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International Business Machines Corporation v. Bgc Partners

April 25, 2013

INTERNATIONAL BUSINESS MACHINES CORPORATION, PLAINTIFF AND COUNTERCLAIM DEFENDANT
v.
BGC PARTNERS, INC.; BGC BROKERS US, L.P.; BGC FINANCIAL, L.P.; AND BGC USA L.P. DEFENDANTS AND COUNTERCLAIM PLAINTIFFS.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:

USDC SDNY

DOCUMENT

OPINION & ORDER

Plaintiff International Business Machines Corporation ("IBM") brings this action against BGC Partners, Inc., BGC Brokers US, L.P., BGC Financial, L.P., and BGC USA, L.P. (collectively, "BGC") asserting claims for copyright infringement, breach of contract, and replevin. BGC counterclaims for breach of contract and for a declaratory judgment. The Court has already ruled on IBM's motion for summary judgment and sanctions. Familiarity with the underlying factual background as set out in the opinion and order on the summary judgment motion is assumed. See Int'l Bus. Maschs. Co. v. BGC Partners, Inc., No. 10 Civ. 128, Dkt. No. 95 (S.D.N.Y. Apr. 25, 2013) (the "SJ Decision."). Both sides have submitted numerous motions in limine.*fn1 The Court will first address BGC's four motions and then address IBM's motions and their subparts. The motions by BGC and IBM are granted and denied as indicated.

DISCUSSION

I.BGC's Motion to Limit Damages Evidence to Contractual Limitations Period IBM's expert, David A. Haas ("Haas"), calculated IBM's damages to be $106,796,621, before prejudgment interest, consisting of $2,117,483 in contractual damages accruing between January 7, 2004 and December 31, 2008; $3,753,137 in actual copyright infringement damages accruing between January 1, 2009 and December 31, 2010; and $100,926,000 in copyright profit disgorgement damages accruing between January 1, 2009 and December 31, 2010. (Ex. E at ¶ 19.*fn2 ) BGC now seeks to exclude all contractual damages that accrued prior to January 7, 2008, and after December 31, 2008, when IBM terminated its contractual relationship with BGC.

IBM filed its first Complaint (the "Complaint") on January 7, 2010, and its First Amended Complaint (the "FAC") on January 22, 2010, alleging, inter alia, that BGC "breached the [International Program License Agreement ("IPLA")] and other IBM licenses," which "governed BGC's right to use the Informix Software." (FAC ¶¶ 38, 45.) Pursuant to the IPLA, no legal action may be brought "more than two years after the cause of action arose . . . ." (Ex. B at § 5.5; see also N.Y. C.P.L.R. § 201.) If the IPLA governs the relationship between BGC and IBM,*fn3 BGC argues that this would place all pre-January 7, 2008, damages beyond the contractual statute of limitations. In turn, according to Haas, this would limit IBM's maximum contractual damages to $1,239,116. (See Ex. G at Ex. 3.0b.)

"In New York, a breach of contract cause of action accrues at the time of the breach," even if "no damage occurs until later." Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). "'[E]xcept in cases of fraud where the statute expressly provides otherwise, the statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury.'" Id. (quoting Schmidt v. Merchs. Despatch Transp. Co., 270 N.Y. 287, 300 (1936)). However, where "'a duty imposed prior to a limitations period is a continuing one, the statute of limitations is not a defense to actions based on breaches of that duty occurring within the limitations period.'" Westchester Cnty. Corr. Officers Benevolent Ass'n v. Cnty. of Westchester, 885 N.Y.S.2d 728, 732 (App. Div. 2009) (quoting DeCintio v. Cohalan, 795 N.Y.S.2d 459, 460 (2005)).

IBM asserts that the 2008 KPMG audit report is the earliest admissible evidence of BGC's over-deployment of Informix software, and that any evidence of over-deployment occurring prior to 2008 is inadmissible. Since the Court will allow the introduction of evidence regarding BGC's use of software prior to 2008, this argument is unavailing. See infra at § VI(A).

