IBM's Affirmative Defenses: Take That!
By Pamela Jones
July 17, 2003
So far, Groklaw has covered a number of subjects, in relation to the SCO-IBM case.
Here's a list of those that rated separate articles; the rest can be found in the
Patents and Copyrights [ http://radio.weblogs.com/0120124/2003/07/05.html ]
How the 10th Circuit Defines Derivative Code [ http://radio.weblogs.com/0120124/2003/06/29.html
Declaratory Judgments [ http://radio.weblogs.com/0120124/2003/06/29.html ]
Discovery Rules [ http://radio.weblogs.com/0120124/2003/06/26.html ]
Trade Libel [ http://radio.weblogs.com/0120124/2003/06/22.html ]
Trade Secrets [ http://radio.weblogs.com/0120124/2003/06/21.html ]
Judge Kimball's Record [ http://radio.weblogs.com/0120124/2003/06/10.html ]
Legal Links [ http://radio.weblogs.com/0120124/stories/2003/06/28/legalLinks.html
] to information by others on relevant topics.
Today, we'll cover IBM's affirmative defenses. First, what is an affirmative defense?
Despite it's name, it's not just defensive in nature. It's a plaintiff's first opportunity
to accuse back, as well as to raise issues that help it defend itself. As this dictionary
[ http://www.law.cornell.edu/lexicon/affirmative_defense.htm ] defines it, it means:
"A defense in which the defendant introduces evidence, which, if found to be
credible, will negate criminal or civil liability, even if it is proven that the
defendant committed the alleged acts." By the way, you can just click on the
dictionary.com icon on the left and type in whatever you want defined for any legal
term, in addition to the links I will provide.
Dictionary.com's definition of an affirmative defense is that it's the "part
of an answer to a charge or complaint in which a defendant takes the offense and
responds to the allegations with his/her own charges, which are called 'affirmative
defenses.' These defenses can contain allegations, take the initiative against statements
of facts contrary to those stated in the original complaint against them, and include
various defenses based on legal principles. Many of these defenses fall into the
'boilerplate' (stated in routine, non-specific language) category, but one or more
of the defenses may help the defendant."
Affirmative defenses are equitable in nature. What is equity? [ http://www.lectlaw.com/def/e031.htm
] The definition basically is that it's a group of rights that arise out of concepts
of fairness, when the strict letter of the law doesn't provide a remedy. It's a
way for the judge to Do the Right Thing, you might say, and figure out a solution
where the law may have none. So in your affirmative defenses, you are appealing
to the conscience of the judge and/or jury. So, with that introduction, let's take
them one at a time.
First Affirmative Defense: that the complaint fails to state a claim upon which
relief can be granted. This is an example of boilerplate language, wording you
pretty much always see in an Answer, but that doesn't mean it doesn't sometimes
actually mean something. You fail to state a claim for which relief can be granted
if, for example, you weren't injured by the defendant in any way. There isn't any
relief when there isn't any wrong.
Second Affirmative Defense: that their claims are barred because IBM has not
engaged in any unlawful or unfair business practices, and IBM's conduct was privileged,
performed in the exercise of an absolute right, proper and/or justified. The
first half says IBM didn't do anything unlawful or unfair and the second half says
what ever they did, they had the right to do it. Remember IBM's mantra: we have
a fully paid up, irrevocable license. Also, they will no doubt argue that whatever
code they released was code that they owned themselves and that it wasn't derivative
code owned by SCO.
Third Affirmative Defense: that SCO lacks standing to pursue its claims against
IBM. Standing [ http://www.lectlaw.com/def2/s064.htm ] is whether you have a
right to bring a lawsuit under the particular circumstances. To have standing in
federal court, there has to be an actual controversy (meaning you aren't asking
the judge to rule on something you are thinking might happen or something you're
just curious about), there has to be a federal statute that says the federal courts
can hear this type of issue (copyright law is an example of a statute that says
the federal courts can hear it), and the parties must be residents of different
states. If both SCO and IBM were Utah corporations, for example, the dispute could
simply be heard in Utah state courts, God forbid. In fact, SCO originally filed
in Utah state court. IBM got it moved to federal court in Utah, but they are still
trying to get out of Utah, period, as we'll see, because although they are in federal
court, Utah's laws will be applied, unless IBM can get that changed.
