Oracle Corp. v. Sap Ag

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ORACLE CORPORATION, a Delaware No. 12-16944

corporation; ORACLE

INTERNATIONAL CORPORATION; D.C. No.

ORACLE SYSTEMS CORPORATION; 4:07-cv-01658-

ORACLE USA INC.; ORACLE EMEA PJH

LIMITED; J.D. EDWARDS EUROPE

LIMITED; SIEBEL SYSTEMS, INC.,

Plaintiffs-Appellants, OPINION

v.

SAP AG, a German corporation;

SAP AMERICA INC.;

TOMORROWNOW INC., a Texas

corporation,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of California

Phyllis J. Hamilton, District Judge, Presiding

Argued and Submitted

May 13, 2014—San Francisco, California

Filed August 29, 2014

Before: Susan P. Graber, William A. Fletcher,

and Richard A. Paez, Circuit Judges.

Opinion by Judge W. Fletcher

2 ORACLE CORP. V. SAP AG

SUMMARY*

Copyright Law

The panel affirmed in part and vacated in part the district

court’s judgment after a jury trial on damages for

infringement of enterprise software copyrights owned by

Oracle Corp. and other plaintiffs.

The jury awarded Oracle $1.3 billion as the fair market

value of a hypothetical license from Oracle encompassing the

defendants’ infringement of Oracle’s copyrights. The district

court granted judgment as a matter of law on the ground that

Oracle failed to provide enough evidence to permit the jury

to establish an objective, non-speculative hypothetical-license

price. The district court ordered a new trial, conditioned on

Oracle’s rejection of a $272 million remittitur measured by

the copyright holder’s lost profits plus infringer’s profits,

rather than by hypothetical-license damages. Oracle rejected

the remittitur. The district court ruled that, if a second trial

were conducted, Oracle would not be able to argue for, or

present evidence of, hypothetical-license damages. Oracle

and the defendants stipulated to a $306 million judgment.

Affirming the district court’s grant of JMOL, the panel

held that in order to recover hypothetical-license damages,

Oracle did not have to show that it actually would have

granted a license to defendants. The panel also held that the

hypothetical-license damage award was based on undue

speculation. The panel affirmed the district court’s grant of

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

ORACLE CORP. V. SAP AG 3

defendants’ motion for new trial conditioned on Oracle’s

rejection of a remittitur, as well as the district court’s ruling

that Oracle could not pursue hypothetical-license damages at

a second trial.

The panel vacated the district court’s ruling selecting

$272 million as the remittitur amount because that amount

was below the maximum amount sustainable by the proof.

The panel remanded with instructions to condition any new

trial on Oracle’s rejection of a $356.7 million remittitur.

The panel affirmed the district court’s denial of Oracle’s

motion to exclude testimony by defendants’ damages expert

during a second trial. The panel declined to reach additional

issues concerning a second trial.

COUNSEL

Kathleen M. Sullivan (argued) and William Balden Adams,

Quinn Emanuel Urquhart & Sullivan LLP, New York, New

York; Dorian Estelle Daley and Jennifer Gloss, Oracle

Corporation, Redwood City, California; Steven Christopher

Holtzman and Fred Norton, Boies Schiller & Flexner LLP,

Oakland, California; Geoffrey Mathew Howard, Bingham

McCutchen LLP, San Francisco, California, for Plaintiffs-

Appellants.

Tharan Gregory Lanier (argued) and Jacqueline K.S. Lee,

Jones Day, Palo Alto, California; Gregory Andrew Castanias,

Tara Stuckey Morrissey, Jones Day, Washington, D.C.

4 ORACLE CORP. V. SAP AG

OPINION

W. FLETCHER, Circuit Judge:

Oracle Corporation and SAP AG are competitors in the

enterprise software market. In 2007, Oracle et al.

(collectively, “Oracle”) brought suit against SAP et al.

(collectively, “SAP”) alleging that TomorrowNow, an

enterprise software company recently acquired by SAP, was

engaging in systematic and pervasive illegal downloading of

Oracle’s software. SAP eventually stipulated to liability, and

the parties went to trial solely on damages.

The jury awarded Oracle $1.3 billion as the fair market

value of a hypothetical license from Oracle encompassing

SAP’s infringement of Oracle’s copyrights. SAP moved for

judgment as a matter of law (“JMOL”) on two grounds:

(1) that Oracle failed to show that it actually would have

granted a license; and (2) that Oracle failed to provide enough

evidence to permit the jury to establish an objective, non-

speculative hypothetical-license price. The district court

granted JMOL, making clear in a later order that it agreed

with only the second of the two grounds.

The district court ordered a new trial, conditioned on

Oracle’s rejection of a $272 million remittitur measured by

the copyright holder’s lost profits plus infringer’s profits,

rather than by hypothetical-license damages. Oracle rejected

the remittitur. The district court ruled that, if a second trial

were conducted, Oracle would not be able to argue for, or

present evidence of, hypothetical-license damages. Oracle

and SAP stipulated to a $306 million judgment.

