SCO Group v. IBM

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS October 30, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
THE SCO GROUP, INC.,
Plaintiff Counterclaim Defendant -
Appellant,
v. No. 16-4040
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Defendant Counterclaimant -
Appellee.
_________________________________
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:03-CV-00294-DN)
_________________________________
Edward Normand, Boies, Schiller & Flexner LLP, Armonk, New York (Jason C.
Cyrulnik, Boies, Schiller & Flexner LLP, Armonk, New York, Stuart H. Singer, Boies,
Schiller, & Flexner LLP, Fort Lauderdale, Florida, Brent O. Hatch and Mark F. James,
Hatch, James & Dodge P.C., Salt Lake City, Utah, with him on the briefs), for Plaintiff
Counterclaim Defendant-Appellant.
David Marriott, Cravath, Swaine & Moore LLP, New York, New York (Evan R. Chesler,
Cravath, Swaine & Moore LLP, New York, New York, Amy F. Sorenson and Amber M.
Mettler, Snell & Wilmer L.L.P., Salt Lake City, Utah, with him on the briefs), for
Defendant Counterclaimant-Appellee.
_________________________________
Before KELLY, EBEL, and BACHARACH, Circuit Judges.
_________________________________
EBEL, Circuit Judge.
_________________________________
This case arises out of a business deal gone wrong. The Santa Cruz Operation,
Inc. (Santa Cruz) entered into a business arrangement with International Business
Machines Corp. (IBM) to develop a new operating system that would run on a more
advanced processor manufactured by Intel Corporation (Intel). The parties signed an
agreement memorializing this collaborative effort and called it Project Monterey.
Another technology company, The SCO Group, Inc. (SCO), then acquired Santa Cruz’s
intellectual property assets and now brings this lawsuit for IBM’s alleged misconduct
during and immediately after Project Monterey.
Project Monterey involved mutual contributions by IBM and Santa Cruz of
proprietary materials, including computer code for their respective operating systems.
SCO believes that IBM merely pretended to go along with the arrangement in order to
gain access to Santa Cruz’s coveted source code. SCO, the successor-in-interest to Santa
Cruz’s intellectual property assets, accused IBM of stealing and improperly using this
source code to strengthen its own operating system, thereby committing the tort of unfair
competition by means of misappropriation. The district court awarded summary
judgment to IBM on this claim based on the independent tort doctrine, which bars a
separate tort action where there is no violation of a duty independent of a party’s
contractual obligations.
SCO also accused IBM of disclosing Santa Cruz’s proprietary materials to the
computer programming community for inclusion in an open-source operating system
called Linux. When SCO acquired Santa Cruz’s assets involved in Project Monterey and
then sought licensing agreements from various technology companies, IBM allegedly
2
instructed SCO’s business affiliates and investors to cut ties with SCO. These alleged
efforts to disrupt SCO’s business relationships, together with the purportedly improper
Linux disclosures, prompted SCO also to file suit against IBM for tortious interference of
contract and business relations. In a separate order, finding insufficient evidence of
actionable interference by IBM, the district court granted summary judgment in favor of
IBM on these tortious interference claims.
Finally, after the deadline for amended pleadings in this case, SCO sought leave to
add a new claim for copyright infringement based on the allegedly stolen source code
from Project Monterey. SCO claimed it had only discovered the essential facts to support
this claim in IBM’s most recent discovery disclosures. The district court rejected SCO’s
proposed amendment for failure to show good cause.
SCO now appeals all three decisions by the district court: (1) the summary
judgment order on the misappropriation claim; (2) the separate summary judgment order
on the tortious interference claims, and (3) the denial of leave to amend the complaint.
We REVERSE and REMAND the district court’s summary judgment order on the
misappropriation claim, and AFFIRM as to the remaining issues.
3
I. BACKGROUND
A. UNIX Operating System and Intel Processors
UNIX is a computer software operating system that is widely used in the business
or “enterprise” computing environment.1 In the late 1960s, AT&T Technologies
developed UNIX and began licensing it for widespread enterprise use, and those
licensees in turn developed and distributed their own variations of the UNIX platform.
One of those distributors, Santa Cruz, created a UNIX variation which eventually
dominated the market for UNIX-based operating systems running on Intel processors.
During the 1980s, most other companies were running their UNIX variations on
more expensive non-Intel architectures. Santa Cruz, however, recognized early on that
transistors were getting smaller over time, so Intel’s cheaper processors were becoming
faster and thus more capable of handling the demands of high-power enterprise
computing. Santa Cruz predicted that Intel’s less-expensive processors would soon be
able to run the UNIX operating system more effectively than earlier iterations of the
hardware. By 1998, Intel processors had become as capable as the more expensive
alternatives, and Santa Cruz had ultimately become the worldwide market leader for
UNIX-on-Intel with 80 percent share of the market.
In contrast to Santa Cruz, IBM had almost no presence in the UNIX-on-Intel
market. Instead, IBM distributed its own UNIX derivative called AIX, which was
designed to operate on IBM’s own proprietary Power processors. The product was thus
1
An operating system serves as the link between the computer hardware and the
various software programs or applications that run on the computer.
4
suitably known as AIX for Power. Recognizing that Santa Cruz had positioned itself as
the market leader for UNIX-based systems on the increasingly desirable Intel
architecture, IBM began considering the benefits of collaborating with Santa Cruz.
Further, IBM knew that Santa Cruz’s operating system was based on a more advanced
version of the UNIX operating system: UnixWare System V Release 4 (SVr4). IBM’s
own AIX platform was based on an earlier and less advanced code, so the opportunity to
work with SCO and gain access to the SVr4 code may have been appealing. Santa Cruz,
for its part, also appreciated the advantages of working with IBM, which was a larger
company with more resources, retail relationships, and marketing outlets. So the stage
was set for a mutually beneficial cooperative venture.
B. Project Monterey and the Joint Development Agreement
Before IBM and Santa Cruz began working together, most processors (including
Intel’s chips) operated only at a 32-bit capacity, but in 1994, Intel announced its intention
to develop a higher-capacity 64-bit chip called Itanium. Anticipating Intel’s forthcoming
Itanium architecture, Santa Cruz and IBM jointly endeavored to build a new UNIX-based
operating system that would run on the faster processor. In October 1998, Santa Cruz
and IBM entered into a Joint Development Agreement (JDA) that would govern the
mechanics of their collaboration, including licenses, royalties, and project management
responsibilities. This endeavor became known as Project Monterey.
As part of the JDA, each party granted the other a limited license to its own
respective technologies for the purpose of developing the IA-64 Product.
5
After signing the JDA, the parties entered into a Project Supplement that provided: “The
Licensed Materials . . . are to be used solely for development of the IA-64 Product.”
Aplt. App. 884 (emphasis added). According to SCO, this provision imposed a default
rule that IBM could not use Santa Cruz’s contributed materials in its own AIX for Power.
That Supplement, however, also included a caveat: “Notwithstanding [that limitation],
any such Licensed Material included in the IA-64 Product Release 1 shall be licensed
pursuant to the terms and conditions set forth in the [JDA].” Aplt. App. 884 (emphasis
added). In other words, any Santa Cruz materials that ultimately found their way into the
“IA-64 Product Release 1” would be licensed to IBM pursuant to the JDA, which in turn
granted IBM a “worldwide, non-exclusive, royalty free” right of use, Aplt. App. 3085,
JDA § 2(d)(2). Under these provisions, IBM would have known that if it wanted to use
Santa Cruz’s materials in AIX for Power, there must be a “IA-64 Product Release 1”
containing those materials.
