Breach of contract and copyright claims
By WORLDLawDirect [February 8th, 2011]
To win a lawsuit for breach of contract, you typically have to prove three things:
- You need to prove that the contract existed;
- You need to prove that the contract was broken; and
- You need to prove that you suffered a material loss as a result of the broken contract.
Here are a couple of tips that might come in handy in suing for breach of contract. First, be sure you are suing the right person. If you sue an individual when you should be suing their corporation, your court case will be thrown out and you'll have wasted a fair bit of time and money. Second, it often helps to bring expert testimony into the court case to help the judge determine whether a contract was breached. This transforms a "he said, she said" case into a viable breach of contract case.
As a final reminder, remember that for small amounts, you can sue in small claims court. This saves considerable legal expense and generally leads to fast conflict resolution.
Federal District Court Opinions (Court Case)
GILLANI CONSULTING v. DAEWOO HEAVY IND. AMER. CORP., (W.D.Wash. 12-7-2006) GILLANI CONSULTING INC., a Delaware corporation, Plaintiff, v. DAEWOO HEAVY INDUSTRIES AMERICA CORPORATION (now named DOOSAN INFRACORE AMERICA CORPORATION), a New York Corporation, Defendant. CASE NO. C05-0823-JCC. United States District Court, W.D. Washington, At Seattle. December 7, 2006
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JOHN COUGHENOUR, District Judge
This matter comes before the Court on a three-day bench trial. This case involves breach of contract and copyright claims against Defendant Daewoo by Plaintiff Gillani. Gillani is the successor in interest to intellectual property which was originally owned by FourGen and licensed to Daewoo. In its original Complaint, Gillani claimed that Daewoo breached the License Agreement and infringed Gillani's copyright by using the relevant software on non-designated computers, and allowing this software to be used by a greater number of users than permitted under the License Agreement. Prior to trial, Gillani abandoned the user-count claim. Having heard all the evidence and considered the entire record herein, Page 2 the Court finds and rules as follows.
II. FINDINGS OF FACT
A. THE SOFTWARE AND THE EXECUTION OF THE WRITTEN CONTRACT BETWEEN DAEWOO AND FOURGEN
The software in question will be referred to simply as "the Software" for purposes of this Order. The Software runs on top of an Informix database management system, which in turn runs on top of the Unix operating system. It includes both enterprise management applications such as financial accounting, inventory, and purchasing applications. (Pretrial Order 4, Plaintiff's Alleged Facts (Dkt. No. 30).) It also contains a computer-aided software engineering ("CASE") environment for producing customized applications that adapt the Software to the customers' specific business requirements. (Id.) The Software is intended to be significantly customized to the needs of each individual client. (Id.)
As testified by Steven Crouch ? the former employee of Daewoo who was responsible for purchasing and implementing the Software for many years ? Daewoo was interested in the Software's marketed ability to improve the company's product distribution management and accounting capabilities.
On September 14, 1994, the parties entered into the License Agreement (Pl.'s Ex. 1) and Amendment #1 (Pl.'s Ex. 2). On December 30, 1994, Daewoo executed and sent to FourGen a "Statement of Product" to purchase additional licenses to certain software modules. (Pl.'s Ex. 3.) These documents comprise the entire written contract between the parties concerning the licensing of the Software to Daewoo.
B. DAEWOO AND FOURGEN'S ORIGINAL WORKING RELATIONSHIP
In 1995, FourGen installed the Software at Daewoo's New Jersey Office.[fn1] Although the hardware was physically located in New Jersey, it was primarily accessed over a fractional T-1 line by employees working out of Daewoo's Cleveland office. As the Software was designed to be highly Page 3 customized to Daewoo's uses, both FourGen and Daewoo spent a significant amount of time and money modifying the base code and fixing the initial technical bugs. For more than six months, commencing in the Fall of 1995, FourGen had its programmers at Daewoo's Cleveland office working on bugs and writing code. (Travel Invoices (Def.'s Ex. 4).) From the Spring of 1995 through 1996, FourGen produced approximately 2,600 bug patches for the Software.
