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HENRY D. GRADSTEIN (STATE BAR NO. 89747) BRUCE E. VAN DALSEM (STATE BAR NO. 124128) GRADSTEIN, LUSKIN & VAN DALSEM A Professional Corporation 12100 Wilshire Boulevard, Suite 350 Los Angeles, California 90025-7103 (310) 571-1700 – Telephone Number (310) 571-1717 – Facsimile Number Attorneys for Plaintiff TRIO SYSTEMS, L.L.C., a California Limited Liability Company UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION TRIO SYSTEMS, L.L.C., a California Limited Liability Company, Plaintiff, vs. ADOBE SYSTEMS INCORPORATED; and Does 1-10, inclusive, Defendants. AND RELATED COUNTERCLAIM. CASE NO.: CV-01-09159 WJR (CTx) REPLY IN SUPPORT OF MOTION FOR A PRELIMINARY INJUNCTION DATE: December 17, 2001 TIME: 10:00 a.m. CTRM: 10, Hon. William J. Rea (Declarations and Exhibits Filed Separately) I. INTRODUCTION According to its website, Adobe is the “second largest PC software company in the U.S., with annual revenues exceeding $1 billion.” Adobe advises the public to “get legal, stay legal.” It instructs that “when you purchase software, you purchase a license to use the application in compliance with the … License Agreement that is included with the software.” Adobe advises one to “look at what’s being offered; if it seems too good to be true, it probably is.” Under the heading – “What is software piracy?” – Adobe explains: Software piracy ranges from making a copy of your friend’s software to evaluate it, to a company’s mismanagement of its software licenses… Whether these acts of piracy are committed with intent or not, they are still illegal and punishable by law. Van Dalsem Reply Decl. Exhibit 1 at 8-9, 12 and 16 (emphasis added). But when it comes to the legitimate claim of a tiny software company against Adobe, Adobe believes that none of these principles should apply. Rather than concede that it had apparently mismanaged its own software licenses obtained from Plaintiff, Adobe’s approach is to sue Plaintiff, deny the plain meaning of the operative license as well as the import of its own conduct, and accuse Plaintiff of laying in wait to trap large and helpless software developers with the lure of software that seems too good to be true. Nevertheless, the evidence in this case overwhelmingly demonstrates the probable validity of Plaintiff’s claim and its right to a preliminary injunction. The 1997 Object Code Distribution License Agreement unambiguously states that Adobe was forbidden from incorporating C-Index “in any computer software which contains a programmable interface …” Exhibit 9 to Motion at 45, Article 2, Para. 5(a). The Opposition admits that “Adobe’s InDesign software contains a programmable interface and contains C-Index …” Opposition at 14:5-6. According to Adobe’s 519 instruction manual, the scope of the programmable interface is “unprecedented.” Horowitz Orig. Decl., Exhibit E. This juxtaposition of what the license prohibits, and what Adobe admits it has done, could not more clearly establish Adobe’s breach. Having abandoned the claim that the 1997 Object Code Distribution License Agreement was not signed by an authorized Adobe representative, Adobe now claims that it did not understand that the 1997 Object Code Distribution License Agreement “superseded” the 1995 Shrinkwrap License because the earlier license was between different parties. Adobe says it “was never notified that the 95 license between it and Bartholomew had been assigned to Trio System, LLC and indeed there is no evidence of record that it was.” Motion at 12:10-12. Adobe is wrong. Not only did Plaintiff notify Adobe that the 1995 Shrinkwrap License had been assigned to Trio Systems, L.L.C., Adobe acknowledged and agreed to this assignment in writing on July 10, 1996.Bartholomew Reply Decl. at 9-12, Exhibit 6. Thus, as of July 10, 1996, the Shrinkwrap License constituted the prior agreement between the parties which was superseded by the 1997 Object Code Distribution License Agreement. Adobe has simply mismanaged its software licenses. Adobe even resorts to claiming that it had an unidentified telephone conversation, with an unidentified person at Trio, on an identified date, during which someone supposedly stated that the license did not mean what it said. Adobe would hardly take seriously one of itslicensees claiming that the restrictions in an Adobe software license were superseded by an alleged telephone conversation with an unspecified Adobe employee, on an unspecified date, and for which not a single scrap of documentation exists. Adobe resorts to these desperate arguments because, in truth, there is no defense. Adobe apparently did not want to license a database engine on a per-user fee basis which would have been far more expensive than a programmer’s license. Since Plaintiff’s revenues from such a license are dependent upon how many programmers are writing software for the program at hand, all that Plaintiff asks is that C-Index not be used in an open program which provides an “entranceway” to unlicensed software development through a programmable interface. Otherwise, the continued development of software for the program is not kept in-house, where Plaintiff would realize revenues from licenses for additional programmers, but rather is performed by innumerable third-party programmers around the world who have not paid for a license. That defeats the purpose of licensing software on a per-programmer basis, and it is what happened here. Adobe’s own admissions prove that the InDesign programmable interface allows third party programmers “to call C-Index,” “use C-Index functionality” and “extract … C-Index code” to write software for InDesign without a license. Horowitz Reply Decl. at 14-18. The economic reasons why Adobe would want to empower third party programmers the world over to continue to develop applications for InDesign are understandable — it wanted InDesign to become the “core architecture” of an entire industry of software products — but Adobe had no right to exploit Plaintiff’s database engine as the centerpiece of its open program. Such an “unprecedented” use would require a specially scripted license, rather than a programmer’s license costing a few hundred dollars. As Adobe states “if it seems too good to be true, it probably is.” Adobe cannot reasonably have believed that such a low cost license did not mean what it said. The argument that the reasonable limitation contained in the 1997 Object Code Distribution License Agreement was inconsistent with Adobe’s plans for use of C-Index, and that Plaintiff “had to have known” that Adobe intended to exceed the scope of the license, hardly presents a defense. It presents only arrogance. II. TRIO HAS PROVEN AN OVERWHELMING LIKELIHOOD OF SUCCESS ON THE MERITS Adobe has conceded that Trio is the owner of the copyrights in C-Index and that Adobe has copied C-Index. The only issue remaining is whether Adobe breached the 1997 Object Code Distribution License Agreement by incorporating C-Index into a prohibited product, thereby entitling Trio to terminate the license. In that regard, Trio need only demonstrate either a “fair chance for success on the merits” or the raising of “questions serious enough to require litigation.” Benda v. Grand Lodge of IAM, 584 F.2d 308, 315 (9th Cir. 1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065 (1979). Trio’s showing far exceeds these requirements. The following sections will address Adobe’s arguments in the order presented. A. A Licensee Who Continues Copying Or Distributing A Copyrighted Work Following Termination Of The License Is Liable For Copyright Infringement, Not Breach Of Contract Adobe claims in its Opposition that its breach of the Object Code Distribution License Agreement raises “contract issues, not copyright issues.” Opposition at 3:11-13. This assertion is wrong. Upon Trio’s termination of the Object Code Distribution License Agreement on October 23, 2001 was proper (Exhibit 18 to Motion), any further copying or distribution of C-Index by Adobe was, and continues to be, an infringement on Trio’s copyrights in C-Index. The law in the Ninth Circuit, and elsewhere, is clear in this regard: [O]nce a non-breaching party to an express copyright license obtains and exercises a right of rescission by virtue of a material breach of the agreement, any further distribution of the copyrighted material would constitute infringement. Fosson v. Palace (Waterland), Ltd.78 F.3d 1448, 1455 (9th Cir. 1996), citing, Rano v. Sipa Press, Inc., 987 F.2d 580, 586 (9th Cir. 1993); see also Graham v. James, 144 F.3d 229, 237 (2d Cir. 1998). [FOOTNOTE 1] B. Trio Is Not “Estopped” From Asserting Its Claims Adobe contends that the Court should ignore the written, countersigned Object Code Distribution License Agreement because an Adobe scientist, Robin Briggs, had a telephone conversation with an unidentified person, on an unidentified date, during which someone supposedly stated that including an open API in a product containing C-Index “would be no problem.” Opposition at 6:9-15; 10:21-11:12 and Briggs’ Decl. at 5. Factually, this claim is incredible, in the literal sense of the word. As the “second largest software company in the world,” Adobe is obviously commercially sophisticated. Van Dalsem Reply Decl. at 2 and Exhibit 1 at page 16. The Adobe InDesign development team included lawyers responsible for legal review. Van Dalsem Reply Decl. at 3 and Exhibit 2. If Ms. Briggs read the Object Code Distribution License Agreement and was concerned about its express prohibition against using C-Index with a Programmable Interface (it is not clear which license is discussed), she had all of the resources and ability to address her concerns in a business-like matter. Here, there is no e-mail, letter or note confirming this conversation because it never took place. No one at Trio has ever told anyone that any of Trio’s standard licenses permitted C-Index to be incorporated into a product that contained a Programmable Interface, nor would they. Bartholomew Reply Decl. at 2-4; Henning Reply Decl. at 3. If Briggs had made the inquiry she claims to have made, Plaintiff would have informed her that Adobe needed and should purchase a scripted license. Bartholomew Decl. at 4. [FOOTNOTE 2] As a matter of law, Adobe cannot attempt to contradict the unambiguous language of the license, which prohibits the use of C-Index “in any computer software which contains a programmable interface,” with parole evidence. Cleary v. News Corp., 30 F.3d 1255, 1264 (9th Cir. 1994) ( “[s]ubsequent conduct of the parties may be considered when it does not contradict the plain meaning of the contract.”) The Object Code Distribution License Agreement is fully integrated. SeeObject Code Distribution License Agreement, Exhibit 9 to Motion at page 49, 2 (integration clause); United States v. Triple A Mach. Shop, Inc., 857 F.2d 579, 585 (9th Cir.1988) (parole evidence is inadmissible to contradict a contract that is fully integrated). Nor could this alleged conversation have modified the agreement between Trio and Adobe, since an oral modification of a written agreement must be supported by consideration. California Civil Code � 1698(c). Finally, Ms. Briggs’ Declaration is inadmissible for the reasons set forth in the accompanying Evidentiary Objections. C. The 1997 Object Code Distribution License Agreement Is The Operative License Since Adobe’s breach of the 1997 Object Code Distribution License Agreement was so blatant, Adobe claims that the 1997 license could not have superseded the 1995 Shrinkwrap License because that license was between different parties: Adobe was never notified that the ’95 license [the Shrinkwrap License] between it and Bartholomew had been assigned to Trio Systems, L.L.C., and indeed there is no evidence of record that it was. Motion at 12:10-12. Thus, Adobe argues that the provision in the 1997 license providing that it “supersedes all prior negotiations and agreements, including the Prior Agreement” is inapplicable “because the licenses were between different parties …” Motion at 11:24. Arguments like this cause one to question how Adobe manages its C-Index licenses, because Adobe is simply wrong. Not only did Trio promptly notify Adobe that Adobe’s licenses were being transferred to the L.L.C., Adobe acknowledged this fact and agreed to it, in writing. On May 28, 1996, the copyrights to C-Index were transferred from Bartholomew (dba Trio) to Trio Systems, L.L.C. Exhibit 3 to Motion. On June 21, 1996, Trio sent Adobe (and all of its other licensees) a letter informing them of this transfer and stating that “[all] existing C-Index licenses … have been assumed by Trio System, LLC.” Bartholomew Reply Decl. at 8 and Exhibit 3. Ms. Briggs sent an e-mail inquiring about the letter, an exchange of e-mails ensued and on July 10, 1996, Adobe executed the acknowledgment transferring its license (then the Shrinkwrap License) from Bartholomew dba Trio to Trio Systems, L.L.C. Bartholomew Reply Decl. at 9-12; E-mails, Exhibits 4 and 5; and executed Acknowledgment Form, Exhibit 6. Thus, as of July 10, 1996, the Shrinkwrap License was the prior agreement between the parties expressly superseded by the 1997 Object Code Distribution License Agreement. With no citation to evidence, Adobe also claims that it “was never told that the ’97 [Object Code Distribution] license differed in any material way from the ’95 [Shrinkwrap License], and Adobe signed it believing it was substantively identical to the ’95 license.” Opposition at 6:23-25. It was not incumbent upon Trio to tell the world’s second largest software company that it should read a license agreement before signing it. Nevertheless, Trio did expressly point out that C-Index was being licensed “subject to a new form of license agreement” and Adobe took several weeks to have the agreement reviewed by a “Director” before signing it and returning it to Trio. Henning Orig. Decl. at 3-8 and Exhibits 6-9 to Motion. Contrary to Adobe’s unsubstantiated statement in the Motion, the Adobe Director for InDesign Engineering who actually signed the 1997 license on behalf of Adobe does not claim any lack of understanding of the agreement. On the contrary, he readily admits to knowing exactly what is meant by a programmable interface. Habermann Decl. at 5. If he read the 1997 license which he signed, he could not possibly have missed its prohibition against using C-Index in a software program “which contains a programmable interface.” Exhibit 9 to Motion at 5(a). Habermann does not deny that he read and understood the 1997 license; he simply states without embellishment that “this agreement was eventually signed by me.” Habermann Decl. at 17. The 1997 Object Code Distribution License Agreement is the operative license. D. Adobe Breached The 1997 Object Code Distribution License Agreement And The License Was Properly Terminated 1. Adobe Breached Section 5(a) The 1997 Object Code Distribution License Agreement states plainly that Adobe was forbidden from incorporating C-Index “in any computer software which contains a programmable interface …” Exhibit 9 to Motion at 45, Article II, Section 5(a). The Opposition admits that “Adobe’s InDesign software contains a programmable interface and contains C-Index …” Opposition at 14:5-6. This juxtaposition of what the license prohibits, and what Adobe admits it has done, could not more clearly demonstrate a violation thereof. Thus, Adobe attempts to rewrite the restriction so as to have no meaning whatsoever, and further attempts to recast its conduct with an innocent spin that is belied by Adobe’s astonishing admissions. Trio licensed C-Index to Adobe on a “per programmer” basis for a relatively modest licensing fee. Apparently, Adobe was not interested in paying for a license on a far more expensive user fee basis. Briggs Decl. at 3. A “per programmer” license means that every programmer using C-Index to develop computer software must have a license. This has always been the basis upon which Trio licensed C-Index to Adobe, and Adobe understood it. Bartholomew Orig. Decl. at 6; Briggs’ Decl. at 3. As previously explained, because Trio earns its revenues from such licenses on a relatively modest per-programmer basis, Trio’s standard licenses have always prohibited licensees from incorporating C-Index into an open software program that can be used by unlicensed third-party programmers for software development. Section 5 of the 1997 Object Code Distribution License Agreement states: 5. [Adobe] shall not (a) incorporate or distribute C-INDEX in any computer software which contains a programmable interface … [or] (b) sell or distribute any computer software which permits the use of a Programmable Interface which calls C-INDEX in any other computer software, whether or not manufactured, sold or distributed by [Adobe] … Exhibit 9 to Motion at page 2, 5. As explained in the original Declaration of Plaintiff’s expert, Dr. Horowitz, “a Programmable Interface is a set of tools that gives other developers access points to the inner machinery of a program so that they can themselves develop new software which works together with, or as part of, the program, such as to provide customized add-on features.” Horowitz Orig. Decl. at 15. Adobe’s Director for InDesign Engineering, Johan Habermann, has offered a virtually identical definition, stating: An Application Program Interface (“API”) is an entranceway into software source code that enables software code from two different applications to communicate. In InDesign the API functions as an entranceway that allows third party developers to add features (known as “plug-ins”) to InDesign without recreating already existing features. Habermann Decl. at 5. There is no misunderstanding concerning what is meant by a Programmable Interface, notwithstanding Adobe’s current effort to create one. If C-Index is incorporated into an application containing such an exposed API, third party programmers are thereby empowered to continue to develop that application using C-Index without first obtaining a license from Trio. That is why Trio prohibits the inclusion of C-Index in a program that contains such an “entranceway.” If the “plug-ins” for InDesign, which are now being written by “third party developers” whom Adobe has empowered to continue to develop InDesign were being written in-house at Adobe, Adobe would have had to buy additional licenses for these programmers. Adobe may have good reasons to open its program to the world in the hopes that InDesign might become the “core architecture” for an entire industry of software applications, but it could not reasonably have believed that for a few hundred dollars per license, it had the right to exploit Plaintiff’s database engine as the centerpiece of its “unprecedented” open program. Accordingly, Adobe claims that Section 5(a) does not mean what it says. Adobe asserts in its Opposition that Section 5(a) should be interpreted only to prohibit Adobe from including within InDesign “Programmable Interfaces that expose the C-Index code.” Opposition at 14:21-22. Adobe further assets that not only must the C-Index code be “exposed,” but that such exposure must be “direct.” Johnson-Laird Decl. at 28. Since Adobe claims to have written a small amount of additional computer software code on top of C-Index (what Adobe calls a “wrapper”), Adobe claims that C-Index is not “directly exposed” by the InDesign API within the meaning of the license as Adobe has rewritten it. Adobe is wrong both in its contractual interpretation and its functional analysis. First, Adobe and its experts are not free to rewrite the license. The interpretation of copyright licensees is governed by well-accepted standards. Copyright licenses are presumed to prohibit any use not authorized. S.O.S., Inc. v. Payday, 886 F.2d 1081, 1088 (9th Cir. 1989). “[T]he Ninth Circuit has directed district courts to interpret copyright licenses narrowly, consistent with the federal copyright policy of providing incentives in the form of copyright protection to authors.” Apple Computer, Inc. v. Microsoft Corp., 759 F.Supp. 1444, 1451 (N.D.Cal. 1991), aff’d, 35 F.3d 1435 (9th Cir. 1994), cert. denied., 513 U.S. 1184, 115 S.Ct. 1176 (1995). With the overriding mandate to interpret the license narrowly, the Court is to “rely on state law to provide the canons of contractual construction, but only to the extent such rules do not interfere with federal copyright law or policy.” S.O.S., Inc. v. Payday, Inc., supra, 886 F.2d at 1088. Under both federal copyright law and California’s rules of contract construction, the paramount consideration in contract interpretation is to determine the intent of the parties. 3 Nimmer on Copyright, Assignment and Licenses at � 10.08, 10-72; Moss Development Company v. Geary, 41 Cal.App.3d 1, 9, 115 Cal.Rptr. 736 (1974). The intent of the parties is first determined from the ordinary meaning of the words of the agreement. Only if the contract language is ambiguous on its face, or extrinsic evidence demonstrates that it is reasonably susceptible to a meaning other than the ordinary, may the Court consider extrinsic evidence. Id.; see also PlayMedia Systems, Inc. v America Online, Inc., ___ F.Supp.2d ___ 2001 WL 1373011 (C.D. Cal 2001) and cases cited therein. Here, Section 5(a) provides that “[Adobe] shall not (a) incorporate or distribute C-INDEX in any computer software which contains a programmable interface …” Exhibit 9 to Motion. Habermann, who signed the license, knew what was meant by a programmable interface. Habermann Decl. at 5. The only extrinsic “evidence” Adobe offers with respect to this provision is the argument of Andy Johnson-Laird who attempts to qualify and limit the meaning of the term programmable interface by literally adding words to the agreement that do not exist. Johnson-Laird Decl. at 28. [FOOTNOTE 3]He claims that because “all software programs written under Microsoft Windows ‘expose’ a Programmable Interface to the Windows operating system …” ( Id.at 26), the agreement cannot mean that an exposed API is prohibited. However, it is not true that Windows programs must expose an API in order to work with Windows. It is Windows that must have the API, not the program which interfaces with it. Horowitz Reply Decl. at 7. Nevertheless, Mr. Johnson-Laird uses this incorrect premise to leap to the illogical conclusion that Section 5(a) must therefore mean only that C-Index may not be “directly exposed” because Mr. Johnson-Laird can think of no other interpretation. Johnson-Laird Decl. at 28. This inadmissible and illogical opinion is not extrinsic evidence that can alter the meaning of the license. Indeed, Mr. Johnson-Laird’s naked opinion is directly contrary to what is truly extrinsic evidence. From the outset of the licensing relationship, Trio informed Adobe that the per-programmer license meant that every programmer “making direct or indirect callsto C-Index … must have an individual license.” Accompanying the original Shrinkwrap License was the C-Index/II Licensing and Support Information in which Trio informed Adobe of the following: C-Index/II is licensed on a per-programmer basis. [] You may not provide copies of the C-Index/II software in any formto other programmers without additional licenses. Each programmer making direct or indirect callsto C-Index/II (linked in, via a DLL, or any other means) must have an individual license. This is true even if the calls to C-Index/II are pre-processed by your software … Habermann Decl. at 16 and Exhibit “B” thereto, third physical page [emphasis added]. Adobe’s Director for InDesign Engineering, Johan Habermann, confirms that Adobe was aware of this explanation and he even cites the above as part of the license agreement itself. Habermann Decl. at 16 and Exhibit “B” thereto. Thus, the extrinsic evidence proves that Trio informed Adobe: (i) that Adobe could not provide C-Index to other computer programmers “in any form” (i.e., wrapped or unwrapped); (ii) that every programmer must have a license, regardless of whether they are using C-Index “directly or indirectly,” and (iii) that every programmer must have a license, even if his or her use of C-Index is “pre-processed” by the licensee’s software (i.e., a programmer is making calls through a wrapper written around the C-Index code). Likewise, Trio’s website stated: [Software] applications containing C-Index/II may not expose a programmable interface that would allow the user of the application to do software development. Please have your attorney review the agreement for details. Bartholomew Orig. Decl. at 9 and Trio Website, Exhibit 5 to Motion. In sum, there is no qualification in Section 5(a) of the 1997 Object Code Distribution License Agreement that incorporating C-Index in “computer software which contains a programmable interface” is permitted as long as C-Index itself is not “directly exposed.” The extrinsic evidence is to the contrary. Section 5(a) of the license means what it says, that “[Adobe] shall not … incorporate or distribute C-INDEX in any computer software which contains a programmable interface …” Exhibit 9 to Motion. Habermann plainly understood that an API was “an entranceway into software source code,” that “allows third party developers” to continue writing software for that program, and he also knew exactly what Trio intended when he signed the license. The only one who is confused is Adobe’s retained expert. Turning then to Adobe’s functional analysis of InDesign, Adobe’s attempt to recast its conduct with an innocent spin is replete with admission after admission proving its breach. According to Adobe, the “wrapper” which it wrote insulates Adobe from liability because it restricted a third party programmer’s ability to use C-Index to less than “complete access to C-Index code” and only for the purpose of writing software for InDesign. This is not a defense; it is a concession of liability. On the first point, Adobe’s expert, Dr. Phillips, admits that Plaintiff’s expert, Dr. Horowitz, is generally correct that third party software “uses the Programmable Interface in InDesign to make calls to C-Index,” but he points out that “the API does not allow complete access to C-Index code:” Dr. Phillips explains: In Paragraph 19, Dr. Horowitz states that ‘The result is that there is a vast number of software programs created by companies other than Adobe, each of which uses the Programmable Interface in InDesign to make calls to C-Index.’ While true in a general sense, his statement is oversimplified in that the API does not allow completeaccess to C-Index code. Rather, the API allows only a highly-restrictive access to C-Index functionality — and then only through InDesign — far less than the total functionality contained in the C-Index Database.dll file. Phillips Decl. at 17 [emphasis added]. The less than “complete access to C-Index Code” which the API does allow, according to Dr. Phillips, is “the creation of new files, adding new objects, opening existing files and saving and closing files.” Phillips Decl. at 15. “The API that InDesign provides to plug-in developers permits the same file operations …” Id.While these functions may not be all of the functions of C-Index, they are the core functions of C-Index. Horowitz Reply Decl. at 13. Indeed, Dr. Phillips suggest that it is impossible for “plug-in developers” to write plug-ins without using C-Index. Phillips Decl. at 15 and 21. Nor is Dr. Phillips’ list complete. Horowitz Reply Decl. at 13, 18 and Exhibit “B”. InDesign contains at least 17 APIs which permit third party software developers to access these and all of the other core functions of C-Index. Id. Similarly, Adobe’s Habermann states: “If a third party developer were to create a plug-in [for InDesign], it would only be able to call the very few addresses InDesign requires to operate with C-Index.” Habermann Decl. at 7. “[A] third party developer would only have access to that limited portion of C-Index functionality.” Id.at 9. [FOOTNOTE 4]But whether InDesign’s API allows “complete access to C-Index code” or access only to a “limited portion of C-Index,” the admitted fact is that it allows third party software developers to access at least some portion of C-Index, which happens to be the core functionality of C-Index. Horowitz Reply Decl. at 18. Certainly, Adobe would not find the unauthorized use of Adobe software to be acceptable merely because the infringer is not using the whole program. Adobe also attempts to minimize the use of C-Index by unlicensed third-party software developers, claiming that they can only use it to write software for InDesign. Adobe and its experts variously state: “The API in InDesign … does not allow programmers to call C-Index to create any program other than plug-ins for InDesign.” Opposition at 15:6-9. “[T]hird party developers are powerless to use C-Index functionality for anything except to write plug-ins for InDesign.” Phillips Decl. at 19. “In other words, programmers cannot extract, for any other use, C-Index code from InDesign.” Id.“[N]o third party could … make any use of the C-Index code other than for the purpose of creating an InDesign plug-in.” Johnson-Laird Decl. at 42. Again, far from being a defense, this is a concession of liability. Stated positively, what Adobe admits is that the API in InDesign does allow third party programmers “to call C-Index,” “use C-Index functionality” and “extract … C-Index code” to “write” and “create” software for InDesign.” Trio, however, licensed C-Index to Adobe on a per-programmer basis. In order to be permitted “to call C-Index,” “use C-Index functionality” and “extract … C-Index code” to create software for InDesign, a programmer was required to be licensed. Instead, “Adobe has designed InDesign to be expansible in functionality by allowing other programmers, including those not employed by Adobe, to develop extensions to what InDesign can do.” Johnson-Laird Decl. at 18 [emphasis added]. By incorporating C-Index into an open software program containing an extensive API, Adobe has admittedly permitted a world of “other programmers” to write software for InDesign using C-Index without a license. Finally, it makes no difference whether these “other programmers” access C-Index through a “wrapper.” That is like saying that shaking hands with a person wearing a glove is not shaking hands because the skin does not touch. Horowitz Reply Decl. at 17. As stated, the InDesign API permits at least 17 function calls to C-Index, which are the most core function calls of the program. Horowitz Decl. at 18. The fact that these calls may pass through an InDesign “wrapper” on their way to C-Index is a distinction without meaning. Id.at 18. The admitted fact remains that the InDesign API allows third-party programmers “to call C-Index,” “use C-Index functionality” and “extract … C-Index” to write software for InDesign without a C-Index license. Under any scenario, Adobe breached both the letter and the spirit of Section 5(a) of the license. 2. Adobe’s Breach Of Section 5(a) Was Material Adobe claims that its breach of Section 5(a) of the 1997 Object Code Distribution License Agreement was not material, and Trio therefore did not have the right to terminate the agreement. Opposition at 15:11-27. This argument is contrary to the agreement, the law and the facts. Section 5 of Article II of the 1997 Object Code Distribution License Agreement states as follows: A violation of any of the restrictions contained in this Section 5 constitutes a non-curable, material breach of this Agreement. Exhibit 9 to Motion at page 45, Section 5. The agreement states further that Trio “shall have the right to terminate this Agreement immediately and without prior notice upon the commission by [Adobe] of a material breach of this Agreement.” The agreement then states for a second time that a violation of Section 5 of Article II “shall be deemed [a] material, non-curable breach[] …” Id.at page 47, Article VII, Sections 1 and (a). The fact that the parties agreed that a violation of Section 5 would be a material breach prevents Adobe from claiming the contrary. The agreement is governed by California law. Id.at page 48, Article X, Section 1. Under California Evidence Code � 622, a recital that a breach of Section 5 is material creates a conclusive presumption against Adobe that it is. Banco do Brasil v. Latian, Inc., 234 Cal.App.3d 973, 995 (1992). Furthermore, it has been held that the requirement of materiality necessary to terminate a copyright license under Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1529-30 (9th Cir. 1993), cert. granted, 509 U.S. 903, rev’d. on other grounds, 510 U.S. 517 (1994) (cited by Adobe at 15:16-18 of the Opposition) is satisfied as a matter of law when the license contains a provision authorizing termination upon a specified breach: Fantasydealt with licensing agreements that did not have an express contractual provision authorizing termination. In contrast, each of the license agreements in this case has an express provision authorizing Columbia to terminate the agreement if the licensee “fails to make payments of the License Fee or any portion thereof when due.” Because these agreements expressly consider the failure to timely pay royalties material, Columbia’s termination of the agreements was proper. Columbia Pictures Television v. Krypton Broad., 106 F.3d 284, 293 (9th Cir. 1997), rev’d on other grounds sub nom, Feltner v. Columbia Pictures Television, 523 U.S. 340 (1998); see also Brusso v. Running Springs Country Club, Inc., 228 Cal.App.3d 92, 109 (1991) (an agreement providing that certain conduct constitutes a “material breach” is binding on the parties). Finally, Adobe’s breach was material-in-fact. As set forth above, the very basis of Trio’s licensing model is to collect a license fee on a per-programmer basis. That has been completely circumvented by Adobe. By incorporating C-Index into InDesign in violation of Section 5(a), Adobe has admittedly permitted a world of “other programmers” to write software for InDesign using C-Index without a license. See e.g.Bartholomew Orig. Decl. and Exhibit 17 thereto (listing dozens of companies each with numerous other programmers). In fact, the scope of the API in InDesign is so unprecedented, that it is now being hailed as “a new core architecture” that is “open” and “will allow new kinds of developments that haven’t been possible.” Horowitz Reply Decl. at 20 and Exhibits “D” and “E” thereto. A more material breach could not be imagined. 3. Adobe Breached Section 5(b) Section 5(b) of the 1997 Object Code Distribution License Agreement states that Adobe shall not “sell or distribute any computer software which permits the use of a Programmable Interface which calls C-INDEX in any other computer software, whether or not manufactured, sold or distributed by [Adobe] …” Relying again upon Mr. Johnson-Laird as the interpreter of contracts, and without citing any extrinsic evidence, Adobe claims that this sentence prohibited Adobe from allowing InDesign to call C-Index resident in third party software, rather than vice versa. By Mr. Johnson-Laird’s own admission, his interpretation creates an absurdity. Plainly, the language — “which calls C-Index in any other computer software” — does not refer to the location in which C-Index is resident, but to the location from which C-Index is called. With InDesign already containing C-Index, there would be no point whatsoever for InDesign to use a copy of C-Index that may happen to be contained within a third-party software application. Further, there would be no economic reason for Trio to prohibit one licensee, Adobe, from designing software that used a copy of C-Index contained in the software of another licensee. Permitting such a use would not deprive Trio of a license fee, since both software developers would already have obtained a license. Indeed, Mr. Johnson-Laird admits this interpretation does “not seem to make a lot of sense” given the fact that C-Index is not licensed with a per copy royalty fee. Johnson-Laird Decl. at 40. Under the principles of interpretation summarized above, the intent of Section 5(b), both from the words of Section 5 as a whole and from the foregoing extrinsic evidence, is clear. Section 5(b) was intended to prohibit Adobe from including a Programmable Interface in InDesign that would permit “other computer software, whether or not manufactured, sold or distributed by [Adobe]” to call the copy of C-Index within InDesign. Since that is precisely what Adobe did when it included an open API in InDesign, Adobe breached Section 5(b). E. Although The 1995 Shrinkwrap License Is Not The Operative License, Adobe’s Use Of C-Index Exceeded The 1995 License As Well The only basis for Adobe to claim that the 1995 Shrinkwrap License is the operative agreement is its factually incorrect claim that the 1995 Shrinkwrap License could not have been superseded by the 1997 license because the agreements were between different parties. With that argument proven to be factually incorrect, it is clear that the operative license is the 1997 Object Code Distribution License Agreement. Even Adobe offers no other alternative. Nevertheless, Trio will briefly address Adobe’s conduct under the 1995 Shrinkwrap License, since Adobe violated that license as well. The 1995 Shrinkwrap License required Adobe t [L]imit any software that is distributed containing any portion of [C-Index] such that an end-user may not directly access or call any function of [C-Index], or otherwise make use of [C-Index] for development of application software. Exhibit 4 to Motion at page 35, Article III, Section (c). As explained in detail above, the InDesign API admittedly allows unlicensed third-party programmers “to call C-Index,” “use C-Index functionality” and “extract … C-Index code” to “write” and “create” plug-ins for InDesign. As such, it allows programmers to “make use of [C-Index] for development of application software” in violation of the license. Adobe half-heartedly argues that plug-ins are not “application software.” However, in explaining how InDesign’s API permits “two different applications to communicate,” Habermann makes clear that “plug-ins” are obviously “applications.” Habermann Decl. at 5 (“This application would then be plugged into InDesign …”). Adobe seizes, of course, on the language “directly access or call any function” without regard to the context of the additional language “or otherwise make useof [C-Index] for development of application software [emphasis added].” Adobe again claims that when an unlicensed third-party programmer does make a call to C-Index through the InDesign API, that call is made to the Adobe “wrapper,” which processes the call and passes it on to C-Index. Opposition at 12:26-13:12. However, this is exactly what Trio told Adobe it could not do. Plaintiff explained in writing to Adobe that it “may not provide copies of the C-Index/II software in any formto other programmers without additional licenses. Each programmer making direct or indirect callsto C-Index/II (linked in, via a DLL, or any means) must have an individual license. This is true even if the calls to C-Index/II are pre-processed by your software …” Habermann Decl. at 16 and Exhibit “B” thereto, third physical page [emphasis added]. Thus, even if the 1995 Shrinkwrap License controlled, Adobe exceeded the scope thereof, which constitutes copyright infringement. S.O.S., Inc. v. Payday, Inc., supra, 886 F.2d at 1087; Adobe Systems Incorporated v. One Stop Micro, Inc., supra, 84 F.Supp.2d at 1092. III. ADOBE HAS NOT, AND CANNOT, REBUT THE PRESUMPTION OF IRREPARABLE HARM, OR TRIO’S SHOWING OF HARM-IN-FACT A. Irreparable Harm Is Presumed Adobe concedes, as it must, that upon establishing a likelihood of success on the merits, irreparable harm is presumed. Seecases cited in Motion at 19 and 4 Nimmer on Copyrightat � 14.06, 14-100 n.21. Indeed, so strong is this presumption that Nimmer states that when an injunction is sought on a copyright claim, “the first factor — proving irreparable harm — should not be invoked, as such harm is presumed in copyright cases in which the plaintiff demonstrates likely success on the merits.” Id.at � 14.06[A], 14-103. All of Adobe’s arguments seeking to rebut the presumption of irreparable harm have been rejected repeatedly by the controlling Ninth Circuit cases. B. Adobe’s Alleged Plan To Stop Infringing Does Not Render This Motion Moot Adobe claims that it has removed C-Index from the soon-to-be-released version of InDesign, InDesign 2.0, and that it will stop selling InDesign 1.5 and InCopy next month. [FOOTNOTE 5]Adobe’s Website, however, contradicts this statement and informs customers that they cannot even preorderInDesign 2.0 until “early in 2002.” Horowitz Reply Decl. at 21 and Exhibit “F” thereto. Notwithstanding this contradiction, Adobe admits that for at least another month, it will continue selling the infringing product, InDesign 1.5. Knoble Decl. at 12. As Adobe also admits, nearly 5,500 unsold copies of the infringing product remain. In the absence of an injunction, Adobe will be free to sell the infringing product, or even give it away. Doing so will create 5,500 new opportunities for unlicensed third-party software developers to use C-Index to develop other software. Further, as Adobe admits, in the absence of an injunction, it will itself continue to use the infringing product for years to come, if for nothing else but product support. Id.at 19. Indeed, despite its representations in the Opposition, as of the filing of this Reply Adobe continues to market the infringing InDesign 1.5 product on its Website. Horowitz Reply Decl. at 22 and Exhibit “G” thereto. Factually, the relief sought by Trio is not moot. Further, the fact that a party against whom injunctive relief is sought voluntarily ceases its wrongful conduct does not prohibit the issuance of an injunction. Vitek v. Jones, 445 U.S. 480, 487, 100 S.Ct. 1254, 1260-61 (1980). As noted in United States v. W.T. Grant Co., 345 U.S. 629, 73 S.Ct. 894, 897 (1953), even in the case of voluntary cessation, “[t]he defendant is free to return to his old ways” unless an injunction is granted. See also United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1387-1388 (5th Cir. 1980) (“It is well-settled that, in a suit for injunctive relief, the voluntary cessation of allegedly illegal practices in an attempt to avoid suit does not moot the controversy they present [emphasis added].”); Armster v. U.S. District Court for the Central District of California, 806 F.2d 1347, 1357 (9th Cir. 1986); Picrin-Peron v. Rison, 930 F.2d 773, 776 (9th Cir. 1991). This general rule applies with particular force in copyright actions where an injunction is sought. For example, in Consumers Union v. Theodore Hamm Brewing Co., 314 F.Supp. 697 (D. Conn. 1970), the publisher of Consumer Reportsfavorably reviewed Hamm’s beer. The brewer of Hamm’s instituted an advertising campaign designed to call the public’s attention to Consumer Reports’high rating of its beer. Consumers Union does not allow manufacturers to use its articles to endorse their products, so it sued for copyright infringement. The brewer agreed to stop certain infringing conduct and asserted that an injunction should not issue as to that conduct because the controversy was moot. The district court rejected the argument: [T]he defendant has agreed to discontinue the practice complained of in Count One. It argues the issue is now moot and a preliminary injunction should not issue. However, the defendant’s voluntary cessation of the activity is not a ground for a denial of a preliminary injunction. Consumers Union v. Theodore Hamm Brewing Co, supra, 314 F.Supp. at 701. Adobe is continuing to infringe to this day and will do so for years to come unless an injunction issues. As a matter of law, Adobe’s claim that it will voluntarily stop infringing does not render this Motion moot. For the same reasons, Trio’s Motion is not based upon “past harm” for which an injunction will not issue. C. Trio Is Suffering Harm-In-Fact Given the presumption of irreparable harm, Trio is not required to prove harm-in-fact. Nevertheless, Trio has done so. It is not disputed that Adobe’s conduct has allowed, and is continuing to allow, countless unlicensed third-party software developers to use C-Index to create yet other software that works with InDesign. In support of its argument that Trio has not been harmed, Adobe claims that in the absence of its breach, InDesign would not have an exposed API, and these unlicensed third-party programmers would not license C-Index anyway. This circular logic is the very reason for the presumption of irreparable harm. Country Kids ‘n City Slicks, Inc. v. Sheen, 77 F.3d 1280, 1288 (10th Cir. 1996) (the presumption exists “[b]ecause the financial impact of copyright infringement is hard to measure and often involves intangible qualities …”) D. The Possibility Of Money Damages Does Not Defeat The Presumption Of Irreparable Harm With citation to no authority whatsoever, Adobe claims that injunctive relief should be denied because Trio can be adequately compensated with money damages, a fact Adobe claims negates the presumption of irreparable harm. Motion at 19:26-20:15. In copyright actions, the Ninth Circuit has expressly rejected the claim that the adequacy of money damages can rebut the presumption of irreparable harm. Cadence Design Systems, Inc. v. Avant! Corp., supra, 125 F.3d at 827 (“a defendant cannot, by asserting the adequacy of money damages, rebut the presumption of irreparable harm that flows from a showing of likelihood of success on the merits of a copyright infringement claim.”); see also Modtech Inc. v. Designed Facilities Constr. Inc., 48 U.S.P.Q.2d 1209, 1213 (C.D.Cal. 1998). Irreparable harm is presumed, Adobe has not rebutted the presumption and Plaintiff is suffering harm-in-fact. IV. THE BALANCE OF HARDSHIPS Adobe’s protestations of harm are exaggerated and not supported by the evidence. Surprisingly, Adobe knows that there are exactly 5,481 copies of the infringing product. Whatever records Adobe has that permits this precise count presumably permits Adobe to locate these copies as well. Further, in the 1997 Object Code Distribution License Agreement, Adobe specifically agreed that if it breached Section 5 of Article II of the license and its license was terminated, “[Adobe] shall be required to recall and replace all of [Adobe's] Programs which incorporate C-Index.” Exhibit 9 to Motion at page 48, Article VII, 2. Complying with its agreement does not amount to hardship. In contrast, in the absence of an injunction, Adobe will be free to sell its remaining 5,481 copies of the infringing product. Each sale would permit yet another unlicensed third-party software developer — or group of developers — to use C-Index for the purpose of software development. Finally, Trio has shown a strong likelihood of success on the merits. In such cases, “the balance of hardships issue cannot be accorded significant — if any — weight in determining whether a court should enter a preliminary injunction to prevent the use of infringing material …” Cadence Design Systems v. Avant! Corp., 125 F.3d 824, 830 (9th Cir.1997), cert. denied, 523 U.S. 1118, 118 S.Ct. 1795, 140 L.Ed.2d 936 (1998); Sun Microsystems v. Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir. 1999). V. NO BOND SHOULD BE REQUIRED With no evidentiary support that Adobe will be harmed in any specific amount, or at all, Adobe requests “a bond of more than $1 million.” Opposition at 23:11. Speculative evidence of damage to the defendant will not support a substantial bond. Walczak v. EPL Prolong, Inc., 198 F.3d 725, 733-734 (9th Cir. 1999) ($2 million bond requested, evidence not credible, $100,000 bond ordered); 3M Unitek Corp. v. Ormco Co., 96 F.Supp.2d 1042, 1052 (C.D.Cal. 2000) ($10 million bond requested, evidence speculative, $500,000 bond ordered). Adobe claims to have already removed C-Index from InDesign 2.0 and states that its replacement for the infringing product will be available for shipment very shortly after the hearing. With no evidence of the actual cost of recalling the infringing versions of InDesign, and a replacement product on the verge of release, Trio submits that the required bond, if any, should be de minimis. VI. CONCLUSION For the foregoing reasons, it is respectfully requested that the Court issue a the requested preliminary injunction. DATED: December 20, 2001 GRADSTEIN, LUSKIN & VAN DALSEM A Professional Corporation By: BRUCE E. VAN DALSEM Attorneys for Plaintiff TRIO SYSTEMS, L.L.C. [ edited for Web publication] ::::FOOTNOTES:::: FN1This Motion addresses only post-termination infringement by Adobe. Nevertheless, Adobe’s use of C-Index prior to termination of the license also amounted to copyright infringement because Adobe exceeded the scope of its license by incorporating C-Index into a product for which it was not licensed. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989) (“[a] licensee infringes the owner’s copyright if its use exceeds the scope of the license.”); see also Adobe Systems Inc. v. One Stop Micro, Inc., 84 F.Supp.2d 1086, 1092 (N.D.Cal. 2000) (same). Sun Microsystems, Inc. v. Microsoft Corp.,188 F.3d 1115 (9th Cir. 1999), cited by Adobe, affirms this proposition, but held that in a case not involving license termination, a breach of a contractual covenant which did not limit the scope of the license was a breach of contract, rather than an infringement. Since this Motion addresses only post-termination infringement, it is not necessary to reach the issue of whether the covenant breached was merely contractual in nature or a limitation on the scope of the license. FN2Likewise, Adobe’s claim that Trio “must have known” that Adobe would incorporate C-Index into an Adobe product containing an API is baseless. It did not know. There are many software applications that do not contain an API. Horowitz Reply Decl. at 8-10; Bartholomew Reply Decl. 4. FN3Contract interpretation is, of course, a question of law for the Court, not a matter of expert opinion. Mr. Laird-Johnson’s proffered interpretation is an inadmissible legal conclusion and Trio has filed separately appropriate objections thereto. FN4Habermann does not specify how large “that limited portion of C-Index functionality” is except to conclude that it is “limited.” The two examples he cites, however, are trivial. Horowitz Decl. at 14. FN5Even if true, one must wonder how InDesign 2.0 will open documents created by InDesign 1.5. All InDesign 1.5 data files are in fact C-Index data files. Horowitz Orig. Decl. at 13. Unless Adobe created software under “clean room” conditions that can read C-Index database files, InDesign 2.0 will be an infringing product as well. Nevertheless, since InDesign 2.0 does not yet exist, this question is not yet before the Court.

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