Ninth Circuit Issues Important Decision on Software Licensing Practices and Web Scraping
Earlier this month, the Ninth Circuit issued a noteworthy ruling in a dispute between an enterprise software licensor and a third-party support provider. The case is particularly important as it addresses the common practice of using automated means to download information (in this case, software) from websites in contravention of website terms and conditions. Also, the case examines and interprets fairly “standard” software licensing language in light of evolving business practices in the software industry. (Oracle USA, Inc. v. Rimini Street, Inc., No. 16-16832 (9th Cir. Jan. 8, 2018)).
The procedural history of this long-running dispute is complicated. In brief, Oracle USA, Inc. (“Oracle”) develops and licenses certain enterprise software, and also offers maintenance contracts to its licensees. As part of maintenance services, it offers software updates, available on Oracle’s support website. Rimini Street, Inc. (“Rimini”) is a company that provides third-party, after-license software support services to Oracle licensees, competing directly with Oracle to provide these services.
The case involved Oracle’s challenge to Rimini’s practice of downloading software from Oracle’s support site onto Rimini’s own computer systems under color of a license held by an Oracle licensee (and Rimini customer). Rimini used the files to provide software support services to that particular licensee, as well as to other present and future Rimini customers. In its lawsuit, Oracle brought a lawsuit alleging a kitchen sink of claims, including copyright infringement, as well as state law claims including breach of contract, unfair competition, trespass, and violations of the California Computer Data Access and Fraud Act (CDAFA) and the Nevada Computer Crimes Law (NCCL) (the “Oracle Suit”). By the time the case was submitted to the jury, a number of ancillary claims were abandoned, and the jury only considered copyright infringement, inducement of breach of contract, intentional interference with business relations, and violations of the CDADA and the NCCL. The jury found in favor of Oracle on the principal claims and granted a multimillion dollar judgment in Oracle’s favor. The court denied Rimini’s post-trial motions to reverse the jury verdict as a matter of law – it held that Rimini’s use of Oracle software was copyright infringement and that Rimini’s use of automated tools to download Oracle’s software in contravention of Oracle’s terms of service violated the CDAFA and the NCCL. Rimini appealed. The issues on appeal were limited, as the final award was based upon damages and attorney’s fees and costs stemming from copyright infringement and violations of the California and Nevada laws.
On appeal, the Ninth Circuit upheld the finding of copyright infringement, but reversed the lower court’s ruling as to liability under the CDAFA and NCCL and reduced the damage award, remanding the case to reduce the judgment even further, as well as to reconsider the injunctive relief against Rimini. (The issues related to the damage award, as well as a number of other issues such as copyright misuse, are beyond the scope of this blog post.)
However, this is not the only action pending between the parties. Prior to trial, Rimini revised its support processes in an attempt to conform to the lower court’s pre-trial orders, where the court had summarily adjudicated that Rimini was liable for infringement because some of the licenses at issue “unambiguously” prohibited Rimini’s former support practices. However, over Rimini’s objection, the jury trial was limited to processes Rimini used prior to February 2014 (thereby excluding any evidence of its “new support model”). In October 2014, about a year before the trial, Rimini filed a separate action in another Nevada district court seeking, among other things, a declaratory judgment that its “revised” support and maintenance processes do not infringe or otherwise violate the CDAFA and NCCL or the federal Computer Fraud and Abuse Act (CFAA). (See generally Rimini Street, Inc. v. Oracle Int’l Corp., No. 14-cv-01699 (D. Nev. Nov. 7, 2017)) (the “Rimini Suit”). Rimini subsequently amended its complaint in that case to add additional causes of action and Oracle moved to dismiss that amended complaint. While the second Nevada district court dismissed some of Rimini’s causes of action, it allowed to go forward Rimini’s request for a declaratory judgment that its new processes did not constitute a violation of the CFAA or the California and Nevada computer access laws. The Rimini Suit is still pending as well.
Automated Access Claims
The CDAFA provides that any person who “[k]nowingly accesses and without authorization takes, copies, or makes use of any data from a computer, computer system, or computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system, or computer network” is liable under the statute. Cal. Penal Code § 502(c)(2). The CDAFA also provides for a civil cause of action for those who suffer a resulting damage or loss. The NCCL is Nevada’s counterpart to the CDAFA. See generally Nev. Rev. Stat. § 205.4761(1), (3); § 205.511(1). Although the language does, in fact, differ from the CDAFA, the district court treated the two statutes as substantively identical, and during the appeal, the Ninth Circuit deemed the CDAFA as representative for purposes of legal analysis.
