APPLE COMPUTER, INC.  V.  MICROSOFT CORPORATION

Apple Computer v. Microsoft (9th Cir. 1994)

APPLE COMPUTER, INC. V. MICROSOFT CORPORATION

35 F.3d 1435 (9th Cir. 1994)

Before: FERNANDEZ, RYMER, and T.G. NELSON, Circuit Judges.

RYMER, Circuit Judge:

Lisa and Macintosh are Apple computers. Each has a graphical user interface (“GUI”) which Apple Computer, Inc. registered for copyright as an audiovisual work. Both GUIs were developed as a user-friendly way for ordinary mortals to communicate with the Apple computer; the Lisa Desktop and the Macintosh Finder^[1]1 are based on a desktop metaphor with windows, icons and pull-down menus which can be manipulated on the screen with a hand-held device called a mouse. When Microsoft Corporation released Windows 1.0, having a similar GUI, Apple complained. As a result, the two agreed to a license giving Microsoft the right to use and sublicense derivative works generated by Windows 1.0 in present and future products. Microsoft released Windows 2.03 and later, Windows 3.0; its licensee, Hewlett-Packard Company (HP), introduced New Wave 1.0 and later, New Wave 3.0, which run in conjunction with Windows to make IBM- compatible computers easier to use. Apple believed that these versions exceed the license, make Windows more “Mac-like,” and infringe its copyright. This action followed.

In a series of published rulings, the district court construed the agreement to license visual displays in the Windows 1.0 interface, not the interface itself; determined that all visual displays in Windows 2.03 and 3.0 were in Windows 1.0 except for the use of overlapping windows^[2]3 and some changes in the appearance and manipulation of icons; dissected the Macintosh, Windows and New Wave interfaces based on a list of similarities submitted by Apple to decide which are protectable; and applied the limiting doctrines of originality, functionality, standardization, scenes a fair and merger to find no copying of protectable elements in Windows 2.03 or 3.0, and to limit the scope of copyright protection to a handful of individual elements in NewWave.^[3]4 The court then held that those elements in New Wave would be compared with their equivalent Apple elements for substantial similarity, and that the New Wave and Windows 2.03 and 3.0 works as a whole would be compared with Apple’s works for virtual identity. When Apple declined to oppose motions for summary judgment of no infringement for lack of virtual identity, however, judgments in favor of Microsoft and HP were entered.

Apple asks us to reverse because of two fundamental errors in the district court’s reasoning. First, Apple argues that the court should not have allowed the license for Windows 1.0 to serve as a partial defense. Second, Apple contends that the court went astray by dissecting Apple’s works so as to eliminate unprotect able and licensed elements from comparison with Windows 2.03, 3.0 and New Wave as a whole, incorrectly leading it to adopt a standard of virtual identity instead of substantial similarity. We disagree.

The district court’s approach was on target. In so holding, we readily acknowledge how much more complex and difficult its task was than ours. The district court had to grapple with graphical user interfaces in the first instance–and for the first time, with a claim of copying a computer program’s artistic look as an audiovisual work instead of program codes registered as a literary work. In this case there is also the unusual, added complexity of a license that arguably covers some or most of the allegedly infringing works. The district court therefore had to cut new paths as it went along; we have the luxury of looking at the case at the end of the trip. From this vantage point, it is clear that treatment of Apple’s GUIs, whose visual displays are licensed to a great degree and which are a tool for the user to access various functions of a computer in an aesthetically and ergonomically pleasing way, follows naturally from a long line of copyright decisions which recognizes that works cannot be substantially similar where analytic dissection demonstrates that similarities in expression are either authorized, or arise from the use of common ideas or their logical extensions.

