F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

O R A C L E C O R

P O R A T I O N , a Delaware corporation; O R

A C L E I N T E R N A T I O N A L C O R P O R A T I O N ; O R A C L E S Y S T E M S C O R

P O R A T I O N ; O R A C L E U SA I

N C .; O R A C L E E M E A L I M I T E D ; J .D. E D W

A R D S E U R O P E L I M I T E D ; S I E B E L S Y S T E M S , I N C ., Plaintiffs-Appellants

,

v

.

SAP AG, a German corporation; SAP A M E R

I C A I N C

. ; T O M O R R O W N O W I N C

. , a Tex a s corporation, Defendants-Appellees

. N o. 12-16944

D.C. No. 4:07-cv-01658- PJ H

OPI NI ON

A ppeal from the United States District Court for the Northern District of California Phy llis J . Hamilton, District J u dg e, Presiding

Arg ued and Submitted May 13, 2014—San F rancisco, California

F iled Aug ust 29, 2014

B efore: Susan P. Graber, W illiam A. F letcher, and Richard A. Paez , Circuit J udg es.

Opinion by

J udg e W

. F letcherO R A C L E C O R

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SUMMARY *

Copyright Law

The panel affirmed in part and vacated in part the district court’s judg me n t a fter a jury trial on damag es for infring ement of enterprise software copy rig hts ow n e d b y Oracle Corp. and other plaintiffs.

The jury a w a r d e d Oracle $1.3 billion as the f air market value of a hy

pothetical license from Oracle encompassing the defendants’ infring e ment o f Oracle’s copy rig hts. The district
court g ranted judg ment as a matter of law on the g r ound that Or a c l e f ailed to provide enoug h e vidence to permit the jury
t o e s t a b l i sh an objective, n on-speculative hy pothet i c a l

- l i c e n s e price. The district court o r d e red a new trial, conditioned on Oracle’s r ejection of a $272 million remittitur measured b y t h e c opy rig ht holder’s lost profits plus infring er’s profits, rather than by h y

pothetical-license damag es. Oracle rejected the remittitur

. T h e district court ruled that, if a second trial

were conducted, Oracle would not be a ble to arg u e f

o r , o r present evidence of, hy

p othetical-license damag es. Oracle and the defendants stipulated to a $306 million judg ment.

Affirming the district court’ s g rant of J MOL
, the panel held that in order to rec o ver hy pothetical-license d amag es, Oracle did not h ave to show that it act u a l l y w ould have
g ranted a license to defendants. The panel also held that the hy pothetical-license damag e award w a s based o n undue speculation. The panel a f f i r m e d the district court’s g rant o f

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.O R A C L E C O R

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defendants’ motion f

or new trial c onditio n e d on Oracle’s rejection of a remittitur, a s we l l a s t he district court’s ruling that Oracle could not pursue hy pothetical-license damag es at a second trial.

The panel vacated the d istrict co u r t ’s ruling selecting $272 million as the remitt i t u r amount b ecause that amount

was b elow the max imum am o u n t sustainable by the proof. The panel remanded with inst r u c tions to condition any new trial on Oracle’s rejection of a $356.7 million remittitur.

The panel a ffirmed the district court’s denial of Oracle’s motion to ex clude testimony b y defendants’ damag es ex pert during a second trial. The panel declined to reach additional issues concerning

a second trial.

COUNSEL

K a t hleen M. Sullivan (arg u ed) and William B alden Adams

, Quinn Emanuel U rquhart & Sullivan L L P, N e w Y o rk, New York; Dorian Estelle Daley and J ennifer Gloss, Oracle Corporation, Redwood City

, California; Steven Chr i stopher Holtz man and F red No r t on, B oies Schiller & F lex ner L L P, Oakland, California; Geoffrey Mathew Howard, B ing h am McCutchen L L P, San F rancisco, California, for Plaint i f fs

Appellants.

Tharan Greg ory L anier (arg ued) and J acqueline K.S. L ee, J ones Day
, Palo Alto, California; Greg ory Andrew Castanias, Tara Stuckey

Morrissey , J ones Day
, W a shing ton, D.C.O R A C L E C O R

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OP INION

W

. F L ETCHER, Circuit J udg e:

Oracle Corpor at i o n and SAP AG are competitors in the enterpr i s e s oftware market. I n 2007, Oracle et a l. (co l l e ctively

, “Oracle”) broug h t suit ag ainst SAP et a l. (collectively

, “SAP”) alleg ing th a t TomorrowNow, an enterprise software company recently acquired by SAP, was
eng ag ing in sy stematic and pervasive illeg al downloading o f Oracle’s software. SAP eventually stipulated to liability

, a nd the parties went to trial solely on damag es.

The jury a

warded O ra c l e $1.3 billion as the f air market value of a h y

p othetical lic e n s e from Oracle encompassing SAP’s infring e ment o f Oracle’s copy rig hts. SAP moved for judg ment as a matter of law (“J MOL ”) on t w o grounds: (1) that Oracle failed to show that it a c t u a l ly would have
g ranted a license; and (2) that Oracle failed to provide enoug h evidence to permit the jury to establis h a n o bjective, nonspeculative hy

pothetical-license p rice. The district court g ranted J MOL
, making clear in a late r o r d er that it ag reed with only the second of the two g rounds.

The district court ordered a n ew tr i a l

, conditioned on Oracle’s r ejection of a $272 million remittitur measured b y t h e copy rig ht holder’s lost profits plus infring er’s profit s , rather than by h y

pothetical-license damag es. Oracle rejected the remittitur. T h e d istrict court ruled that, if a second trial

were conducted, Oracle would not be a ble to arg ue f

o r , o r present evidence of, hy

p oth etical-license damag es. Oracle and SAP stipulated to a $306 million judg ment.O R A C L E C O R

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Oracle a ppeals from several ruling s by the district court: (1) a g rant of J MOL to SAP; (2) a g r ant of SAP’s motion for

a new trial condition ed on Oracle’s r ejection of a remittitur; (3) a ruling that Oracle could not pursue hy pothetical-license damag es at a second trial; (4) a ruling selecting $272 million

a s t h e remittitur amount; and (5) four ruling s on issues relevant to a second trial.

