Foreseeable Consequences: the foundation of Torts, Contracts, and Civil Damages
July 24, 2006
At one time, I thought this might make a good article. What do you think?
Regarding SCO v. IBM: a number of speculative theories of lawsuit and recovery have been proposed. The speculations appear to have weak foundations.
Lawyers learn these foundations in law school, in the context of case analysis. These are among the very first concepts presented to new students. They have been part of the law for a long time. They are so basic that they are rarely mentioned, outside the law school classroom. Mostly, every judge and every attorney assumes them as part of the context. Given the abundance of speculative theories, now might be a good time to review these basic concepts.
As individuals in the U.S., we may be held responsible for only some of the foreseeable consequences of our actions. Law students learn early that the possibilities are limited. Not all foreseeable consequences that cause damage to another are covered by tort or contract law. Some damages may not be recovered in the courtroom. Not every clause of every contract is enforceable.
Intentional torts, Negligence, contract law, and copyright infringement law are all based on the concept of foreseeable consequences. Many other things enter into evaluating specific situations, but all of these concepts start with elements of foreseeable consequences.
Assault, battery, slander, libel, trespass-to-land, trespass-to-chattels, interference with contract, Interference with Business Relationship, and fraud, are among the traditional intentional torts. All contemplate an actor with a specific intent. The purpose of the judicial remedy is to reduce unacceptable intentional behavior. A significant difference between intentional torts and the other causes-of-action are that Intentional tort damages may include punitive damages. In contrast, damages for Negligence may not include punitive damages. Contracts themselves may not impose punitive damages, and judgments arising from contracts may not impose punitive damages.
An example of "intent" in intentional torts: to intentionally strike another person is Battery. A hospital patient who goes into convulsions due to illness may "strike" an otherwise innocent hospital employee who is trying to help him. The patient has a complete defense against the hospital employee suing him for Battery. Someone who is convulsing has no voluntary control of his limbs. Any contact with another person during a convulsion is involuntary, without intent. Without the intent to cause the result, there is no tort: patient wins.
Another example: George Burglar hides inside a restaurant meat locker. At closing time, the manager checks the meat locker. Skillful George is concealed. Convinced that there is no problem, the manager padlocks the meat locker for the night. The manager has the actual intent to lock the locker. George freely admits that the manager had no knowledge of his presence; the manager could not have had any intent to imprison him in the meat locker. The restaurant and manager have a complete defense to false imprisonment: lack of requisite intent.
Negligence is similar to the intentional torts, but lacks the requirement of actual intent. Instead, Negligence uses reasonably foreseeable consequences in the context of a duty from one person to another. The duty part is very important, so please do not miss it. The law of Negligence can be quite complicated, and there is not room here for a detailed discussion. Most of us have read cartoons about some cartoon character slipping on a banana peel, leading to slapstick humor. Few, other than lawyers, are aware of the banana peel case that helped create modern Negligence tort law. Anjou v. Boston Elevated Railway (1918), established that a business could reasonably foresee that an invited guest could slip on a dirty old banana peel, if the peel had been left for a long time in an area frequented by passengers. The duty, from the railroad in control of the premises, was to their guest, passenger Anjou. She was invited into the premises by promises of transportation, in return for money had and delivered.
Contract law is a little different. The purpose of a contract is for two parties to allocate business risks. Normally, one assumes one's own risks. Under the terms of a contract, one person may agree to assume certain risks in a transaction. Contract damages must be foreseeable, may not be punitive, and must be related to some valid business purpose. Using the word "risk" might suggest contracting is wagering or "punting", to use a delightful British term. Courts grant wide latitude to contract terms, but contracting is presumed not to be punting. A contract regarding a wager on which horse will win must be very clear to be enforceable, provided it does not run afoul of state anti-gambling laws.
The goal of a contract liability claim is to allocate an economic burden. Simple clauses are straightforward. Routine terms are routinely enforced. The more complex or indirect an interpretation, the less likely it is that any court will impose it. The less of a valid business purpose there is in a clause, the less the courts will want to enforce it. Unusual terms that could be confused with common similar terms veer toward un-enforceability.
Risks covered by a contract may be specific, or implied. There is a small set of ordinarily implied risks. Courts strongly tend not to imply a risk as being covered. If the specific terms of the contract do not identify a risk, and the risk is not in the small set of implied terms for contracts, then a court will not award damages from that risk. In the classic case, the parties left out "time is of the essence". Since timing was not stated to be critical, the first party had to sustain his damages caused by the second parties' slow, but not unreasonably slow, response. The court refused to infer promptness as part of the original agreement.