SCO further points out that a product release is only regarded as the “IA-64
Product Release 1” if the product is made generally available. This requirement is based
on Amendment 5 to the JDA, which provided that if IBM wanted to distribute a “Pre-
Release IA-64 Product” for testing purposes, that pre-release sublicense would terminate
at least by the date of “general availability of the IA-64 Product Release 1.” Aplt. App.
5157. Otherwise stated, any distribution of the Monterey system before the product
became generally available was regarded merely as a “Pre-Release IA-64 Product,” not
the actual “IA-64 Product Release 1” itself. Thus, to the extent that IBM wanted a
“worldwide, non-exclusive, royalty free” license to the coveted SVr4 code, it needed to
6
wait until there was a generally available release of the IA-64 Product which included
that code.2
C. IBM Transitions Focus from Project Monterey to the Linux Operating
System
The success of Project Monterey hinged on the forthcoming availability of Intel’s
64-bit Itanium chip. But Intel was behind schedule in developing and delivering Itanium
to market. Intel announced a target date of 1999, but was substantially delayed, and
continued to have development difficulties throughout 1999 and 2000. These delays
caused a decrease in market interest in the IA-64 Product under construction through
Project Monterey.
The slump in market interest for the IA-64 Product caused IBM to transition its
focus to a competing open-source operating system called Linux.3 At the time, Linux
occupied the lower end of the computing market as it was designed for lower-capacity
desktop computing. But IBM began to strengthen the Linux platform so that Linux could
compete in the enterprise market, which was the focus of Project Monterey’s forthcoming
UNIX-based product.
2
IBM does not appear to dispute this interpretation. Moreover, SCO offered
evidence that IBM shared this understanding during the course of Project Monterey.
For example, an internal IBM memo indicated that IBM believed withdrawal from
Project Monterey would mean forfeiting access to Santa Cruz’s SVr4 code. See Aplt.
App. 9059-60.
3
Unlike other UNIX-based systems, Linux is distributed without a fee to users, and
the programming code is publicly available to all who want to access or customize it.
7
As part of its contributions to Linux, as early as February 2000, IBM began
disclosing some of Santa Cruz’s proprietary UNIX technologies—acquired through
Project Monterey—to the Linux community for the purpose of fortifying Linux as a
commercially viable option for enterprise use. The evidence suggests that “SCO’s
revenues decline[d] precipitously in 2000 through 2002, dropping 74%, immediately after
the first alleged contributions of IBM in February of 2000.” Aplt. App. 7384. SCO’s
sales dropped as customers migrated to Linux, which has been referred to as a “free
UNIX clone.” Aplt. App. 7389. Because of these declining revenues, SCO relies on
IBM’s Linux disclosures as part of the basis for its tortious-interference claim.
IBM’s general support for Linux, however, was no secret. As early as March
1999, IBM publicly announced its support of Linux at a LinuxWorld conference. But
scaling up Linux to compete in the enterprise market posed a potential conflict with
Project Monterey. To assuage concerns, IBM began re-assuring the public and Santa
Cruz that Linux and the IA-64 Product would compete in different markets, so there was
no conflict. For example, in August 1999, IBM officers explained publicly that the
Monterey IA-64 Product would target enterprise-level computing needs while Linux was
designed for the smaller-scale computing market. IBM made similar representations in a
private meeting with Santa Cruz officers in January 2000. But at least one IBM
executive recognized that such a distinction was fragile:
The distinction used to position Monterey versus Linux is that
Monterey is targetted [sic] for high-end servers, where as
Linux comes in at the lower to mid range of servers.
However, this distinction is a fragile one, since IBM is
8
working as fast as it can to bolster Linux’s ability to compete
in the mid to high end range of servers.
Aplt. App. 5693 (emphasis added). Construing the evidence in SCO’s favor, it may be
that IBM led Santa Cruz to believe its Linux product would not compete against
enterprise-level developers—but IBM was actually working quickly, and without Santa
Cruz’s knowledge, to scale up Linux to compete in the enterprise space. Meanwhile,
IBM maintained that it was fully committed to Project Monterey. It reaffirmed that
commitment in the January 2000 meeting and, as late as December 2000, IBM stated
publicly that its devotion to the success of the IA-64 Product remained strong.
But a jury could find that IBM’s heart was not in Project Monterey. Throughout
late 1999 and early 2000, IBM executives began recommending “internally that IBM take
more definitive steps to drop Project Monterey and transition even more support to
[Linux].” Aplt. App. 9591, Dist. Ct. Op. at 24. In July 2000, another IBM internal report
recommended a “significant reduction in emphasis” in Project Monterey. Aplt. App.
6202. Further, IBM’s effort to bolster Linux as a potential competitor in the enterprise
space could indicate to a jury that IBM was not fully committed to the success of Project
Monterey, despite its public assurances to the contrary.
D. IBM’s Alleged Misappropriation of Santa Cruz’s Code
In October 2000, IBM used some of the SVr4 code in a test version of its own
AIX for Power product, which was intended for certified software developers and “not
intended for general production use.” Aplt. App. 8610. This appears to have been a
preparatory step in anticipation of later releasing an upgraded AIX for Power product for
9
general distribution. But again, IBM would need to make generally available the
Monterey operating system including the SVr4 code before IBM would acquire the
royalty-free license for general distribution of that code in its own products.
With that in mind, IBM announced in April 2001 a forthcoming IA-64 Product,
which included the SVr4 code, and planned to make it available on May 4, 2001. As
scheduled, IBM released a version of the Monterey operating system on May 4, 2001 as a
Programming Request for Price Quote (PRPQ), which is the term used internally at IBM
to describe beta test releases. This release lacked what is known as a compiler, which in
this case refers to a software program that translates programming code into a language
readable by the computer processor. Without a compiler, an operating system cannot be
executed by the processing hardware, but it does not seem that IBM had a confirmed plan
to include a compiler in the product. Moreover, this Monterey release was offered free of
charge and without support, was not on IBM’s price lists, and was not marketed. In light
of these characteristics, a reasonable jury could find that this PRPQ version was not a
generally available release of the product and thus did not entitle IBM to a royalty-free
license to the SVr4 code included therein.4
4
One internal e-mail from an IBM executive defending the PRPQ release cuts in the
other direction, explaining that IBM had “a very positive product to deliver” that was
“not under-function for this target delivery” and was “stable and worth release.”
Aplt. App. 5167. But this is a disputed issue of material fact. On summary judgment
we adopt the version of the facts most favorable to SCO, which suggests that IBM’s
May 4, 2001 PRPQ of the Monterey product was not equivalent to a generally
available release.
10
Moreover, the evidence suggests that IBM was conscious of the inadequacies of
this May 4, 2001 release of the Monterey product. For example, an IBM project manager
stated in an internal e-mail: “I think the compiler MUST be available in some form or the
whole thing just doesn’t make sense (ie [Santa Cruz] won’t buy it).” Aplt. App. 5194
(italicized emphasis added). And another internal IBM strategy document explained that
there was “no confirmed compiler plan” and that IBM would “[c]ontinue to ship AIX 5L
as a PRPQ” which would be in “[s]tealth mode only.”5 Aplt. App. 5170. That document
also indicated that IBM would “[a]t the appropriate time announce plan not to GA AIX
5L and withdraw the PRPQ” sometime during the “July/August timeframe.”6 Id. What
is more, one piece of evidence suggests that IBM appears to have known that the May 4,
2001 PRPQ version might not have been sufficient to acquire the SVr4 license. In one
internal e-mail, an IBM employee stated: “As you know, we need to GA this PRPQ to
gain rights to [Santa Cruz] code we want for our base AIX product delivery . . . I know
the fine lines we are walking here.” Aplt. App. 5167.