ORACLE CORP. V. SAP AG 5

Oracle appeals from several rulings by the district court:

(1) a grant of JMOL to SAP; (2) a grant of SAP’s motion for

a new trial conditioned on Oracle’s rejection of a remittitur;

(3) a ruling that Oracle could not pursue hypothetical-license

damages at a second trial; (4) a ruling selecting $272 million

as the remittitur amount; and (5) four rulings on issues

relevant to a second trial.

We affirm the first three rulings. We vacate the fourth

ruling and remand to the district court. We conclude that the

district court erred in setting the remittitur at $272 million.

That amount was below “the maximum amount sustainable

by the proof,” D & S Redi-Mix v. Sierra Redi-Mix &

Contracting Co., 692 F.2d 1245, 1249 (9th Cir. 1982). We

therefore vacate and remand with instructions to condition

any new trial on Oracle’s rejection of a $356.7 million

remittitur. We affirm one of the four rulings relating to the

second trial; we do not reach the questions presented by the

other three rulings.

I. Background

Oracle and SAP are self-described “fierce” competitors in

the enterprise software industry. In 2005, when Oracle

acquired PeopleSoft, another enterprise software company,

for $11 billion. PeopleSoft had itself recently acquired J.D.

Edwards, another enterprise software company. In acquiring

PeopleSoft, Oracle hoped to gain PeopleSoft’s nearly 10,000

customers. In reaction to Oracle’s acquisition, SAP initiated

a marketing program called Safe Harbor and later, in a

modified form, Safe Passage. For convenience, we will refer

to this program as Safe Passage.

6 ORACLE CORP. V. SAP AG

As a key component of Safe Passage, SAP acquired

TomorrowNow Inc. (“TomorrowNow”) in 2005 for $10

million. Founded by former employees of PeopleSoft,

TomorrowNow provided software maintenance services to

PeopleSoft’s customers, including J.D. Edwards’ customers,

at half the price charged by Oracle. After Oracle acquired

Siebel Systems, another enterprise software company, for $6

billion in 2006, TomorrowNow expanded its maintenance

services to include Siebel software. SAP hoped to leverage

TomorrowNow’s relationship with its maintenance service

customers to persuade some of those customers to switch

over to SAP software.

In 2006, an Oracle employee noticed thousands of

suspicious downloads of Oracle software. After an

investigation, Oracle concluded that TomorrowNow had

illegally downloaded millions of PeopleSoft, J.D. Edwards,

Siebel, and Oracle database files. TomorrowNow continued

to provide maintenance services to Oracle customers using

these downloads until sometime in 2008.

Oracle brought suit in federal district court in 2007,

alleging copyright infringement and other federal and state

claims. Shortly before trial, SAP stipulated to liability on

Oracle’s copyright claims, and Oracle dismissed with

prejudice all of its non-copyright claims.

The district court conducted a thirteen-day jury trial

limited to damages for copyright infringement. The district

judge instructed the jury that it could award either

(1) hypothetical-license damages or (2) plaintiff’s lost profits

and infringer’s profits. Oracle’s expert testified, based on a

hypothesized negotiation that would have taken place before

the infringement began, that the fair market value of a license

ORACLE CORP. V. SAP AG 7

allowing use of the downloaded software for the period of

infringement would have been $1.656 billion. In November

2010, the jury returned a verdict for Oracle for $1.3 billion,

based on what it found was the fair market value of a

hypothetical license granted by Oracle.

SAP objected to the amount of the damage award and

moved for JMOL. The district court granted JMOL, making

clear in a later order that its sole ground for denying the

motion was that “the evidence Oracle presented was

insufficient to establish an objective non-speculative license

price.”

SAP also moved for a new trial. The district court

granted the motion conditioned on Oracle’s rejection of a

$272 million remittitur. The district court determined that

$272 million was “the maximum amount . . . sustainable by

the proof.” In granting SAP’s motion, the district court made

clear that in a new trial, if one were conducted, Oracle would

not be allowed to argue for, or present evidence of,

hypothetical-license damages.

Oracle rejected the $272 million remittitur. In advance of

a second trial, the district court denied a number of Oracle’s

evidentiary motions. In order to expedite an appeal, the

parties stipulated to a $306 million judgment in Oracle’s

favor. Oracle timely appealed.

II. Standard of Review

We review de novo a district court’s grant of JMOL under

Federal Rule of Civil Procedure 50. Mangum v. Action

Collection Serv., Inc., 575 F.3d 935, 938 (9th Cir. 2009).

JMOL “is properly granted only if no reasonable juror could

8 ORACLE CORP. V. SAP AG

find in the non-moving party’s favor.” Id. at 939 (quoting

Torres v. City of L.A., 548 F.3d 1197, 1205 (9th Cir. 2008)).

The court “‘must view the evidence in the light most

favorable to the nonmoving party . . . and draw all reasonable

inferences in that party’s favor.’” EEOC v. Go Daddy

Software, Inc., 581 F.3d 951, 961 (9th Cir. 2009) (alteration

in original) (quoting Josephs v. Pac. Bell, 443 F.3d 1050,

1062 (9th Cir. 2006)).

“We review a district court’s grant of a new trial for an

abuse of discretion.” Silver Sage Partners, Ltd. v. City of

Desert Hot Springs, 251 F.3d 814, 818 (9th Cir. 2001).

