Monday, May 13, 2019

U.S. Supreme Court, Apple Inc. v. Pepper, Docket No. 17-204, J. Kavanaugh


Consumer Law
Antitrust
Competition Law
Section 4 of the Clayton Act
Right to Sue
Direct Purchasers
Proximate Cause
Monop­sony Theory

Apple Inc. sells iPhone applications, or apps, directly to iPhone owners through its App Store—the only place where iPhone owners may law­fully buy apps. Most of those apps are created by independent devel­opers under contracts with Apple. Apple charges the developers a $99 annual membership fee, allows them to set the retail price of the apps, and charges a 30% commission on every app sale. Respond­ents, four iPhone owners, sued Apple, alleging that the company has unlawfully monopolized the aftermarket for iPhone apps. Apple moved to dismiss, arguing that the iPhone owners could not sue be­cause they were not direct purchasers from Apple under Illinois Brick Co. v. Illinois, 431 U. S. 720. The District Court agreed, but the Ninth Circuit reversed, concluding that the iPhone owners were di­rect purchasers because they purchased apps directly from Apple.

Held: Under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.

This straightforward conclusion follows from the text of the an­titrust laws and from this Court’s precedent. Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue.” 15 U. S. C. §15(a). That broad text readily covers consumers who purchase goods or services at higher-than-competitive prices from an allegedly monopolistic retailer. Applying §4, this Court has consistently stated that “the immediate buyers from the alleged anti­trust violators” may maintain a suit against the antitrust violators, Kansas v. UtiliCorp United Inc., 497 U. S. 199, 207, but has ruled that indirect purchasers who are two or more steps removed from the violator in a distribution chain may not sue. Unlike the consumer in Illinois Brick, the iPhone owners here are not consumers at the bot­tom of a vertical distribution chain who are attempting to sue manu­facturers at the top of the chain. The absence of an intermediary in the distribution chain between Apple and the consumer is dispositive.

(…) Longstanding goal of effective pri­vate enforcement and consumer protection in antitrust cases.

(…) Applying §4, we have consistently stated that “the immediate buyers from the alleged anti­trust violators” may maintain a suit against the antitrust violators. Kansas v. UtiliCorp United Inc., 497 U. S. 199, 207 (1990); see also Illinois Brick, 431 U. S., at 745–746. At the same time, incorporating principles of proximate cause into §4, we have ruled that indirect purchasers who are two or more steps removed from the violator in a distribution chain may not sue. Our decision in Illinois Brick established a bright-line rule that authorizes suits by direct purchasers but bars suits by indirect purchasers. Id., at 746.

(…) In this case, unlike in Illinois Brick, the iPhone owners are not consumers at the bottom of a vertical distribution chain who are attempting to sue manufacturers at the top of the chain. There is no intermediary in the distribution chain between Apple and the consumer. The iPhone owners purchase apps directly from the retailer Apple, who is the alleged antitrust violator. The iPhone owners pay the alleged overcharge directly to Apple. The absence of an intermediary is dispositive.

(…) Thirty States and the District of Columbia filed an amicus brief supporting the plaintiffs, and they argue that C should be able to sue A in that hypothetical. They ask us to overrule Illinois Brick to allow such suits. In light of our ruling in favor of the plaintiffs in this case, we have no occasion to consider that argument for overruling Illinois Brick. (fn. 2).

(…) Consider a traditional supplier-retailer relationship, in which the retailer purchases a product from the supplier and sells the product with a markup to consumers. Under Apple’s proposed rule, a retailer, instead of buying the product from the supplier, could arrange to sell the prod­uct for the supplier without purchasing it from the supplier. In other words, rather than paying the supplier a certain price for the product and then marking up the price to sell the product to consumers, the retailer could collect the price of the product from consumers and remit only a fraction of that price to the supplier.

(…) Here, some downstream iPhone consumers have sued Apple on a monopoly theory. And it could be that some upstream app developers will also sue Apple on a monop­sony theory. In this instance, the two suits would rely on fundamentally different theories of harm and would not assert dueling claims to a “common fund,” as that term was used in Illinois Brick. The consumers seek damages based on the difference between the price they paid and the competitive price. The app developers would seek lost profits that they could have earned in a competitive retail market. Illinois Brick does not bar either category of suit.

(…) Ever since Congress overwhelmingly passed and Presi­dent Benjamin Harrison signed the Sherman Act in 1890, “protecting consumers from monopoly prices” has been “the central concern of antitrust.” Areeda & Hovenkamp ¶345, at 179. The consumers here purchased apps directly from Apple, and they allege that Apple used its monopoly power over the retail apps market to charge higher-than-competitive prices. Our decision in Illinois Brick does not bar the consumers from suing Apple for Apple’s allegedly monopolistic conduct. We affirm the judgment of the U. S. Court of Appeals for the Ninth Circuit.

(U.S. Supreme Court, May 13, 2019, Apple Inc. v. Pepper, Docket No. 17-204, J. Kavanaugh)

Wednesday, May 8, 2019

U.S. Court of Appeals for the Second Circuit, Universal Instruments Corp. v. Micro Sys. Engʹg, Inc., Docket No. 17‐2748‐cv


Sale of Equipment and Software for an Automated Assembly System
Contract Drafting
Breach of Contract
Preemption by the Copyright Act
Copyright Infringement
License Rights
Misappropriation
Unfair Competition
Trade Secret
Tolling
Tort: Continuing Tort Theory
Equitable Relief
Computer Source Code
Software
17 U.S.C. § 117(a)
Choice of Law


Appeal from a judgment entered in the United States District Court for the Northern District of New York (Sharpe, J.), dismissing plaintiffʹs claims for breach of contract, copyright infringement, misappropriation, and unfair competition arising from its sale of equipment and software for an automated assembly system. On appeal, plaintiff contends that the district court erred in granting defendantsʹ motion for judgment as a matter of law.
Affirmed.