If you would like to understand how the federal courts work, the best reference
I found is "Understanding the Federal Courts", a pdf which you can find a link to
on this page [ http://www.utd.uscourts.gov/documents/infopage.html ]. It even has
a diagram showing all the courts, leading up to the Supreme Court. And there is
a glossary of legal terms at the end.
The main point is this: you can't just waltz into federal court the way you can
into state court in the state where you live. You have to meet the requirements
to be heard there, and here IBM is saying SCO didn't meet the three-prong requirement.
If you examine the three-part test, the last one seems at first glance ruled out,
because they are in different states, so they must be saying there is no actual
controversy and/or there is no federal statute being relied on. Contract disputes
are based on state law, not federal, and so far there are no copyright claims, which
would make it appropriate to be in federal court. It's about a contract and some
tort claims, which would be under state law. Which state? That's what IBM is arguing.
Obviously, they don't want to be in Utah state court, but they don't want to be
in federal court using Utah's laws either. More on that in a later affirmative defense.
Here they are saying that SCO doesn't belong where it is.
Why argue about it? Because sometimes a state's laws are stricter than federal laws
or one state's law might be better for your side than another. For example, HIPAA
is the law governing privacy of patient medical records, federally. But some states,
CA, for example, have stricter privacy provisions than HIPAA. In that case, the
stricter provisions would prevail. Where a state has less strict regulations HIPAA
would apply rather than the looser state provisions. So, if you're a plaintiff and
you are trying to decide where to bring your case, and let's say you live in CA
but your HMO is located in a less strict privacy state, you would want to go into
a federal court in CA and apply HIPAA plus California law there. Your HMO would
try its best to avoid that, because they would want to avoid the stricter CA privacy
How does the judge decide which state's law gets applied? There are rules about
it. You can't just sue someone anywhere you like. The defendant has to have some
connection to the place where they are sued. If there is a contract, it may spell
out that the contract is to be interpreted according to a particular state's laws.
a state's laws chosen for any disputes. Software companies like to choose Virginia,
because the law there favors them. When the contract doesn't say, you must persuade
a judge that the state you like has the strongest tie to the claims at issue. That's
why SCO keeps saying that IBM committed their alleged wrongs inside of Utah, and
that IBM has an office in Utah, etc. This affirmative defense is part of IBM's campaign
to get out of Utah, as well as saying that SCO has no case. It's an elaborate dance
that has only just begun. Head explode yet? If not, let's move on.
Fourth Affirmative Defense: that the claims are barred, in whole or in part,
by the applicable statutes of limitations. A statute of limitations [ http://www.lectlaw.com/def2/s073.htm
] defense just means that you only have a certain window in which to bring a claim.
The period of time varies by wrong alleged and from state to state. For example,
there is one statutory time period set for personal injury cases, breach of contract,
fraud, etc. But wherever you are, if you don't file by the deadline, whatever it
is in your area for your claim, your right to sue is forever barred, or blocked.
There are federal statutes of limitations too for certain claims.
Fifth Affirmative Defense: that the claims are barred, in whole or in part, by
the economic-loss doctrine or the independent-duty doctrine. This is one you
can't just look up in a dictionary. For this, you must look to what judges have
written in their decisions. Sometimes you can find such cases by looking in legal
papers submitted to judges, but that only works up to a point. For one thing, the
judge may not have been persuaded by the argument. Each side tends to play up its
side of the story and to paint the law in the colors best suited to its argument.
That's why judges' decisions are more reliable, although you have to check always
to make sure a new case hasn't made the case you found no longer applicable. I'm
just explaining this because some folks have written to me that they couldn't figure
out what "economic-loss doctrine" was. The method I just described is how you do
it. Stick to the state or jurisdiction your case is in, and then look up in Lexis
[ http://www.lexis.com/ ] or Westlaw [ http://web2.westlaw.com/signon/default.wl
] or Loislaw [ http://www.loislaw.com/ ] or some similar service -- by keywords.