Nevertheless, despite the deficiencies in the May 4, 2001 release of the Monterey
operating system and despite IBM’s apparent knowledge of the problem, that very same
day IBM released for general distribution a version of its own proprietary AIX for Power
product that included the SVr4 code. SCO thus argues that IBM released a “sham”
5
The reference to “AIX 5L” appears to be IBM’s shorthand for the product released
for operation on Intel’s IA-64 processor.
6
We assume the acronym “GA” to be a reference to “general availability” of the IA-
64 Product.
11
version of the Monterey system in order to legitimize its own general distribution of the
AIX for Power product containing Santa Cruz’s SVr4 code. (Aplt. Br. 2, 13.) This is the
essence of SCO’s misappropriation claim.7
E. Santa Cruz Transfers Assets to Caldera International
Santa Cruz owned a license to use, develop, and distribute its UNIX-based
technology.8 During the life of Project Monterey, however, Santa Cruz decided to sell its
UNIX business to SCO.9 In mid-June 2000, Santa Cruz sent IBM an official notice of the
7
SCO’s initial claim of misappropriation was based not on the allegedly stolen SVr4
code, but rather on the improper Linux disclosures discussed earlier. SCO says it
discovered the SVr4 code in the AIX for Power product late in the discovery process
after filing this lawsuit, which is why the current misappropriation theory differs
from the original theory. IBM does not appear to dispute, however, that a party can
change its theory for a particular existing cause of action as new evidence comes to
light during the discovery process. Moreover, the language of SCO’s operative
complaint encompasses this revised theory. The cause of action is labeled “unfair
competition” and it is based, in part, on “[m]isappropriation of source code, methods,
and confidential information of plaintiff,” as well as “[u]se of deceptive means and
practices in dealing with plaintiff with respect to its software development efforts[.]”
Aplt. App. 156.
8
A company called Novell, Inc. (Novell) purchased the UNIX assets and intellectual
property rights from AT&T (the original developer) in 1993, and later sold its UNIX
business to Santa Cruz in 1995. As described in two earlier decisions of this Court, Santa
Cruz did not receive the full panoply of intellectual property rights in that 1995
transaction, but rather received only a license to use, develop, and distribute Novell’s
copyrighted UNIX technologies. See SCO Group, Inc., v. Novell, Inc., 439 F. App’x
688, 691-93 (10th Cir. 2011) (unpublished); SCO Group, Inc. v. Novell, Inc., 578 F.3d
1201, 1204-06 (10th Cir. 2009).
9
At the time of this transaction, plaintiff SCO went by the name Caldera
International. For consistency and convenience, we use the SCO label to describe
plaintiff even at the time that it acquired Santa Cruz’s intellectual property rights.
12
forthcoming asset transfer to SCO.10 Hearing no formal objection from IBM, Santa Cruz
followed through with the agreement and, on May 7, 2001, finalized the deal with SCO.
On June 6, 2001, Santa Cruz informed IBM of the consummation of the sale and the
assignment of the rights under the JDA. IBM then responded on June 19, 2001, formally
objecting to the assignment and officially terminating the JDA, thereby putting a formal
end to Project Monterey.
F. IBM’s Alleged Direct Interference With SCO’s Business Relationships
In late 2002 and early 2003, SCO began investigating the intellectual property
within Linux and discovered that Linux customers were using SCO’s proprietary UNIX
technologies. SCO then devised a licensing strategy whereby Linux users would
purchase from SCO a license to use Linux, as enhanced by SCO’s proprietary
technologies. SCO presented this licensing plan to multiple partners, including Oracle,
Intel, and Computer Associates, all of which responded favorably. IBM, on the other
hand, objected to the proposed strategy.
IBM asked SCO not to issue its press release announcing and initiating the
licensing plan. Nevertheless, in January 2003, SCO announced a new business division,
SCOsource, to manage the licensing of its UNIX technologies for Linux customers. The
10
The JDA governing Project Monterey required Santa Cruz to give IBM notice if
Santa Cruz received an offer by another company to purchase substantially all of
Santa Cruz’s assets. Aplt. App. 3109, JDA § 16.1. This requirement was apparently
designed to give IBM a reasonable period of time to submit a counteroffer. Id., JDA
§ 16.2.
13
next day, IBM executive Karen Smith told SCO’s CEO Darl McBride that she expected
SCO’s approach to “kill Linux.” Aplt. App. 4095. She further threatened:
[I]f [SCO] did not drop [its] library licensing program and
[its] investigation of Linux and withdraw [its] press
release . . . , that IBM was going [to] cut off all business from
[SCO] and they were going to encourage partners and
customers from doing any business with SCO as well.
Id. at 4095. SCO did not back down. That afternoon, Smith met with Hewlett-Packard
executive Richard Becker. According to Becker’s deposition,
[Smith] indicated to [him] that IBM was going to withdraw
all their business activities from SCO, and that in the interest
of the best outcome for [IBM’s and Hewlett-Packard’s] joint
Linux initiatives that she was going to suggest that HP, and
[he] was representing HP, and following [him], Intel should
do the same.
Aplt. App. 2352.
SCO believes that, in addition to Hewlett-Packard, IBM directly communicated
with other SCO business affiliates and investors in an effort to persuade those entities to
refrain from doing business with SCO. Those entities included Oracle, Computer
Associates, Intel, and Baystar. SCO presented evidence that, after SCO began
implementing its licensing strategy, these entities began withdrawing or reducing their
business dealings with SCO. IBM responded, however, with sworn declarations by
executives representing each entity indicating that, to the best of their knowledge, IBM
never approached them about cutting ties with SCO and that any change in business
dealings with SCO was not the result of IBM’s statements or actions. Nevertheless, SCO
14
asserts that IBM directly interfered with SCO’s business relationships by inducing SCO’s
key investors and affiliates to cease doing business with SCO.
G. Procedural Background
We are now almost fifteen years into this litigation. SCO filed the initial
Complaint on March 6, 2003, which included nine claims against IBM.11 After twice
amending its Complaint, SCO sought leave to amend a third time in October 2004, after
the deadline for amended pleadings, for the purpose of adding a tenth cause of action for
copyright infringement based on IBM’s alleged misuse of the SVr4 code. The district
court denied that motion, finding insufficient cause to permit the untimely addition of the
claim. The case then proceeded but was administratively closed in 2007 after SCO filed
for bankruptcy.
Alongside its suit against IBM, SCO also filed suit against another company called
Novell, which had publicly claimed that it, rather than SCO, owned the UNIX copyrights.
Novell entered into an asset purchase agreement with Santa Cruz in 1995 wherein Novell
transferred a license to the UNIX technology to Santa Cruz. Santa Cruz believed that it
had received through this asset transfer the UNIX copyrights, and thus the right to license
11
Counts 1 through 4 alleged breaches of the original software and sublicensing
agreements between IBM and AT&T (the original UNIX developer), and between
Sequent Computer Systems, Inc. (which was later acquired by IBM) and AT&T.
Count 5 alleged copyright infringement based on SCO’s later-disproven belief that it
owned the UNIX copyrights. Count 6 alleged unfair competition by means of, in
part, misappropriation. Count 7 alleged tortious interference of SCO’s contracts with
Linux users and licensees. Count 8 alleged tortious interference of SCO’s asset
purchase agreement with Novell executed in 1995. Count 9 alleged tortious
interference of SCO’s specific business relationships.