We therefore hold:

(1) Because there was an agreement by which Apple licensed the right to make certain derivative works, the district court properly started with the license to determine what Microsoft was permitted to copy. Infringement cannot be founded on a licensed similarity. We read Microsoft’s license as the district court did, to cover visual displays–not the Windows 1.0 interface itself. That being so, the court correctly decided first to identify which visual displays in Windows 2.03, 3.0 and NewWave are licensed and which are not. ……

I

Analysis of Apple’s infringement claims must start with an agreement signed in 1985 by Apple and Microsoft, which resolved a dispute about visual displays generated by Microsoft software products. The 1985 Agreement licensed the right to use the visual displays generated by Apple’s Lisa and Macintosh graphic user interface programs which appeared as derivative works in Windows 1.0.^[4]8 As a result, to the extent that later versions of Windows and New Wave use the visual displays in Windows 1.0 (which came from Apple), that use is authorized.

Apple’s appeal turns on whether the Agreement, properly construed, gives Microsoft the right to transfer individual elements or design features used in Windows 1.0. Apple particularly objects to any interpretation that would permit later Windows products to look more like the Macintosh than Windows 1.0 looked.

The plain language of the Agreement disposes of Apple’s argument. It licenses Microsoft to use “these derivative works.” “These derivative works” can only refer to Microsoft’s acknowledgment that the “visual displays” generated by Windows 1.0 “are derivative works of the visual displays generated by Apple’s Lisa and Macintosh graphic user interface programs.” As the district court explained: Had it been the parties’ intent to limit the license to the Windows 1.0 interface, they would have known how to say so. Instead, the “derivative works” covered by the license are identified as the “visual displays” in the Windows 1.0 interface, not the interface itself. And there is nothing in the 1985 Agreement that indicates that it was intended as a product license restricting Microsoft and its licensees to the use of the Windows 1.0 interface as a whole.

Apple contends that the term “visual displays” is ambiguous and can reasonably be construed (against Microsoft, as drafter) to distinguish audiovisual copyrights protecting visual works from literary copyrights protecting programs, and to cover use of so much of Apple’s visual copyrights as were used in Windows 1.0 but no more. This argument fails because Apple tried to limit Microsoft’s license to Windows 1.0 as a whole–but did not succeed. Apple’s first draft included language providing that “at no time shall this grant extend to any appearance, look, feel, visual feature or operation other than that incorporated in Microsoft Windows.” Microsoft, however, rejected this limitation. Thus, the parties had already staked out their positions by the time Microsoft produced the final draft. Accordingly, there is no basis for construing the Agreement to grant the narrow license Apple bargained for but gave up.

Apple relies on statements by various Microsoft employees in support of its ambiguity argument. These are unavailing because the Agreement has an integration clause which precludes contradicting its terms by collateral understandings. In any event, testimony by the two employees who opined that the phrase “visual displays” is ambiguous lacks force because both are engineers who took no part in negotiating the 1985 Agreement. Likewise, an internal Microsoft memorandum by Bill Gates, which states that Microsoft must “be careful not to take additional things from apple screens when we make enhancements–everything we do today is fine,” raises no tribal issue as it is consistent with Gates’ understanding that the license was for individual displays, not the interface as a whole, and with testimony by Apple’s chief negotiator that Apple’s license from Microsoft gave Apple the right to incorporate into the Macintosh interface any “new visual feature” developed by Microsoft for Windows.

Apple’s further contention that the district court’s interpretation of the Agreement must be wrong because it would be unreasonable to suppose that Apple knowingly gave away its most valuable technological asset ignores the fact that Apple itself received valuable consideration under the Agreement: the right to use and license any new displays created by Microsoft within five years, together with Microsoft’s promises to delay release of an IBM-compatible version of Excel and to release an improved version of Microsoft Word for the Macintosh. Under these circumstances, the district court properly concluded that the Agreement is not reasonably susceptible to Apple’s interpretation.^[5]9

II

Apple also appeals denial of its own motion for partial summary judgment that the works, viewed overall as they are viewed by users, are unlicensed derivative works substantially similar to Apple’s works. Our resolution of its argument for reversal of judgments in favor of Microsoft and HP essentially disposes of this issue.

