U.S. 9th Circuit Court of Appeals


No. 99-15046
D.C. No.
Washington corporation,

Appeal from the United States District Court
for the Northern District of California
Ronald M. Whyte, District Judge, Presiding

Argued and Submitted
June 16, 1999--San Francisco, California

Filed August 23, 1999

Before: Mary M. Schroeder, Robert Boochever, and
Cynthia Holcomb Hall, Circuit Judges.

Opinion by Judge Schroeder



Barbara A. Caulfield, Orrick, Herrington & Sutcliffe, Menlo
Park, California, for the defendant-appellant.

Lloyd R. Day, Jr., Day, Casebeer, Madrid, Winters & Bat-
chelder, Cupertino, California, for the plaintiff-appellee.



SCHROEDER, Circuit Judge:


This case illustrates how fast technology can outdistance
the capacity of contract drafters to provide for the ramifica-
tions of a computer software licensing arrangement. The
license in question runs from plaintiff-appellee Sun
Microsystems to defendant-appellant Microsoft. It involves
Java, a computer programming language Sun developed to
enable the writing of programs that work on any computer
operating system. The license agreement was negotiated on a
rushed basis in 1996, and by 1997 both Microsoft and Sun
had developed what they believed to be significant improve-
ments to Java.

Sun filed this suit for copyright infringement, claiming that
Microsoft had exceeded the scope of its license by creating an
enhanced version of Java that was fully operable only on
Microsoft's operating system, and further, by not adapting its
implementation of Java to be compatible with Sun's addition
to Java of a component known as the "Java Native Interface"
("JNI"). Sun sought an injunction barring Microsoft from
including incompatible Java technology in its products. The
district court granted a preliminary injunction to Sun, and
Microsoft appeals. The underlying facts, the details of the
negotiations, and the nature of the software involved are all
more fully described in the district court's detailed opinion.
See Sun Microsystems v. Microsoft Corp., 21 F. Supp. 2d
1109 (N.D. Cal. 1998).

Before the district court, the parties bitterly contested the
proper interpretation of the terms of the license agreement.
Microsoft maintained that the agreement fully authorized all
of the conduct that Sun challenged as infringing. Sun's inter-
pretation was, of course, to the contrary. After a careful analy-
sis of the parties' contentions, the district court held that Sun
was likely to prevail on the merits of its claim that Microsoft
had violated the license agreement.

The parties also disputed whether Sun's suit was properly
considered as one for copyright infringement, as Sun con-
tended, or as one for breach of contract, as Microsoft con-
tended. The district court concluded that the claim was
properly considered as an infringement action, thereby enti-
tling Sun to a presumption of irreparable harm. See Cadence
Design Systems v. Avant! Corp., 125 F.3d 824, 826-27 (9th
Cir. 1997), cert. denied, 118 S. Ct. 1795 (1998) (copyright
plaintiff that demonstrates likely success on the merits entitled
to a presumption of irreparable harm). The district court did
not elaborate on why the case was a copyright infringement
rather than a contract interpretation dispute, and it is on this
point that Microsoft expends most of its ammunition on this
appeal. It contends that the disputed compatibility require-
ments of the license agreement are affirmative covenants
rather than limitations on the scope of the license, and that
accordingly contractual rather than copyright remedies are
appropriate if there has been any breach. The district court
apparently did not expressly rule on this issue.

We review the grant of a preliminary injunction generally
for abuse of discretion, and "that discretion is abused where
the district court based its ruling on an erroneous view of the
law or on a clearly erroneous assessment of the evidence."
Roe v. Anderson, 134 F.3d 1400, 1402 (9th Cir. 1998) (inter-
nal quotations and footnote omitted). We agree with Sun that
significant evidence supports the district court's holding that
Sun is likely to prevail on its interpretation of the language of
the agreement and to prove that Microsoft's conduct violated
it. We agree with Microsoft, however, that the district court
should not have invoked the presumption of irreparable harm
applicable to copyright infringement claims before it deter-
mined that the compatibility requirements were a limit on the
scope of the license rather than independent contractual cove-
nants. We therefore vacate the preliminary injunction and
remand for further proceedings.