15
all derivations and variations of the UNIX system. That belief, however, ended up being
wrong. In 2011, this Court affirmed a jury verdict that found Santa Cruz did not, in fact,
receive the UNIX copyrights in that deal, rather it merely received a license to use,
develop, and distribute the UNIX technology. See SCO Group, Inc. v. Novell, Inc., 439
F. App’x 688 (10th Cir. 2011) (outlining this background).
When the bankruptcy stay was lifted in this case, the district court here re-opened
the case in 2013. Because the Novell litigation had established that SCO did not own the
copyrights to the UNIX technologies, SCO voluntarily dismissed many of its claims
against IBM that were predicated upon that faulty assumption. All that remained of
SCO’s case against IBM were allegations that IBM (1) committed unfair competition by
means of misappropriation, and (2) tortiously interfered with SCO’s business
relationships.12 On February 5, 2016, the district court awarded summary judgment to
IBM on the misappropriation claim. In a separate order, on February 8, 2016, the district
court also awarded IBM summary judgment on the tortious interference claims.
SCO brings three issues to this Court for appeal: (1) the district court’s summary
judgment order on the misappropriation claim; (2) the district court’s separate summary
judgment order on the tortious interference claims; and (3) the district court’s denial of
leave for SCO to add a claim for copyright infringement after the deadline for amended
pleadings. We address these issues in turn.
12
Count 6 encompassed the misappropriation claim; Counts 7 and 9 represented the
remaining claims for tortious interference.
16
II. DISCUSSION
A. Misappropriation
1. Applicable Law
The parties could not agree on which State’s law governs SCO’s misappropriation
claim. Instead they have stipulated that either the laws of Utah or New York should
control, believing there are no material differences in the relevant legal principles. The
district court similarly relied on both Utah and New York law to ground its analysis of
this claim. We cannot, however, analyze this claim without first deciding which State’s
law should govern.
The JDA provides: “This Agreement shall be governed by, and the legal relations
between the parties hereto shall be determined in accordance with, the substantive laws of
the State of New York.” Aplt. App. 3112, JDA § 22.3. Whether SCO’s claim ultimately
sounds in contract or tort, this provision mandates that “the legal relations between the
parties” be adjudicated pursuant to New York law. Id. That phrase is sufficiently broad
to encompass a claim by one party of unfair competition based on misappropriation.13
Thus, we rely on New York substantive law to resolve the propriety of summary
judgment on SCO’s misappropriation claim.
13
Moreover, the parties’ consensus that the laws of New York and Utah are
materially the same on this issue further confirms that our application of New York
law should be acceptable to the parties.
17
New York courts recognize “two theories of common-law unfair competition:
palming off and misappropriation.”14 ITC Ltd. v. Punchgini, Inc., 880 N.E.2d 852,
858 (N.Y. 2007). The gravamen of SCO’s claim is misappropriation, which
“concerns the taking and use of the plaintiff’s property to compete against the
plaintiff’s own use of the same property.” Sidney Frank Importing Co., Inc. v. Beam
Inc., 998 F. Supp. 2d 193, 208-9 (S.D.N.Y. 2014) (internal quotation marks omitted)
(interpreting New York law); accord Punchgini, 880 N.E.2d at 859. “To state a claim
for the misappropriation theory of unfair competition, a plaintiff must allege that the
defendant: (1) misappropriated the plaintiff’s labors, skills, expenditures, or
goodwill; and (2) displayed some element of bad faith in doing so.” Sidney Frank
Importing, 998 F. Supp. 2d at 209 (internal quotation marks, citations omitted).
Tracking these requirements, SCO claims that IBM (a) misappropriated the
SVr4 code for its own commercial advantage and (b) exhibited bad faith in doing so
by pretending to support Project Monterey and releasing a sham version of the IA-64
Product in order to legitimize its use of SCO’s code.
14
Relying on an unpublished case from the Second Circuit, SCO argues “the tort of
unfair competition is a broad and flexible doctrine that has been described as
encompassing any form of commercial immorality[.]” Big Vision Private Ltd. v. E.I.
du Pont de Nemours & Co., 610 F. App’x 69, 70 (2d Cir. 2015) (unpublished)
(internal quotation marks omitted) (interpreting New York law). SCO says,
therefore, that unfair competition is not limited only to palming off and
misappropriation, but is much broader. The interpretation of New York’s highest
court, however, controls over that of a federal court expressed in an unpublished
case. Because New York limits its unfair-competition tort to palming off and
misappropriation, see Punchgini, 880 N.E.2d at 858, we confine our understanding of
the tort to those theories alone.
18
2. Independent Tort Doctrine
The district court granted IBM’s motion for summary judgment after concluding
that the “independent tort doctrine” precluded the misappropriation claim. The
independent tort doctrine provides that “a simple breach of contract is not to be
considered a tort unless a legal duty independent of the contract itself has been violated.”
Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 516 N.E.2d 190, 193 (N.Y. 1987). This
separate duty must “spring from circumstances extraneous to, and not constituting
elements of, the contract, although it may be connected with and dependent upon the
contract.” Id. at 194 (emphasis added).
When the plaintiff is “essentially seeking enforcement of the bargain,” rather than
a societal policy or law that gives rise to a duty of care, “the action should proceed under
a contract theory.” Sommer v. Fed. Signal Corp., 593 N.E.2d 1365, 1369 (N.Y. 1992);
see also Abacus Fed. Savings Bank v. ADT Sec. Servs., Inc., 967 N.E.2d 666 (N.Y.
2012) (finding no separate liability in tort when the gravamen of the claim was the
defendant’s failure to make good on its promise to offer functional security services that
would prevent a bank burglary). In other words, when the defendant has a duty “separate
and apart from its contract obligations,” then an action in tort will lie. N.Y. Univ. v.
Continental Ins. Co., 662 N.E.2d 763, 768 (N.Y. 1995) (finding no separate liability in
tort when the breach of an insurance policy also violated New York statutory insurance
law because “the provisions of the Insurance Law are properly viewed as measures
regulating the insurer’s performance of its contractual obligations, . . . not as a legislative
imposition of a separate duty of reasonable care”).
19
For this analysis, we focus not on the conduct which might constitute a breach of
contract, but instead on the defendant’s duties. As an intermediate New York appellate
court helpfully explained:
[T]he focus is not . . . on whether the tortious conduct is
separate and distinct from the defendants’ breach of
contractual duties, for it has long been recognized that
liability in tort may arise from and be inextricably intertwined
with that conduct which also constitutes a breach of
contractual obligations. Rather, the focus is on whether a
noncontractual duty was violated; a duty imposed on
individuals as a matter of social policy, as opposed to those
imposed consensually as a matter of contractual agreement.
Apple Records, Inc. v. Capitol Records, Inc., 529 N.Y.S.2d 279, 281-82 (N.Y. App. Div.
1988) (emphasis added) (internal citations omitted). To illustrate, consider a scenario
where two parties reach an agreement that one shall not assault the other. If an assault
occurs, we would not say that the victim is limited to a breach-of-contract remedy—of
course he would also have a claim for tortious assault. That is because society imposes a
duty not to assault others which is independent of the contractual promise made by the
parties.
With this in mind, we turn to the misappropriation claim here. The district court
held that the independent tort doctrine barred SCO’s claim, but in doing so the district
court focused too narrowly on IBM’s allegedly wrongful conduct, observing that the
same conduct would constitute both an unfair-competition claim and a breach of the
JDA. But that analysis misses the point. What matters is not whether IBM’s “use of
the code” violated the contract, but rather whether IBM violated some separate and
independent non-contractual duty in using that code.
20
To be sure, the district court devoted some attention to this question, but it
restricted its inquiry to whether there existed a fiduciary relationship between the
parties, i.e., a joint venture or partnership, giving rise to a heightened duty of care.
The JDA clearly provides that “[t]his Agreement shall not be construed to establish
any form of partnership, agency, franchise or joint venture of any kind between SCO
and IBM, . . [nor] to provide for any sharing of profits or losses between the parties.”