Apple raises one additional point, however, which we address here because Apple treats it as connected to its motion. The argument is that even if the 1985 Agreement does confer a partial license to use visual displays, Microsoft and HP exceeded its scope and therefore infringed Apple’s copyrights. The cases on which Apple relies, however, merely establish that the breach of a prohibition in the license agreement can lead to a finding of infringement. Where, as here, the accused works include both licensed and unlicensed features, infringement will depend on whether the unlicensed features are entitled to protection. Finally, contrary to Apple’s suggestion, by concluding that the 1985 Agreement provides a partial defense, the district court did not preclude Apple from prevailing on its infringement claims; the court merely required Apple to prove that Microsoft and HP copied unlicensed, protected expression. …

AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

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Now that you have read the case that took a huge bite out of Apple, take a look at the license agreement that was in issue:

AGREEMENT

This Agreement is entered into on this 22nd day of November, 1985, by and between Apple Computer, Inc., a California corporation having its place of business at 20525 Mariani Avenue, Cupertino, California 95014 (hereinafter “Apple”) and Microsoft Corporation, having its place of business at 10700 Northrup Way, Bellevue, Washington 98008 (hereinafter “Microsoft.”)

The parties have a long history of cooperation and trust and wish to maintain that mutually beneficial relationship. However, a dispute has arisen concerning the ownership of and possible copyright infringement as to certain visual displays generated by several Microsoft software products. These products are Microsoft’s operating environment program, “Microsoft Windows Version 1.0,” the three Microsoft applications programs developed under the January 22, 1982, agreement between Microsoft and Apple for use on Apple’s Macintosh Computers: an electronic spread sheet program (“Microsoft Multiplan”), a business graphics program (“Microsoft Chart”) and a database program (“Microsoft File”), and two other Microsoft application programs: an integrated electronic spread sheet program (“Microsoft Excel”) and a word processing program (“Microsoft Word”).

By means of this Agreement the parties intend to resolve the dispute and each acknowledges that the valuable consideration underlying this Agreement consists of the resolution of the dispute and the several undertakings and accommodations of the respective parties described below. Accordingly, the parties agree as follows:

1. Acknowledgement. For purposes of resolving this dispute and in consideration of the license grant from Apple described in section 2 below, Microsoft acknowledges that the visual displays in the above-listed Microsoft programs are derivative works of the visual displays generated by Apple’s Lisa and Macintosh graphic user interface programs.

2. Visual Copyright License from Apple.

A. Grant. Apple hereby grants to Microsoft a non-exclusive, worldwide, royalty-free, perpetual, non-transferable license to use these derivative works in present and future software programs and to license them to and through third parties for use in their software programs. This license shall not include new software programs written by Microsoft which are similar in function to Microsoft Excel and are offered to the public prior to October 1, 1986. As a condition to this license, Microsoft shall cause its visual copyright notice to appear in its products which use visual displays licensed hereunder.

B. Warranty. Apple hereby warrants that neither Apple nor any of its agents, representatives or attorneys knows of any patent, copyright, trade secret or any other right or claim of or by any third party to these licensed visual copyrights in the Lisa and Macintosh graphic user interface programs. Each party shall notify the other promptly of any such claim and will cooperate fully in the defense of such a claim. Apply shall indemnify and hold Microsoft harmless from any such claim of which it had such knowledge and any damages and reasonable expenses arising therefrom.

3. Patent License from Apple.

A. Grant. Apple hereby grants to Microsoft a nonexclusive, worldwide, royalty-free, nontransferable license to make, use and sell the inventions described and claimed in claims 9, 11, 12, and 13 of the United States Patent No. 4,464,652 for the life of the patent. Microsoft in turn may license these rights to and through third parties for use in their software programs and hardware products. Microsoft is not required to cause any patent marking to appear in its products which use any such inventions.

B. Warranty. Apple hereby warrants that it owns the patent and to the best of its knowledge there are no claims asserted by any third party to the inventions described in these claims.

4. Release. Apple hereby waives any other copyright, patent, trade secret or other claim or right it may have as to Microsoft Windows Version 1.0.

5. Visual Copyright License from Microsoft. Microsoft hereby grants to Apple a nonexclusive, worldwide, royalty-free, perpetual, nontransferable license to use any new visual displays created by Microsoft during a period of its Microsoft Windows retail software product in software programs and to license them to and through third parties for use in their software programs. As a condition to this license, Apple shall cause its visual copyright notice to appear in its products which use such Microsoft visual displays.