“[T]he same standard of review is appropriate . . . where a

plaintiff rejects the remittitur and a second trial is held . . . .”

Id. at 818–19. We review for abuse of discretion a remittitur

amount set by the district court. D & S Redi-Mix, 692 F.2d at

1249.

III. Discussion

A. Grant of JMOL

SAP makes two arguments in support of the district

court’s grant of JMOL. First, SAP argues that, in order to

recover hypothetical-license damages, Oracle had to show

that it actually would have granted a license to

TomorrowNow. Second, SAP argues that the jury’s

hypothetical-license damage award was based on undue

speculation. The district court disagreed with the first

argument but agreed with the second. We agree with the

district court.

ORACLE CORP. V. SAP AG 9

1. No Grant of License

SAP argues that hypothetical-license damages cannot be

awarded because Oracle was unwilling to grant a license to

TomorrowNow for the use of its PeopleSoft, J.D. Edwards,

Siebel, and Oracle database copyrights. As a factual matter,

we agree that Oracle never would have granted such a license

to TomorrowNow. Oracle executives testified generally that

Oracle never licenses its software to competitors, and

specifically that Oracle never would have granted a license to

TomorrowNow.

However, we disagree with SAP’s legal argument. Under

17 U.S.C. § 504(b), a “copyright owner is entitled to recover

[1] the actual damages suffered by him or her as a result of

the infringement, and [2] any profits of the infringer that are

attributable to the infringement and are not taken into account

in computing the actual damages.” “[A] plaintiff in a

§ 504(b) action must establish [a] causal connection”

“between the infringement and the monetary remedy sought.”

Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 708

(9th Cir. 2004). “‘Actual damages’ are the extent to which

the market value of a copyrighted work has been injured or

destroyed by an infringement.” Frank Music Corp. v. Metro-

Goldwyn-Mayer, Inc., 772 F.2d 505, 512 (9th Cir. 1985).

Although “actual damages” can be awarded in the form of

lost profits, hypothetical-license damages also constitute an

acceptable form of “actual damages” recoverable under

Section 504(b). See Polar Bear Prods., 384 F.3d at 708–09.

To calculate the “market value” of the injury to the plaintiff

based on a hypothetical-license theory, we look to “the

amount a willing buyer would have been reasonably required

to pay a willing seller at the time of the infringement for the

actual use made by [the infringer] of the plaintiff’s work.”

10 ORACLE CORP. V. SAP AG

Wall Data Inc. v. L.A. Cnty. Sheriff’s Dep’t, 447 F.3d 769,

786 (9th Cir. 2006) (internal quotation marks omitted).

We have never required a plaintiff in a copyright

infringement case to show that it would have licensed the

infringed material. We decline to impose such a requirement

now. A copyright holder has the right to refuse to license its

work and should not be penalized for exercising that right.

See Stewart v. Abend, 495 U.S. 207, 228–29 (1990). If we

were to require a copyright holder to demonstrate that it

would have been willing to grant a license as a condition for

recovering damages based on the fair market value of the

license, the perverse result would be that some of the most

assiduously protective copyright holders would be unable to

recover the fair market value of their wrongfully appropriated

copyrighted property. For example, posit a songwriter who

has consistently refused to license her work for use in

advertising. A fast-food chain nonetheless uses one of her

songs in a nationwide television campaign. If the rule were

as SAP proposes, the songwriter could not recover

hypothetical-license damages for the infringement even if she

could demonstrate that other songwriters charge $200,000 to

license comparable songs for such use. This rule could

operate unfairly, given the difficulty the songwriter might

face in meeting the burden of proof for lost profits and

infringer’s profits. See On Davis v. The Gap, Inc., 246 F.3d

152, 166 (2d Cir. 2001) (“In our view, as between leaving the

victim of the illegal taking with nothing, and charging the

illegal taker with the reasonable cost of what he took, the

latter, at least in some circumstances, is the preferable

solution.”).

SAP argues that a plaintiff must show that a license would

have been granted because, if the copyright holder would

ORACLE CORP. V. SAP AG 11

never have agreed to license her work, she could not, by

definition, have lost any licensing fees “as a result of the

infringement” within the meaning of 17 U.S.C. § 504(b). We

disagree.

The Second Circuit has explained:

If a copier of protected work, instead of

obtaining permission and paying the fee,

proceeds without permission and without

compensating the owner, it seems entirely

reasonable to conclude that the owner has

suffered damages to the extent of the

infringer’s taking without paying what the

owner was legally entitled to exact a fee for.

We can see no reason why, as an abstract

matter, the statutory term “actual damages”

should not cover the owner’s failure to obtain

the market value of the fee the owner was

entitled to charge for such use.

On Davis, 246 F.3d at 165. The court explained further that

“whether the infringer might in fact have negotiated with the

owner or purchased at the owner’s price is irrelevant” to

whether hypothetical-license damages are available. Id. at

171–72.

Hypothetical-license damages assume rather than require

the existence of a willing seller and buyer. The very word

“hypothetical” indicates that damages may be awarded in the

absence of an actual license. Oracle was thus not required, as

a categorical prerequisite to recovery of hypothetical-license

damages, to show that it would ever have granted a license.