Aplt. App. 3113, JDA § 22.5. So the district court correctly concluded that the
parties were dealing with each other at arms’ length and had no fiduciary or
heightened duty toward one another.
But New York does not appear to require a heightened duty incident to a
partnership or fiduciary relationship as a predicate to an unfair competition claim—
any common-law or statutory duty will suffice. For example, in Sidney Frank
Importing Co., Inc. v. Beam Inc., 998 F. Supp. 2d at 210, a federal court applying
New York law permitted a whiskey distributor to bring a misappropriation claim
against its supplier even though the supply contract addressed the wrongful conduct,
and there was no specially recognized relationship between those two entities other
than the fact that they did business together. In another case, Cargill, Inc. v. Sears
Petroleum & Transport Corp., 388 F. Supp. 2d 37, 65 (S.D.N.Y. 2005) (interpreting
New York law), a misappropriation claim survived alongside a breach-of-contract
claim when the breached agreement specifically governed the use of confidentially
shared information between the parties, and the parties had not formalized any joint
venture between themselves.
21
Similarly, in this case, while IBM and SCO may not have had a formal
partnership or joint venture as a matter of law, they surely enjoyed a business
relationship in which each reposed a degree of trust and confidence in the other. In
that situation, there exists a duty not to take a business collaborator’s property in bad
faith and without his consent in order to compete against that owner’s use of the
same property. Because that duty is separate from the JDA, even though the JDA
addresses the same topic, the independent tort doctrine does not bar SCO’s
misappropriation claim. Accordingly, the district court’s order cannot be affirmed on
this ground.
3. Standing as Assignee of Santa Cruz’s Claim
IBM offers alternative reasons to affirm the summary judgment order. It first
contends that SCO lacks standing to pursue its misappropriation claim. SCO was not a
party to the JDA, rather it was the successor-in-interest to Santa Cruz’s intellectual
property rights. In 2000, Santa Cruz assigned to SCO all of its “right, title and interest”
in the UNIX technologies, Aplt. App. 5311, including the “rights and privileges
pertaining to” the intellectual property, id. at 5312, and all “rights to enforce
confidentiality or similar obligations” in relation to the transferred assets, id.
The JDA, however, contained a provision limiting Santa Cruz’s assignment power:
“[n]either party may assign, or otherwise transfer, its rights . . . under this Agreement
without the prior written consent of the other party.” Aplt. App. 3114, JDA § 22.12.
22
Because IBM never gave its prior written consent to Santa Cruz’s assignment, it argues
that SCO did not validly acquire any right from Santa Cruz to sue for misappropriation.
This argument falls flat for two reasons. First, under New York law, a non-
assignment provision that merely prohibits assignment—and does not expressly
declare that such assignments are void or invalid—merely entitles the aggrieved
party to damages. See Sullivan v. Int’l Fidelity Ins. Co., 465 N.Y.S.2d 235, 237-38
(N.Y. App. Div. 1983) (citing cases). Without such a clear and express statement of
invalidity of assignments included in the contract, the assignment survives and the
assignee can enforce the transferred rights against the third party. Id. In this case,
the JDA merely prohibits assignment without consent—it does not state that
nonconsensual assignments are void.
Second, and more importantly, the non-assignment provision here specifically
forbids the transference of rights “under this Agreement.” Aplt. App. 3114, JDA
§ 22.12. We have already held that SCO’s lawsuit is not to vindicate rights under the
JDA itself, but is instead to vindicate a tort arising from a duty separate and apart
from that contract. Accordingly, even if this non-assignment provision operated to
invalidate nonconsensual contractual assignments, the assignment of rights at issue
here is outside the scope of that provision. SCO therefore has standing to bring its
misappropriation claim against IBM as an assignee of Santa Cruz’s rights.15
15
IBM cites one unpublished federal case, TeeVee Toons, Inc. v. Gerhard Schubert
GmbH, No. 00 Civ. 5189, 2006 WL 2463537 (S.D.N.Y. Aug. 23, 2006), for the
proposition that a non-party to a contract lacks standing to sue on the contract. But
23
4. Limitations Period
IBM next contends that SCO’s misappropriation claim is untimely under the
contractual limitations period. The JDA provided: “Any legal or other action related
to a breach of this Agreement must be commenced no later than two (2) years from
the date of the breach . . . .” Aplt. App. 3113, JDA § 22.3 (emphasis added). At the
outset, SCO objects to the application of this provision to its tort claim which, as
earlier discussed, is separate from the contract. We may assume, without deciding,
that the contractual language applies not only to breach-of-contract claims, but also
to “[a]ny legal or other action related to a breach” of the JDA. Id. (emphasis added).
Even as a separate tort action, there is no question that SCO’s misappropriation claim
is “related to” a breach of the JDA because the JDA expressly deals with the use of
SCO’s licensed materials. We thus apply the two-year limitations period to SCO’s
misappropriation claim, which SCO initially filed on March 6, 2003.
Nevertheless, SCO complied with the contractual limitations period because it
filed suit less than two years after its claim accrued. Under New York law, “[a] tort
claim accrues as soon as the claim becomes enforceable, i.e., when all elements of
the tort can be truthfully alleged in a complaint[.]” IDT Corp. v. Morgan Stanley
Dean Witter & Co., 907 N.E.2d 268, 273 (N.Y. 2009) (internal quotation marks,
citation omitted). Recall that the elements of a misappropriation claim are that the
TeeVee Toons is materially different from the case before us: it did not involve any
assignment or transfer of rights to a third party.
24
defendant “(1) misappropriated the plaintiff’s labors, skills, expenditures, or good
will[,] and (2) displayed some element of bad faith in doing so.” Sidney Frank
Importing, 998 F. Supp. 2d at 209.
SCO’s misappropriation theory is predicated on the improper inclusion of the
SVr4 code in IBM’s AIX for Power product.16 That claim accrued when IBM
released the AIX for Power operating system containing the SVr4 code on May 4,
2001, which was less than two years before SCO filed its complaint. This release was
allegedly undertaken in bad faith because IBM attempted to legitimize its distribution
of the SVr4-enhanced AIX product based on a “sham” release of the Monterey
operating system made available on a limited basis that very same day. (Aplt. Br. 13.)
Thus, May 4, 2001, is the date upon which “all elements of the tort [could] be
truthfully alleged in a complaint” against IBM. IDT Corp., 907 N.E.2d at 273
(internal quotation marks omitted).
To be sure, IBM included the SVr4 code in a beta test version of AIX for
Power in October 2000, but there was nothing improper about that because IBM was
expected to take preparatory steps toward eventually releasing a functional and
publicly available version of its AIX for Power product containing the SVr4 code.
16
SCO’s initial theory of misappropriation was based on IBM’s alleged disclosure of
confidential materials, acquired through Project Monterey, to the Linux community
in order to make Linux competitive in the enterprise computing market. However,
SCO specifically asserts that it only learned of IBM’s improper use of the SVr4 code
during discovery in this case, at which point its theory shifted to focus on the
improper use of that code, rather than the Linux disclosures.
25
SCO’s claim therefore did not accrue at that time. IBM counters that SCO instructed
its own expert to calculate damages for the misappropriation claim beginning on
October 1, 2000. But we decline to assign that fact any significance, as SCO cannot
unilaterally change the claim accrual date any more than IBM can change it—and
were SCO to prevail at trial on this claim, a factfinder could certainly disagree with
SCO’s damages calculations. Accordingly, SCO’s claim for misappropriation based
on improper use of the SVr4 code in the AIX for Power product accrued on May 4,
2001, well within the contractual limitations period.