There is also a claim of unfair competition under California
law. The district court entered an injunction on that claim
solely on the basis of past conduct. Microsoft correctly con-
tends that under California law an injunction must be based
on the prospect of future conduct. We therefore also vacate
the injunction insofar as it relates to the unfair competition
claim and remand for consideration of that issue.

Factual Background

In March 1996, Microsoft and Sun entered into a
"Technology License and Distribution Agreement " ("TLDA")
for Java. Microsoft agreed to pay Sun $3.75 million a year for
broad rights to use the language. In exchange, Sun granted
Microsoft a non-exclusive license to "make, access, use, copy,
view, display, modify, adapt, and create Derivative Works of
the Technology in Source Code form" and to "make, use,
import, reproduce, license, rent, lease, offer to sell, sell or oth-
erwise distribute to end users as part of a Product . . . the
Technology and Derivative Works thereof in binary form."
Sun Microsystems, 21 F. Supp. 2d at 1113.

Sun had created Java so that programmers could write a
single program that would work on any operating system.
Because Sun wanted Java to remain cross-platform compati-
ble, the TLDA includes compatibility requirements. Section
2.6(a)(iv) requires Microsoft to produce a compatible imple-
mentation of Java within six months of the date that Sun
creates a "significant upgrade" to Java. Section 2.6(a)(vi) pro-
vides that Microsoft shall make available only products that
are compatible implementations. See id. at 1113. Section
2.6(b)(iv) contains the compatibility requirements for compil-
ers. It provides that Microsoft's Java compilers "shall include
a mode which a Tool Customer may use to permit such Prod-
uct to pass the Java Language Test Suite that accompanie[s]"
any upgrades of Java that Sun creates. Id. at 1114. To deter-
mine compatibility, the TLDA refers to a set of mostly auto-
mated tests that Sun had developed.

In late 1997, Sun became concerned that Microsoft was dis-
tributing a "polluted" version of Java that Microsoft had mod-
ified in ways that made it incompatible with Sun's standards.
Sun filed suit against Microsoft on October 7, 1997, alleging,
among other things, trademark infringement, unfair competi-
tion, and breach of contract. In November 1997, Sun moved
for a preliminary injunction barring Microsoft from using
Sun's "Java Compatible" logo on products that failed Sun's
compatibility tests. On March 24, 1998, the district court
entered a preliminary injunction. See Sun Microsystems v.

Microsoft Corp., 999 F. Supp. 1301 (N.D. Cal. 1998). Micro-
soft did not appeal this injunction.

Sun then amended its complaint to add a claim for copy-
right infringement and filed motions for a preliminary injunc-
tion under 17 U.S.C. S 502 for copyright infringement and
under California Business & Professions Code S 17200 for
unfair competition. The copyright infringement motion sought
an order immediately enjoining Microsoft from distributing
its development kit for Java programmers, and enjoining it
from distributing Internet Explorer or Windows98 unless it
could show within ninety days that those products passed
Sun's compatibility tests. The unfair competition motion
sought to enjoin Microsoft from abusing its dominant position
in the software market by conditioning licenses for Microsoft
products upon use of Microsoft's version of Java.

On November 17, 1998, the district court granted both
motions. It found that Sun was likely to prevail on its claims
that Microsoft had failed to comply with several of the TLDA
compatibility provisions and had engaged in unfair business
practices. The court entered a detailed injunction that per-
tained to both motions and that barred Microsoft from, among
other things: (1) distributing any operating systems or internet
browsers containing Java technology unless they supported
JNI; (2) distributing any Java development tools unless they
supported JNI and included a compiler with a default mode
that disabled Microsoft's incompatible modifications; (3)
incorporating any additional Microsoft keyword extensions or
compiler directives into its Java software development tools;
and (4) conditioning licenses to Microsoft products or the
right to use the "Designed for Windows" logo on the exclu-
sive use of either Microsoft's Java virtual machine or Micro-
soft's native code interfaces. See Sun Microsystems, 21 F.
Supp. 2d at 1127-28. Microsoft appeals.