6. Revision of Microsoft Word. Microsoft shall revise Microsoft Word which operates on the Apple Macintosh computer by enhancing and improving the program as specified in Exhibit A to this Agreement. Microsoft shall use its best efforts to complete the revision by July 31, 1986.

7. General Provisions.

A. Confidentiality. The parties shall keep the terms and conditions of this Agreement in strict confidence, except that each party may state that it has entered into an agreement with the other concerning visual copyrights.

B. Representations. The parties represent that each is free to enter into this Agreement and is not and will not become a party to any agreement inconsistent or in conflict with any of the terms or conditions of this agreement.

C. Breach and Termination. If a breach of this Agreement by either party continues more than 30 days from the date of written notice of such breach by the non-breaching party, that party may terminate the Agreement be giving written notice to the other. Waiver by a non-breaching party of any breach by the other shall not be deemed to be a waiver of any other or subsequent breach. The rights of the parties under this clause are in addition to any other rights or remedies provided by law or under this Agreement.

D. Notices. Any notice required under this Agreement shall be given by first class mail, postage prepaid, with return receipt requested.

E. Assignment. Except in the case of the sale of substantially all of the assets of controlling stock, this Agreement may not be assigned, nor the rights granted hereunder (other than the sublicensing rights contained in paragraph 2) transferred by either party without the prior written consent of the other party.

F. Independent Contractor. This Agreement shall not be construed as creating an agency, partnership or joint venture between the parties.

G. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter treated herein. This Agreement shall not be amended except by a written agreement signed by both parties.

H. Binding Effect. Subject to the limitations expressed above, this Agreement will inure to the benefit of and be binding upon the parties and their successors in interest.

Signed: John Sculley, Apple Computer Inc., president and chief executive officer.

Signed: Williams H. Gates, Microsoft Corporation, chairman of the board and chief executive officer.

EXHIBIT A (Revisions to Microsoft Word)

1. Spelling checking

2. Hyphenation

3. Higher performance

4. Page preview

5. Change/fixes based on user feedback

1. Style handling

Factual Background

On March 17, 1988, Apple Computer, Inc. filed suit in the federal district court in San Jose against Microsoft Corporation and Hewlett-Packard Company. Apple claimed that version 2.03 of Microsoft’s Window’s operating environment computer software and H-P’s NewWave desktop computer software which operates with Windows, both infringed the audiovisual copyrights in Apple’s Macintosh visual displays and images.

Since its introduction in the Apple Lisa personal computer in 1983, the Macintosh “desktop metaphor” had become a hallmark of Apple’s approach to personal computers. The desktop metaphor embodied in the Macintosh personal computer built on the work originally developed by Xerox in its “Xerox Star” personal computer. Xerox never successfully marketed the Star, and Xerox had exited the hardware side of the personal computer marketplace.

Apple had been quite successful with the Macintosh. It has also been successful in having the Copyright Office register the Macintosh desktop and application software visual displays as audiovisual works and the Macintosh program code as literary works. The registration certificates attached to the complaint showed that Apple attempted to register all aspects of authorship embodied in the Macintosh computer programs including their audiovisual displays. Apple’s case against Microsoft and HP claimed infringement of its graphic user interface.

District Court Proceedings

In an early decision, the district court found that certain screen displays were licensed by Apple to Microsoft under the terms of a written non-exclusive “license to use these derivative works in present and future software programs.” This license agreement was the subject of some intense license negotiations between Apple and Microsoft at a time when Apple was in need of additional software applications from Microsoft.

In the litigation, Microsoft acknowledged that certain visual displays in its Windows operating environment were licensed from Apple and “are [derivative work]]s of the visual displays generated by Apple’s Lisa and Macintosh graphic user interface programs.” Upon the court’s finding that the license agreement extended beyond a single version of Windows, a large number of screen displays and elements contained therein which might otherwise have been the subject of the copyright infringement action were removed from the controversy by summary judgment in Microsoft’s favor with regard to the licensing issue.