5. Copyright Preemption
IBM argues that SCO’s misappropriation claim is preempted by federal
copyright law. Section 301 of the federal Copyright Act provides: “[A]ll legal or
equitable rights that are equivalent to any of the exclusive rights within the general
scope of copyright . . . and come within the subject matter of copyright . . . are
governed exclusively by” federal copyright law. 17 U.S.C. § 301(a). In other words,
the Copyright Act “preempts a state common law or statutory claim if: (1) the work is
within the scope of the subject matter of copyright . . . ; and (2) the rights granted
under state law are equivalent to any exclusive rights within the scope of federal
copyright . . . .” Harold Stores, Inc. v. Dillard Dep’t Stores, Inc., 82 F.3d 1533,
1542-43 (10th Cir. 1996) (internal quotation marks, citations omitted). The parties
do not dispute that the SVr4 code at issue here is copyrightable subject matter, see
Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522, 533 (6th Cir.
26
2004), so we proceed on that assumption. The real battleground is whether SCO’s
misappropriation claim is “equivalent” to any of the exclusive rights granted by
federal copyright law. 17 U.S.C. § 301(a).
Section 301 “preempts only those state law rights that may be abridged by an
act which, in and of itself, would infringe one of the exclusive rights provided by
federal copyright law.” Harolds Stores, 82 F.3d at 1543 (quoting Computer Assocs.
Int’l v. Altai, Inc. 982 F.2d 693, 716 (2d Cir. 1992)). Those exclusive rights include
the rights to reproduce the work, prepare derivative works, distribute copies, and
perform or display the work publicly. See 17 U.S.C. § 106; see also Harolds Stores,
82 F.3d at 1543. Accordingly, “if a state cause of action requires an extra element,
beyond mere copying, preparation of derivative works, performance, distribution or
display, then the state cause of action is qualitatively different from, and not
subsumed within, a copyright infringement claim and federal law will not preempt
the state action.” Gates Rubber Co. v. Bando Chemical Indus., Ltd., 9 F.3d 823, 847
(10th Cir. 1993) (emphasis added). The dispositive question, then, is whether a
misappropriation claim under New York law has an “extra element” beyond the
elements of a federal copyright infringement claim. We hold that it does.
Misappropriation claims in New York require the victim to demonstrate that
the defendant acted with bad faith. See, e.g., Schroeder v. Pinterest Inc., 17
N.Y.S.3d 678, 693 (N.Y. App. Div. 2015); Abe’s Rooms, Inc. v, Space Hunters, Inc.,
833 N.Y.S.2d 138, 140 (N.Y. App. Div. 2007); Saratoga Vichy Spring Co., Inc. v.
Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980) (observing that the “element of bad
27
faith” is central to the misappropriation theory of unfair competition under New York
law); see also 104 N.Y. Jur. 2d Trade Regulation § 248 (Aug. 2017) (“The gravamen,
or essence, of unfair competition under New York law is the bad faith
misappropriation” of another’s property. (footnotes omitted)).
By contrast, federal copyright infringement does not require proof of bad faith.
A plaintiff seeking relief for federal copyright infringement must prove only that he
“owns a valid copyright” and that the defendant “copied protectable elements of the
copyrighted work.” Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1204 (10th
Cir. 2014) (internal quotation marks, citation omitted). Because misappropriation
under New York law has the extra element of bad faith, SCO’s claim is not
“equivalent” to a federal copyright infringement claim. Accordingly, it is not
preempted by the Section 301 of the Copyright Act.17
17
IBM argues that the district court’s denial of SCO’s attempt to add a copyright
infringement claim should be relevant in determining whether the Copyright Act
preempts SCO’s misappropriation theory. It is not. The district court precluded
amendment of SCO’s complaint for procedural reasons—SCO had failed to
demonstrate good cause for why the copyright claim was not included in the initial
complaint. That does not mean that misappropriation under New York law is
“equivalent” to a copyright infringement claim for preemption purposes. Nor does
SCO’s unsuccessful attempt to amend its complaint prevent SCO from using facts
learned during the discovery stage as the basis for its existing causes of action, i.e.,
misappropriation. As explained earlier, that is apparently what SCO did here. After
it discovered the presence of the SVr4 code in IBM’s AIX for Power product, that
discovery became the predominant basis for its existing misappropriation claim,
displacing its earlier theory of misappropriation which focused on the confidential
materials which IBM allegedly disclosed to the Linux community.
28
B. Tortious Interference
1. Applicable Law
The parties have apparently agreed that Utah law governs SCO’s tortious
interference claims.18 Although the JDA requires that the “legal relations between the
parties” are governed by New York law, Aplt. App. 3112, JDA § 22.3, IBM’s alleged
intermeddling does not concern the legal relations between IBM and SCO. Moreover,
SCO’s headquarters and principal place of business is in Utah, so that is where it suffered
the alleged injury. Accordingly, we apply the law from the State of Utah in evaluating
SCO’s tortious interference claims.
Under Utah law, the elements of tortious interference are: (1) intentional
interference with plaintiff’s existing or potential business relationships, (2) the
interference is accomplished by improper means, and (3) injury suffered by plaintiff. See
Eldridge v. Johndrow, 345 P.3d 553, 556 (Utah 2015).19 With these elements in mind,
SCO offers two theories of tortious interference. First, SCO alleges that IBM indirectly
interfered with SCO’s business relationships generally in the UNIX-on-Intel market by
18
The district court relied on Utah authorities, and the parties cite Utah cases
throughout their briefs before this Court, as they did in the district court.
19
Before Eldridge v. Johndrow was decided in 2015, Utah courts permitted a plaintiff
to prove tortious interference even without improper means, so long as the defendant
harbored a predominant improper purpose. See 345 P.3d at 556; see also Anderson
Dev. Co. v. Tobias, 116, P.3d 323, 331 (Utah 2005) (“[O]nly one alternative, either
improper purpose or improper means, need be established; a plaintiff need not prove
both.”). Eldridge changed the law by repudiating the improper-purpose alternative
and requiring improper means to establish a claim for tortious interference. See 345
P.3d at 565 (“We therefore conclude that the improper-purpose doctrine has not
worked well in practice, . . . . It should therefore be abandoned.” (internal citation
omitted)).
29
improperly disclosing Santa Cruz’s proprietary materials to the Linux community,
thereby causing SCO’s customers to prefer Linux over SCO’s fee-based UNIX platform.
Second, SCO claims that IBM directly interfered with SCO’s business relationships by
inducing SCO’s affiliates to cut ties with SCO. We address these in turn.
2. Indirect Interference Through Improper Linux Disclosures
The district court found that SCO’s theory of indirect interference based on IBM’s
Linux disclosures is not actionable under Utah law. SCO asserts that IBM’s wrongful
disclosures of proprietary UNIX materials to the open-source community drove SCO’s
potential customers away from its fee-based products and toward the free Linux
alternative, resulting in SCO’s substantially diminished sales in the UNIX-on-Intel
market. In other words, this theory is predicated upon a defendant’s alleged market-
based activities which may have caused potential customers to refrain from doing
business with the plaintiff. Whether Utah courts would recognize such a theory as a
tortious-interference claim is an unsettled question of state law.
“[W]hen an appeal presents an unsettled question of state law, we must ordinarily
‘attempt to predict how the highest court would interpret the issue.’” Belnap v. Iasis
Healthcare, 844 F.3d 1272, 1295 (10th Cir. 2017) (alterations omitted) (quoting
Cornhusker Cas. Co. v. Skaj, 786 F.3d 842, 852 (10th Cir. 2015)). “Further, ‘we are
generally reticent to expand state law without clear guidance from the highest court.’” Id.
