SAS Institute Inc v World Programming Ltd – Case Review

SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 1482 (21 November 2013).  The Court of Appeal has upheld the decision of Mr Justice Arnold in the High Court (which followed a preliminary ruling from the Court of Justice of the European Union) finding that the functionality and underlying elements of a computer program are not protected by copyright under either the Software Directive (91/250/EC) or the Copyright Directive (2001/29/EC). Image

Background

Over a period of 35 years, SAS Institute Inc developed an integrated, and very valuable, set of computer programs known as the SAS System, which enabled users to carry out a wide range of statistical analysis tasks.  The functionality of the core component of the SAS System could be extended by using additional SAS applications.  These applications were written in a language known as the SAS Language. 

At the time, SAS customers had no alternative to continuing to license use of the necessary applications in the SAS System in order to be able to run their existing SAS Language application programs, as well as to create new ones.  A customer wishing to change to another supplier’s software had to re-write all of its existing application programs in a different language.

World Programming Ltd (WPL) spotted a gap in the market for alternative software that could support application programs written in the SAS Language.  WPL therefore created a product called World Programming System (WPS).  Basically, WPL sought to emulate the functionality of the SAS applications (SAS Components) as clearly as possible so that the same inputs would produce the same outputs and so that WPL’s customers’ application programs would function in the same way when run with WPS as when run with SAS applications. 

WPL openly admitted that the response of WPS was intended to be, and was, identical to the response of the SAS applications.  There was no dispute that in creating WPS, WPL’s programmers had studied and used the manuals connected to the SAS System (SAS Manuals).  Further, the parties agreed that WPL had not had access to the SAS source code, nor had it copied any of the text or the structural design of SAS’s source code when developing WPS.

SAS claimed that WPL had committed a series of copyright infringements and had acted in breach of contract when it created WPS and its accompanying documentation. 

In particular, SAS alleged that:

(i)      WPL had used the SAS Manuals as a technical specification for WPS and had copied a substantial part of those manuals in creating WPS itself, thereby infringing copyright in the SAS Manuals (the “Manual to Program Claim”);

(ii)    WPL had indirectly infringed copyright in the SAS Components in creating WPS (the “Program to Program Claim”);

(iii)   WPL had infringed the copyright in the SAS Manuals by reproducing a substantial part of them in WPL’s own WPS Manual and WPS Guide (the “Manual to Manual Claim”); and

(iv)  WPL had repeatedly used the SAS Learning Edition outside the scope of the applicable licence, which was limited to use on one workstation and for “non-production” purposes only, to obtain additional information about the SAS System, and to check that the operations of WPS precisely replicated those of the SAS Components; it had thereby infringed SAS Institute’s copyright in the SAS Learning Edition and had acted in breach of contract (the “Learning Edition Claim”).

In the High Court, Mr Justice Arnold referred five questions to the CJEU regarding the interpretation of Articles 1(2) and 5(3) of the Software Directive concerning copyright protection of the language, interfaces and functionality of computer programs.  He also asked whether Article 2(a) of the Copyright Directive should be interpreted in the same way as Article 1(2) of the Software Directive.

The CJEU decision

The CJEU found, unsurprisingly, that functionality, language and data file formats are not protected by copyright under the Software Directive since they did not constitute forms of expression.  However, the court suggested that the programming language and data file formats “might be protected, as works, by copyright under [the Copyright] Directive… if they are their author’s own intellectual creation“. This conclusion was derived from the passage in Case C-393/09 Bezpečnostni softwarová asociace v Ministerst so kultury in which the CJEU had said, following the principles expressed in Case C-5/08 Infopaq International A/S v Dansk Dagblades Forening [2009] ECR I-6569, that notwithstanding the position under the Software Directive, “the graphic user interface of a computer program can be protected by the ordinary law of copyright“. 

As for Article 5(3) of the Software Directive, the CJEU said that the owner of copyright in a computer program may not prevent, by means of a licence agreement, the licensee from determining the ideas and principles underlying a computer program where the licensee is performing acts permitted by the licence, as well as the acts of loading and running necessary for the use of the program in accordance with its intended purpose, provided that the licensee does not infringe the exclusive rights of the owner in that program.

The High Court decision

Back in the High Court, following the CJEU’s decision Arnold J dismissed SAS Institute’s claims, finding that the functionality, or underlying elements, of a computer program were not protected by copyright.  Arnold J did, however, find limited breaches of copyright in relation to the Manual to Manual Claim. 

SAS Institute appealed all of Arnold J’s decisions, other than the Program to Program Claim since, following the CJEU’s decision, it accepted that neither the SAS Language nor the functionality of the SAS System was protected by copyright under the Software Directive.