Very special, very unusual terms that satisfy a legitimate business purpose can be enforceable. The parties to a contract have the unusual freedom to add whatever wording they wish. A clear and detailed description of the goal of the clause, with a specific description of the valid business purpose, will go a long way toward persuading a judge. The judge will understand it, and will know that both parties understood. Judges often equate a lack of clarity with a lack of intent, and consequently find no agreement. This is more likely to be true when both parties are major corporations and each has a high-powered legal department review the terms, prior to committing to the final contract.
Courts interpret contract terms during breach-of-contract lawsuits. There are many general rules about contract interpretation. One of the most common is "plain meaning". If there are alternative interpretations of a term, the courts strongly tend to go for the interpretation with the plain meaning. If a term appears to apply to an ordinary business usage that is appropriate in the context, that usage will be used instead of another interpretation that that does not cover the usage.
A very common clause in business contracts protects trade secrets. For example, the opinion in the Gates Rubber case identifies certain program parameters, developed through extensive experimentation, as trade secrets.
Once information has been published and is no longer secret, it loses its "trade secret" character. Publicly available facts are not trade secrets, and they cannot be protected by contract. One reason for this policy is that there are no damages to either party if a publicly available fact is disclosed. Another reason is that proof of disclosure of a publicly known fact is nearly impossible to prove, and invites juries to award speculative damages. Finally, there are good reasons to not allow an individual to suppress publicly available facts.
One last point on the topic of foreseeability in contracts is "mitigation". Both parties to a contract are required to exercise mitigation to reduce actual damages. If a party cannot comply with a literal term of a contract, he may take some other step that will reduce the other party's losses. If a party knows that the other party cannot perform, and he can take steps that will reduce his damages, he must do so. Implicit in the application of mitigation is the concept of foreseeability. If a party cannot foresee the business consequences of failing to perform a term, he also cannot mitigate the damages when failing to perform. That a party cannot mitigate for lack of foreseeability is a good argument that there are no damages for that particular violation. Please bear in mind that case law has defined some consequences as forseeable, even though you and I might have serious difficulty in making the logical connection: this is the common law, after all.
Copyright infringement lawsuits can be quite complex, but the idea is simple: an author knows what he has written, and what he has not written that was included from other author's works. Publishing someone else's work wholesale is the essence of copyright infringement. It is an intentional act. The infringer knows that he did not write the work, and commits the infringement when he publishes.
Civil suits under the English Common Law have finite classes of claims. Those named in the Second Amended Claims are contract breach, copyright infringement, Interference with Contract, and Interference with Business Relationship.
Going back to "The SCO Group's" claims listed in their Second Amended Claims in SCO v. IBM: the lawsuit does not lie in Negligence, because "The SCO Group" does not allege negligence. Patent statutes do not directly apply, because "The SCO Group" has not claimed any Patent infringements.
Copyright infringements of specific sections of code are relatively straightforward to specify. Identify the original, the original author and time of creation, and how you came to own it, and then identify the infringing copy, and how the infringer distributed it.
By Federal statute, "methods and concepts", standing alone, are not protected under copyright law. The U.S. Supreme Court has weighed-in, as well: Baker v. Selden, 101 U.S. 99 (1879), where they said that copyright of a textbook is not copyright of the method in the textbook. Methods are protected through the mechanisms of Patent Law, not copyright. Patent infringements are not an issue here. IMHO, an easy "out" for Judge Kimball is to observe that the allegations of method and concept breach violate the spirit of the Patent statutes.
Rarely, an author will copy a character name and the literal description of an environment, and build a new work on it. There is a strong flavor of trademark infringement for this unusual tactic. The original author's copyright runs to the new work because it is a derivative of the original. Note that the original author has no right to sell the derivative: he may only prevent the distribution. This is very much *not* copyright of methods and concepts.
Foreseeability is the basis of claims for breach of contract. "The SCO Group" must show that the terms of the contract informed IBM of an obligation, and that IBM accepted the obligation. IBM must be able to foresee that failure to keep the terms will result in an economic business loss. IBM must be able to foresee that the particular damage claimed by the plaintiff would be caused by IBM's failure to keep the terms of the contract. The extreme limits of foreseeability are complex, but the basic requirement remains: IBM must be able to foresee that certain conduct will have specific consequences.
In a hearing on 2004 December 5, in a hearing for SCO v. IBM, Attorney Kevin McBride expounded an unusual contract theory. Attorney McBride said:
"...We have a license agreement that says even though you own your derivative work, you don't own Unix, you don't own the stuff we licensed to you and you can't use your stuff in ways that violate our license scope."
His implication was that "your stuff" means any and all code, methods, or concepts that might be included in the derivative work.
Attorney McBride seemed to be saying this was so even though his client did not know what went into the derivative work, and had no right to examine what had gone into the derivative work, absent discovery in a court case. His client did not have to know what "your stuff" really meant, exactly.