I. The Copyright Infringement Claim

[1] The standard for a preliminary injunction balances the
plaintiff's likelihood of success against the relative hardships
to the parties. To receive a preliminary injunction, Sun was
required to show "either a likelihood of success on the merits
and the possibility of irreparable injury, or that serious ques-
tions going to the merits were raised and the balance of hard-
ships tips sharply in its favor." Sega Enters. v. Accolade, Inc.,
977 F.2d 1510, 1517 (9th Cir. 1992) (citations omitted).
These two alternatives represent "extremes of a single
continuum," rather than two separate tests. Benda v. Grand
Lodge of Int'l Ass'n of Machinists & Aerospace Workers, 584
F.2d 308, 315 (9th Cir. 1978). Thus, "the greater the relative
hardship to the moving party, the less probability of success
must be shown." National Ctr. for Immigrants Rights v. INS,
743 F.2d 1365, 1359 (9th Cir. 1984).

[2] Under federal copyright law, however, a plaintiff that
demonstrates a likelihood of success on the merits of a copy-
right infringement claim is entitled to a presumption of irrepa-
rable harm. See Cadence Design Systems v. Avant! Corp., 125
F.3d 824, 826-27 (9th Cir. 1997), cert. denied, 118 S. Ct.
1795 (1998). That presumption means that "the balance of
hardships issue cannot be accorded significant"--if
any--"weight in determining whether a court should enter a
preliminary injunction to prevent the use of infringing mate-
rial in cases where . . . the plaintiff has made a strong showing
of likely success on the merits." Id. at 830.

The district court found that Sun was likely to succeed on
its contentions that Microsoft had violated the terms of the
TLDA by failing to support JNI and by extending the Java
language and modifying the compiler. See Sun Microsystems,
21 F. Supp. 2d at 1119, 1123. It therefore held that Sun was
entitled to a presumption of irreparable harm. See id. at 1125
(citing Johnson Controls v. Phoenix Control Sys. , 886 F.2d
1173, 1174 (9th Cir. 1989)). The district court did not make
any finding on whether there would be irreparable harm
absent the copyright presumption. Finally, the district court
briefly addressed hardship, stating that the potential harm to
Microsoft was not "unduly burdensome" and that the
requested relief would not harm the interests of third parties.
Id. at 1126. It did not discuss the likely extent of harm to Sun
if a preliminary injunction were not entered.

We address in turn the likelihood of success on the merits
and the applicability of a presumption of irreparable harm.
With regard to the likelihood of success, the issue is whether
there is sufficient evidence to support the district court's con-
clusion that Sun was likely to prove that Microsoft's conduct
violated the terms of the TLDA. We conclude that there is
such evidence. With regard to the applicability of a presump-
tion of irreparable harm, we agree with Microsoft that the
issue turns upon whether the terms Microsoft allegedly
breached were limitations on the scope of the license, which
would mean that Microsoft had infringed the copyright by
acting outside the scope of the license; or whether the terms
were merely separate contractual covenants, which would
make this a contract dispute in which the copyright presump-
tion of irreparable harm has no application. We conclude that
the district court must decide this latter issue before it decides
whether Sun is entitled to a presumption of irreparable harm,
and so we vacate the injunction and remand the case.

A. Likelihood of Success

The district court held that Sun had shown that it was likely
to prove that Microsoft had violated the TLDA in two ways:
by adding new features to its compiler that caused it to fail
Sun's compatibility tests referenced in the TLDA and by fail-
ing to support Sun's "Java Native Interface" ("JNI"), a tool
for integrating platform-specific (or "native") code into a Java

[3] There is significant evidence to support the district
court's holding that Sun has a reasonable likelihood of prov-
ing that Microsoft's Java compiler violated the compatibility
provisions of the TLDA. The TLDA generally permits Micro-
soft to modify its compiler, for section 2.1(a) allows Micro-
soft to "modify" the "Java Technology," and section 1.25
defines the Java "Technology" to include the "Java
Compiler." Microsoft modified the Java compiler by adding
an extended mode that includes two keyword extensions and
three compiler directives that enable programmers to use
some Windows features and to program more efficiently in
the Windows environment. The district court found that the
use of Microsoft's additional compiler directives and keyword
extensions can result in programs that fail Sun's compatibility