It seems that, while the jury (and lower court) agreed with Oracle’s argument, the Ninth Circuit sided with Rimini on this issue, reasoning that Rimini certainly “t[ook]” and “m[ade] use of” data, as required under the statute, but that “Oracle permitted some degree of access and taking from its website.” The Ninth Circuit focused on the fact that the CDAFA’s focus was on unauthorized taking or use of data, and reversed the finding of liability under the CDAFA:
The software licenses at issue were interpreted by the lower court to permit Oracle’s licensees to make development environments for themselves. However, the issue before the Ninth Circuit was whether these licenses allowed Rimini to copy Oracle’s files onto Rimini’s own computer systems to provide support services to current and future Oracle licensees.
On this issue, the Ninth Circuit affirmed the lower court’s ruling, finding that Rimini’s making of development environments, under color of a license held by one Oracle licensee, for another present or future Oracle customer was not authorized under the various enterprise software licenses and therefore constituted copyright infringement. The relevant licenses are excerpted below:
- J.D. Edwards: “Customer shall not, or cause anyone else to . . . (iii) copy the Documentation or Software except to the extent necessary for Customer’s archival needs and to support the Users.”
- Siebel: “Customer” may “reproduce, exactly as provided by [Oracle], a reasonable number of copies of the Programs and the Ancillary Programs solely for archive or emergency back-up purposes or disaster recovery and related testing.”
- PeopleSoft: “Licensee may . . . make a reasonable number of copies of the Software, solely for: (i) use in accordance with the terms set forth herein . . . ; (ii) archive or emergency back-up purposes; and/or (iii) disaster recovery testing purposes[.]” “PeopleSoft grants Licensee a . . . license to use the licensed Software, solely for Licensee’s internal data processing operations at its facilities[.]”[emphasis added]
In finding infringement, the court held that any work that Rimini performed under color of a license held by one customer and used other existing customers could not be considered work in support of that particular customer (with the same reasoning applying to work Rimini performed for unknown, future customers). (As previously discussed, Rimini Street has since changed the manner by which it accessed and preserved its customer’s licensed software and the process by which it provided software support services to its clients. While the original action focused on Rimini’s prior practices, Rimini’s companion declaratory judgment action against Oracle seeks a declaration that its new software maintenance and support processes do not infringe Oracle’s software copyrights).
Also of interest, as noted above, the PeopleSoft license included a limitation that the software only by used for processing at licensee’s “facilities.” The Ninth Circuit upheld the lower court’s conclusion that while “sophisticated companies like Oracle’s customers (and Rimini’s clients) do not keep all their servers on the actual premises of their principal place of business,” and that assets stored in the cloud would be “encompassed within the plain meaning of ‘facilities’, servers under control of a third party like Rimini could not be deemed the licensee’s “facilities” under the license.
This case reinforces the axiomatic principle that precision is paramount when drafting the license grant provisions in software agreements, taking into account the technology involved, industry customs and anticipation of evolving practices. In this case, each party had their own interpretation of terms such as “archival needs,” “support” for the user, and “operation at [licensee’s] facilities” as well as additional provisions relating to the licensee’s rights to install, use, copy and test the software. While the ways we access and use technology changes every day, “standard” forms of software license agreements do not. We recommend that care be taken to ensure that all of the uses made possible by today’s technology and business models are addressed as the parties intend them to be addressed.
In all, this case is instructive on a number of issues, including several points that are beyond the scope of this limited blog post. I encourage lawyers in the software licensing industry to read the filings and opinions in the Oracle Suit and the Rimini Suit carefully, as they are interesting and relevant to practices in the software industry today. As for scraping, this decision is important for understanding the nuances under the Nevada and California laws, but we must wait for more clarity under the CFAA. In any case, with the original infringement action, the Oracle Suit, still being litigated, and the companion declaratory judgment action examining a revised set of practices, the Rimini Suit, still pending, it will be interesting to see how this situation is resolved. Stay tuned!