Consistent with our cases upholding a hypothetical-license

12 ORACLE CORP. V. SAP AG

damages award, and following the Second Circuit’s decision

in On Davis, we hold that a copyright plaintiff’s

unwillingness to grant a license to use its copyrighted work

does not defeat its ability to recover hypothetical-license

damages.

2. Undue Speculation

An award of hypothetical-license damages is appropriate

“provided the amount is not based on ‘undue speculation.’”

Polar Bear Prods., 384 F.3d at 709 (quoting McRoberts

Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566 (7th Cir.

2003)). The touchstone for hypothetical-license damages is

“the range of [the license’s] reasonable market value.” Id.

“The question,” therefore, “is not what the owner would have

charged, but rather what is the fair market value.” Jarvis v.

K2 Inc., 486 F.3d 526, 534 (9th Cir. 2007) (quoting On Davis,

246 F.3d at 166). Thus, we do not ask what the owner would

like to have charged if unconstrained by reality, but what a

willing owner actually would have charged after negotiation

with the buyer. That is, fair market value is based on “‘an

objective, not a subjective, analysis.’” Jarvis, 486 F.3d at

534 (quoting Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir.

2002)).

Fair market value in a voluntary licensing transaction

between arms-length parties ordinarily lies somewhere

between the two poles of cost to the seller and benefit to the

buyer. That is, the seller will not ordinarily charge less for a

license than its anticipated cost, and the buyer will not

ordinarily pay more for a license than its anticipated benefit.

In the case of a hypothetical license, it is often difficult to

determine what, at the time of the infringement, the seller and

buyer thought would be their respective cost and benefit.

ORACLE CORP. V. SAP AG 13

Further, even if the cost and benefit can be determined with

some degree of certainty, it is often difficult to determine the

range between the two poles of cost and benefit within which

the parties would likely have settled.

Oracle argues that the jury’s $1.3 billion verdict was

reasonably supported, pointing to evidence of, among other

things, the enormous amount of data surreptitiously

downloaded by TomorrowNow, the amount that Oracle paid

to acquire PeopleSoft and Siebel, and estimates of how much

money Oracle stood to lose and SAP stood to gain from

TomorrowNow’s infringement. The district court concluded

that “the evidence Oracle presented was insufficient to

establish an objective non-speculative license price.” We

agree. Given that the evidence presented at trial failed to

provide “the range of the reasonable market value” for the

hypothetical license in question, we hold that the jury

awarded damages using an “undue” amount of speculation.

See Polar Bear Prods., 384 F.3d at 709.

a. Benefit to SAP

In its opening brief, Oracle points to two types of

evidence showing SAP’s expected benefit. First, Oracle

states that TomorrowNow’s infringement occurred on a

“massive” scale. Oracle explains that TomorrowNow’s

illegal downloads of Oracle software “totaled over five

terabytes of infringing data,” which “would encircle the globe

nine times if printed out on double-sided paper laid end-to-

end.” This is a dramatic image, emphasizing that there was

a great deal of downloaded data. But the quantity of the data,

by itself, tells us very little about its value to SAP.

14 ORACLE CORP. V. SAP AG

Second, Oracle presented evidence of SAP’s own

projected “benefits from its use of stolen materials.” Oracle

relies heavily on two pieces of evidence as to PeopleSoft:

(1) SAP’s internal financial estimates, relating to the

conversion of PeopleSoft customers to SAP, which projected

nearly $900 million in revenue over three years, and

(2) testimony from an SAP executive that TomorrowNow’s

maintenance and support offerings were an “important” part

of this conversion plan. As to Siebel, Oracle’s expert testified

that SAP’s improper use of Siebel copyrights would have

yielded $97 million to $247 million in “financial gains” to

SAP. As to Oracle database software, Oracle does not

identify specific evidence as to the benefit that SAP stood to

gain from TomorrowNow’s infringement.

Although these figures are relevant to the question of the

benefit that SAP hoped to derive from TomorrowNow’s

infringing activity, they leave important gaps. As to

PeopleSoft and J.D. Edwards, we know that SAP hoped to

gain $900 million in revenues by siphoning off business from

Oracle. We also know that TomorrowNow’s infringement of

Oracle’s copyrights was “important” to the success of this

effort. But Oracle points to no evidence indicating what

portion of the $900 million in projected revenue SAP hoped

to obtain from TomorrowNow’s infringing activity, as

distinct from the lawful portion of the Safe Passage program.

Moreover, the $900-million figure was only what SAP

hoped it could achieve over three years. The presentation

slide prepared for SAP’s internal use, upon which Oracle

bases its argument, characterized the calculations underlying

this figure as merely “Assumptions.” An SAP executive who

provided the numbers for the slide testified that he “attempted

to make reasonable assumptions,” but the slide tells us little

ORACLE CORP. V. SAP AG 15

about what probability SAP actually assigned to such

assumptions. Although we look to the expectations of the

parties at the time of the hypothetical negotiation in

determining the hypothetical-license value, see, e.g., Wall

Data, 447 F.3d at 786, it is telling that, in the end,

TomorrowNow had a total of only 358 customers by the time

it closed its doors in 2008, a small fraction of the customers

SAP had hoped to attract.

