Using Software's Output to Copy Chips in Violation of License Agreement Leads to SCPA and Tortious Interference With Contract Verdicts

Case: Altera Corp. v. Clear Logic, Inc. , No. 03-17323, 03-17334 (9th Cir. 9/15/05)

The One Sentence Summary: After a jury trial, the Ninth Circuit panel affirmed an award of damages and an injunction for violation of the Semiconductor Chip Protection Act of 1984, 17 U.S.C. §§ 901-14 ("SCPA"), and inducing breach of contract against a chip manufacturer who copied the groupings of plaintiff's mask works using the output of a computer program in violation of the license for the computer program.


What They Were Fighting About: Plaintiff Altera sued Defendant Clear Logic for copying of Altera's programmable chips using a bitstream output of Altera's software provided by Altera's customers in violation of Altera's license agreement. A jury found against Clear Logic, rejecting Clear Logic's reverse engineering defense. The district court awarded $30.6 million in damages, $5.4 million in prejudgment interest and $394,791.68 in costs, and entered a permanent injunction against Clear Logic. The Ninth Circuit panel affirmed.

Ninth Circuit Holdings:

• The district court properly allowed the jury to consider Altera's claims that Clear Logic had violated the SCPA by copying the groupings of transistors on its mask works without copying of the placement of transistors within groups. The panel held that groupings can be protectable expression separate from unprotectable ideas or function, analogizing to the methods of filtering ideas from protectable expression in analyzing copyright claims involving novels or plays. The jury was properly allowed to consider whether the copying was material and substantial.
• Despite one misstatement, the jury instructions and verdict form on the defense of reverse engineering properly conveyed the law to the jury. Reverse engineering is a common industry practice and a defense under the SCPA provided copying of the circuit is used only for studying it. The jury was adequately instructed on this defense, and there was no error in its finding that Clear Logic had failed to prove the defense.
• The district court properly rejected Clear Logic's argument that the claim of inducing breach of the license agreement was preempted by copyright law. There was an extra element to the breach of contract claim that distinguished it from the elements of copyright.
• The district court properly rejected Clear Logic's copyright misuse defense because this inequitable conduct defense is not applicable to state law claims, particularly when no copyright infringement claim was alleged.
• The contract was properly interpreted in light of the extrinsic evidence to preclude use of the bit stream output of the computer program for purposes of designing a competing product.
• The element of showing the existence of a valid contract for the tortious interference claim was established by showing that the bitstreams could only be produced legally by license agreements that prohibited use other than in programming Altera's software.
• The concurrence by Judge Rymer suggested that for the benefit of an appellate court, the parties videotape the off-the-record technology tutorials such as that presented here to the district court.