W e a ffirm t h e f

i r st three r

uling s. W e v a cate the fourth ruling and remand to the district court. We conclude that the district court e rred in setting the r e mittitur at $272 million. That amount was below “the max imum amount su s t a i nable b y the proof,” D & S Redi-Mix v

. S ierra Redi-Mi

x & Contracting Co.
, 692 F

. 2d 1245, 1 2 4 9 (9th Cir. 1982). W e therefore vacate and remand with instructio n s t o condition
any new trial on Oracle’s r ej e ction of a $356.7 million remittitur. W e aff

i r m o ne of the four ruling s relating to the second trial; we do n o t reach the questions presente d b y the other three ruling s.

I . B ackg round

Oracle and SAP are self-described “fierce” competitors in the enterpri s e s o f

tware industry

. I n 2005, when Oracle acquired PeopleSoft, another e n terprise software company , f o r $ 1 1 billion. PeopleSoft h ad itself recently a cquired J .D. Edwards, a

nother e nterprise software company

. I n acquiring PeopleSoft, Oracle hoped to g ain PeopleSoft’s nearly 10,000
customers. I n reaction to Oracle’s acquisition, SAP initiated

a marketing prog ram called Safe Harbor and later, in a modified form, Safe Passag e

. F or c o nvenience, we will refer to this prog ram as Safe Passag e.O R A C L E C O R

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As a key componen t o f S a f e Passag e, SAP acquired TomorrowNow I nc. (“TomorrowNow”) in 2 0 0 5 for $10 million. F o unded by former employ ees of Pe o p l eSoft, TomorrowNow provided soft w a r e maintenance services to PeopleSoft’s customers, including J .D. Edwards’ customers, at half the p rice char ge d by Oracle. After Oracle acquired Siebel Sy stems, another enterprise software company , for $6 billion i n 2 0 06, TomorrowNow ex panded its maintenance services to i n c l ude Siebel software. SAP hoped to leverag e TomorrowNow’s r elationship with its maintenance serv ice

cu s tomers to p ersuade some of those c ustomers to switch over to SAP software.

I n 2 006, an Oracle emplo y e e n oticed thousands o f suspicious downloads of Ora c l e software. After an investig ation, Oracle conclude d t h at TomorrowNow h ad illeg ally downloaded millions of PeopleSo f t, J .D. Edwards, Siebel, a nd Oracle d atabase f

iles. TomorrowNow continued
to provide maintenance services to Ora c l e customers using these downloads until sometime in 2008.

Oracle broug ht s u i t in federal district court in 2007, alleg ing copy

rig ht infring emen t and other federal and state claims. Shortly be f

o r e t rial, SAP stipulated to liability on Oracle’s copy

rig ht claims

, and Oracle dismissed with prejudice all of its non-copy rig ht claims.

Th e district court conducted a thirteen-day jury trial l i m ited to damag es for copy r ig ht infring ement. The distr i ct judg e instructed the jury th a t i t could award either (1) hy pothetical-license damag es or (2) plaintiff’s lost p rofits and infring e r’s profits. Oracle’s ex pert testified, base d on a hy pothesiz ed neg otiation that would h a v e taken place before the infring e ment beg a

n, that the fair market value o f a licenseO R A C L E C O R

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allowing use of the downloaded software for the period o f infring ement would have been $ 1 .656 billion. I n N ovember 2010, the jury return ed a verdict for Oracle for $1.3 billion, based on what it found wa s t h e fair market value of a hy pothetical license g ranted by Oracle.

SAP obj e c ted to the amount of the damag e award a nd moved for J MOL

. T h e district court g ranted J MOL
, making clear in a la t e r o r der that its sole g round for deny ing the

mo t i o n was that “ the evidence Oracle presented was insufficient to establish a

n objective non-speculative license price.”

SAP also m o ved for a new trial. The district court g ranted the motion conditioned on O ra c l e’s rejection of a $2 7 2 m i llion remittitur. The district court d etermined that $272 million was “the max imum amount

. . . sustainable b y the p roof.” I n g ranting SAP’s motion, the district court made clear that in a new trial, if one w ere conducted, Oracle would
not be allowed to arg u e f o r, or present evidence of, hy pothetical-license damag es.

Oracle rejected the $ 272 million remittitur. I n advance o f a second trial, the district court denied a number of Oracle’s evidentiary motions. I n o rder to ex pedite a n appeal, the parties stipulated to a $306 million judg ment i n Oracle’s favor. Oracle timely appealed.

I I . Standard of Review

W e review de novo a district court’s g rant of J MOL under F ederal Rule of Civil Procedure 50. Mangum v. A ction Collection Serv., Inc.
, 5 75 F .3d 935, 938 (9th Cir. 2009). J MOL “is properly g ranted only if no reasonable juror couldO R A C L E C O R

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find in the non-moving party ’s favor.” Id. at 939 (quoting Torres v

. City of L.A.
, 548 F .3d 1 197, 1205 (9th Cir. 2008)). The court “‘must view the evidence in the l i gh t m ost favorable to the nonmoving party

. . . and draw all reasonable inferences in that p a

r ty ’s favor.’” EEOC v. Go Daddy Software, I

nc. , 581 F .3d 951, 961 (9th Cir. 2009) (alteration in orig inal) ( quoting Josephs v. Pac. Bell

, 443 F .3 d 1050, 1062 (9th Cir. 2006)).

“W e review a district court’s gr a n t o f a new trial for an abuse of discretion.” Silv e r Sage Partners, Ltd. v. City of D esert Hot Springs
, 2 51 F .3d 814, 818 (9th Cir. 2001 ).