Oracle strenuously argues that SAP “considered its

projections reliable enough to serve as the basis for its

acquisition” of TomorrowNow, but it fails to mention that

SAP acquired TomorrowNow for only $10 million. If SAP

truly anticipated that TomorrowNow would produce a $1.3

billion benefit to SAP, as Oracle contends, a $10 million

acquisition price is strikingly low. This low acquisition price

does not in itself necessarily preclude Oracle’s recovery of a

$1.3 billion verdict. But it casts substantial doubt on Oracle’s

argument that SAP’s stated assumptions on the slide were

realistic, and that SAP officials believed these assumptions

when they negotiated their purchase price for TomorrowNow.

Even discounting the value to SAP of TomorrowNow based

on the possibility of discovery of the illegal downloads and

resulting litigation, $10 million is a great deal less than the

$1.3 billion Oracle says SAP would have paid to Oracle for

a license to do what TomorrowNow was doing.

b. Cost to Oracle

To show its expected cost, Oracle presented evidence of

projected lost revenue resulting from TomorrowNow’s use of

the downloaded software. Oracle’s expert testified that if

SAP had reasonably convinced 1,375 customers to switch to

SAP’s software, as projected, Oracle stood to suffer over $1.3

16 ORACLE CORP. V. SAP AG

billion in “loss[es].” As to Siebel, Oracle argues that SAP’s

infringement of Siebel’s copyrights would have resulted in

$164 million in “negative financial impacts” for Oracle. As

to Oracle database software, Oracle’s expert testified that the

licensing fees for the illicit copies of Oracle database

software would total $55.6 million, based on what an Oracle

executive claimed that Oracle would charge.

We accord limited weight to Oracle’s expert’s conclusion

that Oracle stood to lose more than $1.3 billion from

TomorrowNow’s infringement of PeopleSoft and J.D.

Edwards copyrights. Oracle’s expert generated this estimate

by assuming that Oracle would lose the 1,375 customers that

SAP hoped would switch from Oracle software to SAP

software, as outlined in SAP’s “Assumptions” presentation

slide. For the reasons discussed above, the “Assumptions”

are not a particularly reliable source of objective evidence.

Further, as we describe below in our discussion of remittitur,

Oracle presented evidence of its actual lost profits, which

were at most $120.7 million—far less than $1.3 billion. Like

the evidence of the low acquisition price of TomorrowNow,

this lost profits number casts substantial doubt on SAP’s

internal “Assumptions.”

Oracle also presented evidence of the acquisition cost of

PeopleSoft and Siebel. Oracle emphasized that it “had just

paid $11 billion, in an arms-length transaction, to acquire

PeopleSoft and the accompanying intellectual property that

SAP and [TomorrowNow] admittedly stole.” It had also paid

more than half that—$6 billion—to acquire Siebel Systems.

An Oracle executive testified that the $1.656 billion

hypothetical-license damages estimate provided by Oracle’s

trial expert was “conservative” because it was “around 10

percent of what we actually paid for the . . . intellectual

ORACLE CORP. V. SAP AG 17

property.” She further testified that Oracle expected that

PeopleSoft, J.D. Edwards, and Siebel would generate $1.7

billion annually in maintenance revenue alone.

Oracle failed, however, to present evidence of the

relationship between the value of owning PeopleSoft, J.D.

Edwards and Siebel, on the one hand, and the cost of granting

a license to use its copyrights in a limited way for a limited

period, on the other. See Wall Data, 447 F.3d at 786

(discussing “actual use” of copyrighted works). In short,

while Oracle’s acquisition price of PeopleSoft and Siebel is

evidence of the immense value that Oracle saw in those

companies, it told the jury little of what a hypothetical license

for a specific use of their copyrights for a brief period would

have cost Oracle.

c. Value of Hypothetical License

Evidence of SAP’s projected benefits and Oracle’s

projected costs is relevant to the fair market value of a license

for the use of Oracle’s copyrights during the period of

TomorrowNow’s infringement. But given the type of

objective evidence on which our caselaw has relied in

affirming past hypothetical-license damage awards, we hold

that the district court correctly concluded that Oracle failed to

present sufficient non-speculative evidence to support the

jury’s award.

Our caselaw provides guidance as to a copyright

plaintiff’s burden in proving hypothetical-license damages.

In one case discussed in particular detail by the parties, we

upheld a hypothetical-license award as non-speculative where

Timex Corporation used Polar Bear Productions’ copyrighted

film footage without the latter’s authorization. Polar Bear

18 ORACLE CORP. V. SAP AG

Prods., 384 F.3d at 703, 709. Timex had sponsored the

production of the film footage at issue “[i]n return [for] an

exclusive one-year license to use the film in its promotional

materials.” Id. at 704. Under the parties’ agreement, beyond

the one-year period “Timex had the option of retaining Polar

Bear to produce [an additional ten-minute promotional] video

at a price to be determined by the parties,” but Timex decided

“to produce the tape separately.” Id. Despite Polar Bear’s

warnings that Timex had no right to use images from the

original film, Timex did so anyway. Id. Timex’s

infringement did not stop there: it “used Polar Bear’s

copyrighted images on two other occasions—in a

promotional campaign associated with the soft drink

Mountain Dew and in videos used to train salespeople at a

large national retailer.” Id.