They will charge you. Your nearest legal library, maybe in the courthouse, or in
a law school, may be free.
If you do that, this is what you'll find: The economic-loss doctrine basically says
that if you suffer only economic losses, you can't sue under a tort theory but must
stay inside the contract you are in. Oddly enough, the clearest explanation is found
in a Microsoft legal document that it presented in the case between it and Caldera,
the one that ended with a settlement. Here's their explanation:
"The basic theory behind the economic loss rule is that when two parties have
a contract and the opportunity to negotiate how they want to be protected by the
contract, the policy considerations and incentives for proper conduct of tort law
This rule exists to assist in determining whether contract or tort theories are
applicable to a given case. Tort law seeks to protect you and your property when
you are not in a contract; contract law protects bargained-for expectations. The
economic-loss doctrine began with product liability law and then spread to other
claims. The idea was that if a product didn't harm anything but itself, with no
damage to your other property or to yourself, you couldn't sue under a tort theory,
because your loss was economic only. So, if they were negligent, it was just too
bad. You couldn't recover soley economic losses under tort theories like negligence,
strict liability, etc. You should have thought of those possibilities and put in
the contract what they would have to do for you if they were negligent or whatever.
The thought was that you should be able to rely on the terms of the contract, so
as to have certainty as to your potential liability.
Utah is a state that has accepted this doctrine, which is sometimes called the Moorman
doctrine, named after a famous case, Moorman Mfg. Co. v. National Tank Co., 435
N.E.2d 443 (Ill. 1982) which held that purely economic damages cannot be recovered
in tort. The case is old enough that I couldn't find a free copy of it to link to,
so you'll have to find it for yourself at the library if you want to read it, or
pay a service. If you bought a product, and it didn't work the way you wanted, your
remedy was whatever you wrote in the contract when you bought it. If the product
catches on fire and you're left with third-degree burns on top of a product that
doesn't work, however, that's a different story. Now you're talking tort claims
for the burns, if the victim prefers, because that isn't an economic loss, or he
or she can sue under the contract, but it's their choice.
Tort, which if you speak French you know just means "wrong" in that language, in
the law means a civil wrong, or wrongful act. Negligence would be a tort, assault,
battery, libel, defamation -- these are all torts. Breach of contract may be wrong,
but it's not a tort wrong, so to speak. The idea is that when two businesses work
out a contract, and they both are sophisticated and have legal representation, they
should be able to figure out what could go wrong and spell out in the contract what
the remedies should be if something goes wrong. If they fail to do so, later, when
something does go wrong, they are still stuck with the contract if their losses
are economic only. There can be some exceptions to this (false representations,
for example), but that is the general doctrine. Failed expectations -- one side
thought it was going to make a killing in a business deal and it didn't -- is strictly
a contract issue, not a tort.
So what IBM is saying here is: all you say you lost is money. That keeps us inside
the terms of whatever the contract says should happen. You can't sue for the other
things you are asking for that are torts. Remember SCO is claiming IBM caused "tortious
injury and breach of contract." IBM is saying, Hey, you said we have a contract,
so you can't also bring tort claims when there is a contract, because of the economic-loss
doctrine. They may also argue that they aren't in any contract with SCO, as we've
pointed out before, but here they are saying that if we are in a contract with you,
it bars you from recovering under the tort theories you have alleged. So the only
remedies SCO could ask for, under this affirmative defense, would be that IBM return
or destroy all of AIX and stop distributing it and anything else specifically spelled
out in the contract The enormous money damages SCO is asking for are not specified
in the contract. Neat slice from IBM, huh? Like a razor. Here are some links where
you can read more about the economic-loss theory, if you wish, here [ http://www.dcba.org/brief/novissue/2002/art31102.htm
] and, if you can stand horrible formatting,
Sometimes you get to escape the economic-loss doctrine's severity, namely, if the
defendant had an independent duty, one separate from the contract, that it breached.
