The opinion of the court was delivered by: DICKINSON R. DEBEVOISE
Debevoise, District Judge.
Plaintiff Unix System Laboratories, Inc. ("USL") instituted this action seeking relief from Defendants' past and prospective distribution of computer software in alleged violation of Plaintiff's proprietary rights in the UNIX operating system. Defendants now move to dismiss all of Plaintiff's claims against the Regents in their individual and official capacities ("the Regents"), and four of Plaintiff's five claims against the Regents in their corporate capacity as the Board of Regents of the University of California ("the University").
For the reasons given below, Defendants' motions are granted in part and denied in part.
Plaintiff Unix System Laboratories ("USL") is a Delaware corporation with its principal place of business in Summit, New Jersey. Plaintiff develops, manufactures, licenses, and sells computer operating systems and related products and services. Plaintiff is also the present assignee of AT&T's rights to UNIX, the computer software at the heart of this dispute. Defendant Berkeley Software Designs, Inc. ("BSDI") is a recently-formed Delaware corporation with its principal place of business in Richmond Falls, Virginia. BSDI intends to develop, manufacture, and sell computer operating systems like those of Plaintiff. Defendant officials are members of the Board of Regents (the "Regents") of the University. The Regents are a non-profit public corporation organized to administer the University pursuant to the California constitution, art. 9 § 9, and California state law.
The central issue in the case as a whole is whether Defendants appropriated pieces of Plaintiff's allegedly proprietary program "UNIX," and then used and distributed these pieces without authorization in violation of Plaintiff's copyrights and trade secrets. UNIX is a computer operating system -- a software program that oversees a computer's internal and external activities, including processing, resource allocation, communications, and applications use. AT&T's Bell Laboratories registered the name UNIX as Trademark No. 1,392,203 on May 6, 1986. (1st Am. Compl. Ex. B.) In addition, AT&T has received copyright certificates of registration on various versions of UNIX software and documentation. (Id., Exs. C-F.)
Before exploring the details of Plaintiff's allegations, it is important to step back and appreciate the importance of UNIX in the world of computing. All parties agree that UNIX is one of the most highly-regarded operating systems in the world. Numerous treatises, courses, graduate student theses, and research projects have investigated, expounded, and improved upon UNIX. In addition, programmers at Microsoft, Sun Microsystems, Digital, IBM, and elsewhere have all developed their own UNIX-like, UNIX-compatible operating systems (some under license by Plaintiff). (Carson Reply Aff. at PP 11-12.)
AT&T developed UNIX in the late 1960s and early 1970s, and then quickly began licensing UNIX to educational, government, and commercial users, including the University of California at Berkeley ("Berkeley"). Berkeley and AT&T apparently collaborated on UNIX's development at least in the early years, with AT&T personnel often visiting Berkeley for consultations. The parties executed their first UNIX licensing agreement in 1973, and by 1979 the parties had executed their first agreement covering the software that Plaintiff now seeks to protect, UNIX version 32V. The 32V agreement permits the Regents to create derivatives of UNIX and, to the extent that the derivatives are free of proprietary information, to distribute them without restriction.
Berkeley exercised its contractual right to derivatize 32V to the hilt. It began to create its own embellishments and additions, called Berkeley Software Distributions ("BSD") releases, and distributed them via the Regents' Computer Sciences Research Group ("CSRG"). In the early 1980s, Berkeley only distributed the releases to other licensees (which now number in the thousands) because the releases contained proprietary code governed by Berkeley's license with AT&T. But demand for the releases from unlicensed users grew, so Berkeley began distributing redacted releases with the proprietary material allegedly removed. These releases included the operating system at the heart of the present dispute, Net2, which Plaintiff has alleged violates its proprietary rights in 32V.
Net2 apparently began as a project to develop a UNIX-like product devoid of AT&T proprietary code. This product was to contain both non-proprietary software from the BSD releases and software written specifically for Net2, sometimes by volunteers. (Kennedy Aff., Ex. 6.) To guarantee that no proprietary code remained, CSRG screened and eliminated overlapping code sections in accordance with criteria developed together with Berkeley's legal counsel. In addition, Berkeley "repeatedly contacted the USL licensing office, in an attempt to have them review software we intended to distribute." (McKusick Decl. at 8.) Plaintiff allegedly refused to cooperate, although it had performed similar services for others.