Corporation (ʺUniversalʺ) developed and sold an automated assembly system to defendantcounterplaintiffappellee Micro Systems Engineering, Inc. (ʺMSEIʺ) in 2007 pursuant to a purchase agreement. MSEI developed a multiphase plan to build a system to automate the handling of medical devices during its quality testing process, and Universal won the bid to provide the equipment for the first phase. MSEI awarded the second and third phases of the project not to Universal, but to Universalʹs competitor, defendantcounterplaintiffappellee Missouri Tooling & Automation, Inc. (ʺMTAʺ). In implementing phases two and three, MSEI and MTA used intellectual property, including computer source code, that Universal had provided for phase one.
(…) Test Handling System (the ʺTHSʺ)

Universal brought this action below alleging, inter alia, that MSEI and MTA had infringed Universalʹs copyright in its source code, breached the terms of the purchase agreement, and misappropriated Universalʹs trade secrets. Certain claims were dismissed on defendantsʹ motion for judgment on the pleadings, and, after discovery, the parties proceeded to a jury trial on the remaining claims. At the close of the evidence, however, the district court granted defendantsʹ motion for judgment as a matter of law. Universal appeals.

Beginning in 2006, MSEI obtained bids from suppliers for phase one. One of the bidders was Universal, a developer of automated assembly platforms. MSEI awarded phase one to Universal, and the parties memorialized their agreement in an Equipment Purchase Agreement (the ʺEPAʺ), executed in June 2007.

The THS ultimately developed by Universal had two software components: the station software and the server software. The station software was embedded on each individual Polaris station and ʺmanaged the operation of conveyors, elevators, stacks and robotic arms.ʺ J. Appʹx at 2606. This software was stored on each stationʹs programmable logic controller and could be downloaded on site by physically connecting a computer to the station and downloading the source code. Id. at 12991300, 148081, 153234. The server software, on the other hand, was the ʺbrains of the operation,ʺ id. at 988, which ʺsynchronized the activities of the hardware and softwareʺ and was ʺresponsible for coordinating the movement of the module trays,ʺ id. at 2606.
The source code for the server could not be downloaded in the same way as the station software, and under the EPA, Universal was under no obligation to provide the server source code to MSEI. Id. at 2344 (providing that ʺsource code will not be providedʺ). The parties agreed, however, in their Final Customer Acceptance letter (the ʺFCAʺ) that Universal would provide MSEI with a copy of the server source code at the time of delivery. The THS was delivered in October 2008.


In 2009, MSEI solicited bids for the next phase (ʺTHS2ʺ). The bid documents for THS2 indicated that MSEI had the responsibility to provide the software for the station and server source code to be used in the project. In April 2010, MSEI awarded the project to MTA, a competitor of Universal, which submitted a lower bid for the project. On April 8, 2010, MSEI and MTA entered into an agreement (the ʺMTA Agreementʺ). On April 16, Universal and MTA were notified by email that MSEI had ʺawarded the business to MTA for the THS line two project.ʺ J. Appʹx at 2878. MTA subsequently sought to purchase Polaris stations from Universal for use in THS2, but on August 4, 2010, Universal declined to sell them to MTA. Thereafter, MSEI downloaded the source code from the individual Polaris stations and the server source code that Universal gave to MSEI on delivery of phase one; it then gave the code to MTA to use in the production of THS2. MSEI and MTA subsequently modified the server source code to meet the requirements of THS2.

The EPA contains several provisions relating to the partiesʹ intellectual property rights. Section 8 is entitled ʺIntellectual Property.ʺ Section 8.2(d) provides that
if [Universal] uses any PreExisting Intellectual Property in connection with this Agreement, [Universal] hereby grants MSEI, MSEIʹs subcontractors, or suppliers, a nonexclusive, royaltyfree, worldwide, perpetual license, to use, reproduce, display, of the PreExisting Intellectual Property for MSEIʹs internal use only. J. Appʹx at 2336. ʺPreExisting Intellectual Propertyʺ is defined as ʺany trade secret, invention, work of authorship, mask work or protectable design that has already been conceived or developed by anyone other than MSEI before [Universal] renders any services under the Agreement.ʺ Id.
Exhibit E to the EPA, entitled ʺEquipment Acceptance Form,ʺ contained a blank form for the parties to fill in upon final delivery and acceptance.

On October 31, 2008, Universal and MSEI signed a negotiated ʺFinal Customer Acceptanceʺ letter, which stated, among other things, that Universal agrees to provide the THS server code as is with the understanding that MSEI assumes the risk of invalidating the warranty in the event a change made by MSEI to the source code causes damage to any of the THS line hardware. J. Appʹx at 2361.

It is undisputed that in completing phases two and three, MSEI and MTA used source code that Universal had provided for phase one. The principal issue presented is whether the EPA permitted them to do so. We hold that defendantsʹ conduct did not breach § 8.2(d) of the EPA and was noninfringing because that provision permitted defendants to reproduce and use the station and server source code; defendantsʹ adaptation of the server source code was noninfringing because it was authorized by 17 U.S.C. § 117(a); Universalʹs contract claim that defendantsʹ modification of the server source code breached the EPA is preempted by the Copyright Act; Universalʹs claim of misappropriation of trade secrets is timebarred; and MTA did not unfairly compete with Universal because its conduct was not in bad faith. Accordingly, we affirm.

Copyright Infringement
Universalʹs copyright infringement claim turns on whether defendantsʹ conduct fell within the scope of the nonexclusive license provided in the EPA. This is so because a valid license ʺimmunizes the licensee from a charge of copyright infringement, provided that the licensee uses the copyright as agreed with the licensor.ʺ Davis v. Blige, 505 F.3d 90, 100 (2d Cir. 2007). Where a claim turns on the scope of a license, ʺthe copyright owner bears the burden of proving that the defendantʹs [use] was unauthorized.ʺ Tasini v. N.Y. Times Co., 206 F.3d 161, 171 (2d Cir. 2000) (quoting Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995)). Whether the partiesʹ license agreement encompasses the defendantsʹ activities is ʺessentiallyʺ a question of contract interpretation. See Bourne, 68 F.3d at 631. ʺA written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.ʺ Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) (citing R/S Assocs. v. N.Y. Job Dev. Auth., 98 N.Y.2d 29, 32 (2002)). Where, however, ʺthe language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, then the interpretation of the contract becomes a question of fact for the jury and extrinsic evidence of the partiesʹ intent properly is admissible.ʺ Bourne, 68 F.3d at 629. The existence of an ambiguity, if any, is to ʺbe ascertained from the face of an agreement without regard to extrinsic evidence.ʺ Reiss v. Fin. Perf. Corp., 97 N.Y.2d 195, 199 (2001); see also Duane Reade Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 390 (2d Cir. 2005).

