the district court's ruling on this issue.
Finally, the district court's ruling on the copyright
claim is vacated as moot. We address each of these issues in
WPL contends that the proceedings below never should have
moved forward, as this action was barred by res judicata due
to the U.K. litigation. The district court concluded that
this argument was waived by WPL. And indeed, "res
judicata [is] an affirmative defense ordinarily lost if not
timely raised." Arizona v. California, 530 U.S.
392, 410 (2000). The parties offer competing
characterizations of WPL's arguments below related to
claim preclusion and issue preclusion in the course of
disputing whether the res judicata issue is properly before
us. However, it is unnecessary for us to determine whether
WPL sufficiently preserved this issue, as res judicata did
not bar this case in any event.
doctrine of res judicata, or claim preclusion, applies when
three elements are satisfied. "[T]here must be: (1) a
final judgment on the merits in a prior suit; (2) an identity
of the cause of action in both the earlier and the later
suit; and (3) an identity of parties or their privies in the
two suits." Pueschel v. United States, 369 F.3d
345, 354-55 (4th Cir. 2004). As this court has emphasized,
however, claim preclusion and issue preclusion are
"practical" doctrines. See, e.g., Providence
Hall Associates Ltd. Partnership v. Wells Fargo Bank,
N.A., 816 F.3d 273, 276 (4th Cir. 2016). Res judicata is
ultimately governed by whether the present case has already
been decided, and whether the party has previously had a fair
shot with respect to the claims raised in the present action.
Where it applies, res judicata serves crucial functions in
our legal system. The doctrine prevents litigants from being
forced through the system twice, which would prolong the
disruption in their lives and drive up unnecessary expense.
It also conserves judicial resources and minimizes the risk
of undermining the authority of judicial decisions by
preventing inconsistent judgments. Montana v. United
States, 440 U.S. 147, 153-54 (1979). We therefore must
closely examine any allegedly preclusive litigation to
determine whether those interests would be served.
undisputed that the U.K. litigation produced a final judgment
on the merits, and that the parties in that suit are
identical to those in the present action. The applicability
of res judicata thus turns, and ultimately falters, on the
second element, the identity of the cause of action. "No
simple test exists to determine whether causes of action are
identical" in the res judicata analysis, "and each
case must be determined separately within the conceptual
framework of the doctrine." Pittston Co. v. United
States, 199 F.3d 694, 704 (4th Cir. 1999) (citing
Aliff v. Joy Mfg. Co., 914 F.2d 39, 43 (4th Cir.
1990)). The conceptual framework we operate under is a
transactional one, as we ask "whether the claim
presented in the new litigation 'arises out of the same
transaction or series of transactions as the claim resolved
by the prior judgment'" and whether "the claims
could have been brought in the earlier action."
Laurel Sand & Gravel, Inc. v. Wilson, 519 F.3d
156, 162 (4th Cir. 2008) (quoting Pittston Co., 199
F.3d at 704; Tahoe-Sierra Pres. Council, Inc. v. Tahoe
Regional Planning Agency, 322 F.3d 1064, 1078 (9th Cir.
standard has not been met here. The many legal and factual
differences between the U.K. litigation and the present suit
mean that applying res judicata would have the practical
effect of preventing SAS from having its claims heard in any
adequate forum. Applying res judicata in such a mechanical
manner based on facial similarities between the two suits
would also undermine United States and North Carolina
policies in favor of the policies of the U.K. and European
Union, a result res judicata has not been held to require.
See Jaffe v. Accredited Surety and Casualty Co.,
Inc., 294 F.3d 584, 591 (4th Cir. 2002).
claims in both lawsuits revolve around WPL's acquisition
of the Learning Edition, creation of a competitor product,
and sales of that competing product. It is here that the
similarities between the actions end, however, and WPL has
not shown that SAS could have ...