“ [ T] he same standard of review is appropriate

. . . where a plaintiff rejects the remittitur and a second trial is h eld

. . . . ” Id. at 818–19. W e review for abuse of discretion a remittitur
amount set by the district court. D & S Redi-Mix

, 6 92 F .2d at 1249.

I I I

. Discussion

A. Grant of J MOL

SAP makes two arg uments in support of the distr ict court’s g rant o f J MOL

. F irst, SAP a r gu e s t hat, in order to

r e cover h y

pothetical-license d amag es, Oracle had to show that it actu a lly would have g ranted a license to TomorrowNow. Second, SAP arg ues that the jury ’s hy poth e t ical-license damag e award w as based o n undue speculation. The district c o urt disag reed w ith the first
arg ument b ut ag reed with the second. W e agr e e w ith the district court.O R A C L E C O R

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1. No Grant of L icense

SAP arg ues that hy

pothetical-license damag es cannot be awarded b ecause Oracle was unwilling to g r ant a licens e to T o m orrowNow f

or the use o f its PeopleSoft, J .D. Edwar d s , Siebel, and Oracle database copy rig hts. As a factual matter,

we ag ree that Oracle never would h ave g r anted such a license
to TomorrowNow. Oracle ex ecutives testified g enerally that Oracle never licenses its software to competitors, a nd specifically that O racle never would have g ranted a license to TomorrowNow.

However, w e disag ree with SAP’s leg al arg ument. Under 17 U.S.C. § 5 04(b), a “copy rig h t owner is entitled to r ecover [ 1] the a ct ual d amag es suffered by h im or her as a result o f the infring ement, and [ 2 ] any profits of the infring er that are attributable to the infring ement and are not taken into account in computing the actual damag e s.” “[ A] p l a intiff in a § 5 0 4(b) a ction must e stablish [ a] causal c onnection” “between the infring ement and the monetary remedy soug ht.” Polar Bear Prods., Inc. v. Timex Corp.
, 3 8 4 F .3d 700, 708 (9th Cir. 2 004). “‘Actual damag e s ’ are the ex tent to which the market value of a copy rig hted w o r k has been injured o r destroy e d by an infring ement.” Frank Music Corp. v. MetroGoldwyn-Mayer, In c. , 772 F .2d 505, 512 (9th Cir. 1985). Althoug h “actual damage s ” c an b e awarded in the form o f lost profits, h y

pothetical-license damag es also constitute a n acceptable f

orm of “ actual d a m ag es” recoverable under Section 504(b). See Polar Bear Prods.

, 384 F .3d a t 708–09. To calculate the “market v a l u e ” o f the injury to the p laintiff based on a hy

pothetical-license theory

, we look t o “the
amount a willing buy er would h ave been reasonably r equired
to pay a willing seller at the time of the infring e ment for the actual use made by [ the infring er ] o f t he plaintiff’s work.”O R A C L E C O R

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W all Data Inc. v. L.A. Cnty. Sheriff’ s D e p’t
, 447 F .3d 769, 786 (9th Cir. 2006) (internal quotation marks omitted).

W e have never required a plaintiff in a cop y r i gh t infring ement c ase to sho w t h a t it would have licensed the infring ed material. W e decline to impose such a r equirement

now. A c opy

r ig ht holder has the rig h t to refuse to license its work and should n ot be penaliz ed for ex ercising that rig ht. See Stewart v. Abend

, 495 U. S

. 207, 228–29 (1990). I f we

were to require a copy

r ig ht h older to demonstrate that it would have been willing to g rant a license as a condition for recovering damag e s based o n the fair market value of the l i cense, the p erverse result w ould b e that some of the most assiduously

protective copy

rig ht holders would be unable to

recover the fair market value of their wrong fully appropriated
copy rig hted property

. F or ex ample, posit a s ong writer w ho has consistently refused to lice n s e h e r work for use in advertising

. A fast-food chain n onetheless u s e s one of her
song s in a nationwide television campaig n. I f t h e rule were

as SAP proposes, the s o n g writer could not r ecover hy pothetical-license damag es for the infring ement even if she could demonstrate that other song writers charg e $200,000 to license c o m parable song s for such u se. This rule could operate u nfairly

, g iven the d ifficulty the song writer mig ht f a ce in meeting the burden of proof for lost profits a nd infring er’s profits. See On Davis v. The Gap, Inc. , 246 F .3d 152, 1 6 6 (2d Cir. 2001) (“I n our view, as between leaving the victim o f the i l l egal taking with nothing

, and charg ing the illeg al take r wi t h t he r easonable cost of what he took, the latter, at least in some circumstances, is the p r e f e rable solution.”).

SAP arg u es that a plaintiff must show that a license would have been g ranted because, i f t h e copy rig ht holder wouldO R A C L E C O R

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never have ag reed to license her work, she could not, b y definition, h a v e lost any licensing fees “as a result of the infring ement” within the meaning of 17 U.S.C. § 504(b). W e disag ree.

The Second Circuit has ex plained:

I f a copier o f p r o tected work, instead o f

o btaining permission and pay ing the f e e, proceeds without p e rmission and without

co m p ensating the owner, it seems entirely reasonable to conclude that the owner has suffered da m ag es to the ex tent of the infring er’s taking w ithout p ay ing what the

owner was leg ally entitled to ex a ct a fee for

. W e c an see no r eason why

, as an abstract
mat t e r , the statutory term “actual damag es” should not cover the o wner’s failure to obtain the market value of t h e fee the owner was entitled to charg e for such use.

On Davis
, 246 F .3d at 165. The court ex plained further that “whether the infring er mig h t in fact have neg otiated with the

owner o r purchased at the o wner’s p rice is irrelevant” to whether hy

pothetical-lic e n s e d amag es a re available. Id. at 171–72.