(quoting Schrock v. Wyeth, Inc., 727 F.3d 1273, 1284 (10th Cir. 2013)). In fact, we have
indicated that a party encouraging a federal court to apply a new legal principle under
30
state law must make a “strong showing” that the highest court of that state would adopt
that principle if presented with the question. Id. at 1295 (“Absent a strong showing to the
contrary, we are disinclined to predict that the Utah Supreme Court would recognize”
another theory of estoppel); id. at 1296 (“And Defendants fail to make such a strong
showing.”). With this in mind, we turn to Utah law.
Utah law clearly embraces a theory of intentional interference based on evidence
that potential or prospective customers—rather than merely existing customers—were
driven away by the defendant’s improper intermeddling. See, e.g. Anderson Dev. Co. v.
Tobias, 116 P.3d 323, 331 (Utah 2005) (“A claim for intentional interference with
economic relations protects both existing contractual relationships and prospective
relationships of economic advantage not yet reduced to a formal contract.” (internal
quotation marks, citation omitted)); Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293,
306 (Utah 1982), overruled on other grounds by Eldridge, 345 P.3d at 553 (“Driving
away an individual’s existing or potential customers is the archetypical injury this cause
of action was devised to remedy.” (citations omitted)).
Furthermore, Utah law does not require that a defendant directly confront the third
party to induce that person to cut economic ties with the plaintiff. The Utah Supreme
Court’s seminal decision in Leigh Furniture & Carpet Co. v. Isom, illustrates this point.
In that case, the defendant committed tortious interference when its representatives
frequently visited plaintiff’s “store during business hours to confront him, question him,
and make demands and inquiries regarding the manner in which he was conducting his
business.” Leigh Furniture, 657 P.2d at 306. These disruptive intrusions “repeatedly
31
interrupted sales activities, caused [plaintiff]’s customers to comment and complain, and
more than once caused a customer to leave the store.” Id. Although there was no direct
communication between defendant and the third-party customers who were driven away
from plaintiff’s business, the Utah Supreme Court nevertheless found this to be
actionable interference by the defendant.
But SCO’s theory of indirect interference goes substantially further than the facts
of Leigh Furniture. In this case, IBM’s alleged improper conduct was directed toward the
public and the market generally. The evidence, when construed in SCO’s favor, suggests
that IBM improperly disclosed confidential Monterey materials to a public community of
interested software developers who then used those contributions to strengthen the open-
source Linux platform, which ultimately became a preferable alternative to SCO’s fee-
based UNIX product, thereby diminishing SCO’s customer base.
To be sure, Leigh Furniture endorsed a tortious-interference claim based on
potential customers who were not directly contacted by the defendant, but it does not
follow clearly from Leigh Furniture that any improper conduct directed toward the public
and the general market would be actionable as a claim for tortious interference whenever
a competitor’s business relationships suffer as a result of the improper conduct. That, in
effect, would convert almost any claim for illegal market-based activities into a tortious-
interference claim, and we find no indication in Utah case law that the state supreme
court would accept such an expansive interpretation. At the very least, because SCO has
not cited any controlling case on point, it has failed to make a “strong showing” that the
Utah Supreme Court would validate this theory if presented with the issue. Belnap, 844
32
F.3d at 1295, 1296. Accordingly, we agree with the district court that SCO’s indirect-
interference theory is not actionable under Utah law.
3. Direct Interference by Inducing Business Partners to Cut Ties With
SCO
The district court also granted summary judgment on SCO’s direct-interference
theory based on IBM’s alleged efforts to persuade SCO’s business partners and investors
to cut ties with SCO. The district court first concluded that, with the exception of IBM’s
communications with Hewlett-Packard, there was inadequate evidence to support a
finding of direct interference with SCO’s business relationships. But even the Hewlett-
Packard evidence was not sufficient because, according to the district court, there was no
causal link between IBM’s alleged intermeddling with any of the relationships and SCO’s
injury. Further, IBM offers an alternative ground to affirm the decision below: that the
evidence does not support even an inference that IBM acted with improper means, a
required element of tortious interference under Utah law.
The improper-means requirement “is satisfied where the means used to interfere
with a party’s economic relations are contrary to law, such as violations of statutes,
regulations, or recognized common-law rules.” Leigh Furniture, 657 P.2d at 308.
“Commonly included among improper means are violence, threats or other intimidation,
deceit or misrepresentation, bribery, unfounded litigation, defamation, or disparaging
falsehood.” Id. (internal quotation marks, citation omitted). In other words, merely
33
persuading another company to withdraw its business from a competitor is not, without
more, an improper means under Utah law.
Turning to the facts of this case, we agree with the district court that a jury could
find IBM attempted to interfere with SCO’s relationship with Hewlett-Packard. After
SCO announced its Linux licensing strategy, IBM executive Karen Smith told SCO’s
CEO that she was going to encourage partners and customers not to do business with
SCO. Smith then followed through with that threat the same day when she suggested to
Hewlett-Packard executive Richard Becker that Hewlett-Packard “withdraw all [its]
business activities from SCO[.]” Aplt. App. 2352.
The other business relationships are a different story. We agree with the district
court that there is not enough evidence in this record to conclude that IBM actually
interfered with SCO’s relationships with Oracle, Computer Associates, Intel, and
Baystar.20 There is simply no admissible direct evidence that IBM ever confronted these
companies. To the contrary, executives representing each of these companies stated in a
sworn declaration that, to the best of their knowledge, IBM never approached them about
cutting ties with SCO and that any change in business dealings with SCO was not the
20
SCO did offer some evidence that IBM had attempted to persuade a managing
member of Baystar named Lawrence Goldfarb to discontinue Baystar’s investment in
SCO. SCO’s chief executive Darl McBride submitted a declaration stating that
Goldfarb told McBride “that IBM had been ‘on him, on him, on him’ to retract his
support from SCO.” Aplt. App. 5586. But that evidence would have been
inadmissible hearsay, as it was offered out of court to prove the truth of the matter
asserted and SCO has not pointed to any hearsay exception on appeal that would have
salvaged the statement from exclusion at trial. Nor can the Court think of an
applicable exception. Thus, a jury would not have been entitled to consider this
statement so it is not proper to include it in our analysis for the purpose of summary
judgment.
34
result of IBM’s statements or actions. SCO, for its part, counters that circumstantial
evidence should trump these self-serving declarations, at least enough to create a triable
issue of fact.
Even if that were true, however, IBM’s alternative argument nevertheless compels
us to dispose of all the allegations of direct interference, including those involving
Hewlett-Packard and these other entities. Under Utah law, “no tortious interference
claim can succeed without evidence of improper means.” Eldridge, 345 P.3d at 555.
That requires that the means be “contrary to law, such as violations of statutes,
regulations, or recognized common-law rules.” Leigh Furniture, 657 P.2d at 308. A
competitor’s attempt merely to convince third parties not to deal with a plaintiff does not
meet this requirement. To confirm that point, the Utah Supreme Court cautioned that the
intentional-interference tort ought not sweep within its scope “efforts to persuade others
not to . . . deal with certain entities” because that would be a legitimate form of third-
party influence. Id. at 303.
Thus, even if we assume that IBM actually followed through with its threat to
persuade industry players not to do business with SCO—as it did with Hewlett-
Packard—that conduct would not have been “improper” within the meaning of the Utah
tort of intentional interference. The district court therefore appropriately granted
summary judgment on this claim.21
21
Because we resolve this claim on the improper-means requirement, we do not
address the district court’s determination that SCO failed to demonstrate adequate
causation for its injury on summary judgment.