[4] Microsoft's compiler, however, contains a mode that
disables the compiler directives and keyword extensions;
when the compiler is operated in that mode, there are no com-
patibility problems. Microsoft argues that because of the
inclusion of this mode, TLDA S 2.6(b)(iv) permits the com-
piler modifications. That section provides that any new Java
compilers that Microsoft makes commercially available "shall
include a mode which a Tool Customer may use to permit
such Product to pass the Java Language Test Suite that
accompanied the Significant Upgrade." Section 2.6(b)(iv),
however, says only that the compiler must have the described
mode; it does not say that any compiler that includes the
described mode is allowable. The disputed issue is whether
the extended mode of Microsoft's compiler, which the district
court concluded causes the compiler to fail the Java Language
Test Suite, violates the TLDA.

[5] Considerable evidence supports the district court's con-
clusion that Microsoft's extended compiler mode is impermis-
sible. Microsoft's extended compiler fails a requirement,
contained in the documentation to the Java Language Test
Suite, that "[t]he output from your Java compiler implementa-
tion (if applicable) must execute properly with a JavaSoft Vir-
tual Machine of the same version as the Java Compatibility
Kit you are using." Moreover, the Java Language Specifica-
tion implicitly prohibits the addition of keywords by defining
a complete list of keywords and then reserving only two
words for later inclusion. This reading of the specification is
buttressed by the preface, which states that the specification
is meant to ensure that "the behavior of every language con-
struct [be] specified, so that all implementations of Java will
accept the same programs."

[6] There is also evidence to support the district court's
holding that Sun has a reasonable likelihood of proving that
the TLDA obligates Microsoft to support JNI. In the district
court, the parties disputed whether JNI is part of the AAPI
(the "Applet Application Programming Interface"), with
which Microsoft's products must comply under sections 1.15
and 2.6(a)(vi) of the TLDA. See Sun Microsystems , 21 F.
Supp. 2d at 1119-22. Section 1.1(a) of the TLDA defines the
AAPI in relevant part as "the public application programming
interface to the Java Applet Environment." The issues before
the district court thus reduced to whether JNI is a "public
application programming interface," a term the TLDA does
not define, and whether it is an interface to the Java Applet
Environment. Although Microsoft's experts testified to the
contrary, there is substantial evidence in the record from
Sun's experts that JNI is a "public application programming
interface." According to section 2.9(e) of the TLDA, more-
over, native code interfaces, such as JNI, are interfaces to the
Java Reference Implementation virtual machine. Because sec-
tion 1.25 of the TLDA states that the virtual machine is part
of the Java Applet Environment, JNI appears to be an inter-
face to the Java Applet Environment. There is thus consider-
able evidence that JNI falls within Microsoft's compliance

Microsoft nevertheless stresses that the district court erred
in holding that the TLDA requires Microsoft to support JNI
because JNI did not even exist at the time the parties signed
the TLDA. The district court concluded that the addition of
JNI was a permissible upgrade to Java under section 1.1(a) of
the TLDA. See id. at 1122. That section defines the AAPI, of
which JNI is a part, as "(a) the public application program-
ming interface to the Java Applet Environment . . . and (d) the
OEM Java API Specification, as modified by SUN during the
term of this agreement." Id. The district court did not err in
adopting the grammatically plausible reading that the "as
modified" language refers not only to section 1.1(d), but to
section 1.1(a) as well, and thus allows the AAPI to be modi-
fied to include JNI. We therefore hold that sufficient evidence
supports the district court's finding that Sun demonstrated a
probability of success on the merits of its claim that Micro-
soft's modifications of Java violated the TLDA.

B. Presumption of Irreparable Harm

Federal copyright law presumes irreparable harm from the
infringement of a copyright. See Cadence Design Systems,
125 F.3d at 826-27. The district court held that this case is a
copyright infringement case and not a contract case and there-
fore presumed irreparable harm. See Sun Microsystems, 21 F.
Supp. 2d at 1125. It is not clear, however, how the district
court reached its decision that this case should be analyzed
under the copyright infringement standard. It stated only that
"Microsoft's argument that . . . Sun does not enjoy a presump-
tion of irreparable harm merely rehashes its argument, which
the court has rejected, that Sun's claims arise out of breach of
contract rather than copyright infringement." Id. We were
unable to determine, and the parties were unable to inform us
at oral argument, where in the record before us the district
court had previously addressed this issue.