Hy pothetical-license damag es assume rather than require the e x istenc e of a willing seller and b uy er. The v ery word “hy pothetical” indicates that damag es may be awarded in the absence of an a ctual license. Oracle was thus not required, a s

a categ orical prerequisite to recovery of hy pothetical-license d a m a ge s , to show that it would ever have g ranted a license. Consistent with our case s upholding a hy pothetical-licenseO R A C L E C O R

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damag es award, and f

ollowing the Second Circuit’s decision in On Dav is
, we h old that a copy rig h t plaintiff’s unwilli n gn e s s to g rant a license to use its copy rig hted work does not d efeat its ability t o r e cover hy pothetical-license damag es.

2. Undue Speculation

An award of hy

pothetical-license damag es is appropriate “provided the amount is not based on ‘undue spec u l a t i o n.’” Polar Bear Prods.

, 384 F .3d at 709 (quoting McRoberts Software, I

nc. v. Media 100, I

nc. , 329 F .3d 557, 566 (7th Cir. 2003)). T he touchstone for hy pothetical-license damag es is “the rang e o f [ t h e license’s] reasonable market v a lue.” Id. “The q uestion,” therefore, “is not what the owner w ould have charg ed, b ut rather what is t h e f ai r market value.” Jarvis v

. K2 Inc.
, 486 F .3d 526, 5 34 ( 9th Cir. 2007) (quoting O n Davis
, 246 F .3d a t 166). T hus, we do not ask what the o wner would like to have charg ed if unconstrained by realit y , b u t w h at a willing owner actually

would have charg ed after neg otiation with the buy er. That is, fair market v al u e is based on “‘an objective, not a subjective, a n aly sis.’” Jarvis
, 486 F .3d at 534 (quoting Mackie v. Rieser
, 296 F .3d 909, 917 (9th Cir. 2002)).

F air market value in a voluntary licensing t ransaction between arms-leng th p arties ordinarily lies somewhere between the two poles of c ost to the seller and benefit to the buy er. T hat is, the seller will not ordinarily c harg e less for a license than its anticipated c ost, and the buy er w i l l n o t ordinarily pay

more for a license than its anticipated benefit. I n the case o f a hy

pothetical license, it is often diffic u l t to determine what, at the time of the infring ement, the seller a nd b uy er thoug ht would b e their respective cost and bene f i t

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F urther, e ven if the cost and benefit can be determined with

some deg ree of certainty

, it is often difficult to determine the
rang e between the two poles of cost a nd b enefit w ithin which the parties would likely

have settled.

Oracle argu e s that the jury ’ s $1.3 billion verdict was reasonably supported, pointing to evidence of, among other thing s, the enormous amount o f da t a s urreptitiously downloaded by TomorrowNow, the amount that Oracle p aid
to a c quire PeopleSoft and Siebel, a nd estimates of how much
money Oracle stood to lose and SAP s tood to g ain from TomorrowNow’s infring ement. The district court concluded that “the ev i d ence Oracle presented was insufficient to establish an o bjective non-speculative licen se price.” W e ag ree. Given that the evidence p resented at trial failed to provide “ the rang e o f the reasonable marke t v a l ue” f or the hy pothetical license in question

, we hold that the jury awarded d amag es using an “undue” a mount of speculation. See Polar Bear Prods. , 384 F .3d at 709.

a. B enefit to SAP

I n its opening brief, Or a c l e p oints to two ty pes o f evidence showing SAP’s ex pected benefit. F irst, Oracle
states that TomorrowNow’s i n fring ement occurred on a “massive” scale. Oracle ex plains that TomorrowNow’s illeg al downloads o f Oracle software “totaled over five teraby tes of infring ing data,” which “would encircle the g lobe nine times if printed out on double-sided paper laid end- t o

end.” Th i s is a dramatic imag e, emphasiz ing that there was

a g reat deal of downloaded data. B ut the quantity of the data, by itself, tells us very

little about its value to SAP.O R A C L E C O R

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Second, Oracle presen t e d evidence of SAP’s o wn projected “benefits from its use of stolen materials.” Oracle

r e lies heavily on two p ieces of evidence as to PeopleSo f t : (1) SAP’s internal fin an c ial estimates, relating to the conversion of PeopleSoft customers to SAP, which projected nearly $900 million in r e v e n u e over three y ears, a nd (2) testimony fro m a n SAP ex e c utive that TomorrowNow’s maintenance and support offering s were an “important” part of this conversion p lan. As to Siebel, Oracle’s ex pert testified that SAP’s improper use of Siebel copy rig hts would h a ve y ielded $97 million to $247 million in “financial g ains” to SAP. As to Oracle database software, Oracle does not identify specific evidence a s to the benefit that SAP stood to g ain from TomorrowNow’s infring ement.

Althoug h these fig ures are relevant to the question of the benefit that SAP hoped to derive from TomorrowNo w’s infring ing activity

, they leave importan t gaps. As to P e o pleSoft and J .D. Edwards, we know that SAP h o p e d t o g ain $ 900 million in revenues by siphoning off business from Oracle. W e also know that TomorrowNow’s infring e ment o f Oracle’s c opy

r ig hts was “ important” t o t h e success of this effort. B ut Oracle p oints to no e v idence i n d i c a ting what portion of the $900 million in projected revenue SAP hoped
to obtain f

rom TomorrowNo w ’s infring ing activity

, a s distinct from the lawful portion of the Safe Passag e prog ram.

Moreover, the $ 900-million f ig ure was o n l y w h a t S A P hoped it could achieve over t h r e e y e ars. The presentation slide prepared f

o r S A P ’s internal use, upon which Oracle bases its arg ument, characteriz ed the calculations underly ing this fig ure a s merely “Assumptions.” An SAP ex ecutive w ho provided the numbers for the slide testified that he “attempted
to make reasonable assumptions,” but the slide tells u s littleO R A C L E C O R

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about what probabilit y S A P actually assig ned to such assumptions. Although w e l ook to the ex pectations of the parties at the time of the hy pothetical nego t iation in determining the hy

pothetical-license value, see, e .g. , W all Dat a , 4 47 F

. 3d at 786, it is telling that, in the end, TomorrowNow had a total of only 358 customers by the time it closed its doors in 2008, a small fraction o f the customers SAP had hoped to attract.