We hold, for the reasons discussed below, that the EPA unambiguously permitted MSEI and MTA to reproduce and use Universalʹs preexisting intellectual property in subsequent phases of the THS. Defendantsʹ conduct was, therefore, not infringing. We further conclude that MSEI and MTAʹs adaptation of the server source code for use in additional testing stations was authorized by 17 U.S.C. § 117(a) and thus non-infringing.

(…) There is no evidence that the source code was used by MSEI and MTA for anything other than developing and implementing phases two and three of MSEIʹs internal test handling system.

(…) This understanding is reinforced by our recent holding that ʺunder longestablished principles of agency law, a licensee under a nonexclusive copyright license may use thirdparty assistance in exercising its license rights unless the license expressly provides otherwise.ʺ Great Minds v. Fedex Office & Print Servs., Inc., 886 F.3d 91, 94 (2d Cir. 2018). Here, the license expressly provided that the rights extended to MSEIʹs suppliers, which surely included MTA. Hence, MSEI and MTAʹs reproduction of the source code for MSEIʹs internal use did not, as a matter of law, exceed the scope of the license.

Choice-of-Law
The EPA does not contain a choiceoflaw provision, but the parties agree that New York law applies. See Federal Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 566 (2d Cir. 2011) (noting that where, during the course of litigation, ʺthe parties agree that New York law controls, this is sufficient to establish choice of lawʺ).

Modification of the Source Code was Authorized by 17 U.S.C. § 117(a)
It is axiomatic that ʺan unlicensed use of the copyright is not an infringement unless it conflicts with one of the specific exclusive rights conferred by the copyright statute.ʺ Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 447 (1984). The Copyright Act grants copyright holders a bundle of exclusive rights, including the rights to ʺreproduce . . . in copies,ʺ ʺprepare derivative works,ʺ ʺdistribute copies,ʺ ʺperform,ʺ and ʺdisplayʺ their works. 17 U.S.C. § 106. Source code, the humanreadable literal elements of software, is copyrightable. See Oracle Am., Inc. v. Google Inc., 750 F.3d 1339, 135556 (Fed. Cir. 2014). It is also well established that copyright owners may grant others license to use their rights. John Wiley & Sons, Inc. v. DRK Photo, 882 F.3d 394, 410 (2d Cir. 2018). But because copyright licenses prohibit any use not authorized, a licensee infringes the ownerʹs copyright if its use exceeds the scope of its license. Gilliam v. Am. Broad. Cos., 538 F.2d 14, 20 (2d Cir. 1976) (noting that ʺone who obtains permission to use a copyrightedʺ work ʺmay not exceed the specific purpose for which permission was grantedʺ and concluding that ʺunauthorized editing of the underlying work, if proven, would constitute an infringement of the copyright in that work similar to any other use of a work that exceeded the license granted by the proprietor of the copyrightʺ); see also S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088 (9th Cir. 1989). Thus, § 8.2(d) of the EPA arguably prohibits, at least impliedly, MSEI and its suppliers from modifying Universalʹs preexisting intellectual property.

The Copyright Act, however, provides an affirmative defense that allows the owner of a copy of a computer program to copy or modify the program for limited purposes without incurring liability for infringement. See 17 U.S.C. § 117(a). Section 117(a) provides, in relevant part:
Notwithstanding the provisions of section 106 [which lists the exclusive rights of a copyright holder], it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:
(1)that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner . . . .
Thus, a defendant seeking protection under § 117(a) must demonstrate that the new adaptation (1) was made by the ʺowner of a copy of the computer program,ʺ (2) was ʺcreated as an essential step in the utilization of the computer program in conjunction with a machine,ʺ and (3) was ʺused in no other manner.ʺ 17 U.S.C. § 117(a); see Krause v. Titleserv, Inc., 402 F.3d 119, 122 (2d Cir. 2005).

MSEI Is the ʺowner of a copy of a computer programʺ
We have held that ʺownerʺ as used in § 117(a) does not require formal title in a program copy. Titleserv, 402 F.3d at 123. Instead, ʺcourts should inquire into whether the party exercised sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of § 117(a).ʺ Id. at 124.
In Titleserv, we found the following facts sufficient to consider defendant an owner under § 117(a): defendant paid plaintiff ʺsubstantial consideration to develop the programs for its sole benefitʺ; plaintiff ʺcustomized the software to serve defendantʹs operationsʺ; plaintiff stored copies ʺon a server owned by [defendant]ʺ; plaintiff ʺnever reserved the right to repossess the copies used by [defendant] and agreed that [defendant] had the right to continue to possess and use the programs forever, regardless whether its relationship with [defendant] terminatedʺ; and ʺ[defendant] was similarly free to discard or destroy the copies any time it wished.ʺ Id.

(…) We further held that the ʺaddition of new features,ʺ which ʺwere not strictly necessary to keep the programs functioning, but were designed to improve their functionality in serving the business for which they were created,ʺ were also ʺessential.ʺ Id.; see also Final Report of the National Commission on New Technological Uses of Copyrighted Works 13 (1978) [hereinafter ʺCONTU Reportʺ] (ʺA right to make those changes necessary to enable the use for which it was both sold and purchased should be provided. The conversion of a program from one higherlevel language to another to facilitate use would fall within this right, as would the right to add features to the program that were not present at the time of rightful acquisition.ʺ). In doing so, however, we noted an important limitation: an ʺessentialʺ improvement ought not to ʺharm the interests of the copyright proprietor.ʺ Id. at 129 (citing CONTU Report at 13).

(…) MSEIʹs use did not inhibit Universalʹs ability to market or sell its server software to others, nor did it divulge sensitive Universal information or enrich MSEI or MTA at the expense of Universal. MSEI made and authorized the making of minor modifications, narrowly tailored to adapting the server software for the use for which it was designed ‐‐ orchestration of the test handing stations to ensure the quality of MSEIʹs implantable medical devices.

The Adaptation was ʺused in no other mannerʺ
Finally, to warrant the protection of § 117(a), MSEI must show that the server software was ʺused in no other manner,ʺ that is, it was used only to make an adaptation as an essential step in utilizing the software in conjunction with the test handling system. Universal argues that MSEIʹs modification of the server software to operate with new machines, rather than the existing machines created by Universal, defeats MSEIʹs claim to protection from § 117(a).