The parties had a mutual interest in making sure that the code operated as designed. Daewoo clearly had an interest in making sure that the programs it purchased ran its business applications efficiently. FourGen had an incentive not only to help out its newest customer and ensure continued patronage from it, but also because the Daewoo installation was only the second or third installation of version 4.0 of the Software; accordingly, any improvements to the Daewoo installation could be used as a model to help improve future versions of the Software for other clients. The parties thus characterized their relationship as a mutual partnership whereby both parties could benefit from successful implementation. Correspondence between the parties in 1995 went so far as to explore the prospect of Daewoo taking on an equity position in FourGen as FourGen explored opportunities for marketing its software technology on a worldwide basis. (Jim Robb Letter (Pl.'s Ex. 33.) During this process, Daewoo ? which previously had no technical support staff ? began to hire a number of coders who could customize the Software and fix its technical glitches in-house. In addition, Daewoo paid the travel expenses of FourGen staff who flew out from Seattle to Daewoo's Cleveland office to work on the Software.
C. THE FIRST MOVE OF THE SOFTWARE
Near the end of 1996, Daewoo decided to move its servers from its New Jersey office to its Cleveland office. During this move, Daewoo decided to purchase a new server, an IBM 390 to run the Software which would operate on a newer version of Unix. Daewoo contacted Steve Wells at FourGen ? FourGen's project manager for the Daewoo installation ? regarding moving the Software to the new server to discuss what implications such an upgrade would have on Daewoo's use of the Page 4 Software. During the negotiations that ensued, FourGen offered to give Daewoo a new version of the Software, with the understanding that it would be installed on the IBM 390 computer. FourGen did not charge Daewoo any money for this new Software. As Mr. Crouch testified and as is reflected in an internal email from Mr. Crouch to Daewoo employees, FourGen representative Steve Wells orally agreed to provide Daewoo with a second license for the Software that would allow Daewoo to operate the Software on its new Cleveland server. (August 17, 1996 Email from Steven Crouch (Pl.'s Ex. 43).) FourGen did not charge additional fees for this license, but agreed to the new configuration in exchange for Daewoo providing FourGen access to Daewoo's proprietary "warranty, configuration, and material rejection programming" code. (Id.)
In Cleveland, the Software was installed on two servers that were to operate in concert. One server was used by Daewoo employees who accessed the Software for various business applications. This server was known as the production environment. The other server was accessed only by Daewoo programmers and FourGen programmers to make changes and modifications to the Software. This was known as the development environment. FourGen was specifically aware of this configuration, which was beneficial for Daewoo because it allowed for more efficient operation of the Software.
D. DAEWOO AND FOURGEN LOSE CONTACT
As time went on, the Software had fewer and fewer technical bugs. Daewoo had developed its own staff of coders who could fix bugs with the Software. Fewer bug patches were needed and those problems that did arise could be fixed in-house. FourGen's programmers had left Daewoo's Cleveland office, and Daewoo's use of the Software had stabilized. By the end of 1996, FourGen and Daewoo were no longer in regular contact with each other.
In the Summer of 1998, Daewoo moved its headquarters to Suwanee, Georgia. The move included the relocation of Daewoo's Information Systems Department, including the computers on which the Software had been installed. Page 5
E. THE 1999 MEETING BETWEEN H.K. SYSTEMS AND DAEWOO
In October 1999, Daewoo attempted to contact FourGen to discuss a second move of the Software to an upgraded computer. In order to move the Software to the new computer, Daewoo needed an updated version of the CASE tools. Daewoo learned that FourGen had stopped operating under its former name and instead was operating under the name H.K. Systems. Mr. Crouch eventually identified and met with H.K. Systems Sales Representative Randy Randolph to discuss upgrading Daewoo's Servers. (October 19, 1997 Fax to Randy Randolph (Pl.'s Ex. 19).)
The meeting took place at Daewoo's office in Suwanee, Georgia in October of 1999. At this meeting, Mr. Randolph apologized and informed Daewoo that H.K. Systems had moved on to version 5 of the Software and did not support version 4, which was the version Daewoo was using at the time. Further, he stated that there was no "migration path" to the new version of the Software. In layperson's terms, that meant that there was no means to move the data from an earlier version of the Software to the most recent version. As such, H.K. Systems was unable to provide Daewoo with any help in moving the Software to a new computer. Mr. Randolph did, however, offer to sell Daewoo an out-of-the-box copy of the newest version of the Software. Use of this new version would essentially entail throwing out the code that had been highly customized to Daewoo's uses at its significant expense and starting from scratch.[fn2] During this 1999 meeting, there was no mention of a transfer fee or a license fee in connection with the movement of the Software, despite the fact that Daewoo made it known that it was attempting to move the Software to new servers. Page 6
Believing that H.K. Systems could offer no assistance, Daewoo scoured the country for other companies that could assist it in a software move. Daewoo eventually found and purchased the necessary CASE tools from Fourth Generation Software Solutions (FGSS) located in Atlanta, Georgia. FGSS was a wholly independent company from FourGen, that acted as a value-added-reseller of FourGen CASE tools. Using the CASE tools purchased from FGSS, Daewoo moved the Software to upgraded computers in 2000, 2001, and 2004.