Or a c le strenuously arg ues that SAP “considered its projections r eliable enoug h to serve as the basis for its acquisition” o f T omorrowNow, bu t i t fails to mention that SAP a c q u i red TomorrowNow for only $10 million. I f SAP truly a nticipated t h a t TomorrowNow would produce a $1.3 billion benefit to SAP, as O racle c ontends, a $10 million acquisition price is striking ly low. This low acquisition price does not in itself necessarily preclude Oracle’s r ecovery of a $1.3 billion verdict. B ut it casts substantial doubt on Oracle’s
arg ument that SAP’s stated assumptions o n t h e slide were realistic, and that SAP officials believed t h e s e assumptions when they neg otiated their purchase p r i ce for T omorrowNow. Even d iscounting the value to SAP of TomorrowNow based

on the possibility of disco v e ry of the illeg a l downloads a nd resulting litig atio n , $ 1 0 million is a g reat deal less than the $1.3 billion Oracle say s SAP woul d h a v e paid to Oracle for a license to do what TomorrowNow was doing

.

b. Cost to Oracle

To show its ex pected cost, Oracle presented evidence o f projected lost revenue r e sulting from TomorrowNow’s u se o f the d o wn loaded software. Oracle’s ex pert testified that if SAP had reasonably c onvinced 1 ,375 customers to switch to SAP’s software, as p rojected, Oracle stood to suffer o ver $1.3O R A C L E C O R

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billion in “loss[ es] .” As to Siebel, Oracle arg ues that SAP’s i n f r ing ement o f Siebel’s copy rig hts would have resulted i n $164 million in “neg ative financial impacts” for Oracle. A s to Oracle database software, Oracle’s ex pert testified that the l icensing fees for the illicit c o p ies of Oracle d atab a s e software w ould total $ 55.6 million, b ased on what a n Oracle

ex e c utive claimed that Oracle would charg e.

W e accord limited weig ht to Oracle’s ex pert’s conclusion that Oracle stood to lose m o r e t h an $1.3 billion from TomorrowNow’s i n f

r ing ement of PeopleSoft and J .D. Edwards c opy

r ig hts. Oracle’s ex p e r

t g enerated this estimate by assuming that Oracle would lose the 1 ,375 customers that SAP hoped wo u l d switch f rom Oracle software to SAP software, as outlined in SAP’s “As s umptions” presentation slide. F or the reasons discussed above, the “Assumptions”

are not a p a rticularly reliable source o f objective evidence. F urther, as we describe below in our discussion o f remittitur, Oracle presented evidence of its actual lo s t profits, which

were at most $120.7 million—far less than $1.3 b illion. L ike the evidence of the low a cquisition price of TomorrowNow, this lost profits number casts substantia l doubt on SAP’s internal “Assumptions.”

Oracle also presented evidence of the acquisition cost of PeopleSoft and Siebel

. Oracle emphasiz ed that it “had just paid $11 billion, i n a n a rms-leng th transaction, to acquire PeopleSoft a

nd the accompany

in g intellectual property that SAP and [ TomorrowNow] admittedly stole.” I t had also p aid more than half that—$6 billion—to acquire Siebel Sy stems. An O racle ex ecutive testified that the $1.656 billion hy pothetical-license damag es estimate p rovided by Oracle’s
t r ial ex pert was “conservative” because it was “arou n d 1 0
p e r c e n t of what we actually paid for the

. . . intellect u alO R A C L E C O R

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property .” She further testified tha t O r acle ex pected that PeopleSoft, J .D. Edwards, and Siebel w ould g enerate $1.7 billion annually

in maintenance revenue alone.

Oracle failed, however, to p r e s e nt evidence of the relationship between the v a l u e of owning PeopleSoft, J .D. Edwards and Siebel, on the one hand, and the cost of g ranting

a license to use its copy

rig hts in a l i m i t e d way for a limited period, on the ot h e r

. See W all D ata , 447 F .3d at 786 (discussing “actual use” of copy r ig hted works). I n short, while Oracle’s acquisition p r i c e of PeopleSoft and Siebel is evidence of the immense value that Oracle saw in those companies, it told the jury little of what a hy pothetical license for a specific use of their copy r ig hts for a brief period would have cost Oracle.

c. Value of Hy

pothetical L icense

Evidence of SAP’s p rojected benefits and Oracle’s projected costs is relevant to the fair market value of a license for the use of Oracle’s c opy rig hts during the period o f TomorrowNow’s infring ement. B u t g iven the ty pe o f objective evidence on which our c asel a w has relied in affirming past hy

pothetical-license damag e awards, we hold that the district court correctly c o n cluded that Oracle failed to present sufficient non-speculati v e evidence to support the jury ’s award.

Our caselaw provide s g uidance as to a copy rig ht plaintiff’ s burden in proving hy p othetical-license d amag es. I n one case d iscussed in partic u l ar d etail by the parties, we upheld a hy

pothetical-license award as non

- s p e c u l ative where Timex Corporation used Polar B ear Productions’ copy rig h ted film footag e without the latter’ s a u t h oriz ation. Polar BearO R A C L E C O R

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Prods.

, 384 F .3d at 703, 709. T i m e x had sponsored the production of the film footag e at issue “[ i] n retur n [ f o r] an

ex c lusive one-y ear license to u se the f ilm i n i ts promotional materials.” Id. at 704. Under the parties’ ag r eement, bey ond the one-y ear period “ Timex had the o ption of retaining Polar B ear to produce [ an additional ten-minute promotional] video
at a p rice to b e determined b y the parties,” but Timex decided “to produce the tape separately .” Id. D e s p i t e Polar B ear’s warning s that Timex had no rig ht to use imag es f rom the orig inal film, T imex did so any w ay

. Id. Timex ’s infring ement did not stop there: it “used Pol ar B ear’s

c o py rig hted imag es on two other occasions—in a promotional c ampaig n associated with the soft d r i nk Mountain Dew and in videos used to train salespeople a t a larg e national retailer.” I d.