ʺWhether a questioned use is a use in another manner . . . depends on the type of use envisioned in the creation of the program.ʺ Titleserv, 402 F.3d at 129. The server software was designed to be the ʺbrains of the operation,ʺ J. Appʹx at 988, which ʺsynchronized the activities of the hardware and softwareʺ and was ʺresponsible for coordinating the movement of the module trays,ʺ id. at 29 2606. These are precisely the purposes for which MSEI and MTA made modifications, as indicated in the Statement of Work. See id. at 2366 (ʺUpdate THS Server software to add functionality for the new stations.ʺ); see also id. at 2367 (ʺScope of the project . . . is first to replicate the existing system . . . , and then expand this configuration to add the capability to add three . . . electrical testers . . . , one RF testing stations and one Shaker test station.ʺ). There is nothing in the record to suggest that the server source code was used for any purpose other than to adapt the system to handle new testing stations for MSEIʹs internal use. See Titleserv, 402 F.3d at 130 (ʺWhat is important is that the transaction for which the programs are used is the type of transaction for which the programs were developed.ʺ). Thus, MSEI ʺsimply increased the versatility of the programs by allowing themʺ to interoperate with new test handling stations, which ʺconstitutes use in the same manner, with the benefit of an adaptation increasing versatility.ʺ Id.

Breach of Contract & Preemption by the Copyright Act
MSEI and MTAʹs use and reproduction of Universalʹs preexisting intellectual property for use in subsequent phases of the THS was noninfringing because defendants were expressly licensed to do so under § 8.2(d) of the EPA. See supra Part I.B.1. It necessarily follows that MSEIʹs use and reproduction of the source code was not in breach of the EPA. See Davis, 505 F.3d at 100; Bourne, 68 F.3d at 631. Universalʹs breach of contract claim is thus reduced to its assertion that MSEI breached the EPA by modifying the server source code. We do not reach the merits of this question, however, because what remains of Universalʹs breach of contract claim is preempted by the Copyright Act.

The Copyright Act exclusively governs a claim when (1) the particular work to which the claim is being applied falls within the type of works protected by the Copyright Act under 17 U.S.C. §§ 102 and 103, and (2) the claim seeks to vindicate legal or equitable rights that are equivalent to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C. § 106. Briarpatch L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 305 (2d Cir. 2004). ʺA state law right is equivalent to one of the exclusive rights of copyright if it may be abridged by an act which, in and of itself, would infringe one of the exclusive rights.ʺ Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424, 430 (2d Cir. 2012). ʺʹBut if an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a statecreated cause of action,ʹ there is no preemption.ʺ Id. (quoting Comput. Assocs. Intʹl, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992)). Preemption, therefore, turns on ʺwhat the plaintiff seeks to protect, the theories in which the matter is thought to be protected and the rights sought to be enforced.ʺ Comput. Assocs., 982 F.2d at 716.

As we have recognized, ʺpreemption cannot be avoided simply by labeling a claim ʹbreach of contract.ʹʺ Forest Park, 683 F.3d at 432; see also 5 Nimmer on Copyright § 19D.03[C][2][b] (suggesting that a contract that ʺdoes not purport to give [the plaintiff] any protection beyond that provided . . . by copyright law itselfʺ would be preempted). In Forest Park, we held the contract at issue not to be preempted because it included an ʺextra elementʺ of a promise to pay, and plaintiff sought contract damages when defendant used plaintiffʹs copyrighted work without paying for the privilege. Forest Park, 683 F.3d at 428. Here, by contrast, there is no dispute over payment. Universal does not argue that defendants violated the EPA by failing to pay for use of the intellectual property.

Misappropriation of Trade Secrets
A plaintiff claiming misappropriation of a trade secret must prove that (1) ʺit possessed a trade secret,ʺ and (2) the trade secret was used by defendant ʺin breach of an agreement, confidence, or duty, or as a result of discovery by improper means.ʺ Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990). We do not reach the merits of this claim, however, because it is timebarred by the applicable statute of limitations.

In New York, a cause of action for the misappropriation of trade secrets is governed by a threeyear statute of limitations, while claims for equitable relief are subject to a sixyear statute of limitations. Compare N.Y. C.P.L.R. § 214(4) (providing threeyearstatute of limitations for claims of misappropriation of trade secrets), with id. § 213(1) (providing sixyear statute of limitations for claims seeking equitable relief). Universal argues that its claim for injunctive relief is governed by the more generous sixyear limitations period.

ʺCourts determine the applicable limitations period . . . by analyzing the substantive remedy that the plaintiff seeks.ʺ ABS Entmʹt, Inc. v. CBS Corp., 163 F. Supp. 3d 103, 108 (S.D.N.Y. 2016) (applying New York law). ʺWhere the remedy sought is purely monetary in nature, courts construe the suit as alleging ʹinjury to propertyʹ within the meaning of CPLR 214(4), which has a threeyear limitations period.ʺ IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139 (2009). In IDT, the equitable relief was incidental to the damages sought, so ʺlooking to the reality, rather than the form, of the action,ʺ the New York State Court of Appeals concluded that IDT principally sought a monetary remedy and, thus, held that the threeyear statute of limitations applied. Id. at 13940. Similarly, in this case, the main remedy that Universal seeks is monetary damages. Universalʹs Third Amended Complaint requested that it be awarded profits and a royalty, not just an injunction, in connection with its misappropriation of trade secrets claim, as well as double damages, punitive damages, and attorneysʹ fees. Therefore, because the reality of the cause of action is that it is one for damages, not injunctive relief, the threeyear statute of limitations applies.

Universal argues that this statute of limitations should be tolled or extended on a continuing tort theory. ʺA continuing tort theory may apply . . . where the plaintiff alleges that a defendant has kept a secret confidential but continued to use it for commercial advantage.ʺ Andrew Greenberg, Inc. v. Svane, Inc., 830 N.Y.S.2d 358, 362 (App. Div. 2007). ʺWhere, however, the ʹplaintiff had knowledge of the defendantʹs misappropriation and use of its trade secret, the continuing tort doctrine does not apply.ʹʺ PaySys Intʹl, Inc. v. Atos Se, No. 14 10105, 2016 WL 7116132, at * 9 (S.D.N.Y. Dec. 5, 2016) (quoting VoiceOne Commcʹns, LLC v. Google Inc., No. 129433, 2014 WL 10936546, at *10 (S.D.N.Y. Mar. 31, 2014)) (citing cases). Here, Universal had knowledge of MSEI and MTAʹs alleged misappropriation and use of its trade secret and, accordingly, the continuing tort theory does not apply.