F. GILLANI'S SUCCESSION TO FOURGEN'S INTERESTS
In November 1997, FourGen changed its name to Endura Software Corporation. In February, 2000, Endura Software Corporation changed its name to H.K. Systems SCS, Inc. In June, 2000, H.K. Systems SCS, Inc. changed its name to Irista, Inc. (Pl.'s Ex. 45, (Copyright Recordations).) On January 25, 2002, Gillani acquired all intellectual property and contract rights in the Software from Irista, Inc. pursuant to an "Assignment of Intellectual Property Rights" and "Amendment 1 to the Asset Purchase Agreement," dated November 15, 2002. (Id.)
G. DAEWOO'S INTRODUCTION TO GILLANI
During March, 2004, two Gillani executives, Mark Feldman and Syed Kamal[fn3] visited Daewoo's offices in Suwanee. Though Gillani pitched the meeting as a way to forge a new business relationship, it quickly became apparent that a major purpose of that meeting was to seek compensation for what Gillani thought was a breach of the previous licensing agreement between FourGen and Daewoo. After assessing Daewoo's use of the Software at the time of the meeting, Mr. Syed conducted a PowerPoint presentation in which he informed the Daewoo representatives that it would cost $441,000 to bring the company back into compliance with the original licensing agreement. (Gillani Presentation (Pl.'s Ex. 5)). This figure represented back-pay for seven years of being off of license and support. Daewoo objected to any back-payments and the meeting ended without a new relationship having been established. Page 7
Gillani then sent a letter on April 19, 2004, following up on the presentation and suggesting both that Daewoo bring its licensing agreement into compliance, and that it also purchase the newest version of the Software. (April 24, 2004 Letter From Gillani to Daewoo (Pl.'s Ex. 10).) When Daewoo did not respond to that letter, Gillani sent another letter on May 28, 2004, demanding payment of $3,758,265.00 within fifteen days "to bring [Daewoo's] current usage into compliance with the license agreement" and threatening legal action if the demand was not met. (May 28, 2004 Letter from Gillani to Daewoo (Pl.'s Ex. 11).) Tom Lattie, Daewoo's CFO, testified that, upon receipt of the May 28, 2004 letter from Gillani, he referred the matter to counsel. In June of 2004, Daewoo transferred the Software to its present server.
III. CONCLUSIONS OF LAW
A. BREACH OF CONTRACT CLAIM
An assignee cannot acquire any rights in excess of what the assignor has the ability to transfer. Morse Elec. Prod. Corp. v. Beneficial Indus. Loan Co., 579 P.2d 1341, 1342 (Wash. 1978). Because the assignment of intellectual property originally owned by FourGen and now assigned to Gillani is not in dispute, the main issue is what rights Gillani's predecessor in interest FourGen had under the initial contract and whether those rights were later waived.
Gillani claims that Daewoo violated its licensing agreement in two ways. First, Gillani claims that Daewoo violated the Agreement by transferring the Software to new servers when Daewoo decided to upgrade its hardware. Second, Gillani claims that Daewoo violated its agreement by running the production and development portions of the Software on different servers.
Daewoo responds that the License Agreement only requires that the company have one copy of the Software running at any one time. Daewoo argues that it was allowed to transfer the Software to a new server, provided that it discontinued the use of the Software on the old computer. It also argues that it was allowed to run the production and development portions of the Software on separate servers. Daewoo argues in the alternative that, even if it did breach the technical language of the License Page 8 Agreement, FourGen and its successors in interest waived the right to enforce certain provisions of the License Agreement.
Thus, it is important to first look at the initial contract to see what its terms were as written, and then examine whether FourGen or its successors waived any of its terms after the execution of the written agreement.