At trial, Polar B ear presented evidence that before Timex infring ed its c opy

rig ht it h ad quoted Timex a price of $37,500 for preparing a ten-minute video. I d. at 709. Polar B ear also presented ex pert testimony as to the value of a hy

potheticallicense fee c overing Timex ’s infring ing a c t i vity that was “predicated” on this p rice. Id. The jury awarded Polar B e ar $115,000 in lost license fees. Id. at 705 n.3.

W e u pheld the h y

p o t h e t i c a l-license damag e award despite Timex ’s arg uments that the a ward was speculat i v e. Id. at 709. W e observed that ther e w a s little dang er that the $37,500 f ee, on which the calculation of the pr i c e o f the hy pothetical license was based, “was c ontrived or artificially inflated” b ecause “ [ t] he proposed license fee was p roffered before Timex ’s infring e ment.” Id. W e ex plained: “ Having taken the copy

rig hted material, Timex is in no better position
to hag g le over the license fee than an o rdinary thief and mustO R A C L E C O R

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accept the jury ’s valuation unless it ex ceeds the rang e of the reasonable market value.” Id.

Two y ears later, w e up h eld another hy pothetical-license damag e award in W

all Data

. See 447 F .3d at 786–87. I n that
case, “[ t] he L os Ang eles County Sheriff’s Department purchased 3,663 licenses to W all Data’s computer software, but installed the software onto 6,007 computers.” Id. at 773 (footnote omi t t e d )

. After c o ncluding that the Department’s activity c o n s t i tuted copy rig h t infring ement, id. at 774, we affirmed the jury ’s h y

pothetic a l-license damag es award o f somewhere between $53 and $90 per infring ed copy as nonspeculative w here (1) “ the averag e price W all D a t a charg ed the vendor that sold software to the Sheriff’s Department was $189,” (2) “ g overn m e n t entities w ere charg ed $ 113 per copy ,” and (3) the Sheriff’s Department had orig ina l l y p aid $85 per c opy

. Id. at 7 86–87. I n up h olding the award, we

o bserved that the jury ’s award was “within the rang e sustainable by

the proof.” Id.

One y ear after W

all Data
, we uphel d a n other hy pothetical-license damag e award in a ca s e involving the unauthoriz ed use of imag es. See Jarvis
, 4 86 F .3d at 528. The plaintiff in Jarvis was “ a professional photog rapher w ho created several thousand photog r aphic slides

. . . for K2, I nc. (‘K2’), a ma k er of outdoor sporting g oods.” Id. at 527. I n that case, K2 was found to have infring ed the photog rapher’s

co p y rig hts, and we upheld the district c ourt’s damag e s calculation where it had “employ ed reasonable estimates o f the market value of the infring ed imag es.” Id. I n so holding

, we outlined the numerous pieces of e vidence on which the district court had relied in determining the final award:O R A C L E C O R

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The court’s finding s show that it ex amined at least six e stimates o f the fair market value o f J arvis’ infring ed imag es: (1) the testimony of J arvis’ ex pert witness Richard W eisg rau that

. . . J ar v i s ’ imag es were worth $1,500 to $5,000 each; ( 2) the testimony of a senior K2

ex e cutive that he w ould pay $5–20 for an imag e to be used online and $500–750 for a g lossy hig h-definition imag e for a pr i nt

a d vertisement or mag az ine cover; (3) J arvis’ compensation of $10,000 for the 2 ,516 imag e s he delivered to K2 under the 2000 Ag reement; ( 4) J arvis’ compensation of $7,200 f or th e 1,210 imag es he del i v e r e d to K2 under the 2001 A g reement; (5) J arvis’ c o mpensation o f $3,000 for seven imag es he delivered to K 2 in 2001; and ( 6) J arvis’ settlement off e r o f $ 1 5,520 for a ll imag es infring ed by K2. Althoug h these estimates informed the district court’s calculations, it u ltimately cited J arvis’

own d a mag es f

ig ures for imag es used in print and then h alved the averag e of these fig ures to determine the d am ag es per online use. The
court based its halving on its finding that “the fair market value of an online u se is less than the averag e fair marke t v a lue o f a print use.” This methodolog y produced a damag es fig ure of $ 461 per online use, a fig ure below W e isg rau’s estimate b ut well within the r ang e of the other five estimates.

Id. at 5 34 (emphasis omitted). I n ex plaining why we upheld the district court’s award, we wrote:O R A C L E C O R

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The court’s i n quiry was objective, avoiding

r e f erences to what J arvis thoug ht he shou l d have earned or wished he had charg ed. The
court a lso ex amined the financial perspectives of both the w illing buy er ( in the form o f

e v i d e nce about what K2 ty pically pay s for imag es and what it specifically paid J arvis i n its prior dealing s w ith him) and t h e w illing seller (in the form of J arvis’ e a rlier deals with K2 and his revenue f

rom imag e databanks) at the hy pothetical time of sale. F urthermore, the
court g ave log ical r easons why it discounted W e isg rau’s testimony ; a c cording to the court, he “relied almost ex clusively o n the Getty website for h is fig ures and unrealistically used

a monthly licensing fee as the basis f or his val u a t i ons.” F inally

, the f ig ure the court adopted was near the center of t h e r ang e supported by

the evidence.

Id. at 534–35 (footnotes omitted).