At trial, Polar Bear presented evidence that before Timex

infringed its copyright it had quoted Timex a price of $37,500

for preparing a ten-minute video. Id. at 709. Polar Bear also

presented expert testimony as to the value of a hypothetical-

license fee covering Timex’s infringing activity that was

“predicated” on this price. Id. The jury awarded Polar Bear

$115,000 in lost license fees. Id. at 705 n.3.

We upheld the hypothetical-license damage award despite

Timex’s arguments that the award was speculative. Id. at

709. We observed that there was little danger that the

$37,500 fee, on which the calculation of the price of the

hypothetical license was based, “was contrived or artificially

inflated” because “[t]he proposed license fee was proffered

before Timex’s infringement.” Id. We explained: “Having

taken the copyrighted material, Timex is in no better position

to haggle over the license fee than an ordinary thief and must

ORACLE CORP. V. SAP AG 19

accept the jury’s valuation unless it exceeds the range of the

reasonable market value.” Id.

Two years later, we upheld another hypothetical-license

damage award in Wall Data. See 447 F.3d at 786–87. In that

case, “[t]he Los Angeles County Sheriff’s Department

purchased 3,663 licenses to Wall Data’s computer software,

but installed the software onto 6,007 computers.” Id. at 773

(footnote omitted). After concluding that the Department’s

activity constituted copyright infringement, id. at 774, we

affirmed the jury’s hypothetical-license damages award of

somewhere between $53 and $90 per infringed copy as non-

speculative where (1) “the average price Wall Data charged

the vendor that sold software to the Sheriff’s Department was

$189,” (2) “government entities were charged $113 per

copy,” and (3) the Sheriff’s Department had originally paid

$85 per copy. Id. at 786–87. In upholding the award, we

observed that the jury’s award was “within the range

sustainable by the proof.” Id.

One year after Wall Data, we upheld another

hypothetical-license damage award in a case involving the

unauthorized use of images. See Jarvis, 486 F.3d at 528. The

plaintiff in Jarvis was “a professional photographer who

created several thousand photographic slides . . . for K2, Inc.

(‘K2’), a maker of outdoor sporting goods.” Id. at 527. In

that case, K2 was found to have infringed the photographer’s

copyrights, and we upheld the district court’s damages

calculation where it had “employed reasonable estimates of

the market value of the infringed images.” Id. In so holding,

we outlined the numerous pieces of evidence on which the

district court had relied in determining the final award:

20 ORACLE CORP. V. SAP AG

The court’s findings show that it examined at

least six estimates of the fair market value of

Jarvis’ infringed images: (1) the testimony of

Jarvis’ expert witness Richard Weisgrau that

. . . Jarvis’ images were worth $1,500 to

$5,000 each; (2) the testimony of a senior K2

executive that he would pay $5–20 for an

image to be used online and $500–750 for a

glossy high-definition image for a print

advertisement or magazine cover; (3) Jarvis’

compensation of $10,000 for the 2,516 images

he delivered to K2 under the 2000 Agreement;

(4) Jarvis’ compensation of $7,200 for the

1,210 images he delivered to K2 under the

2001 Agreement; (5) Jarvis’ compensation of

$3,000 for seven images he delivered to K2 in

2001; and (6) Jarvis’ settlement offer of

$15,520 for all images infringed by K2.

Although these estimates informed the district

court’s calculations, it ultimately cited Jarvis’

own damages figures for images used in print

and then halved the average of these figures to

determine the damages per online use. The

court based its halving on its finding that “the

fair market value of an online use is less than

the average fair market value of a print use.”

This methodology produced a damages figure

of $461 per online use, a figure below

Weisgrau’s estimate but well within the range

of the other five estimates.

Id. at 534 (emphasis omitted). In explaining why we upheld

the district court’s award, we wrote:

ORACLE CORP. V. SAP AG 21

The court’s inquiry was objective, avoiding

references to what Jarvis thought he should

have earned or wished he had charged. The

court also examined the financial perspectives

of both the willing buyer (in the form of

evidence about what K2 typically pays for

images and what it specifically paid Jarvis in

its prior dealings with him) and the willing

seller (in the form of Jarvis’ earlier deals with

K2 and his revenue from image databanks) at

the hypothetical time of sale. Furthermore, the

court gave logical reasons why it discounted

Weisgrau’s testimony; according to the court,

he “relied almost exclusively on the Getty

website for his figures and unrealistically used

a monthly licensing fee as the basis for his

valuations.” Finally, the figure the court

adopted was near the center of the range

supported by the evidence.

Id. at 534–35 (footnotes omitted).

The evidence presented by Oracle provides a much more

speculative basis for calculating hypothetical-license damages

than the evidence in Polar Bear, Wall Data, and Jarvis.

Although a copyright plaintiff need not demonstrate that it

would have reached a licensing agreement with the infringer

or present evidence of “benchmark” agreements in order to

recover hypothetical-license damages, it may be difficult for

a plaintiff to establish the amount of such damages without

undue speculation in the absence of such evidence. Cf.