[7] Whether this is a copyright or a contract case turns on
whether the compatibility provisions help define the scope of
the license. Generally, a "copyright owner who grants a non-
exclusive license to use his copyrighted material waives his
right to sue the licensee for copyright infringement " and can
sue only for breach of contract. Graham v. James , 144 F.3d
229, 236 (2d Cir. 1998) (citing Peer Int'l Corp. v. Pansa
Records, Inc., 909 F.2d 1332, 1338-39 (9th Cir. 1990)). If,
however, a license is limited in scope and the licensee acts
outside the scope, the licensor can bring an action for copy-
right infringement. See S.O.S., Inc. v. Payday, Inc., 886 F.2d
1081, 1087 (9th Cir. 1989); Nimmer on Copyright , S 1015[A]

[8] Microsoft argues, more strongly on appeal than before
the district court, that the compatibility provisions on which
Sun relies are contractual covenants that do not limit the
scope of the license. Microsoft asserts that the broad grants of
section 2.2 of the TLDA allow it an unrestricted right to mod-
ify Sun's source code and create derivative works, and that it
made a separate contractual promise in section 2.6 to honor
the compatibility requirements. Sun argues that the granting
language of section 2.2 and the compatibility terms of section
2.6 must be read together to create a license that grants Micro-
soft only the right to make compatible modifications and
derivative works. The district court did not address these
arguments in its opinion. It is thus not clear whether it agreed
with Sun that the compatibility terms in question are limita-
tions on the scope of the license or whether it believed the dis-
tinction between affirmative covenants and limitations on
scope to be immaterial.

[9] The enforcement of a copyright license raises issues
that lie at the intersection of copyright and contract law, an
area of law that is not yet well developed. We must decide an
issue of first impression: whether, where two sophisticated
parties have negotiated a copyright license and dispute its
scope, the copyright holder who has demonstrated likely suc-
cess on the merits is entitled to a presumption of irreparable
harm. We hold that it is, but only after the copyright holder
has established that the disputed terms are limitations on the
scope of the license rather than independent contractual cove-
nants. In other words, before Sun can gain the benefits of
copyright enforcement, it must definitively establish that the
rights it claims were violated are copyright, not contractual,

In reaching this result, we find considerable support in
Video Trip Corp. v. Lightning Video, Inc., 866 F.2d 50 (2d
Cir. 1989), in which the Second Circuit held that preliminary
contractual issues, such as the ownership of the copyright,
must be resolved before the copyright presumption of irrepa-
rable harm applies. Video Trip, a company that produced
copyrighted travel videotapes, had granted an exclusive
license to Lightning Video to promote and distribute the
tapes. When the arrangement failed to work out, the parties
amended the agreement to require Lightning to dispose of its
remaining inventory and furnish Video Trip with an account-
ing. The copyright was then to revert to Video Trip, unless
Video Trip owed money under the accounting and failed to
pay. The parties disagreed about the amounts owed and Light-
ning refused to return the tapes. Video Trip sued for an
injunction against copyright infringement, claiming that the
license was no longer valid; Lightning claimed it was still
valid because Video Trip owed it money.

As here, the parties disputed what preliminary injunction
standard should apply. The Second Circuit stated:"It is under-
standable why a party claiming copyright protection would
prefer to ignore the contract dispute and assume the validity
of the ownership of the copyright. The rules for obtaining a
preliminary injunction are less onerous than in other cases."
Id. at 52. The court held that "[s]ince the issue as to the own-
ership of the copyright is still to be determined, we review the
order of the court below in denying the application for a pre-
liminary injunction in light of the rule applicable in any con-
tract case." Id.

The determination of whether the compatibility terms in the
TLDA are covenants or limitations on the scope of the license
is likewise a contractual issue, for it requires us to construe
the license. We recognized this in S.O.S., Inc. v. Payday, Inc.,
886 F.2d 1081 (9th Cir. 1989). In S.O.S., the plaintiff, which
held a copyright in a computer program, had granted the
defendant a license to "use" the software and had explicitly
reserved all other rights. The plaintiff claimed that by modify-
ing the software the defendant had exceeded the scope of the
license and therefore infringed the copyright. The district
court, using California contract law to construe the license,
applied the rule that contracts should be construed against the
drafter and held that the license therefore permitted any uses
not explicitly forbidden. On appeal, we agreed that we should
"rely on state law to provide the canons of contractual
construction" provided that "such rules do not interfere with
federal copyright law or policy." Id. at 1088.

