SAS Institute Inc v World Programming Ltd

Factual and Procedural Background

The Plaintiff, a developer of analytical software known as the Plaintiff System, brought a claim under the Shorter Trials Scheme to enforce an obligation of the Defendant to pay compensatory damages of approximately US$26.4 million, plus interest, pursuant to a judgment of the United States District Court for the Eastern District of North Carolina dated 15 July 2016 (the "US Judgment"). The claim relates only to part of that judgment concerning causes of action for the Defendant's fraudulent inducement to contract. The Defendant resists the claim and counterclaims for declarations and repayment of punitive/multiple damages it was compelled to pay under US enforcement procedures.

The Plaintiff System software had been developed over 35 years and included a core component enabling users to write and run application programs in the Plaintiff Language. The Defendant created a competing product aiming to emulate the Plaintiff System's components without access to or copying of the source code, instead interrogating a copy of the Plaintiff product.

The Plaintiff sued the Defendant in England in 2009 (the "English Proceedings") alleging intellectual property breaches and licence infringements. The English courts rejected the Plaintiff's claims, holding that the Defendant's conduct was permitted under the European Software Directive 91/250/EEC (the "Software Directive"), which protects only the expression of computer programs and not their functionality or ideas, and invalidates contractual terms restricting lawful reverse engineering.

Separately, the Plaintiff commenced proceedings in the US in 2010 ("US Proceedings") bringing claims including copyright infringement, breach of contract/fraudulent inducement, tortious interference, and a statutory claim under North Carolina's Unfair Deceptive Trade Practices Act ("UDTPA"). The US court did not admit evidence or submissions regarding the Software Directive, resulting in a different outcome. The Plaintiff succeeded on the fraudulent inducement and UDTPA claims, with compensatory damages awarded.

The Defendant appealed unsuccessfully in the US courts. The Plaintiff has recovered approximately US$4.3 million from security posted by the Defendant but the Defendant has not paid the remainder. The Plaintiff now seeks enforcement of the US Judgment in England, where the Defendant is incorporated and operates.

Legal Issues Presented

1. Whether enforcement of the US Judgment in England for compensatory damages based on fraudulent inducement is barred by issue estoppel or abuse of process principles arising from prior English Proceedings.
2. Whether enforcement of the US Judgment would be contrary to English public policy, particularly as embodied in the Software Directive.
3. Whether the US Judgment contravened natural or substantial justice, thus rendering enforcement inappropriate.
4. Whether the Protection of Trading Interests Act 1980 ("PTIA") bars enforcement of the multiple damages awarded under the UDTPA claim.
5. Whether the Defendant's counterclaim for repayment under section 6 of the PTIA is sustainable given payments already made.

Arguments of the Parties

Defendant's Arguments

• Enforcement of the US Judgment is barred by issue estoppel and the Henderson v Henderson abuse of process principle because the fraudulent inducement and UDTPA claims were or should have been litigated in the earlier English Proceedings.
• The Software Directive embodies an overriding public policy preventing enforcement of claims based on contractual terms held void under that Directive, rendering enforcement of the US Judgment contrary to public policy.
• The US Judgment contravened natural justice as the US court refused to consider the Software Directive and prior English judgments, denying the Defendant a fair opportunity to be heard.
• The PTIA bars enforcement of the multiple damages awarded under the UDTPA claim, and the Defendant is entitled to recover part of any payments made under that judgment pursuant to section 6 of the PTIA.

Plaintiff's Arguments

• The Defendant is estopped from raising preclusion defences because it had the opportunity to do so in the US Proceedings and chose not to.
• The fraudulent inducement and UDTPA claims are distinct from the claims determined in the English Proceedings and were not part of those proceedings.
• Enforcement of the US Judgment does not contravene the Software Directive as it does not address enforcement of foreign judgments nor authorise fraud.
• The Defendant had full opportunity to litigate in the US courts, which followed their own procedures and laws, so there is no breach of natural justice.
• The PTIA does not bar enforcement of the compensatory damages portion of the US Judgment, which is severable from the multiple damages portion not sought to be enforced.
• The Defendant's counterclaim under section 6 of the PTIA is not presently sustainable as no payments have been made on account of multiple damages exceeding compensatory damages.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court examined the issue of preclusion and abuse of process, focusing primarily on issue estoppel and the Henderson v Henderson principle. It found that the fraudulent inducement claim in the US Proceedings was fundamentally dependent on the existence of contractual terms that the English courts had already held to be void under the Software Directive. This identity of issue supported issue estoppel barring enforcement of that claim.

Further, even if issue estoppel did not apply, the Court concluded that the fraudulent inducement and UDTPA claims could and should have been brought in the English Proceedings by early 2010, when sufficient documentary material was available. The Plaintiff’s failure to do so was held to be abusive of process under the Henderson principle.

The Court rejected the Plaintiff’s argument of counter-estoppel based on the Defendant’s conduct in the US Proceedings, finding no unequivocal representation or consensus that the Defendant would not raise preclusion defences.

On the public policy issue, the Court acknowledged that the Software Directive embodies a fundamental English public policy preventing monopolisation of ideas and protecting lawful reverse engineering. The fraudulent inducement claim was premised on contractual terms invalidated by the Directive, making enforcement contrary to public policy.

The natural justice challenge failed because the US courts applied their own laws and procedures fairly, and the Defendant had full opportunity to litigate and appeal. The Court would not substitute English justice standards for those of a competent foreign court absent serious procedural irregularity.

Regarding the PTIA, the Court held that the statute bars enforcement of judgments for multiple damages in their entirety, not just the multiplied portion, consistent with the policy to prevent enforcement of punitive foreign antitrust awards. The compensatory damages awarded under the UDTPA claim fall within this prohibition because the judgment is for multiple damages as a whole.

The Defendant’s counterclaim under section 6 of the PTIA was upheld in principle. Although payments made to date have not exceeded compensatory damages, the statutory deeming provisions entitle the Defendant to recover the excess portion of any payments made on account of the multiple damages judgment.

Holding and Implications

ENFORCEMENT OF THE US JUDGMENT FOR THE FRAUDULENT INDUCEMENT AND UDTPA CLAIMS IS BARRED.

The Court held that issue estoppel and the abuse of process doctrine based on Henderson v Henderson preclude enforcement of the US Judgment in respect of the fraudulent inducement and UDTPA claims because these claims were or should have been litigated in the English Proceedings.

Further, enforcement of the US Judgment on these claims would be contrary to English public policy as embodied in the Software Directive, which invalidates the contractual terms upon which the fraud claim was based, thereby making enforcement incompatible with fundamental policy objectives.

The natural justice challenge to enforcement was rejected as the US courts fairly applied their own laws and procedures.

Enforcement of the multiple damages portion of the UDTPA claim is barred by the Protection of Trading Interests Act 1980. The compensatory damages portion is also barred because the judgment is a judgment for multiple damages in its entirety for the purposes of the statute.

The Defendant’s counterclaim under section 6 of the PTIA for recovery of payments made under the judgment is sustainable in principle, though no payments have yet been made on account of the multiple damages exceeding compensatory damages.

No new legal precedent was established; the decision applies established principles of issue estoppel, abuse of process, public policy, and statutory interpretation of the PTIA.