This interpretation is a peculiar contract term. I have not been able to locate any court opinions that interpret a term this way. It is difficult to conceive of a situation where one party would have a valid business purpose in another party not being able to use unknown elements of an undisclosed derivative work. The difficulty of enforcing such a clause, alone, makes the whole approach look quite silly.
For a peculiar interpretation, the burden is on "The SCO Group" to demonstrate that IBM understood and agreed to the unusual interpretation, as of the time of the making of the contract. There would also have to be a valid business purpose to the proposed interpretation, with no alternative plain language interpretation. This peculiar interpretation violates the general policy of not suppressing publicly available information.
Note that the nature of the derivative work is unspecified. This suggested interpretation would apply to every possible derivative work. Attorney McBride's interpretation seems to also cover pre-existing methods and concepts already in use, and those in distribution by IBM when the contract was made with AT&T, including those received from other parties.
Without an identifiable business purpose, IBM is left with no way to gage the possible effects of a failure to comply with the terms of the contract. In the absence, IBM cannot mitigate. For some judges, this alone would be enough to throw out the interpretation and any claim associated with it, without voiding the whole contract.
To repeat from above: contract law only protects trade secret methods. Publicly available methods cannot be protected through contracts. There is no relief for "The SCO Group" in "methods" not being quite the same thing as "methods and concepts". The legal concepts are identical, and any distinction is without difference.
Finally, let us analyze an example. "Differential profiling", mentioned in the April 14th hearing, will serve.
This is going to have the feel of: "my client didn't commit the murder because he wasn't there, and even if he was there, he didn't have the gun, and even if he did have the gun, it wasn't loaded, and even if the gun was loaded, he didn't shoot it, and even if he shot the gun, he didn't mean to shoot the victim, and even if he shot the victim, he didn't mean to kill the victim, because it was an accident.
No sane layman would evaluate anything this way, but this is how lawyers think.
The method of differential profiling was published in 1995 in the Third IEEE International Workshop on Modeling, Analysis, and Simulation of Computer and Telecommunication Systems (MASCOTS '95) p. 237. As of the 1995 publication, the method is public and is not secret. Anyone with the fee can buy a copy from IEEE. Neither "The SCO Group", nor IBM, nor anyone else may now contractually prevent any person from disclosing this method to any other person.
Differential profiling was not a trade secret belonging to AT&T or any successor-in-interest or alleged successor-in-interest (The SCO Group). Because differential profiling was not a trade secret belonging to "The SCO Group", they had no authority to prevent its distribution, with or without a contract.
The plain terms of the AT&T contracts would never have informed IBM that disclosure of differential profiling would breach any of the AT&T contracts.
There was no damage to "The SCO Group" from IBM re-disclosing a public method developed by IBM's predecessor-in-interest, Sequent. "The SCO Group" had no power to impose the restriction initially. There was no valid business purpose for "The SCO Group" to prevent IBM from disclosing Sequent-developed public methods to other parties.
The odd part of this discussion is that it is irrelevant. Differential profiling is a technique for improving the performance of large systems that approach the performance maximum. Effective use of the technique involves significant skill and insight from the system administrator. Nothing about it is automatic. It is not part of any compiler. It is not a specific part of any operating system. It is a tool used by system administrators to improve the performance of a particular large system in a particular computer environment. Distribution of an improved system is not the same thing as distribution of the tool used to improve it. Small changes in the environment can eliminate the benefits from a particular optimization. Linux is intended for use in wildly different environments.
Trial courts are unpredictable, and trial judges do as they please. Unpredictability, however, is not the same as a uniform random distribution of results. The general rules guide all our courts, as I have described above.
"The SCO Group" has a very difficult task ahead, if they continue with this novel theory of "un-distributable unknown and confidential derivative work".
I fear that vague references to "methods and concepts" and wild waving of hands will not be enough to persuade any judge that there were damages under this theory.
Usual Boilerplate: These things are hard to write. For every specific assertion about the law that I have made above, I know of, or could create, an exception. If you have similar issues, please do the wise thing and protect yourself by getting an opinion from a licensed professional.
AllParadox - Retired Attorney, no legal opinions, just my opinion.
< EOM >
Re: Foreseeable Consequences: the foundation of Torts, Contracts, and Civil Damages
July 24, 2006
One immediate nitpick:
"Anyone with the fee can buy a copy from IEEE"
That's true, but a long way behind the leading edge: anyone can read it free of charge from Paul McKenney's own website. Item no 6 on this page [ http://www.rdrop.com/users/paulmck/scalability/ ]
He also hosts quite a collection of papers on RCU, and a very interesting history of RCU in Linux, including links to seminal LKML posts of RCU patches. His RCU page is here [ http://www.rdrop.com/users/paulmck/RCU/ ]
< EOM >
Source: Investor Village SCO Board [ http://www.investorvillage.com/smbd.asp?mb=1911 ]