Unfair Competition
Universalʹs remaining claim against MTA for unfair competition was also properly dismissed. ʺThe essence of an unfair competition claim under New York law is that the defendant has misappropriated the labors and expenditures of anotherʺ with ʺsome element of bad faith.ʺ Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980). MTA was informed prior to executing the MTA Agreement that MSEI and its suppliers were licensed to use and reproduce Universalʹs source code. Moreover, Bob Archer, MTAʹs CEO and coowner, testified at trial that MTA relied on the language of the EPA in agreeing to supply MSEI with subsequent phases of the THS.

As we have held, the EPA in fact authorized MTA as MSEIʹs supplier to use and reproduce Universalʹs preexisting intellectual property for the THS replication project. See supra Part I.B.1. And to the extent MTA adapted the server source code, such adaptions were authorized under federal law.


(U.S. Court of Appeals for the Second Circuit, May 8, 2019, Universal Instruments Corp. v. Micro Sys. Engʹg, Inc., Docket No. 172748cv)



Monday, May 6, 2019

Interpretation - Statutory Preambles


Interpretation (Statutes)
Interpretation (Purpose)
Statutory Preambles
California Law


(…) Though we have cautioned that statutory preambles do not impose substantive requirements (Briggs, supra”, 19 Cal.4th at p. 1118), our task when interpreting legislation is to effectuate the statutory purpose –– and “statements of purpose in a statute’s preamble can be illuminating,” particularly if a statute is ambiguous (Yeager v. Blue Cross of California (2009) 175 Cal.App.4th 1098, 1103).


(California Supreme Court, May 6, 2019, FilmOn.com Inc., v. DoubleVerify Inc., S244157)

California Supreme Court, FilmOn.com Inc., v. DoubleVerify Inc., S244157


Anti-SLAPP Statute
Motion to Strike
Commercial Speech
Comparative Advertising
Online Advertisement
Some commercially oriented speech will, in fact, merit anti-SLAPP protection
Section 425.16 may protect private events and conversations

Free Speech
Petition Rights

Trade Libel
Tortious Interference with Contract
Tortious Interference with Prospective Economic Advantage
Unfair Competition Law
Internet Law
California Law


FilmOn.com Inc. (FilmOn) is a for-profit business entity that distributes web-based entertainment programming. In this case, FilmOn sued DoubleVerify Inc. (DoubleVerify), another for-profit business entity that offers online tracking, verification and “brand safety” services to Internet advertisers. FilmOn alleged that DoubleVerify disparaged its digital distribution network in confidential reports to DoubleVerify’s paying clients. DoubleVerify responded by filing an anti-SLAPP motion to strike.

We granted review to decide whether the commercial nature of a defendant’s speech is relevant in determining whether that speech merits protection under the catchall provision. To resolve this question, we also clarify how the context of a statement more broadly — including the identity of the speaker, the audience, and the purpose of the speech — informs the same analysis.

What we hold is that the context of a defendant’s statement is relevant, though not dispositive, in analyzing whether the statement was made “in furtherance of” free speech “in connection with” a public issue. (§ 425.16, subd. (e)(4).) In an age of easy public access to previously private information through social media and other means, context allows us to assess the functional relationship between a statement and the issue of public interest on which it touches — deciding, in the process, whether it merits protection under a statute designed to “encourage continued participation in matters of public significance.” (§ 425.16, subd. (a).)

In giving effect to this statutory purpose, we find that DoubleVerify’s reports — generated for profit, exchanged confidentially, without being part of any attempt to participate in a larger public discussion — do not qualify for anti-SLAPP protection under the catchall provision, even where the topic discussed is, broadly speaking, one of public interest. This is not because confidential statements made to serve business interests are categorically excluded from anti-SLAPP protection. It is instead because DoubleVerify’s reports are too tenuously tethered to the issues of public interest they implicate, and too remotely connected to the public conversation about those issues, to merit protection under the catchall provision.

Internet use has become pervasive in less than a generation, and along with it, advertising through online platforms. (See Interactive Advertising Bureau, IAB Internet Advertising Revenue Report (May 2018) <https://www.iab.com/wp-content/uploads/2018/05/IAB-2017- Full-Year-Internet-Advertising-Revenue-Report.REV2_.pdf> [as of May 2, 2019].) To ensure their advertising dollars are wisely spent and the ads are placed on sites with content appropriate for their target customers, businesses monitor the websites on which they advertise or may wish to advertise. One company offering such monitoring services — which include collecting and packaging information about a website’s content, viewers, and advertising practices — is defendant DoubleVerify.

For its large stable of clients, DoubleVerify gathers and provides information about the websites on which the clients are interested in advertising. The businesses pay for the reports and agree to keep them confidential. In return, they receive from DoubleVerify information on the location of the website’s viewers, whether a competitor advertises on the website, where the website displays advertisements, how long the advertisements are shown, and — crucial to this litigation — a description of the website’s content. Such a description comes in the form of a “tag” or “label classifying the website’s content.” (FilmOn.com v. DoubleVerify, Inc. (2017) 13 Cal.App.5th 707, 712 (FilmOn).) For instance, DoubleVerify may tag a website as containing “Adult Content,” which it then defines, in a glossary included in the report, as “ ‘ “mature topics which are inappropriate viewing for children including explicit language, content, sounds and themes.” ’ ” (Ibid.) Similarly, DoubleVerify also has a “Copyright Infringement: Streaming or File Sharing” tag, defined as “ ‘ “Sites, presently or historically, associated with access to or distribution of copyrighted material without appropriate controls, licensing, or permission; including but not limited to, sites electronically streaming or allowing user file sharing of such material.” ’ ” (Ibid.)

Some of the websites DoubleVerify labeled as containing “Adult Content” or “Copyright Infringement” material belonged to plaintiff FilmOn. FilmOn provides entertainment content on the web, including “hundreds of televisions channels, premium movie channels, pay-per-view channels and over 45,000 video- on-demand titles.” (FilmOn, supra, 13 Cal.App.5th at p. 712.) FilmOn brought this lawsuit against DoubleVerify after DoubleVerify allegedly distributed confidential reports to its clients “ ‘falsely classifying FilmOn Websites under the categories of “Copyright Infringement-File Sharing” and “Adult Content.” ’ ” (Ibid.) FilmOn alleges that “as a direct result of [DoubleVerify’s] false and disparaging statements published in the Reports,” FilmOn incurred damages because “ad partners and potential ad partners have refused to advertise through websites in FilmOn’s network.” Claiming that its websites neither engage in copyright infringement nor feature adult content, FilmOn sued DoubleVerify for trade libel, tortious interference with contract, tortious interference with prospective economic advantage, and violation of California’s unfair competition law.