Next, IBM argues that if such evidence is admitted, there is a genuine issue of material fact as to pre-2008 over-deployment and the trier of fact will be entitled to reject BGC's evidence as unreliable. This is true as far as it goes; if BGC may introduce evidence regarding its pre-2008 usage of Informix software, IBM must be free to offer its own contravening evidence. But that is not sufficient to entitle IBM to introduce evidence of the harm it suffered from any such pre-2008 over-deployment, as that harm would be beyond the IPLA's statute of limitations. Any such evidence would therefore be irrelevant to the damages that BGC may be held liable for and could only serve to prejudice the trier of fact.

Finally, IBM argues that BGC's failure to pay a September 2008 invoice and its ongoing over-deployment of Informix software constituted a continuing violation of the IPLA, such that "each day that BGC's use of Informix exceeded the level authorized . . . , BGC breached anew its ongoing contractual obligations." (Pl.'s Opp'n at 4-5.) The IPLA states, however, that a licensee is required to "notify IBM . . . and pay any applicable charges" if it wishes to increase its level of use, and that "[t]he amount payable for a Program license is a one-time charge." (Ex. B at § 2 (emphasis added).) Assuming, arguendo, that the IPLA applied and was breached, the breach occurred at the time of BGC's initial failure to notify or pay IBM, but its ongoing failure to correct this breach does not constitute a continuing violation. To hold otherwise would "overlook[] the distinction between a breach and the ability to cure a breach." First Am. Title Ins. Co. of N.Y. v. Fiserve Fulfillment Servs., Inc., No. 06 Civ. 7132, 2008 WL 3833831, at *2 (S.D.N.Y. Aug. 14, 2008); see also Sanchez de Hernandez v. Bank of Nova Scotia, 908 N.Y.S.2d 45, 46-47 (App. Div. 2010); c.f. Guilbert v. Gardner, 480 F.3d 140, 150 (2d Cir. 2007) (finding continuing violation where defendant repeatedly failed to make annual payments because "each successive breach may begin the statute of limitations running anew"); Faulkner v. Arista Records LLC, 602 F. Supp. 2d 470, 478 (S.D.N.Y. 2009) (ongoing failure to pay constituted continuing violation based on wording of contract, but "ordinarily would have become time-barred under New York law"). Since the IPLA contains a two-year statute of limitations, BGC may only be held liable for breaches of the IPLA occurring within the two years preceding the initiation of litigation, which would exclude any violations occurring prior to 2008.

For the reasons stated above, while IBM may introduce evidence of BGC's pre-2008 usage of Informix software, but evidence regarding contractual damages arising from such usage will be precluded.

II.BGC's Motion Regarding Profit Disgorgement

Infringement of a copyright entitles its owner "to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." 17 U.S.C. § 504(b). IBM seeks recovery of all of BGC's profits, but first it must present proof of BGC's "gross revenue reasonably related to the infringement," excluding "unrelated revenues." Davis v. Gap, Inc., 246 F.3d 152, 160 (2d Cir. 2001); see also Mackie v. Rieser, 296 F.3d 909, 915-16 (9th Cir. 2002) (copyright holder "must proffer sufficient non-speculative evidence to support a causal relationship between the infringement and the profits generated"). "Because of the at-best highly speculative nature of all indirect profits claims" such as those at issue here,*fn4 the decision to "send[] such claims to a jury should be extremely rare."*fn5 6 William F. Patry, Patry on Copyright § 22:131 (2010).

BGC is an inter-dealer broker, which serves as an intermediary between financial institutions in transactions involving a variety of securities and financial instruments and whose revenue is derived from commissions charged on such transactions. (Exs. A at § 2; C at 5, 79.) BGC uses software, including Informix, for its in back-office functions, such as administratively processing trades after their execution and generating various reports and invoices. (Ex. A at ¶¶ 7-8.) BGC mentions that the "vast majority" of BGC's desks have "always used Sybase," a separate software system, rather than Informix. (Id. at ¶ 11.) BGC's customers are unaware of which software suite will be used to process their trades and are agnostic as to BGC's internal operations. (Id. at ¶¶ 10-11, 13.)

