Software copyright is an important area of copyright law. However, it has proven devilishly difficult for the courts to apply. As the Second Circuit observed 30 years ago, trying to apply copyright law to software is often an “attempt to fit the proverbial square peg in a round hole.” Judges know this – I’ll never forget the time that Massachusetts Federal District Court Judge Rya Zobel, during an initial case conference in a copyright case, looked me in the eye and said, “we aren’t going to have to compare source codes in this case, are we Mr. Gesmer?” (We didn’t, the case settled soon afterwards).
Now the CAFC has issued an important decision in SAS Institute, Inc. v. World Programming Limited (April 6, 2023; Newman dissenting). The issue in this case is one that I encountered in a copyright suit in Boston, so it’s of particular interest to me. More on that below.
SAS Institute and World Programming
SAS Institute is a successful software company. Its annual revenues exceed $3 billion, and it has more than 12,000 employees. Its statistical analysis software — the “SAS System” – is used in 3,000+ companies worldwide.
Success attracts imitation, and World Programming (now part of Altair) developed a “clone” of the SAS Software. SAS didn’t react kindly to the competition – it has conducted a more-than 10 year, multi-nation legal challenge, suing World Programming once in England and twice in the United States.
What makes SAS’s most recent copyright case against World Programming unusual is the subject matter. Most software copyright litigation involves the “literal elements” of computer programs – the “source” and “object” code – essentially the “written words” or the machine code (ones and zeros) of the software.
“Non-literal” Copyright Infringement
SAS v. World Programming, however, involved the “non-literal” elements of SAS’s system. The courts define “non-literal elements” as the structure, sequence, and organization and the user interface of software. Basically, anything other than the computer code. SAS alleged that World Programming illegally copied input syntax formats and output design styles – non-literal components of the SAS System.
The idea that non-literal components of a software program can be protected by copyright has been acknowledged since the 1980s. For the last 30 years most courts have followed the “abstraction-filtration-comparison” test (AFC test) established in the 1992 Second Circuit decision in Altai v. Computer Associates. The AFC test requires the court to (1) break a software program into its constituent parts (abstraction), (2) filter out unprotectable elements (filtration) and (3) compare the remaining protectable elements to the allegedly infringing work (comparison).
If this sounds challenging to you, you are right. However, relatively few cases have actually had to undertake the real-world application of this test to the non-literal elements of a software program. And, where they have the plaintiff has almost always lost.
The District Court Case
SAS filed this case in the Eastern District of Texas. The district court judge proceeded to apply the Altai AFC test by conducting a hearing to “filter out” unprotectable elements of the SAS software. Examples of unprotected elements include ideas, facts, information in the public domain, merger material, scènes à faire and conventional display elements. Case law has established that abstraction and filtration (steps 1 and 2 of the AFC test) is performed by the judge, not the jury.
The district court held what it termed a “copyrightability hearing” and implemented an alternating, burden-shifting framework in which SAS was required to prove a valid copyright and “factual copying.” The burden then shifted to defendant (World Programming) to prove that some or all of the copied material is unprotectable. The burden then shifted back to SAS to respond and persuade the court otherwise.
Think of this as a tennis volley in which the ball crosses the net three times.
SAS satisfied the first part of this test – it showed that it had a registered copyright, and that World Programming had copied some elements of the SAS System. However, World Programming responded with evidence that many of the non-literal components of the SAS System contained factual elements, elements that were not original to SAS or that were in the public domain, unprotected mathematical and method components, conventional display elements and merger elements. World Programming asserted that all of these components should be filtered out and excluded from step 3 of the AFC test – comparison of the two software programs.
At that point, under the judge’s burden shifting approach, the burden fell on SAS to respond and address these defenses.
Inexplicably, SAS failed to do this. The court stated –
SAS has not attempted to show what World Programming pointed to as unprotectable is indeed entitled to protection. . . . Instead, when the burden shifted back to SAS, it was clear SAS had done no filtration; they simply repeated and repeated that the SAS System was “creative.” . . . SAS’s failures have raised the untenable specter of the Court taking copyright claims to trial without any filtered showing of protectable material within the asserted work. This is not a result that this Court can condone. These failures rest solely on SAS and the consequences of those failures necessarily rest upon SAS as well.
The district court then dismissed the case. SAS appealed to the Federal Circuit – a court that is notoriously pro-copyright. (See the two Oracle decisions linked to above). SAS likely planned for any appeal to go to the Federal Circuit by asserting patent infringement against World Programming and later dropping its patent claims. Nevertheless, that was enough to give the Federal Circuit jurisdiction over any appeal.