DoubleVerify responded by filing an anti-SLAPP motion. The trial court granted the motion, and the Court of Appeal affirmed. The Court of Appeal agreed with the trial judge that DoubleVerify’s reports “concerned issues of interest to the public” because “the public has a demonstrable interest in knowing what content is available on the Internet, especially with respect to adult content and the illegal distribution of copyrighted materials.” (FilmOn, supra, 13 Cal.App.5th at pp. 719, 714.) To support its conclusion, the court analogized DoubleVerify’s confidential reports to ratings by the Motion Picture Association of America, writing, “the Motion Picture Association of America (MPAA) engages in conduct quite similar to DoubleVerify’s activities by rating movies concerning their level of adult content, and the MPAA does so, because the public cares about the issue.” (Id. at p. 720.)

(…) The anti-SLAPP law was enacted “to protect nonprofit corporations and common citizens ‘from large corporate entities and trade associations’ in petitioning government.” (USA Waste of California, Inc. v. City of Irwindale (2010) 184 Cal.App.4th 53, 66.) Attempting to protect against “lawsuits brought primarily to chill” the exercise of speech and petition rights, the Legislature embedded context into the statutory preamble, “declaring that it is in the public interest to encourage continued participation in matters of public significance.” (§ 425.16, subd. (a).)

In the paradigmatic SLAPP suit, a well-funded developer limits free expression by imposing litigation costs on citizens who protest, write letters, and distribute flyers in opposition to a local project. (See Assem. Com. on Judiciary, Analysis of Sen. Bill No. 1296 (1997–1998 Reg. Sess.) as amended June 23, 1997, pp. 2–3; Barker, Common-Law and Statutory Solutions to the Problem of SLAPPs (1993) 26 Loyola L.A. L.Rev. 395, 396.) Identifying the problem as one involving particular litigants, their motivations, and the effects of litigation, the Assembly Committee on Judiciary observed that approximately 25 percent of SLAPP suits “relate to development and zoning,” while 20 percent “arise out of complaints against public officials and employees.” (Assem. Com. on Judiciary, Analysis of Sen. Bill. No. 1296, supra, at p. 3.) The Committee recognized that “such lawsuits are often pernicious, masquerading as standard defamation and interference with prospective economic advantage litigation, while really brought by well-heeled parties who can afford to misuse the civil justice system to chill the exercise of free speech . . . by the threat of impoverishing the other party.” (Ibid.) To curb what it took to be the “disturbing increase” in such lawsuits (§ 425.16, subd. (a)), the Legislature shifted burdens of proof and fees onto the lawsuit filer to “compensate the prevailing defendant for the undue burden of defending against litigation designed to chill the exercise of free speech and petition rights.” (Barry v. State Bar of California (2017) 2 Cal.5th 318, 328.)

(…) But those two decisions stand only for the proposition that section 425.16 could apply “to private communications concerning issues of public interest.” (Terry, supra, 131 Cal.App.4th at p. 1546; see also Hecimovich, supra, 203 Cal.App.4th at p. 465 [“ ‘ “ ‘The focus of the speaker’s conduct should be the public interest. . . .’ ” [Citation.] Nevertheless, it may encompass activity between private people.’ ”].) Long before Terry and Hecimovich, we held that section 425.16 may protect private events and conversations. (Navellier v. Sletten (2002) 29 Cal.4th 82, 91 [“When previously construing the statute, however, we have declined to hold ‘that section 425.16 does not apply to events that transpire between private individuals’ . . . .” quoting Briggs, supra, 19 Cal. 4th at p. 1116].) But we have never suggested quite a different proposition: that it will never matter whether the conversations were private or widely broadcasted and received, and for what purpose.

(…) Notice how the language of section 425.17, subdivision (c) and subsequent case law indicate that the provision exempts “only a subset of commercial speech” — specifically, comparative advertising. (All One, supra, 183 Cal.App.4th at p. 1217; see Simpson, supra, 49 Cal.4th at pp. 32–33 [quoting Mendoza, supra, 182 Cal.App.4th at p. 1652, for the notion that “ ‘the Legislature appears to have enacted section 425.17, subdivision (c), for the purpose of exempting from the reach of the anti- SLAPP statute cases involving comparative advertising by businesses’ ”].) So certain commercially oriented statements will fall outside the scope of section 425.17, subdivision (c). (All One, supra, 183 Cal.App.4th at p. 1217 [“the better understanding of section 425.17, subdivision (c), is that all of the speech exempted from the anti-SLAPP statute is commercial speech, but not all commercial speech is exempted thereunder”].) Like all other statements that do not fall within the scope of an exemption, such statements are eligible for anti- SLAPP protection under section 425.16.

(…) So within the framework of section 425.16, subdivision (e)(4), a court must consider the context as well the content of a statement in determining whether that statement furthers the exercise of constitutional speech rights in connection with a matter of public interest. Having established this principle, we now turn to analyzing how context should feature in a court’s analysis under the catchall provision, and to applying that framework to the facts of this case.

(…) Most often, courts strive to discern what the challenged speech is really “about” — a narrow, largely private dispute, for example, or the asserted issue of public interest. (See Bikkina v. Mahadevan (2015) 241 Cal.App.4th 70, 85 [defendant’s speech was “about falsified data and plagiarism in two scientific papers, not about global warming”]; World Financial Group, Inc. v. HBW Ins. & Financial Services, Inc. (2009) 172 Cal.App.4th 1561, 1572 [defendants’ attempts to solicit competitor’s agents and customers were not “about” the public issues of “workforce mobility and free competition” or “the pursuit of lawful employment”]; Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90, 111 [defendants’ statements “were not about pollution or potential public health and safety issues in general, but about [the plaintiffs’] specific business practices”].) This focus on discerning a single topic of speech is less than satisfying; if the social media era has taught us anything, it is that speech is rarely “about” any single issue.