[10] The principles illustrated by Video Trip and S.O.S.
indicate that the disputed question in this case, whether the
compatibility terms in the TLDA are license restrictions or
separate covenants, is a preliminary contractual issue that
must be resolved under California law favorably to Sun
before Sun is entitled to the copyright presumption of irrepa-
rable harm. The district court did not decide this issue.
Although the parties have asked us to decide it, we conclude
that it is appropriate to give the district court the first opportu-
nity, especially given that the parties put almost no emphasis
on the issue when they litigated the preliminary injunction
before the district court. We therefore vacate the preliminary
injunction and remand the case. Because we vacate the
injunction, we also leave it to the district court to consider in
the first instance Microsoft's argument that, under the district
court's prior interpretation of the TLDA, an injunction may be
granted only if Microsoft intentionally and willfully violated
the TLDA's compatibility requirements.

Finally, we observe that the determination of whether or
not Sun is entitled to a presumption of irreparable harm may
not end the matter, for even if Sun is not entitled to the pre-
sumption, it may still be able to demonstrate that an injunc-
tion is warranted under the traditional standard for
preliminary injunctions, in which the court balances the likeli-
hood of success against the relative hardships to Sun and
Microsoft. This too is an issue the district court has not yet

II. The Unfair Competition Claim

We also vacate the portion of the district court's prelimi-
nary injunction that is based on the California Unfair Business
Practices Act. Sun claimed that Microsoft violated Califor-
nia's rules against unfair competition, see Cal. Bus. & Prof.
Code SS 17200 et seq., by forcing its business partners to use
its non-compatible version of Java and by allowing develop-
ers to use Microsoft's "Designed for Windows95/NT " logo
only if they exclusively used Microsoft's virtual machine. The
district court agreed that several of Microsoft's Java distribut-
ing and advertising practices violated California law. It
enjoined Microsoft from "[c]onditioning any licence to any
Microsoft product on exclusive use or distribution of Micro-
soft's Java virtual machine" and from "[e]ntering into any
agreement, condition or arrangement with any third party that
requires such third party to exclusively use Microsoft's inter-
faces to its runtime interpreter when invoking native code."
Sun Microsystems, 21 F. Supp. 2d at 1128.

Microsoft challenges the district court's entry of this
injunction. It first contends that the district court abused its
discretion when it ruled that Microsoft conditioned the use of
its "Designed for Windows95/NT" logo on the exclusive use
of its virtual machine. See id. at 1127. Microsoft correctly
argues that the literal terms of its contracts merely required its
licensees to use its virtual machine and did not forbid them
from using Sun's as well. We agree with Sun, however, that
because Microsoft's virtual machine is incompatible with
Sun's standard, no licensee would ever use both, and so
Microsoft's policy is tantamount to requiring exclusive use.

[11] Microsoft's stronger assertion is that the district court
abused its discretion in enjoining Microsoft's exclusivity pro-
visions for the virtual machine and the native code interface
even though Microsoft claimed that it had discontinued these
practices and Sun had made no showing that they were likely
to recur. The district court apparently placed the burden on
Microsoft to prove that its conduct would not recur, relying
upon Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d 1132
(9th Cir. 1986), in which this court held that where a defen-
dant in a trademark case has ceased the unlawful conduct, an
injunction should issue unless "the reform of the defendant
[is] irrefutably demonstrated and total." Id. at 1135 (internal
quotation marks omitted). Sun's unfair competition claim,
however, is not brought under federal trademark law, but
under California law, which provides that a plaintiff cannot
receive an injunction for past conduct unless he shows that the
conduct will probably recur. See People v. Toomey, 157 Cal.
App. 3d 1, 20 (1984). The district court erred by entering its
preliminary injunction on Sun's unfair competition claim
without making such a finding.

The injunction is VACATED and the case REMANDED to
the district court for further proceedings.
 the end