The evidence presented b y Oracle provides a much more speculative basis f

o r c a l c u l a t i n g h y p o t h e t i c a l -license damag e s than the evidence i n P o lar Bear
, W all Data
, a

nd Jarvis

. Althoug h a copy

rig ht p l a intiff need not demonstrate that it would have reached a licensing ag reement with the infring er

or present evidence of “benchmark” a g reements i n order to

recover hy

pothetical-license damag es, it may be difficult for

a plainti f f to establish the amount of such damag es without undue speculation in the absence of such eviden c e

. C f. Getaped.com, Inc. v. Cangemi
, 188 F

. Supp. 2d 398, 405–06 (S.D.N.Y. 2002) (recog niz ing the difficulty of determining a non-speculative hy

pothetical-license damag es amount whenO R A C L E C O R

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the infring er is a direct competitor). Here, because Oracle has

no history o f g ranting similar licenses, and has n o t presented evidenc e of “benchmark” licenses in the industry
approx imating the h y

pothetical license in question h ere, Oracle faced an uphill battle.

Oracle bore the burden of proving the fair market value o f the hy pothetical license in question. W e ag ree w ith the district court that Oracle f ailed to provide sufficient objective evidence of t h e m a r

ket v alue of the hy

pothetical license underpinning the jury ’s damag es award. W e therefore affirm the district court’s g rant of J MOL to SAP on that g round.

B . District Court’s Grant of a New Trial

A n ew trial is warranted when “the verdict ‘is ag ainst the
g reat weig ht of the evidence, or it is quite c lea r t h a t the jury has reached a seriously erroneous res ult.’” SEC v. Todd

, 642 F .3d 1207, 1225 (9th Cir. 2011) (quoting EEOC v. Pape Lift, Inc.
, 115 F .3d 676, 680 (9th Cir. 1997)). W e will reverse the district court only if it abused its discretion in g ranting a

new trial. Id. F or the same reason s a s those laid out in our discussion of the district cou r t ’s g rant of J MOL to SAP, we conclude that the district court did not abuse its d iscretion in concluding that “the verdict [ was] ag ainst the g reat weig ht o f the evidence,” id. (internal quotation marks omitted).

C. District Court’s Damag es L imitation for a New Trial

Oracle contends t h at, even if the district court d id not abuse its d iscretion in g ranting SAP’s motion for a new trial, the district c ourt erred in limiting the second trial to damag e s based o n a lost-profits and infring er’s-profits theory

, barring Oracle’s pursuit of hy

pothetical-license d amag es. A ccordingO R A C L E C O R

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to O racle, the district court “chang ed the rules after the close of proof” and therefore should have provided O r a cle with another opportunity t o meet the post-trial standard pronounced by

the district court.

W e d isag ree. W e have previously made clear that hy pothetical-license damag es “are ‘wh a t a willing buy er would have been reasonably required to pay to a willing seller for plaintiffs’ work.’” J

arvis
, 486 F .3d at 533 (quoting Frank Music Corp.
, 772 F. 2 d at 512). Thus, “[ e] x cessively speculative c laims o f damag e s are to be rejected.” I d. at 534. The district court app l i e d this well-established standard in
g ranting J MOL to SAP. Oracle wa s w e l l a ware of the leg al standard that it was required to meet, and we decline to g ive Oracle a second bite at the apple.

D. Remittitur

A r e m ittitur must reflect “the max imum amount sustainable by the proof.” D & S Redi-Mix

, 692 F .2d at 1249. Here, the district court set the remi ttitur at $ 272 million, which w as the lower of two amounts calcul a t e d b y Oracle’s

ex p ert for lost profits an d infring e r’s profits. This f ig ure

r e f l e cted $36 million in Oracle’s lost profits, and $2 3 6 million in SAP’s i n fring e r’s p rofits. As the district court noted, however, O racle’s ex pert h ad also testified to a hig her fig ure: $408.7 million, based on $120.7 million in lost p rofits th r o u gh 2015 rather than 2008, “ to r eflect the ong oing impact” of SAP’s infring ement on Oracle’s p rofits, and $288 million in infring er’s profits, which included three customers that the lower, $236-million estimate did not.

Oracle a rg ues that the di s t r ict court erred in setting the remittitur a t $272 million, g ive n that the very ex pert whoseO R A C L E C O R

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testimony the d istri c t court had credited also testified to the hig her amount of $408

. 7 m i llion. Therefore, according to Oracle, the max imum amount of damag es sustainable by the proof under a lost- and infring e r’s-profits theory was $408.7 million instead of $272 million.

W e a gr e e with the district c o urt that, as to infring er’s profits, $236 million was the max imum amount sustainable by the proof. As the district court pointed out, O r acle’s

ex p ert “testified that h is calculation of infring er’s p rofits ‘rang es down’ to $236 million becau s e there are three
customers ‘where there’s some issues still t h at sort of ex ist

a b o u t the role of TomorrowNow in converting those
customers to SAP. ’” B e c ause Oracle’s ex pert w as unsure about these three customers, the district c o u r t deemed the $288-million infring er’s-pr o f i ts estimate to be “unduly specula t i v e

. ” W e ag ree. “ [ A] plaintiff in a § 504(b) action
must establish [a] cau s a l connection” “ between the infring ement and the monetary remedy soug ht.” Polar Bear Prods.

, 384 F .3d at 708. B ecause o f its ex pert’s equivocation

a s t o w hether the loss of these three customers w a s attributable t o TomorrowNow’s infring ement, O r acle has failed to establish this requisite causal connectio n a n d therefore ca n n o t recover damag es related to those three
customers.

W e disag ree, however, with the district court’s adoption of the $36-million lost-profits fig ure as the max imum amount sustainable by the proof and conclude that th e district court should have c hosen the $ 120.7-million lost-profit s f ig ure instead. Oracle’s ex pert a ssumed, for both h is lo w er a nd hig her lost-profits e stimates, that some of Oracle’s customers switched from Oracle to SAP permanently as a result o f Tomorro w N ow’s infring ement. The hig her fig ure includedO R A C L E C O R

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Oracle’s lost p rofits for seven y ears after TomorrowNow shut its doors in 2008, wh e re a s the lower fig ure accounted for Oracle’s lost profits only throug h 2008. I n other words, the hi gh e r fig ure reflected the reality that, even a fter TomorrowNow ceased opera t i o n s , Oracle had lost an ong oing
stream o f r evenue from its former customers w ho permanently

remained with SAP.