Berkeley's decision to excise AT&T's code was motivated by several related concerns. First, the University of California received substantial benefits by being the center of UNIX software development, benefits that would increase if it could expand the family of UNIX users by extending UNIX to non-licensees (Ibid.); second, the cost of an AT&T UNIX license had increased to around $ 200,000, excluding all but the largest users (Ibid.); third, the Net2 version of UNIX would offer new and improved services (Keith Bostic, Marshall K. McKusick, & Michael J. Karels, Berkeley UNIX Yesterday, Today and Tomorrow, in Kennedy Aff. Ex. 8); and finally, the CSRG programmers, at least those who founded BSDI (Karels, McKusick, and Bostic), presumably saw in Net2 an opportunity to profit from the widespread interest in UNIX-like systems.
The end result of Berkeley's efforts was a product that, by all accounts, contains a very small proportion of 32V code. But this is not to say that Net2 fails to display its 32V roots. Plaintiff hired Professor John Carson to unearth these roots and, after over 400 hours of digging, Professor Carson has now identified a number of instances where 32V code is embedded in the Net2 system. (Carson Aff. at P 13.) The legal significance of this code is, of course, the central issue in the present dispute.
Berkeley began licensing and distributing Net2 in June 1991. Plaintiff has alleged that the "highest levels," meaning persons reporting directly to the Regents, approved Net2's release. (E.g., Proposed 2d Am. Compl. at PP 2, 9, 38, 64, 72, 89, 103.) Indeed, Plaintiff has alleged that the University Chancellor himself approved Net2's release. (Kennedy Aff. P 16.)
One organization that obtained Net2 from UUNET was BSDI. (Adams Dep. at 149, Kennedy Aff. Ex. 12.) BSDI, which is not licensed by AT&T to use UNIX, used Net2 to create its sole product, the operating system BSD/386 Source. (Ans. & Countercl. at PP 5-6.) BSDI is now close to bringing BSD/386 to market, having distributed preliminary "alpha," "beta," and "gamma" versions of BSD/386 as well as promotional literature. This literature states that BSD/386 Source "contains no AT&T licensed code" and "does not require a license from AT&T." (1st Am. Compl. Ex. I.) Unless Plaintiff is successful in this suit, it will soon have another competitor in the field of UNIX-like operating systems.
B. The Present Motions To Dismiss
The central issue in the present motions to dismiss is whether the University is tantamount to the state of California for purposes of the Eleventh Amendment. The University of California is defined as a state agency by state law, Cal. Gov't Code § 3202(b), and as "a public trust, to be administered by the existing corporation known as 'The Regents of the University of California,'" by the California Constitution. CAL. CONST. art. IX, § 9(a). The University corporation is comprised of:
a board composed of seven ex officio members, which shall be: the Governor, the Lieutenant Governor, the Speaker of the Assembly, the Superintendent of Public Instruction, the president and the vice president of the alumni association of the university and the acting president of the university, and 18 appointive members appointed by the Governor and approved by the Senate . . . .
The general powers of the University are established by the California Constitution. These powers are extensive, encompassing the "full powers of organization and government," CAL. CONST. art. IX, § 9(a), including the powers to manage and dispose of University property; to acquire property; to sue and be sued; to use a seal; to delegate authority; and to be "entirely independent of all political or sectarian influence." Id., § 9(f). Indeed, the University's powers of organization and government are "subject only to such legislative control as may be necessary to insure the security of its funds and compliance with the terms of the endowments of the university and such competitive bidding procedures as may be made applicable . . . ." Id., § 9(a).
California courts have interpreted Article IX broadly. For example, they have concluded that the University has quasi-judicial powers over its own personnel disputes, and that state courts must show deference when reviewing the factual findings of a University adjudicatory officer. Ishimatsu v. Regents of the Univ. of Cal., 266 Cal. App. 2d 854, 864, 72 Cal. Rptr. 756 (Ct. App. 1968); Apte v. Regents of the Univ. of Cal., 198 Cal. App. 3d 1084, 1091, 244 Cal. Rptr. 312 (Ct. App. 1988). The University also has legislative powers in the sense that its policies and procedures attain "the status of statutes in its internal governance." Apte, 198 Cal. App. 3d at 1092. In addition, the University can use the power of eminent domain as necessary in the service of its other powers. Cal. Educ. Code §§ 92040, 92431. Thus, the University appears to have all of the adjudicative, legislative, and other public powers that the state can grant to an agency.