35
C. Amendment of Complaint
After the deadline for amended pleadings, SCO attempted to add a claim for
copyright infringement against IBM based on its late discovery of IBM’s allegedly
unauthorized distribution of the SVr4 code in the AIX for Power product.22 The district
court denied SCO’s request as untimely and likely to expand the litigation. We review a
denial of leave to amend a complaint for abuse of discretion. E.g. Wessel v. City of
Albuquerque, 299 F.3d 1186, 1197 (10th Cir. 2002). Under that deferential standard, we
affirm the district court’s order on this issue.
A brief procedural overview will facilitate the analysis. SCO filed its initial
complaint on March 6, 2003, and then timely amended its complaint on July 22, 2003.
IBM responded with counterclaims of its own on August 6, 2003, and then timely
amended those on September 25, 2003. The district court set a deadline of February 4,
2004 for amended pleadings, but allowed SCO and IBM each to file second amended
pleadings on February 27, 2004 and March 29, 2004, respectively.
In March and April 2004, IBM produced almost a million pages of documents and
dozens of CDs of source code included in AIX. When SCO reviewed these discovery
materials, SCO claims that it learned for the first time that AIX contained the SVr4 code
22
The original complaint contained a claim for copyright infringement, but that
appears to be based on SCO’s mistaken belief that it owned the copyrights to all the
UNIX technologies, so any unauthorized use of a UNIX variation might have been
vulnerable to the copyright owner’s challenge. This later-added copyright claim is
based on SCO’s discovery that IBM had improperly used SCO’s SVr4 code
specifically—a claim that is different from SCO’s misappropriation claim because
the copyright theory does not depend upon proof of bad faith, while misappropriation
does.
36
which had been copied from Santa Cruz’s contributions to Project Monterey. After
analyzing this voluminous document production, SCO sought again to amend its
complaint on October 14, 2004 to add a claim for copyright infringement based on the
unauthorized use of the SVr4 code.23
The federal rules of civil procedure provide that “[a] schedule may be modified
only for good cause and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4) (emphasis
added). Thus, good cause must be shown in order to submit a pleading beyond the
deadline set by the district court’s scheduling order, which was February 4, 2004 in this
case. Rule 15(a)(2) further indicates that “[t]he court should freely give leave [to amend
pleadings] when justice so requires.” Fed. R. Civ. P. 15(a)(2). Consistent with this rule,
we have held that “[t]he purpose of [Rule 15(a)(2)] is to provide litigants the maximum
opportunity for each claim to be decided on its merits rather than on procedural niceties.”
Minter v. Prime Equipment Co., 451 F.3d 1196, 1204 (10th Cir. 2006) (internal quotation
marks, citation omitted); accord 6 Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedure § 1484 (3d ed. 2010).
We turn now to the arguments and the district court’s reasoning. In defending its
attempt to add a claim after the February 4, 2004 deadline, SCO contended that IBM
would not be prejudiced because IBM had already asserted a counterclaim for declaratory
23
It also seems that this late-stage discovery is the event that prompted SCO to shift
its theory on its existing cause of action for misappropriation. As explained earlier,
while the initial misappropriation theory was predicated on IBM’s alleged Linux
disclosures, SCO’s current misappropriation theory is based on the allegedly stolen
SVr4 code.
37
judgment on SCO’s copyrights. That counterclaim provided: “IBM does not infringe,
induce the infringement of, or contribute to the infringement of any SCO copyright
through the reproduction, improvement, and distribution of AIX and Dynix, and that
some or all of SCO’s purported copyrights in UNIX are invalid and unenforceable.”24
Aplt. App. 233.
The district court, however, reasoned that IBM’s copyright counterclaim was not
intended to encompass literally any SCO copyright, but rather it sought a more limited
declaration that IBM was not violating SCO’s copyrights to the original UNIX
technologies because Santa Cruz never received the UNIX copyrights in the Novell
agreement. After all, SCO had initially filed a copyright infringement claim against IBM
on that theory, and IBM’s responsive counterclaim should be construed in that context.
The district court then reasoned: “Having determined that the [IBM’s] Counterclaim was
not intended to sweep so broadly, SCO’s proposed amendment is no longer the mirror-
image of IBM’s [copyright] Counterclaim. To permit the proposed amendment would
expand this already sizable and complex litigation and would serve only to delay its
resolution.” Aplt. App. 1836-37, Dist Ct. Order at 3-4 (emphasis added). Switching
course, the district court stated without explanation that SCO had unduly delayed in
asserting the proposed cause of action: “It appears that SCO—or its predecessor—either
knew or should have known about the conduct at issue before it filed its original
24
“Dynix” is a reference to the UNIX variation developed by Sequent, a company
that was subsequently merged into IBM.
38
Complaint.” Aplt. App. 1837, Dist. Ct. Order at 4 (emphasis added). For these two
reasons, the district court denied SCO’s motion to amend.
Notwithstanding the liberal treatment courts ordinarily afford these requests, we
cannot say that the district court abused its discretion in finding the absence of “good
cause” for the proposed amendment. The parties had already modified the scheduling
order previously and the litigation was certainly sizable and complex at the time.
Moreover, while SCO may have genuinely realized the existence of the SVr4 code late in
the game, it is not unreasonable to conclude that SCO could have investigated the matter
before it filed its original complaint, or at least alleged the claim based on information
and belief.25 Accordingly, we affirm the denial of leave to amend because the district
court did not act outside its broad range of discretion.
III. CONCLUSION
The district court’s order awarding IBM summary judgment on the
misappropriation claim is REVERSED, and the matter is REMANDED for further
proceedings consistent with this opinion.
25
This is not inconsistent with our earlier determination regarding SCO’s compliance
with the two-year contractual limitations period. We held that the misappropriation
claim, which is based on the allegedly unauthorized use of the SVr4 code acquired
through Project Monterey, did not accrue until May 4, 2001 because that is the date
on which IBM released a purportedly “sham” version of the IA-64 Product to
legitimize its use of the SVr4 code in its own AIX for Power product released that
very same day, thereby satisfying the requisite element of bad faith under New York
law.
39
The district court’s order awarding IBM summary judgment on the tortious
interference claims is AFFIRMED. The district court’s order denying SCO leave to
amend its complaint is also AFFIRMED.26
26
On August 31, 2016, Appellant filed an “Unopposed Motion for Permission to File
Opening Brief and Appendix Under Seal.” On September 12, 2016, Appellant filed a
supplement to that motion entitled “Appellant’s Supplement to its Unopposed Motion
for Permission to File Opening Brief and Appendix Under Seal,” and on September
16, 2016, Appellant filed a second supplement to that motion entitled “Appellant’s
Second Supplement to its Unopposed Motion for Permission to File Opening Brief
and Appendix Under Seal.”
On September 16, 2016, this Court entered an Order ruling on all three motions,
largely denying them. However, as our Order makes clear, the matters identified in
paragraph 4 in “Appellant’s Supplement to its Unopposed Motion for Permission to
File Opening Brief and Appendix Under Seal” filed on September 12, 2016, were to
remain “provisionally sealed” subject to a further ruling by the merits panel.
Those documents are identified as the following appendix volumes: 6, 7, 8, 9, 12,
14, 18, 19, 20, 21, 22, 25, 36, 37, 38, 39, 40, 43, 44, 45, 46, 47, 48, 52, 53, 54, 55, 56,
61, 62, 63, 64, and 66.
Appellant represents, and Appellee does not oppose, that these materials contain
sensitive confidential revenue and profitability information, as well as strategic
business and marketing plans.
All record material relevant to our opinion has been disclosed in the opinion itself.
The Court sees no need to require further public disclosure of these confidential
materials.
Accordingly, the Court affirms its previous provisional order accepting the materials
listed above under seal.
This disposes of all open or provisional rulings pertaining to motions to seal in this
case.
40