Appeal to the Federal Circuit
On appeal the central question was procedural: Was it SAS’s burden to prove that the copied elements were protectable, or was it World Programming’s burden to prove that they were not? In other words, the issue was who bears the burden of proving, as part of the filtration analysis, that the elements the defendant copied are unprotectable – the plaintiff (copyright owner) or the defendant (alleged infringer)?
The Federal Circuit was not impressed with SAS’s arguments on appeal. It noted that rather than participate in the steps required by the Altai AFC test, SAS “failed or refused” to identify the constituent elements of the SAS software that it claimed were protectable. Instead, it argued that its software was “creative” and that it had provided evidence that World Programming had engaged in “factual copying.” But it provided no evidence in relation to the “filtration” step under the 3-part Altai AFC test.
The Federal Circuit found the trial court judge’s procedure to be appropriate: “a court may reasonably adopt an analysis to determine what the ‘core of protectable expression’ is to provide the jury with accurate elements to compare in its role of determining whether infringement has occurred.” The court concluded that SAS failed to “articulate a legally viable theory” and affirmed dismissal.
In other words, to continue the tennis analogy, SAS served the ball (showed that it had copyright registrations and that World Programming had copied some elements). World Programming returned the ball, introducing evidence that many of the elements SAS had identified were unprotected by copyright, and needed to be “filtered out” before the SAS and World Programming software programs were compared. However, SAS was unable to return that volley – “The district court found that SAS refused to engage in the filtration step and chose instead to simply argue that the SAS System was ‘creative.’”
20-20 Design v. Real View – Same Issue, No Controversy
While this is an important software copyright case and will be used defensively by copyright defendants in the future, it caught my attention for a second reason, which is that I dealt with the same issue in 20-20 Design v. Real View LLC, a copyright infringement case I tried to a jury in Boston in 2010. That case dealt with the graphical user interface of a software program – “nonliteral” elements of the software. Like World Programming in the SAS case, Real View allegedly created a “clone” program, but the cloning didn’t involve the source or object code, only parts of the graphical user interface.
Massachusetts Federal District Court Judge Patti Saris ordered 20-20 Design, the plaintiff/copyright owner, to identify the elements of its software that it claimed had been infringed. Unlike SAS, 20-20 Design complied. It provided a list of 60 elements, and the court held what Judge Saris called (by analogy) a “Markman”-style evidentiary hearing, which included evidence and testimony from experts on both sides. In effect, this was the “copyrightability hearing” held by the court in the SAS case.
Judge Saris then issued a copyrightability decision holding that almost all of the items were not individually protectible. They could, however, be protected as a “compilation.” However, she ruled that as a “compilation,” the plaintiff-copyright owner was required to prove that the defendant’s software interface was “virtually identical” – a much more difficult standard to meet than the “substantial similarity” standard applied in most copyright litigation.
(Humble brag: 20-20 Design was seeking damages of $2.8 million. However, the “virtually identical” standard proved to be its downfall. Without going into detail, suffice it to say that after a 10-day jury trial and post-trial motions the judge entered judgment for 20-20 Design against Real View (my client) in the amount of $4,200. (link)
When I read the decision in SAS v. World Programming I immediately related it to the 20-20 Design/Real View case, but I couldn’t recall how Judge Saris had allocated the burden-of-proof. When I refreshed my memory I realized why – the judge and the parties never discussed this issue. It seems that everyone assumed that the plaintiff-copyright holder (20-20 Design) had the burden of proof. After 20-20 identified the copied elements Real View argued that most of them should be filtered out and 20-20 Design (unlike SAS) responded with counter arguments. In other words, the ball went over the net three times, and the judge was able to apply the Altai AFC test and “filter” 20-20’s software before trial.
Thinking back on how smoothly this procedure went in my case, it’s difficult for me to imagine how SAS chose the strategy that cost it the World Programming case, unless this case was just an attempt to outspend a smaller competitor and drive it out of the market with litigation expenses. SAS is a multi-billion-dollar company. Its lawyers are highly experienced. Why SAS chose a case strategy that seemed doomed to failure is a bit of a mystery. One possibility is that SAS knew that if it identified the elements it would be forced into a copyright compilation theory that requires proof that the infringing work is “virtually identical” to plaintiff’s work, a burden that SAS believed it could not satisfy. Another is that it gambled that the Federal Circuit – which is notoriously protective of copyright owners – would see the law its way and reverse the district court. We will never know.
Although it remains a mystery why SAS chose a case strategy that seemed destined to fail, the SAS v. World Programming decision has important implications for software copyright law. It clarifies the burden-shifting process and emphasizes the importance that the plaintiff be fully prepared to engage in the Altai AFC test’s filtration step.
Will SAS appeal this decision to the Supreme Court? Given the resources that SAS has dedicated to its litigation with World Programming over the last decade it seems likely that it will. While I view it as doubtful that the Supreme Court will hear this case, you never know.