Oracle America, Inc. v. NEC Corporation of America

Background

Oracle America, Inc. and Oracle International Corporation sued NEC Corporation of America (NECAM) for copyright infringement and breach of contract. NECAM used Oracle Database with Integra-ID 5, a biometrics identification system used by law enforcement agencies. The parties entered an Embedded Software License agreement in March 2017. After an audit, Oracle concluded that NECAM had violated the license and later terminated NECAM’s membership in Oracle’s partner network and the relevant licenses.

NECAM’s answer included eight affirmative defenses and six counterclaims. Oracle moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss NECAM’s first, second, and third counterclaims, and under Rule 12(f) to strike the corresponding third and fourth affirmative defenses. The challenged counterclaims concerned intentional misrepresentation or false promise, California’s Unfair Competition Law, and copyright misuse. The challenged defenses concerned fraud in the inducement or fraud in the execution and copyright misuse.

Court’s Analysis

For the fraud counterclaim, the court held that NECAM had not alleged a specific false statement or justifiable reliance with the particularity required by Federal Rule of Civil Procedure 9(b). NECAM alleged that Oracle instructed it to reinterpret a question on the license-registration form, but the court found that the facts pleaded did not identify a false or fraudulent statement. The court also questioned whether NECAM could reasonably rely on the alleged representation because it had previously used Oracle licenses, had distributed Integra-ID 5 under a more flexible license, and later signed the agreement. The court therefore concluded that the fraud counterclaim failed and struck the related fraud defense as insufficient.

The court also dismissed NECAM’s California Unfair Competition Law counterclaim because it was based on allegations sounding in fraud and was not pleaded with the required particularity.

The court rejected NECAM’s copyright-misuse counterclaim and defense. Copyright misuse is a doctrine that can apply when a copyright owner uses a license to restrict competition or the development of competing products. The court said NECAM did not allege that Oracle prevented it from developing software competing with Oracle’s software or from using competitors’ software. Allegations that the license restricted NECAM’s ability to modify its own software, generate customized reports, or provide customer support were insufficient.

Disposition

The court GRANTED Oracle’s motion to dismiss NECAM’s first, second, and third counterclaims and to strike NECAM’s corresponding third and fourth affirmative defenses. The court granted NECAM leave to amend its counterclaims and affirmative defenses and allowed it to file an amended answer within 30 days of the order. The opinion did not state that the dismissals were with or without prejudice.