Court of Appeal decision

Lewison LJ noted that, unlike the Software Directive, the Copyright Directive does not expressly deal with the scope of copyright protection (i.e. what is capable of being protected by copyright).  Nevertheless, the CJEU has “supplied the omission” by stating that what is protected is the expression of an author’s “intellectual creation”.  However, this phrase does not appear in the Copyright Directive, but emerged from the Infopaq decision.  Therefore, the CJEU took one expression used in Article 1(3) of the Software Directive and applied it to the Copyright Directive.  This, Lewison LJ said, was the way the CJEU established “a harmonised legal framework for copyright“.

As for domestic legislation, Lewison LJ noted that the Copyright Designs and Patents Act 1988 confines the doing of a restricted act, such as copying, to the work as a whole or any “substantial part of it“.  Further, substantial part must be interpreted qualitatively rather than quantitatively. 

In Infopaq the CJEU had said that parts of a work are entitled to the same protection as the work as a whole, but that the parts in question must “contain elements which are the expression of the intellectual creation of the author of the work“.  Lewison LJ said that “This is now the test for determining whether a restricted act has been done in relation to a substantial part of a work“.  This is how s 16(3) of the CDPA must be interpreted in order that the national court’s duty to interpret domestic legislation, so far as possible, so as to conform with European legislation, is met, he said.

The question left for the national court by the CJEU was, therefore, whether there had been any reproduction of the expression of the intellectual creation of the author in either the work as a whole, or a substantial part of it, not whether there had been any reproduction of the intellectual creation of the author per se.  The simple intellectual creation of the author cannot, after all, be protected by copyright as it falls on the ideas side of the “ideas versus the expression of ideas” dichotomy.

Manual to Program Claim

Lewison LJ remarked that the SAS Manuals essentially described the functions that the SAS program was to perform and did not contain any programming language.  The question left for Arnold J was, according to Lewison LJ, whether the reproduction in WPS of elements described in the SAS Manuals constituted the reproduction of the expression of the intellectual creation of the author of the user manual.

Arnold J had found that the authors of the SAS Manuals had not created the compilation of statistical methods contained therein.  Such compilation was to be found in the SAS System and the authors of the SAS Manuals had simply reproduced it.  They had not, therefore, exercised any skill, judgement or labour in making the compilation.  Therefore, that which the WPL had reproduced from the SAS Manuals did not express the intellectual creation of the authors of the SAS Manuals. [107]

Lewison LJ said that Arnold J had been wrong to concentrate on who did what.  He should simply have said that the copying alleged by SAS Institute “was not the copying of the form of expression of an intellectual creation“.  Or, in other words, that which WPL took was not capable of protection by copyright.  However, although Lewison LJ disagreed with Arnold J’s reasoning, he said that the judge had still come to the correct answer that no infringement had taken place. 

Lewison LJ also remarked that it would be contrary to the policy underlying both the Software Directive and the Copyright Directive if SAS Institute could achieve copyright protection for the functionality of its program indirectly via its manual, which simply explained that functionality.

Manual to Manual Claim

In Lewison LJ’s view, the appeal on this claim stood or fell with the Manual to Program Claim.  In other words, if the Manual to Program Claim failed, so must the Manual to Manual Claim insofar as it concerned the underlying elements of the program itself.  However, linguistic reproduction of the precise terms of the SAS Manuals was, as Arnold J had recognised, a different matter.  Arnold J had in fact found that in some limited respects WPL had infringed the copyright in the SAS Manuals and WPL did not challenge that conclusion.

However, insofar as the WPS manual described the WPS program, which had been created from observation of the functionality of the SAS System and its description in the SAS Manuals, there was no infringement.  In support of this decision Lewison LJ referred to the reasoning of Mr Justice Pumfrey in Navitaire Inc v Easyjet Airline Co Ltd [2004] EWHC 1725 (Ch), in which he said:

Take the example of a chef who invents a new pudding.  After a lot of work he gets a satisfactory result, and thereafter his puddings are always made using his written recipe, undoubtedly a literary work.  Along comes a competitor who likes the pudding and resolves to make it himself.  Ultimately, after much culinary labour, he succeeds in emulating the earlier result, and he records his recipe.  Is the later recipe an infringement of the earlier, as the end result, the plot and purpose of both (the pudding) is the same?  I believe the answer is no.”

Further, Lewison LJ said that just because the judge had found some instances of linguistic infringement, that did not mean that the whole of the WPS Manual should be treated as infringing.  Arnold J had been free to decide that some instances of copying had been proved, and others had not.

The Learning Edition Claim

The use of the Learning Edition was, in principle, governed by the terms of contractual licences.     

Arnold J had found in his first judgment that WPL’s use of the SAS Learning Edition was in breach of the relevant licences in that some employees of WPL had used it without being specifically licensed to do so.  Further, the use fell outside the scope of the terms of the licences.  However, he found that WPL’s use of the Learning Edition was within Article 5(3) of the Software Directive and, to the extent that the licence terms prevented this, they were null and void.  Therefore there was no infringement.