Notwithstanding the adverse determination on the license issue, Apple submitted a list of 189 alleged similarities in categories such as:

• Design and appearance of application windows;
• Design and appearance of dialog boxes;
• Menu design and appearance;
• Design and appearance of individual applications;
• Icon design, appearance, and manipulation; and
• Arrangement and manipulation of application windows.

In discussing the problem of determining idea and expression, the court noted the “metaphysical line drawing between idea and expression by which courts rationalize their decisions.” Further, the court initially accepted Apple’s argument in favor of the overall “look and feel” protection for the Macintosh user interface:

“ Accordingly, the court concludes that even if elements are found ‘unprotect able,’ they should not be eliminated from the substantial similarity of expressions analysis. Instead, if it is determined that the defendant used the unprotect able elements in an arrangement which is not substantially similar to the plaintiff’s work, then no copyright infringement can be found. If, on the other hand, the works are deemed substantially similar, then copyright infringement will be established even though the copyrighted work is composed of unprotect able elements. There is simply no other logical way of protecting an innovative arrangement or ‘look and feel’ of certain works.”

Upon reconsideration, the district court ultimately rejected Apple’s approach and instead stated:

“ To the extent the individual features of the Macintosh interface are licensed or are unprotect able they are together, or in conjunction with the protectable features, claimed as a copyrightable arrangement — a “look and feel” which constitutes protectable expression apart from its individual elements.

The claimed unifying idea of the Lisa and Macintosh works is ‘an interface suggestive of an office environment with a desktop background, implementing through animated graphical images and fanciful symbols what has been referred to as a ‘desktop metaphor.’ Id. [I]f “desktop metaphor” is to have any meaning in the context of a traditional copyright analysis, it should serve merely as a label for that group of “ideas” embodied in the Macintosh interface devoted to utilitarian uses of that computer, or as a shorthand way of describing the purpose or object of the panoply of ideas of multiple windows, iconic representation and manipulation, menus and object opening and closing functions to assist computer users in operation of their machines. “Desktop metaphor” does not describe the single unifying idea of the Macintosh interface, but is simply another name for the type of interface used on the Macintosh and is by no means exclusive to it.

1. 1 The Macintosh Finder is registered as a derivative work of the Lisa Desktop. Although the district court dismissed the Finder as a work in suit, the Macintosh interface has been referred to interchangeably with the Lisa during the course of this litigation. ↑

2. 3 Windows 1.0 had a tiled windowing system in which the windows were connected together in a fixed pattern such that all open windows were simultaneously visible. An overlapping system allows windows to be stacked on top of one another and moved around the screen individually ↑

3. 4 These items relate to the “zooming rectangle” animation associated with the opening or closing of an icon into a window, the “dimming” of a folder icon that has been opened into a window, and the use of a trash can icon to depict the discard function. Each appears in both versions 1.0 and 3.0 of NewWave, but none is in any version of Windows. ↑

4. 8 In the Agreement, Microsoft acknowledged “that the visual displays in [Windows 1.0] are derivative works of the visual displays generated by Apple’s Lisa and Macintosh graphic user interface programs.” Apple granted Microsoft a nonexclusive, royalty-free, nontransferable license “to use these derivative works in present and future software programs and to license them” to third parties for use in new software programs. Microsoft, in turn, granted Apple a similar license “to use any new visual displays created by Microsoft” during the next five years as part of its Windows retail software products; Apple waived any copyright, patent, trade secret or other claim against Windows 1.0; Microsoft agreed to delay the release of any versions of its Excel spreadsheet program that would run on computers other than the Macintosh; and Microsoft agreed to release an enhanced version of Microsoft Word (a word processing program) for the Macintosh. ↑

5. 9 For the same reasons, the district court did not abuse its discretion in denying Apple’s motion for leave to amend to add claims for breach of contract, rescission and unfair competition. See Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir.1990). The proposed amendment would have been futile because the claims that Apple sought to add are based on its allegation that during the negotiation of the 1985 Agreement, Microsoft promised it would not make future versions of Windows any more similar in appearance to the Macintosh. ↑