January 25, 2019

Imprecise Software License Terms Leads to New York Litigation

Digital Technology & E-Commerce Blog
Richard Raysman | Elliot Magruder

The ambiguity of termination provision of a software license is often disputed. Imprecise wording, including for hypothetical damages due upon breach often triggers expensive litigation centered on only a few words in a license.

The Southern District of New York recently dealt with a case of this nature. In DRL Software Solutions, LLC v. JourneyPure, LLC, No. 17-cv-9125 (DLC) (S.D.N.Y. Dec. 6, 2018), the Court decided partial summary judgment motions from each party, one of which centered on the licensor's motion arguing that the termination provision required the licensee to pay fees throughout the term of the agreement, irrespective of the license's termination almost 18 months prior. Differing interpretations of "all amounts due" under a license upon breach was contested. As analyzed further in this blog, the Court decided the motion on grounds familiar to any commercial court – the ambiguity (or lack thereof) – of the provision. While instructive, requiring the court to decide a summary judgment motion on these grounds is an evergreen issue that invariably increases costs and can often negate benefits previously conferred by the license.

Background

Plaintiff DRL Software Solutions LLC (DRL) licenses software for patients and service providers at rehabilitation facilities (the Software). Defendant JourneyPure, LLC (JourneyPure) provides various services at rehabilitation centers. In 2014, the parties executed a contract wherein DRL would grant JourneyPure use of the Software (the License).

DRL paid an initial operations fee and a variable monthly fee corresponding to the number of JourneyPure clients that used the Software per month. The License proscribed JourneyPure from obtaining "unauthorized access" nor to "modify, copy … nor reverse engineer the Software." The termination clause required JourneyPure, upon termination for "any reason", to "immediately pay DRL all amounts due to DRL under [the License]." The parties amended the License to extend the term until Oct. 31, 2017.

JourneyPure hired a consultant to create an "addiction recovery software program" to be branded as JourneyPure's software. The consultant accessed the Software, though he claimed he accessed it once and for "probably 45 seconds." JourneyPure later created its own software. A few months later, JourneyPure terminated the License. DRL sent invoices for several prior months. According to JourneyPure, it paid all amounts owed as of termination.

In November 2017, DRL sued JourneyPure alleging, inter alia, breach of contract. Both parties later filed motions for partial summary judgment on the contract claim.

Legal Analysis and Conclusions

DRL's Motion

DRL moved on grounds that JourneyPure failed to pay the amounts owed throughout the term of the amended License. As noted above, the applicable termination provision obligated JourneyPure, upon termination, to "immediately pay DRL all amounts due to DRL." "[A]mounts due was undefined."

The Court found this provision ambiguous and denied DRL's motion, concluding that "amounts due" could reasonably refer to either the amounts due at the time of the termination notice in 2016, or the amended conclusion of the term of the License of Oct. 31, 2017.

JourneyPure's Motion

JourneyPure moved for summary judgment that it breached the License by granting the consultant allegedly unauthorized access to the Software and that its software was illegally derived therefrom. JourneyPure primarily argued that the 45 second access to the Software failed to impose damages on DRL, thereby foreclosing the contract claim. DRL countered that summary judgment should be denied since a reasonable factfinder could conclude that the consultant's brief access to the Software was sufficient to "gain proprietary knowledge."

The Court disagreed and granted JourneyPure's motion because the "theoretical possibility that this brief access could have resulted in damages is insufficient to defeat summary judgment."

The Court also granted JourneyPure's motion because DRL failed to present sufficient evidence that JourneyPure's software violated the License as a derivate work. The Court credited the testimony of the JourneyPure's consultant claiming that he developed the software "from scratch" and that JourneyPure did not ask him to "emulate" the Software. DRL argued that the "veracity" of this testimony must be evaluated by a factfinder. The Court disagreed and described DRL's argument as presenting no evidence to rebut the testimony. DRL had therefore not created a genuine dispute as to whether JourneyPure's software was derivative of the Software. The Court granted JourneyPure's motion for partial summary judgment.

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