The CJEU had held that a licensee of a computer program was entitled, under Article 5(3) of the Software Directive, without the authorisation of the copyright owner, to observe, study or test the functioning of the program so as to determine the ideas and principles which underlie any element of the program where the licensee carries out acts covered by the licence and acts of loading and running necessary for the use of the program.  This is on the condition that the exclusive rights of the copyright owner are not infringed.

Arnold J maintained his earlier position when the case came back before him, finding that it did not matter whether the right exercised under Article 5(3) was exercised by licensed or unlicensed employees given that Article 9(1) renders null and void any contractual restrictions contrary to Article 5(3).  In Arnold J’s view, this included a contractual restriction on the employees by whom WPL could exercise its Article 5(3) right.

As for using the Learning Edition in a manner which fell outside the scope of the licences, Arnold J noted that the CJEU’s judgment had not stated that the licensee’s entitlement to use a program was affected by the purpose for which it carried out the acts of loading, displaying, running, transmitting or storing the program, and in particular whether it was a licensed or unlicensed purpose.  Accordingly, Arnold J found that, even though WPL had performed acts that fell outside the scope of the licence, by not adhering to the obligation to use the Learning Edition for “non-production” purposes, it did not lose the protection of Article 5(3).

Lewison LJ found that the CJEU had distinguished between acts permitted by the licence and the purpose for which those permitted acts were carried out.  Once the threshold of being entitled to perform acts for any purpose specified in the licence was crossed, Article 5(3) permitted the user to perform those same acts for a purpose that fell within Article 5(3), not for a purpose defined in the licence. 

Therefore, Lewison LJ found, assuming Arnold J had been correct in his interpretation of “non-production” purposes, then that contractual restriction was invalid to the extent that it prohibited the observation, study or testing of the functioning of the program in order to determine the ideas and principles underlying it.

Finally, in disagreement with Arnold J who had found that some of the employees of WPL had not had the right to use the Learning Edition, Lewison LJ found that, because the licence agreement had been offered on a take-it-or-leave-it basis, as the purchaser only had two choices, i.e. to click on the “yes” button or to click on the “no” button, if there were any doubt about the meaning of the licence at that stage, the contra proferentem principle applied to tip the balance in favour of WPL.  In Lewison LJ’s view, Arnold J had been wrong to rule out the principle at such an early stage.  Accordingly, Lewison LJ found that WPL had the right to use the Learning Edition.  Therefore, there could be no restriction on the number of employees whom WPL could authorise to observe, study and test the program, provided that they did so one at a time and at a single workstation at a time, in accordance with the licence provisions.  Therefore, WPL was not in breach of the licence by authorising multiple employees to use the program for the purposes of observation, testing and study.

Comment

Although the Court of Appeal upheld Mr Arnold J decision, Lewison LJ did not agree with all of his reasoning.  

Lewison LJ was also critical of the CJEU’s decision. The parties were unclear as to what the CJEU had actually decided. Lewison LJ found that instead of answering the specific and detailed questions which it has been referred, it answered its own paraphrase. He said the language used by the CJEU, was, at times, “disappointingly compressed, if not obscure”.

While the CJEU had been clear that the functionality of a computer program does not attract copyright protection under either the Software or the Copyright Directive, the question remains as to whether copyright protection might extend to underlying elements of the program, such as its programming languages and the format of data files, under the Copyright Directive. However, the Court of Appeal’s detailed analysis of the relevant EU case law on the concept of the author’s “intellectual creation” does suggests that it is unlikely that a UK court will extend protection to such elements since infringement depends not on the reproduction of the intellectual creation of the author but on reproduction of the expression of such intellectual creation.

The case is also interesting as we see the courts marrying together the European “intellectual creation” point with domestic law, in particular the need to judge “substantial part” in a qualitative way under English copyright law. 

Software licensors and lawyers alike will need to consider the implications of the courts’ shared interpretation of Article 5(3) of the Software Directive.  A contractual restriction as to purpose of use is unenforceable against the licensee’s right to observe and test a program. For SAS the “one workstation” limitation proved next to useless in restricting WPL’s use of the Learning Edition for acts falling within Article 5(3).

Developers who are constantly looking out for gaps in the market will take great comfort in this decision. It appears to give developers the freedom to reproduce the functionality of software in the knowledge they cannot be pursued for copyright infringement. Customers who rely on software will also be pleased as they will be given more choice which in time usually means lower prices. The same cannot be said for the initial software developer! I doubt this will be the last case of this nature that we we hear about.

 

Kirsten Toft

Senior Associate – Virtuoso Legal

kirsten@virtuosolegal.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: