Opinion
No. C 03-2517 MJJ.
August 23, 2004
ORDER GRANTING MICROSOFT'S MOTION FOR SUMMARY ADJUDICATION OF CLAIM ONE OF INTERGRAPH'S AMENDED THIRD PARTY COMPLAINT
INTRODUCTION
Hewlett-Packard Company ("HP") filed this action against Intergraph Corporation ("Intergraph") alleging infringement of four patents, including U.S. Patent No. 4,635,208 (the "208 patent"). Intergraph filed a third-party complaint against Microsoft Corporation ("Microsoft") asserting three claims, including breach of warranty under the Alabama Commercial Code. Before the Court is Microsoft's motion for summary judgment of Claim One of Intergraph's third party complaint. For the reasons set forth below, the motion is GRANTED.
The Court construes the motion as one for summary adjudication pursuant to Federal Rule of Civil Procedure 56(d).
FACTUAL BACKGROUND
Intergraph's Amended Third Party Complaint alleges generally that Intergraph "purchased and/or licensed" certain Microsoft products ("Microsoft Products") that Intergraph then used to develop products which HP now accuses of infringement ("Intergraph Products"). Am. Third Party Compl. at ¶ 9. Intergraph alleges that the Microsoft Products contained certain "documentation . . . instructing and advising Intergraph on how to use such products in an allegedly infringing manner." Id. at ¶ 21. Intergraph also alleges that it received "technical support services" from Microsoft and that "Microsoft technical support personnel instructed Intergraph to use the Microsoft Products in an allegedly infringing manner to develop" the Intergraph Products. Id. According to Intergraph, "[t]he design choices which le[d] to HP's broad infringement allegations were dictated by Intergraph's use and reliance on the Microsoft Products." Id. at ¶ 14. Thus, Intergraph concludes that "if Intergraph is liable for HP's infringement allegations, then the Microsoft products infringed the `208 patent when Intergraph purchased and/or licensed such products." Id. at ¶ 15.The `208 patent relates to computer-aided design and, more particularly, to a method of using a computer program, or a computer program to control the entire design of a system, such as an electrical circuit. See `208 patent column 1, lines 5-10. Intergraph's Amended Third Party Complaint identifies the Microsoft Products as including Visual Basic, Visual Studio.NET and Visual C++. Intergraph contends that it used these Microsoft Products to write and create the Intergraph products. Am. Third Party Compl. at ¶ 9. Although HP accuses the Intergraph Products of infringing the `208 patent, HP has not accused any Microsoft product of infringement, nor does it contend that Intergraph's use of any Microsoft product infringes the `208 patent.
Intergraph's licensing of Microsoft Products is governed by a series of interrelated written agreements. See Declaration of Stephen Hancock ("Hancock Decl.") at ¶¶ 2-6. Since 1998, Intergraph has licensed products from Microsoft pursuant to a licensing program known as Microsoft Select. This program allows participating customers such as Intergraph to obtain licenses to use and copy Microsoft software products, including the Microsoft Products at issue here, at volume prices. Hancock Decl. ¶ 3. Under this program, Microsoft and Intergraph are parties to a series of five successive "Microsoft Select Master Agreements" ("SMAs") that govern Intergraph's licensing of products. Hancock Decl. ¶¶ 3-6.
Effective September 26, 2001, Microsoft and Intergraph entered into both a Microsoft Business Agreement ("MBA"), under which Intergraph licenses Microsoft's products and contracts for Microsoft services, and an SMA, under which Intergraph participates in the Microsoft Select licensing program. The MBA contains the core terms and conditions of the parties' licensing agreement. Hancock Decl. ¶ 2. The MBA contains the following disclaimers for Microsoft products licensed or purchased by Intergraph:
NO OTHER WARRANTIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, WE DISCLAIM ALL WARRANTIES AND CONDITIONS, WHETHER EXPRESS, IMPLIED OR STATUTORY, OTHER THAN THOSE IDENTIFIED EXPRESSLY IN THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO WARRANTIES OR CONDITIONS OF TITLE, NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE PRODUCTS, SERVICE DELIVERABLES, RELATED MATERIALS AND SERVICES.
Hancock Decl. Ex. A at § 5(e). The 2001 Microsoft Select Agreement was executed on the same day as the MBA. Rather than separately repeating the disclaimer language, the 2001 Select Agreement incorporates by explicit reference the terms of the MBA both on the cover page and at section 7(a). Hancock Decl. Ex. D. The 2002 and 2004 SMAs also follow this approach, incorporating the MBA at sections 7(a) and 11(a), respectively. Hancock Decl. Ex. E, Ex. F.
The 1998 and 2000 SMAs that controlled the licensing terms prior to the execution of the MBA and the 2001 SMA contained warranty provisions nearly identical in all relevant respects to the one quoted above. Hancock Decl. Ex. B, Ex. C.
Microsoft notes, and the record reflects, that the End User License Agreement ("EULA") provided to Intergraph with each software program contained a prominent provision disclaiming all warranties other than the limited one provided in the EULAs. See Microsoft's Motion ("Mot.") at 4, fn. 1; Hancock Decl. Exs. G, H, I.
LEGAL STANDARD
Summary judgment (or summary adjudication) is proper when the pleadings, discovery and affidavits show that there is "no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Material facts are those that may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id. The moving party for summary judgment bears the burden of identifying those portions of the pleadings, discovery and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). On an issue for which the opposing party will have the burden of proof at trial, the moving party need only point out "that there is an absence of evidence to support the nonmoving party's case." Id. at 325.Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings and, by its own affidavits or discovery, "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). Mere allegations or denials do not defeat a moving party's allegations. Id.; see also Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d 957, 959-60 (9th Cir. 1994). Nor is it sufficient for the opposing party simply to raise issues as to the credibility of the moving party's evidence. National Union Fire Ins. Co. v. Argonaut Ins. Co., 701 F.2d 95, 97 (9th Cir. 1983). If the nonmoving party fails to show that there is a genuine issue for trial, the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323.
ANALYSIS
I. Microsoft's Burden of Production
Microsoft argues that the MBA and SMAs disclaim any warranty of noninfringement, that Intergraph licensed the Microsoft Products it used to create the Intergraph Products accused of infringing HP's patents through its participation in the Microsoft Select licensing program and that, therefore, all of Intergraphs's licenses of Microsoft products are subject to the agreements containing the warranty disclaimers.
Intergraph first responds that Microsoft has not met its burden of production under Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Intergraph argues that Microsoft, as the party with the ultimate burden of proof on its disclaimer defense, has failed to meet its burden of showing that the disclaimer applies to all of Intergraph's breach of implied warranty claims. See Intergraph's opposition brief ("Opp.") at 3. Specifically, Intergraph contends that Microsoft's motion failed to provide evidence that a disclaimer of implied warranties existed for the entire period of time for which Intergraph seeks relief — from December 31, 1999 to December 31, 2003.
The record reflects that the parties entered into the initial Master Select Agreement in March 1998, and that that agreement ran through March 31, 2000. Hancock Decl. Ex. B. The second Master Select Agreement took effect April 25, 2000 and remained in effect until replaced on September 26, 2001. Id., Ex. C. The Microsoft Business Agreement, which was incorporated by reference into the 2001, 2002 and 2004 MSAs, was executed on September 26, 2001 and has remained in effect since. Id., Ex. A. Likewise, the End User License Agreements that accompanied the Microsoft Products included disclaimers. Id. ¶¶ 9-12, Exs. G, H, I.
Scrutiny of the parties' agreements reveals that there was a gap between April 1 and April 24, 2000 when no contract existed between the parties. Of course, such a gap is material only with respect to Microsoft Products acquired by Intergraph during such a gap. Microsoft has presented evidence that all Microsoft Products acquired and used by Intergraph were subject to one of the agreements containing a warranty disclaimer. Hancock Decl. ¶ 13. Intergraph's Opposition does not present any contrary evidence. Therefore, even if a short gap in time occurred between the expiration of the 1998 SMA and the effective date of the 2000 SMA, Intergraph's Opposition presents no evidence that such a gap has any relevance, or that Intergraph ever purchased a Microsoft product except pursuant to the parties' agreements. Absent some reason not to enforce the warranty disclaimer, then, there exists no genuine issue of material fact for trial on Claim One.
II. Unconscionability
Intergraph also argues that even if Microsoft presented evidence sufficient to meet its initial burden of production, disputed issues of material fact exist with respect to the validity of the alleged disclaimers under Washington law.
The parties agree that the disclaimers of warranties Microsoft seeks to enforce are contained in agreements governed — pursuant to a choice of law clause — by Washington law. As such, the validity of the disclaimers must be analyzed under Washington law.
A claim that a contractual provision such as a warranty disclaimer or liability clause is unconscionable raises a question of law for the court to be determined on the basis of the "totality of the circumstances." Puget Sound Financial, L.L.C. v. Unisearch, Inc., 47 P.3d 940, 944-46 (Wash. 2000). Factors to be considered include: (1) the conspicuousness of the clause in the agreement; (2) the presence or absence of negotiations regarding the clause; (3) the custom and usage of the trade; and (4) the course of dealing between the parties. Id. at 946. Where, as here, the parties involved are commercial entities, warranty disclaimers are presumptively conscionable and the burden is on the party seeking to invalidate the provision. Id. at 945.
To the extent Puget Sound requires a threshold inquiry into the presence of unfair surprise ( see 47 P.3d at 946), the Court finds that no such showing has been made (nor scarcely attempted) by Intergraph. The closest Intergraph comes to asserting unfair surprise is its contention with respect to the alleged lack of conspicuousness of the warranty disclaimer, discussed infra.
Intergraph cites the Court to a number of cases involving consumer transactions which, for obvious reasons, are unhelpful. Intergraph's suggestion that any decision regarding unconscionability made on summary judgment would be error is likewise misplaced. See M.A. Mortenson Co. v. Timberline Software Corp., 998 P.2d 305, 314 (Wash 2000) ("if there is no threshold showing of unconscionability, the issue may be determined on summary judgment").
A. Conspicuousness
Intergraph contends that the warranty disclaimers at issue are not conspicuous. The language of the warranty disclaimer set forth in full above appeared almost identically in both the 1998 and 2000 MSAs as well as the MBA (2001), which is still in effect. It was also incorporated by reference into the 2001 and 2002 MSAs, the latter of which applied until the end of the relevant time period, December 31, 2003. The disclaimers are set forth in separate contractual clauses, distinctly titled, and set forth in all capital letters. The disclaimer is the first section one encounters that appears in all capitals with respect to the 1998 and 2000 MSAs; with respect to the MBA, the warranty disclaimer is the only all-capitals section. In the 2000 MSA, the warranty disclaimer is set forth (unlike any other clause) in bold-faced type in addition to all capital letters. While it is true, as Intergraph points out, that the 2001 and 2002 MSAs merely incorporate the MBA's provisions by reference, in light of the above the Court concludes that the warranty disclaimers are far from "hidden in a maze of fine print." Puget Sound, 47 P.3d at 947.
B. Negotiations
Another factor courts consider in evaluating whether a warranty disclaimer is unconscionable is the presence or absence of negotiations regarding the clause. Intergraph submits argument, but no evidence, reflecting whether there were any negotiations leading to the inclusion of the warranty disclaimers in the parties' agreements. See Nilsson v. Louisiana Hydrolec, 854 F.2d 1538, 1545 (9th Cir. 1988) ("In the absence of specific facts, as opposed to allegations, showing the existence of a genuine issue for trial, a properly supported summary judgment motion should be granted"). In any event, even if this factor weighed in Intergraph's favor, Intergraph "had a reasonable opportunity to understand the terms of the clause, which remained unchanged throughout the course of dealing." Puget Sound, 47 P.3d 947.
At the hearing on this motion, Intergraph sought what in effect was a Rule 56(f) continuance to further explore the negotiations issue. The Court finds that a Rule 56(f) continuance is unwarranted on this record, and denies the request accordingly.
C. Course of Dealing
The final factor for the Court's consideration is the course of dealing between the parties. Intergraph argues in its Opposition that, because the 2001, 2002 and 2004 MSAs did not themselves contain a warranty disclaimer, but merely referenced the MBA (which did contain one), "the course of dealing between the parties mirrors the inconsistency in the various agreements that were signed over time." Opp. at 7. However, all of the agreements in question contained the warranty disclaimer in one form or another. As previously noted, the 1998 and 2000 MSAs and the MBA (2001) contained the disclaimer in the body of the agreement, while the 2001, 2002 and 2004 MSAs incorporated it by reference. Therefore, this factor again weighs in Microsoft's favor.
Intergraph does not address the "custom and usage of the trade" factor in its Opposition.
D. Totality of the Circumstances
The Court concludes that, in view of the totality of the circumstances, Intergraph has failed to demonstrate that the warranty disclaimers at issue are unconscionable.
CONCLUSION
The Court finds that Microsoft has carried its initial burden under Celotex and that Intergraph has failed to offer evidence sufficient to create a genuine issue of material fact for trial. The Court also finds that Intergraph has failed to show that the warranty disclaimers contained in the parties' agreements are unconscionable. For these reasons, Microsoft's motion for summary adjudication is GRANTED.
IT IS SO ORDERED.