Here is a description of the three exceptions to the economic-loss doctrine:
"There are three exceptions to the economic loss rule: The plaintiff may sue
in tort where (1) the plaintiff sustained personal injury or property damage resulting
from a sudden or dangerous occurrence; (2) the plaintiff[base ']s damages were proximately
caused by the defendant[base ']s intentional, false representation; or (3) the plaintiff[base
']s damages were proximately caused by negligent misrepresentation on the part of
a defendant who was in the business of supplying information for the guidance of
others in their business transactions."
A lawyer, for example, has certain responsibilities under the law, and lawyers can't
hide behind a contract's terms under the economic-loss doctrine, because they are
supposed to do certain things no matter what a contract says or doesn't say. An
accountant also has certain duties of care and so an accountant could be sued for
certain torts. And no one can contract away fraud. In other words, a right to be
free from fraudulent inducements to contract doesn't arise out of contract. Moorman
doesn't protect from intentional interference with a prospective business advantage.
But here, IBM is saying they had no independent duty toward SCO and weren't guilty
of anything that would take them outside of the contract. What could take you outside
of a contract? If, for example, a company deliberately set out to ruin your business,
you can sue under tort. But if the company made a valid business decision that also
happened to affect you adversely, but there was no intention to harm you, then it's
just too bad. There is no legal right to make a profit. IBM's position will be that
their decision to support Linux was a valid business decision that had nothing to
do with any desire to destory UNIX, as SCO alleged.
Sixth Affirmative Defense: the claims are barred by the doctrine of laches and
delay. Laches [ http://www.lectlaw.com/def/l056.htm ] just means you waited
too long to sue. It's kind of like the statutes of limitations defense, but laches
is equitable. IBM is pleading both. At some point, I believe they may have to choose,
depending on some factors I don't know now, but you can do that in an Answer. You
can even plead mutually exclusive defenses. One might stick, even if the other fails.
You can argue: I didn't do it. Next you can argue: I had the contractual right to
do it. Here's a legal explanation of laches, from Steven H. Gifis' Law Dictionary:
"LACHES a doctrine providing a party with an equitable defense where long-neglected
rights are sought to be enforced against the party. Laches signifies an undue lapse
of time in enforcing a right of action and negligence in failing to act more promptly.
It recognizes that because of the delay, the defendant's ability to defend may be
unfairly impaired because witnesses or evidence needed to defend against the state
claim may have become unavailable or lost. The doctrine also recognizes that if
the delay has led the adverse party to change his or her position as to the property
or right in question, it is inequitable to allow the negligent delaying party to
be preferred in their legal right.... The consequent preclusion of the negligent
party's action constitutes a species of equitable estoppel known as ESTOPPEL BY
Seventh Affirmative Defense: that the claims are barred by the doctrines of waiver,
estoppel and unclean hands. Waiver [ http://www.lectlaw.com/def2/w036.htm ]
is "an intentional and voluntary giving up, relinquishment, or surrender of some
known right. In general, a waiver may either result from an express agreement or
be inferred by circumstances," as Gifis' dictionary explains. If you wait too long
to assert your right, you may have waived it. Or think about Caldera itself releasing
some UNIX code as GPL. IBM may be thinking about it, all right.
Estoppel [ http://www.lectlaw.com/def/e040.htm ] just means stopped, or barred.
Here's 'Lectric Law's explanation:
"A bar which precludes someone from denying the truth of a fact which has been
determined in an official proceeding or by an authoritative body. An estoppel arises
when someone has done some act which the policy of the law will not permit her to
"In certain situations, the law refuses to allow a person to deny facts when
another person has relied on and acted in accordance with the facts on the basis
of the first person's behavior.
"There are two kinds of estoppel.
"Collateral estoppel prevents a party to a lawsuit from raising a fact or issue
which was already decided against him in another lawsuit. For example, if Donna
obtained a paternity judgment against Leroy and then sued him for child support,
Leroy would be collaterally estopped from claiming he isn't the father.