While BGC has acknowledged that an "immediate disruption and cessation" of its use of Informix software would have a "devastating effect," it has consistently maintained that migration to another software system, such as Sybase, would have "little to no effect." (Ex D at 124.) Affidavits previously submitted by BGC discussed the "integral" role played by Informix in BGC's business operations, but they made clear that the risk that BGC feared was premised on the short-term effect of forcing BGC "to revert to manually inputting massive volumes of trade data" because the "exceptionally complicated" process of migrating to a new software system could not be done overnight. (Ex. H at ¶¶ 29, 33-36; see also Ex. I at ¶ 6.) Given the time and resources to migrate to another software suite, however, the Informix software could be replaced without any harm to BGC's business. Indeed, the partial migration that occurred prior to and while discovery was ongoing had "no effect" on BGC's business because alternative software was capable of "effectively provid[ing] the same functionality" as Informix. (Ex. D at 125.)

Haas, IBM's damages expert, opined that IBM was entitled to disgorgement of BGC's profits in the amount of $100,926,000 (Ex. G at ¶ 40), based upon BGC's representations that the Informix software was "integrally important to the operations of BGC and its ability to service its customers." (Id. at 38.) Haas comes to this conclusion by taking BGC Financial, L.P.'s 2009 pre-tax income of $50,463,000, attributing all of it to BGC's infringement of the InformiX software, and then doubling it to account for BGC's then-unknown 2010 profits.*fn6 (Id. at 39-40.) This speculation is well short of the requisite factual demonstration that at least some portion of BGC's profits "are attributable to [BGC's alleged] infringement." 17 U.S.C. § 504(b). Furthermore, Haas's testimony regarding his methodology does not satisfy the requirement that IBM present proof of BGC's "gross revenue reasonably related to the infringement" and exclude "unrelated revenues." Davis, 246 F.3d at 160 (emphasis added). As in Davis, IBM has "failed to discharge [its] burden by submitting [the defendants'] gross revenue," which includes revenue that was not derived from the infringement itself. Id. at 161.

Moreover, IBM has failed to proffer sufficient evidence of a "'causal link' between the infringement and the revenues." Granger v. Gil Abstract Corp., 566 F. Supp. 2d 323, 330 (S.D.N.Y. 2008) (quoting Davis, 246 F.3d at 160). BGC did not market or sell the Informix software to its customers and there is no evidence that its customers cared what software system it used. While BGC may have profited from using Informix indirectly in that it enabled BGC to operate more efficiently, courts often "deny recovery if the profits 'are only remotely or speculatively attributable to the infringement.'" Lowry's Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737, 751 (D. Md. 2003) (quoting Konor Enters., Inc. v. Eagle Publ'ns, Inc., 878 F.2d 138, 141 (4th Cir. 1989)). IBM points to nothing more than BGC's repeated statements that Informix software is "integral" to its operations and that the sudden removal or failure of the Informix software would have devastating consequences to BGC's operational efficiency. But simply saying that copyrighted material "may have played an 'important,' 'significant,' or 'meaningful' role" is insufficient, particularly where, as part of BGC's information technology infrastructure, it compromises only a portion of what enabled BGC to conduct its business profitably. Id. at 752. Indeed, in a remarkably similar case in which a court addressed "[w]hether all of the defendant's profits are 'attributable to the infringement' merely because the plaintiff's software was an essential component of a larger profit-generating process,"*fn7 plaintiff's requested relief was found to be "too speculative" because the plaintiff failed to "do more than merely point to [defendant's] balance sheet" despite the fact that it was clear that the defendant's "entire gross revenue is not attributable to [plaintiff's] source code." DaimlerChrysler Servs. v. Summit Nat'l, No. 02 Civ. 71871, 2006 WL 208787, at *2-3 (E.D. Mich. Jan. 26, 2003).

"In the absence of concrete evidence" regarding "the myriad factors that could influence [BGC's customers'] decisions" to engage BGC's services, Mackie, 296 F.3d at 916, IBM's indirect profits argument is overly speculative. BGC's motion to bar the recovery of profits in the amount of $100,926,000 is therefore granted.