Getaped.com, Inc. v. Cangemi, 188 F. Supp. 2d 398, 405–06

(S.D.N.Y. 2002) (recognizing the difficulty of determining a

non-speculative hypothetical-license damages amount when

22 ORACLE CORP. V. SAP AG

the infringer is a direct competitor). Here, because Oracle has

no history of granting similar licenses, and has not presented

evidence of “benchmark” licenses in the industry

approximating the hypothetical license in question here,

Oracle faced an uphill battle.

Oracle bore the burden of proving the fair market value of

the hypothetical license in question. We agree with the

district court that Oracle failed to provide sufficient objective

evidence of the market value of the hypothetical license

underpinning the jury’s damages award. We therefore affirm

the district court’s grant of JMOL to SAP on that ground.

B. District Court’s Grant of a New Trial

A new trial is warranted when “the verdict ‘is against the

great weight of the evidence, or it is quite clear that the jury

has reached a seriously erroneous result.’” SEC v. Todd,

642 F.3d 1207, 1225 (9th Cir. 2011) (quoting EEOC v. Pape

Lift, Inc., 115 F.3d 676, 680 (9th Cir. 1997)). We will reverse

the district court only if it abused its discretion in granting a

new trial. Id. For the same reasons as those laid out in our

discussion of the district court’s grant of JMOL to SAP, we

conclude that the district court did not abuse its discretion in

concluding that “the verdict [was] against the great weight of

the evidence,” id. (internal quotation marks omitted).

C. District Court’s Damages Limitation for a New Trial

Oracle contends that, even if the district court did not

abuse its discretion in granting SAP’s motion for a new trial,

the district court erred in limiting the second trial to damages

based on a lost-profits and infringer’s-profits theory, barring

Oracle’s pursuit of hypothetical-license damages. According

ORACLE CORP. V. SAP AG 23

to Oracle, the district court “changed the rules after the close

of proof” and therefore should have provided Oracle with

another opportunity to meet the post-trial standard

pronounced by the district court.

We disagree. We have previously made clear that

hypothetical-license damages “are ‘what a willing buyer

would have been reasonably required to pay to a willing seller

for plaintiffs’ work.’” Jarvis, 486 F.3d at 533 (quoting Frank

Music Corp., 772 F.2d at 512). Thus, “[e]xcessively

speculative claims of damages are to be rejected.” Id. at 534.

The district court applied this well-established standard in

granting JMOL to SAP. Oracle was well aware of the legal

standard that it was required to meet, and we decline to give

Oracle a second bite at the apple.

D. Remittitur

A remittitur must reflect “the maximum amount

sustainable by the proof.” D & S Redi-Mix, 692 F.2d at 1249.

Here, the district court set the remittitur at $272 million,

which was the lower of two amounts calculated by Oracle’s

expert for lost profits and infringer’s profits. This figure

reflected $36 million in Oracle’s lost profits, and $236

million in SAP’s infringer’s profits. As the district court

noted, however, Oracle’s expert had also testified to a higher

figure: $408.7 million, based on $120.7 million in lost profits

through 2015 rather than 2008, “to reflect the ongoing

impact” of SAP’s infringement on Oracle’s profits, and $288

million in infringer’s profits, which included three customers

that the lower, $236-million estimate did not.

Oracle argues that the district court erred in setting the

remittitur at $272 million, given that the very expert whose

24 ORACLE CORP. V. SAP AG

testimony the district court had credited also testified to the

higher amount of $408.7 million. Therefore, according to

Oracle, the maximum amount of damages sustainable by the

proof under a lost- and infringer’s-profits theory was $408.7

million instead of $272 million.

We agree with the district court that, as to infringer’s

profits, $236 million was the maximum amount sustainable

by the proof. As the district court pointed out, Oracle’s

expert “testified that his calculation of infringer’s profits

‘ranges down’ to $236 million because there are three

customers ‘where there’s some issues still that sort of exist

about the role of TomorrowNow in converting those

customers to SAP.’” Because Oracle’s expert was unsure

about these three customers, the district court deemed the

$288-million infringer’s-profits estimate to be “unduly

speculative.” We agree. “[A] plaintiff in a § 504(b) action

must establish [a] causal connection” “between the

infringement and the monetary remedy sought.” Polar Bear

Prods., 384 F.3d at 708. Because of its expert’s equivocation

as to whether the loss of these three customers was

attributable to TomorrowNow’s infringement, Oracle has

failed to establish this requisite causal connection and

therefore cannot recover damages related to those three

customers.

We disagree, however, with the district court’s adoption

of the $36-million lost-profits figure as the maximum amount

sustainable by the proof and conclude that the district court

should have chosen the $120.7-million lost-profits figure

instead. Oracle’s expert assumed, for both his lower and

higher lost-profits estimates, that some of Oracle’s customers

switched from Oracle to SAP permanently as a result of

TomorrowNow’s infringement. The higher figure included

ORACLE CORP. V. SAP AG 25

Oracle’s lost profits for seven years after TomorrowNow shut

its doors in 2008, whereas the lower figure accounted for

Oracle’s lost profits only through 2008. In other words, the

higher figure reflected the reality that, even after

TomorrowNow ceased operations, Oracle had lost an ongoing

stream of revenue from its former customers who

permanently remained with SAP.