The inquiry under the catchall provision instead calls for a two-part analysis rooted in the statute’s purpose and internal logic. First, we ask what “public issue or issue of public interest” the speech in question implicates — a question we answer by looking to the content of the speech. (§ 425.16, subd. (e)(4).) Second, we ask what functional relationship exists between the speech and the public conversation about some matter of public interest. It is at the latter stage that context proves useful.

(…) DoubleVerify is no exception. As it does now, DoubleVerify argued before the appellate court that its reports “concerned” or “addressed” topics of widespread public interest: the presence of adult content on the internet, generally, and the presence of copyright-infringing content on FilmOn’s websites, specifically. To support its argument that FilmOn’s alleged copyright infringement is a matter of public interest, DoubleVerify offered evidence that FilmOn has been subject to media reports and litigation over its streaming model. The Court of Appeal agreed, finding that DoubleVerify’s reports were made “in connection with” matters of public interest because the company’s tags “identified” content that fell within categories of broad public interest. (FilmOn, supra, 13 Cal.App.5th at p. 720.)

But the catchall provision demands “some degree of closeness” between the challenged statements and the asserted public interest. (Weinberg, supra, 110 Cal.App.4th at p. 1132.)

So even if adult content on the Internet and FilmOn’s particular streaming model are in fact issues of public interest, we agree with the court in Wilbanks that “it is not enough that the statement refer to a subject of widespread public interest; the statement must in some manner itself contribute to the public debate.” (Wilbanks, supra, 121 Cal.App.4th at p. 898; see also Dyer v. Childress (2007) 147 Cal.App.4th 1273, 1280 [“the fact that ‘a broad and amorphous public interest’ can be connected to a specific dispute” is not enough].)

What it means to “contribute to the public debate” (Wilbanks, supra, 121 Cal.App.4th at p. 898) will perhaps differ based on the state of public discourse at a given time, and the topic of contention. But ultimately, our inquiry does not turn on a normative evaluation of the substance of the speech. We are not concerned with the social utility of the speech at issue, or the degree to which it propelled the conversation in any particular direction; rather, we examine whether a defendant — through public or private speech or conduct—participated in, or furthered, the discourse that makes an issue one of public interest. (See All One, supra, 183 Cal.App.4th at pp. 1203–1204 [finding the “OASIS Organic seal” did not “contribute to a broader debate on the meaning of the term ‘organic’ ”]; Cross v. Cooper (2011) 197 Cal.App.4th 357, 375 [finding the defendant’s conduct “directly related” to an issue of public interest because it “served the interests” of preventing child abuse and protecting children].)

(…) The inquiry of whether a statement contributes to the public debate is one a court can hardly undertake without incorporating considerations of context — including audience, speaker, and purpose.

DoubleVerify has identified the public issues or issues of public interest to which its reports and their “tags” relate. It argues FilmOn is notorious for its long history of violating copyright laws, and “FilmOn’s CEO and billionaire owner, Mr. David, regularly injects himself in the public spotlight to discuss himself, his companies, and the purported legality of FilmOn’s services.” The Court of Appeal, meanwhile, determined DoubleVerify’s report “concerned an issue of public interest” because “the presence of adult content on the Internet generally, as well as copyright infringing content on FilmOn’s websites specifically, has been the subject of numerous press reports, regulatory actions, and federal lawsuits.” (FilmOn, supra, 13 Cal.App.5th at p. 720.) It also concluded DoubleVerify’s reports were related to “the public debate over legislation to curb children’s exposure to adult and sexually explicit media content.” (Ibid.)

It is true enough that the various actions of a prominent CEO, or the issue of children’s exposure to sexually explicit media content –– in the abstract –– seem to qualify as issues of public interest under subdivision (e)(4). But even assuming so, the focus of our inquiry must be on “the specific nature of the speech,” rather than on any “generalities that might be abstracted from it.” (Commonwealth Energy Corp. v. Investor Data Exchange, Inc. (2003) 110 Cal.App.4th 26, 34, italics omitted.) Defendants cannot merely offer a “synecdoche theory” of public interest, defining their narrow dispute by its slight reference to the broader public issue. (Ibid.)

It seems plain enough that DoubleVerify’s reports did no such thing. DoubleVerify issues its reports not to the wider public — who may well be interested in whether FilmOn hosts content unsuitable for children or whether its streaming platform infringes copyright — but privately, to a coterie of paying clients. Those clients, in turn, use the information DoubleVerify provides for their business purposes alone. The information never entered the public sphere, and the parties never intended it to.

Yet no single element is dispositive — not DoubleVerify’s for-profit status, or the confidentiality of the reports, or the use to which its clients put its reports. Nor does the combination of these contextual factors create a “commercial speech” category onto which we automatically map the presence or absence of anti-SLAPP protections. Some commercially oriented speech will, in fact, merit anti-SLAPP protection.

Consider, for example, Industrial Waste & Debris Box Service, Inc. v. Murphy (2016) 4 Cal.App.5th 1135, 1148 (Industrial Waste), in which the appellate court found that a for- profit consultant’s report fell within the ambit of the catchall provision. “Commercial” though that report may have been, it analyzed public reports, landfill records, and state agency data to conclude a client’s competitor — the plaintiff waste hauler — had overcalculated and misreported the rate at which it diverted waste for reuse, recycling, and composting. (Id. at p. 1143.) Following a rough approximation of the two-part framework we outline here, the court decided first that “limited landfill capacity and the environmental effects of waste disposal” are indeed issues of “significant interest” to the public and municipal governments; and second, that the report “shed light on these subjects” — that is, contributed to the issue of public interest — by deriving data from public reports and commenting on “whether and to what degree waste hauling companies in Sonoma County were meeting government standards.” (Id. at pp. 1148–1149.) These findings, in turn, prompted the sanitation board to alter its contracts and policies. (Id. at p. 1144.)

It is in the extent of its contribution to, or participation in, the public discussion that DoubleVerify’s report diverges from the report at issue in Industrial Waste. As the court in that case aptly noted, “whether speech has a commercial or promotional aspect is not dispositive” of whether it is made in connection with an issue of public interest. (Id. at p. 1150.)

(…) What this union of content and context lets us discern in this case is that DoubleVerify’s report does not qualify for protection under the catchall provision of the anti-SLAPP statute.