"Equitable estoppel prevents one party from taking a different position at trial
than she did at an earlier time if the other party would be harmed by the change.
For example, if after obtaining the paternity judgment, Leroy sues Donna for custody,
Donna is now equitably estopped from claiming in the custody suit that Leroy is
not the father."
Both types could be in this picture. The old BSDI case and its agreement terms may
have a bearing in this case. And old Caldera's actions in promoting open source
and encouraging it, as well as any unknown agreements or actions that I don't know
about but the parties do regarding Project Monterey could be involved too. Then
there is the way UNIX was distributed in its early history, as well as SCO releasing
the code in dispute themselves under the GPL.
Unclean hands [ http://dictionary.law.com/definition2.asp?selected=2182&bold=%7C%7C%7C%7C
] is basically saying you don't deserve to get any relief because you have been
bad yourself. Here is dictionary.com's definition:
"a legal doctrine which is a defense to a complaint, which states that a party
who is asking for a judgment cannot have the help of the court if he/she has done
anything unethical in relation to the subject of the lawsuit. Thus, if a defendant
can show the plaintiff had "unclean hands," the plaintiff's complaint will be dismissed
or the plaintiff will be denied judgment. Unclean hands is a common "affirmative
defense" pleaded by defendants and must be proved by the defendant. Example: Hank
Hardnose sues Grace Goodenough for breach of contract for failure to pay the full
amount for construction of an addition to her house. Goodenough proves that Hardnose
had shown her faked estimates from subcontractors to justify his original bid to
I think we can all figure out how this might apply. If you need a hint, read IBM's
introduction in its Amended Answer.
Eighth Affirmative Defense: that their claims are, in whole or in part, pre-empted
by federal law. I haven't figured out yet why IBM put this in, but I'll give
you an example of how it can be used. Copyright law is federal law. You can't go
into a state court and fight about copyright infringement, because federal law pre-empts.
And if you're in federal court, you can't apply a state law if there is a federal
law that pre-empts the state law.
Ninth Affirmative Defense: that the claims are improperly venued in this district.
This is more of IBM saying, Get me out of here. Venue [ http://www.lectlaw.com/def2/u025.htm
] is synonymous with "place of trial". IBM is arguing: this isn't the place. Venue
has to do with where the alleged wrongs took place, and here SCO argued, in a bit
of a stretch, that it all happened in Utah because it affected them and they are
in Utah. It could have sued in New York, where the defendant is located. They chose
to sue in Utah instead, and IBM is going to argue that they chose the wrong place.
Here's part of what dictionary.com says about venue:
"1) the proper or most convenient location for trial of a case. Normally, the
venue in a criminal case is the judicial district or county where the crime was
committed. For civil cases, venue is usually the district or county which is the
residence of a principal defendant, where a contract was executed or is to be performed,
or where an accident took place. However, the parties may agree to a different venue
for convenience (such as where most witnesses are located). Sometimes a lawsuit
is filed in a district or county which is not the proper venue, and if the defendant
promptly objects (asks for a change of venue), the court will order transfer of
the case to the proper venue.
"Example: a promissory note states that any suit for collection must be filed in
Washington County, Indiana, and the case is filed in Lake County, Indiana. In high
profile criminal cases the original venue may be considered not the best venue due
to possible prejudice stemming from pre-trial publicity in the area or public sentiment
about the case which might impact upon potential jurors. For these various reasons
either party to a lawsuit or prosecution may move (ask) for a change of venue, which
is up to the discretion of a judge in the court where the case or prosecution was
originally filed. Venue is not to be confused with 'jurisdiction,' which establishes
the right to bring a lawsuit (often anywhere within a state) whether or not it is
the place which is the most convenient or appropriate location."
This is, despite its length, just the tip of the iceberg of all that could be said.
Likely there are attorneys out there seeing details I missed. If so, do share. But
for now, it's enough. Lucky you. You can read just the parts that interest you,
whereas I was compelled to look carefully at every last word. Keep the laches and
waiver affirmative defenses in mind. I have some very interesting information I
have found that relates to those affirmative defenses, for next time.
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