By choosing the $36-million lost-profits amount for the

remittitur, the district court necessarily accepted that some of

Oracle’s customers switched to SAP due to TomorrowNow’s

infringement. Moreover, as Oracle’s expert explained, in the

enterprise software market, loss of a customer is typically

permanent. Therefore, once the district court accepted the

fact that TomorrowNow’s infringement led some customers

to switch to SAP, common sense suggests that Oracle would

suffer from the loss of those customers beyond the date that

TomorrowNow ceased operating. As to the amount of harm

Oracle suffered, Oracle presented evidence at trial that it

would be “conservative” to assume that its typical

relationship with a customer lasts ten years. This supports

Oracle’s expert’s use of 2015 as an end date for the higher

lost-profits figure—ten years after SAP acquired

TomorrowNow.

By failing to select a remittitur that reflected the

maximum amount sustainable by the proof, the district court

abused its discretion in selecting the $36-million lost-profits

figure rather than the $120.7-million one. We therefore

vacate and remand to the district court for it to offer Oracle

the choice between a $356.7-million remittitur—combining

the highest lost-profits and infringer’s-profits estimates

sustainable by the proof—and proceeding to a second trial.

26 ORACLE CORP. V. SAP AG

E. Orders Relevant to a Second Trial

Oracle appeals four rulings relevant to a second trial, if

one were to occur. We address them in turn.

1. Expert Testimony of Stephen Clarke

Oracle appeals the district court’s denial of its motion to

exclude testimony by SAP’s damages expert Stephen Clarke

during the first trial, and seeks an order excluding his

testimony during a second trial. See Daubert v. Merrell Dow

Pharm., Inc., 509 U.S. 579 (1993). We review for abuse of

discretion, United States v. Morales, 108 F.3d 1031, 1035

(9th Cir. 1997) (en banc), and affirm the district court. Oracle

contends that “Clarke’s only training and experience is in

accounting,” such that he is unqualified to comment on

consumer behavior. Oracle misstates Clarke’s qualifications.

He has a degree in Management Sciences, has taught

university-level economics, and has extensive experience as

an intellectual property damages expert. Oracle further

contends that Clarke’s “testimony [during the first trial] was

unreliable and outside his expertise” because he relied on

Internet research in his market study. Oracle fails to explain

why the Internet is an inappropriate resource for conducting

market research. Moreover, Oracle had ample opportunity to

cross-examine Clarke about his underlying sources and

discredit them. The district court did not abuse its discretion

in allowing Clarke to testify in the first trial, and Oracle has

advanced no reason to exclude his testimony in a second trial.

2. Jury Instruction

Oracle contends that the district court erred in rejecting its

proposed instruction that would have told the jury that Oracle

ORACLE CORP. V. SAP AG 27

could recover both hypothetical-license damages and

infringer’s profits. It asks us to hold on appeal that such an

instruction should be given in a second trial. We need not

decide this question because, as we have held above,

hypothetical-license damages may not be sought in a second

trial.

3. Research and Development Costs

Oracle contends that the district court erred in ruling that

a calculation of hypothetical-license damages could not take

into account the expenditures for research and development

costs that SAP would have incurred if it had tried to develop

non-infringing software. It asks us to hold on appeal that

such hypothetical expenditures should be taken into account

in calculating hypothetical-license damages in an second trial.

For the same reason we do not reach the question about

Oracle’s proposed jury instruction, we do not reach this

question.

4. Motion in Limine

Oracle contends that the district court erred in denying

Oracle’s motion in limine, filed in anticipation of the second

trial, seeking to preclude SAP from introducing evidence of

its overhead expenses in order to deduct them from any

calculation of infringer’s profits. Oracle recognizes that

17 U.S.C. § 504(b) permits an infringer to introduce evidence

of “deductible expenses” to offset the calculation of

infringer’s profits under that statute. According to Oracle,

however, our caselaw precludes willful infringers from

deducting overhead costs. Oracle relies heavily on dicta in

Frank Music Corp., 772 F.2d at 515 (“A portion of an

infringer’s overhead properly may be deducted from gross

28 ORACLE CORP. V. SAP AG

revenues to arrive at profits, at least where the infringement

was not willful, conscious, or deliberate.”). Because the

second trial has not yet occurred, and evidence presented at

trial may be relevant to any ultimate ruling by the district

court, we decline to reach this question. We note that the

district court is free to reconsider its decision in advance of,

or during, a second trial if one should occur.

Conclusion

We affirm the district court’s grant of judgment as a

matter of law to SAP, as well as the district court’s grant of

SAP’s motion requesting a new trial conditioned on Oracle’s

rejection of a remittitur, on the ground that the jury reached

its $1.3 billion verdict based on undue speculation. We also

affirm the district court’s ruling barring Oracle from

presenting hypothetical-license damages at any new trial, and

affirm the district court’s ruling allowing SAP’s expert

Clarke to testify. We conclude, however, that the district

court erroneously set the remittitur at $272 million. We

therefore vacate and remand with instructions for the district

court to offer Oracle the choice between a $356.7 million

remittitur and a new trial. Each side shall bear its own costs

on appeal.

AFFIRMED in part, VACATED in part, and

REMANDED.