As a state agency, the University's property and finances are, at least in form, extensions of those of the state. All of the University's property remains property of the state, In re Bacon, 240 Cal. App. 2d 34, 47, 49 Cal. Rptr. 322 (Ct. App. 1966), and the state provides a substantial portion of the University's operating budget. In 1991, this portion amounted to $ 2.3 billion, or 33% of the University's budget. The other major sources of University funds were the University teaching hospitals ($ 1.5 billion, 21%), and the federal government ($ 1 billion, 15%). (Univ. of Calif. Fin. Rep., 1990-1991, Def.'s Br., Ex. A.) However, the major source of funds for the CSRG, the group responsible for the development and release of Net2, was neither the University nor the state. The CSRG apparently received most of its funds by submitting grant proposals for funding from outside sources. (Pl.'s Opp'g Br., Ex. A.)
The University has other attributes of a state agency as well. For example, it is exempt from taxation by any state or local authority, Cal. Educ. Code § 92,443, and it is exempt from local building codes, regulations, permit fees, and inspection fees for constructing improvements solely for educational purposes. Regents v. Santa Monica, 77 Cal. App. 3d 130, 136, 143 Cal. Rptr. 276 (Ct. App. 1978).
In sum, the University has the status of a constitutional branch and independent agency of the state of California, and it has all of the powers and rights attendant to that status.
Plaintiff filed its complaint in this action on April 20, 1992. On April 29, the parties agreed to a court-ordered stipulation that BSDI would cease using the phone number "1-800-ITS-UNIX." Plaintiff did not name the University as a defendant until July 24, 1992, when Plaintiff amended its complaint to assert claims against "certain named individuals in their collective capacity as The Regents of the University of California."
Even though the University came late to this action as a formal party, as an informal participant it has been active from the beginning. Indeed, two of the University's attorneys participated so actively in an early deposition that Plaintiff sought sanctions against them. (Pl.'s Opp'g Br. at Ex. D.) The magistrate judge denied the sanctions, but he did permit Plaintiff to retake the deposition without interference from the University attorneys. (Pl.'s Opp'g Br. at 3 n. 1.)
On the same date that Plaintiff filed its first amended complaint, I denied Defendants' motions to dismiss Counts Ten and Eleven. Defendants answered the complaint on September 3 and counterclaimed for declarations of noninfringement, unenforceability, and invalidity of Plaintiff's trademark and copyrights in the UNIX name and materials. Plaintiff replied on September 25, and subsequently moved for a preliminary injunction against BSDI and for a second amendment of the complaint. The University continued its active participation by opposing Plaintiff's motion for a preliminary injunction with voluminous amicus materials addressing numerous issues of law and fact, many of which coincided with elements of Plaintiff's claims against the University. (Pl.'s Opp'g Br. at 5-6.) The University cross-moved to strike pleadings, to dismiss for lack of capacity to be sued, to dismiss for improper venue, to dismiss for lack of personal jurisdiction, and to transfer venue. I denied all of these motions except Plaintiff's motion to amend.
Plaintiff then brought Rule 59(a) and 52(b) motions by order to show cause. I issued an opinion amending certain findings of fact pursuant to Rule 52(b), but I denied Plaintiff's request for a new hearing pursuant to Rule 59(a). The University's present motion to dismiss followed. It moves to dismiss all of the counts of the complaint as against the Regents, and four of the five counts as against the University. The five counts at issue here are:
Count 1: Breach of Contract. The University knowingly breached its licensing agreements to use 32V by distributing, disclosing, and using proprietary software in violation of the terms of the agreements. The University acted under the authority of the Regents, who had cause to know of the breach.
Count 3: Copyright Infringement. The University and BSDI violated Plaintiff's copyright in its Unix source code by reproducing, distributing, and preparing derivative works of Plaintiff's source code. The University acted under the authority of the Regents, who had cause to know of the violations.
Count 4: Misappropriation of Trade Secrets. The University and BSDI misappropriated Plaintiff's trade secrets in violation of state law. The University acted under the authority of the Regents, who had cause to know of the misappropriation.
Count 8: Trademark. The University, in promotional materials and its notice of copyright, misrepresented that the source code in Net2 originated within the University, rather than with AT&T or Plaintiff. The University acted under the authority ...