The scenario before us involves two well-funded for-profit entities engaged in a private dispute over one’s characterization –– in a confidential report –– of the other’s business practices. Because our “primary goal is to determine and give effect to the underlying purpose of” the anti-SLAPP statute (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1332), this context matters. It allows courts to liberally extend the protection of the anti-SLAPP statute where doing so would “encourage continued participation in matters of public significance,” but withhold that protection otherwise. (§ 425.16, subd. (a).) And here, it allows us to discern what content alone conveys less clearly: DoubleVerify did not issue its report in furtherance of free speech “in connection with” an issue of public interest. (§ 425.16, subd. (e)(4).)


(California Supreme Court, May 6, 2019, FilmOn.com Inc., v. DoubleVerify Inc., S244157)


Thursday, May 2, 2019

Supreme Court of the State of Delaware, Leaf Invenergy Company, v. Invenergy Renewables LLC, Docket No. 308, 2018


Series B Investment Round
Series B Notes
Agreement Governing the Series B Notes
Noteholders’ Right to Convert to Equity and Incorporated an LLC Agreement
Series B Noteholders Could Convert Their Series B Notes into Equity before the Conversion Deadline
To Facilitate a Conversion, the Series B Note Agreement Incorporated an LLC Agreement (“the Series B LLCA”) That Would Come into Effect upon Conversion
The Series B LLCA Also Included Reciprocal Call and Put Rights that Invenergy and the Converted Noteholders Could Exercise Between December 22, 2013 and December 22, 2014
Damages for Breach of Contract
Expectation Interest
Delaware Contract Law


Court Below—Court of Chancery § of the State of Delaware
C.A. No. 11830-VCL

In 2008, Invenergy Wind LLC (“Invenergy”), a wind energy developer, was raising money for a Series B investment round, and Leaf Clean Energy Company (“Leaf Parent”), an investment fund, expressed interest. After extensive negotiations, Leaf Parent invested $30 million in Invenergy Series B notes through a vehicle called Leaf Invenergy Company (“Leaf”). The agreement governing the Series B notes (“Series B Note Agreement”) gave noteholders such as Leaf the right to convert to equity and incorporated an LLC agreement (“Series B LLCA”) that the noteholders and Invenergy would execute upon conversion.

The Series B Note Agreement and the Series B LLCA also included provisions that prohibited Invenergy from conducting a “Material Partial Sale”—a defined term—without Leaf’s consent unless Invenergy paid Leaf a premium called a “Target Multiple”—another defined term. Although the parties renegotiated several aspects of their agreements with one another over the next few years, the consent provisions persisted in substantially similar form into the Third Amended and Restated LLC Agreement (the “LLC Agreement”), which is the operative agreement in this dispute. Those consent provisions form the crux of this litigation.

Leaf filed suit after Invenergy closed a $1.8 billion asset sale—a transaction that Invenergy concedes was a Material Partial Sale—without first obtaining Leaf’s consent or redeeming Leaf’s interest for the Target Multiple.

The consent provisions unambiguously require Invenergy to pay Leaf the Target Multiple if it conducts a Material Partial Sale without Leaf’s consent, and the concept of efficient breach does not permit Invenergy to circumvent that requirement. Because Invenergy conducted a Material Partial Sale without Leaf’s consent and without paying Leaf the Target Multiple, Leaf is entitled to the Target Multiple as contractual damages. We thus award Leaf the Target Multiple in damages on condition that it surrenders its membership interests in Invenergy.

(…) Essentially, Invenergy could conduct a large asset sale with or without the noteholders’ consent. But in exchange for the right to conduct a sale without the noteholders’ consent, the noteholders were afforded the ability to cash out with a handsome agreed-upon return on their investment upon Invenergy’s exercise of that right.

The Series B notes matured on December 22, 2014, but Series B noteholders could convert their Series B notes into equity before the conversion deadline, which was initially set for December 22, 2011. As a practical matter, if Invenergy did poorly, the Series B noteholders would stay in the notes and preserve their debt covenant rights. On the other hand, if Invenergy did well, the Series B noteholders would convert into equity and capture an upside on their investment.

To facilitate a conversion, the Series B Note Agreement incorporated an LLC agreement (“the Series B LLCA”) that would come into effect upon conversion. The Series B LLCA gave the converted noteholder-members many rights similar to what they had as Series B noteholders.

The Series B LLCA also included reciprocal call and put rights that Invenergy and the converted noteholders could exercise between December 22, 2013 and December 22, 2014. Under Section 11.09 of the Series B LLCA, converted noteholders could “require that [Invenergy] purchase all but not less than all” of its interest. The same section provided that Invenergy could “redeem all but not less than all” of the converted noteholders’ interests. These rights collectively ensured that the Series B investors would either exit or renegotiate their investment by December 22, 2014.

The Court of Chancery’s damages discussion recognized the well-settled rule that damages for breach of contract are based on the non-breaching party’s— here Leaf’s—expectation interest. As the Court of Chancery correctly noted, “expectation” is a term of art. When determining expectation damages, courts determine an amount that will give the injured party “the benefit of its bargain by putting that party in the position it would have been but for the breach.” The primary element of expectation damages is the “the value that the performance would have had to the injured party,” or the “loss in value” caused by the deficient performance compared to what had been expected. And on this point, the Court of Chancery laid out the extensive evidence showing beyond any shadow of a doubt that Leaf and Invenergy both harbored the belief—one that persisted until after the court entered its Liability Order—that Leaf was entitled to payment of the Target Multiple if Invenergy engaged in Material Partial Sale without Leaf’s consent, as it did here.

We review questions of contract interpretation and questions of law de novo.

Because the Court of Chancery’s award of only nominal damages instead of the Target Multiple hinged upon its interpretation of Section 8.04, our analysis starts there. When we interpret contracts, our task is to fulfill the “parties’ shared expectations at the time they contracted.” But because Delaware adheres to an objective theory of contracts, the contract’s construction should be that which would be understood by an objective, reasonable third party.

(…) Because it is only the combination of the TerraForm deal plus the failure to obtain consent plus the failure to pay the Target Multiple that constituted the breach, the Court of Chancery should have considered the combination of all of those things when assessing what injury Leaf suffered from Invenergy’s breach and thus what amount of damages will return Leaf to the position it would have been in had Invenergy not breached Section 8.04.



(Supreme Court of the State of Delaware, May 2, 2019, Leaf Invenergy Company, v. Invenergy Renewables LLC, Docket No. 308, 2018)