III.BGC's Motion to Preclude Duplicative Damages Evidence*fn8

BGC seeks to preclude IBM from introducing argument or evidence of damages for copyright infringement because it asserts that IBM's copyright infringement and breach of contract claims seek duplicative damages as they stem from "precisely the same purported injury

-- BGC's allegedly unlicensed use of the same Informix software, at the same rates of deployment, before and after 2009." (Defs. Mem. of Law at 6-7.) Pursuant to IBM's allegations, BGC would not have breached the IPLA nor infringed IBM's copyrights if it had paid for the appropriate number of software licenses. "A plaintiff is not entitled to recover twice for the same injury. . . . When violation of two distinct rights results from the same conduct, multiple recoveries are permissible -- but only to the extent that two different types of harm have been suffered." Sparaco v. Lawler, Matursky, Skelly Eng'rs LLP, 313 F. Supp. 2d 247, 250-51 (S.D.N.Y. 2004); see also Francois v. Ruch, No. 03 Civ. 1419, 2006 U.S. Dist. LEXIS 90804, at *17-18 (C.D. Ill. Dec. 15, 2006).

In the instant matter, however, IBM's copyright infringement and breach of contract claims arise from only partially overlapping conduct by BGC. Specifically, the breach of contract claim is limited to BGC's conduct between January 7, 2008, as required by the IPLA's two-year statute of limitations, and December 31, 2008, when IBM terminated the IPLA. See supra § I. By contrast, the statute of limitations for copyright infringement is three years. Kregos v. Associated Press, 3 F.3d 656, 661 (2d Cir. 1993) (citing 17 U.S.C. § 507(b)). IBM's copyright claim therefore encompasses periods not included within its breach of contract claim, as it allows for damages relating to BGC's actions dating back to January 7, 2007, and occurring after the IPLA's termination. See Paramount Pictures Corp. v. Metro Program Network, Inc., 962 F.2d 775, 779 (8th Cir. 1992) (affirming award of copyright and contractual damages where "[t]he breach of contract claim . . . relates solely to events that occurred before May 6" and, "[i]n contrast, the copyright infringement claim relates to events that occurred after May 6."); J.S. Nicol, Inc. v. Peking Handicraft Inc., No. 03 Civ. 1548, 2008 WL 1809319, at *5 (S.D.N.Y. Apr. 21, 2008 ("Damages pursuant to the contract claim are not sufficient to remedy the additional damage suffered as a result of defendant's unauthorized use of plaintiff's designs after the expiration of the licensing agreement."). Accordingly, the central case upon which BGC relies is inapposite. See MCA Television Ltd. v. Public Interest Corp., 171 F.3d 1265, 1276 (11th Cir. 1999) ("we take no position on whether . . . a licensor would be entitled to treat a breach of a licensing contract as a rescission, and to revoke a . . . license and sue in copyright for infringement if the licensee persisted" in its infringement).

BGC's motion to preclude argument and evidence relating to actual copyright damages is denied.

IV.BGC's Motion to Exclude Expert Report and Testimony of David A. Haas

Expert testimony is allowed where "the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702(a). "[T]he proponent of expert testimony has the burden of establishing by a preponderance of the evidence that the admissibility requirements of Rule 702 are satisfied." U.S. v. Williams, 506 F.3d 151, 160 (2d Cir. 2007). Though "district court[s] should not admit testimony that is 'directed solely to lay matters which a jury is capable of understanding and deciding without the expert's help,'" U.S. v. Mulder, 273 F.3d 91, 101 (2d Cir. 2001) (quoting U.S. v. Castillo, 924 F.2d 1227, 1232 (2d Cir. 1991)), "[g]enerally 'the rejection of expert testimony is the exception rather than the rule.'" Floyd v. City of New York, 861 F. Supp. 2d 274, 287 (S.D.N.Y. 2012) (quoting Fed. R. Evid. 702 Adv. Comm. Notes (2000)).

Haas concluded that IBM's damages include $3,753,137 in actual copyright damages accruing between January 1, 2009 and December 31, 2010; and $1,239,116 in breach of contract damages accruing between January 7, 2008 and December 31, 2008.*fn9 See supra at § I. The breach of contract damages were calculated by assuming the accuracy of KPMG's conclusions regarding the volume of BGC's over-deployment of Informix Software and then applying an initial license fee and annual maintenance renewal fee for the volume of over-deployed software, with the fees based on IBM's historical Informix prices. (See Levin Decl. Ex. E at ¶¶ 27-28.) The copyright damages were determined by assuming that BGC continued to use the Informix software at the levels calculated by KPMG after January 1, 2009; accounting for the initial license fees and maintenance fees BGC would have paid ...


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