B y c hoosing the $36-million lost-profits amount for the remittitur, the district court necessarily accepted that some o f Oracle’s customers switched to SAP due to TomorrowNow’s infring ement. Moreover, as O racle’s ex p ert ex plained, in the

e n t e rp rise software market, loss of a customer is ty pically permanent. Therefore, once the district court accepted t h e fact that TomorrowNow’s infring ement led some customers to switch to SAP, common sense sug g ests that Oracle would

s u f f e r f rom the loss of those customers b ey ond the d a te t h at TomorrowNow ceased operating

. As to the amount o f harm Oracle suffered, Oracle presented evidence at trial that it

wo u l d be “conservative” to a ssume that its ty pical relationship with a c ustomer lasts te n y ears. This supports Oracle’s ex pert’s u se of 2015 as a n e nd date for the hig her l o s t

- p r o f i t s f i g u r e

— t e n y e a r s a f

t e r S A P a c q u i r e d TomorrowNow.

B y failing to select a remittitur th a t reflected the

max imum amount sustainable by the proof, the district court abused its d iscretion in selecting the $36-million lost-profits fig ure rather t h an the $120.7-million one. W e therefore
vacate and r emand to the d i s t rict court for it to offer Oracle the choice between a $ 356.7-million remittitur—combining the hig hest lost-profits a nd infring er’s-profits estimates sustainable by

the proof—and proceeding to a second trial.O R A C L E C O R

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E. Orders Relevant to a Second Trial

O ra cle a ppeals four ruling s relevant to a second trial, i f one were to occur. W e address them in turn.

1. Ex pert Testimony

of Stephen Clarke

Oracle appeals the district court’s denial of its motion to

ex c lude testimony by SAP’s damag es ex pert Stephen Clarke during the f

irst trial, and seeks an o rder ex cluding his testimony d

uring a second trial. See Daubert v. Merrell Dow Pharm., Inc.
, 5 09 U .S. 579 ( 1 993). W e review f o r a b u s e o f discretion, United States v. Morales

, 108 F .3d 1031, 1035 (9th Cir. 1997) (en banc), and affirm the d istrict court. Oracle contends that “Clarke’s only training and e x p e rience is in accounting ,” such that he i s unqualified to comment on

consumer behavior. Oracle misstates Clarke’s q ualifications. He has a d eg ree in Man ag ement Sciences, has taug ht university -level economics, a nd has ex tensive ex perience a s

an intellectual property damag es ex pert. O r a cle f urther contends that Clarke’s “testimony [ during the first trial] was unreliable and outside his ex p ertise ” b e c ause he relied on I nternet r esearch in his market study

. Oracle fails to e x plain why the I nternet is an i n appropriate resource for conducting market research. Moreover, Oracle had ample opportunity to

cross-ex ami n e Clarke about h is u nderly ing sources a

nd discredit them. The district court did not abuse its discretion in allowing Clarke to testify in t h e f i r st trial, and Oracle has advanced no reason to ex clude h is testimony in a second trial.

2. J u ry I nstruction

Oracle contends that the d istrict c ourt erred in rejecting its proposed instruction that would have told the jury that OracleO R A C L E C O R

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could recover both hy pothetical-license dama ge s a nd infring er ’ s p r o fits. I t asks us to hold on appeal that such an instruction should be g iven in a s e c o n d trial. W e need not de ci d e this question because, a s we have h eld above, hy pothetical-license damag e s may not be soug ht in a second trial.

3. Research and Development Costs

Oracle contends that the district c o urt erred in r uling that

a calculation of hy

pothetical-license damag es could not take into account the ex penditures for research and d e v elopment
costs that SAP would have incurred if it had tried to develop

n o n -infring ing software. I t asks us to hold on a ppeal th at such hy p othetical ex penditures should be taken into account in calculating h y

pothetical-license damag es i n a n second trial. F or the same reason we do not rea c h the question about Oracle’s proposed jury instruction, we d o not r each this question.

4. Motion in L imine

Oracle contends that the district court erred in de n y ing Oracle’s motion in limine, filed in anticipation of the second trial, seeking to p reclu d e S A P from introducing evidence o f its overhead ex penses in order to deduct t h e m f r om any calculation of inf

ri n g e r’s profits. O racle recog niz es that 17 U.S.C. § 504(b) permits an infring er to introduce evidence of “deductible ex penses” to offset the calculation o f infring er’s profits under that statute

. According to Oracle, however, our caselaw precludes willful infring e rs from deducting overhead costs. Oracle relies h e a vily on dicta in Frank M us i c C o r p

. , 772 F .2d at 515 (“A portion of an infring er’s overhead properl y may be d educted from g rossO R A C L E C O R

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revenues to arrive at profits, at least where the infring ement

w a s not w illful, conscious, or deliberate.”). B ecause t h e second t r i a l has not y et occurred, and evidence p resented at tr i a l may b e relevant to any u ltimate ruling b y the district court, w e d ecline to reac h t h i s q uestion. W e note that the d i strict court is free to reconsider its decision in advance of, or during , a second trial if one should occur.

Conclusion

W e a ffirm the district court’s g ran t o f j udg ment as a

ma t t e r of law to SAP, as well as the d istrict court’s g rant o f SAP’s motion requesting a new trial conditioned on Oracle’s rejection of a r emittitur, on the g round that t h e j u r y reached its $1.3 billion verdict based on undue speculation. W e also affirm the district court’s ruling barring Oracle from presenting hy

pothetical-license d amag es at any n e w trial, a nd affirm the district court’s ruling a l l owing SAP’s ex pert Clarke to testify

. W e conclude, however, that the district
court erroneously set the remittitur at $ 272 million. W e therefore vacate a

nd r emand with instructions for the district
court to offer Oracle the choice between a $356.7 million remittitur and a n ew trial. Each side shall bear its own costs on appeal.

AF F IRMED in part, V ACATED in part, a nd REMANDED.