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Inc. v. American Auto Shield, LLC

United States District Court, D. Colorado

September 30, 2014

U2LOGIC, INCORPORATED, Plaintiff,
v.
AMERICAN AUTO SHIELD, LLC, Defendant.

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion and Memorandum of Law in Support of Motion for Summary Judgment [Docket No. 39] filed by defendant American Auto Shield, LLC ("AAS"). This Court has subject matter jurisdiction over plaintiff U2logic, Incorporated's ("U2logic") copyright claims pursuant to 28 U.S.C. §§ 1331 in conjunction with 28 U.S.C. § 1338 and over U2logic's breach of contract claim pursuant to 28 U.S.C. § 1367.

I. BACKGROUND[1]

U2logic is a software developer that develops and licenses database-oriented software. Docket No. 52 at 5, ¶ A. U2logic is owned by Doug Averch. Docket No. 42-1 at 2, ¶ 3. AAS is an administrator of vehicle service contracts.[2] Vehicle service contracts are sold by third parties and provide customers repair coverage on vehicles outside of the vehicle's manufacturer warranty. Docket No. 52 at 5, ¶ B. Customers who have purchased a vehicle service contract contact AAS to make repair claims and AAS adjudicates each claim under the terms of that customer's vehicle service contract. Id.

Around 2004, U2logic developed a software system for AAS which the parties refer to as the Warranty and Claims software ("W & C" or the "W & C software"). Docket No. 39-2 at 12, p. 75:7-19; see also Docket No. 39 at 4, ¶ 11. The W & C software "handles various types of vehicle service contract and warranty programs" and also "processes and adjudicates claims." Docket No. 39-2 at 44. U2Logic admits that all rights to the W & C software are owned by AAS. Docket No. 52 at 2; see also Docket No. 39-2 at 13, p. 77:4-8. AAS paid approximately $700, 000 for the W & C software, Id. at 13, p. 79:2-11, and has been using it since 2004. Docket No. 39-4 at 6, ¶ 6.

On September 28, 2004, the parties executed the Software Licence Agreement (the "license agreement"). Docket No. 39-2 at 33. The license agreement granted AAS a license to use U2logic's "Software, " which, as relevant here, consisted of Customer Relations Management ("CRM"), XLr8, and Redback software (collectively, the "licensed software"), all of which was proprietary to U2logic. Id. at 33, 37; Docket No. 52 at 5, ¶ C. The license agreement provided AAS the right to use the licensed software on any machine located in AAS's Arvada, Colorado facility and allowed AAS to "make one (1) archival copy of the Software for each License copy obtained under this License. Licensee may not modify, decompile, disassemble, reverse engineer, copy, create a derivative work, or otherwise use the Software except as stated in this License." Docket No. 39-2 at 33, ¶¶ 2.A, 2.B.

The parties do not provide detailed descriptions of the licensed software and its respective functions. CRM is a type of customer relations management software that tracks appointments and customer information. Docket No. 52 at 5, ¶ D. XLr8 software is a development platform used in the development of the W & C software. Docket No. 39 at 3, ¶ 5. Redback was "middleware" used to connect the W & C software to a vendor's customer database. Id. at 3, ¶¶ 5, 7. Although the license agreement does not reference U2WebLink ("WebLink") software, plaintiff claims that, because WebLink replaced Redback software, Docket No. 52 at 5, ¶ D, the license agreement is the operative license with regard to the WebLink software. Docket No. 39 at 3, ¶ 7. It is not entirely clear whether AAS disputes that the license agreement was operative with respect to the WebLink software. AAS states that WebLink is not referenced in the license agreement. Docket No. 43 at 10 n.10. However, AAS argues that Section 2.B of the license agreement permitted it to keep an archival copy of the WebLink software on an outside server, which is an implicit concession that its WebLink software license is governed by the terms of the license agreement. Docket No. 39 at 11.

On November 1, 2006, U2logic and AAS executed the Support Agreement (the "support agreement"), which provided that "U2 retains ownership of all tools, software developed and used under this Agreement, including improvements and enhancements to third-party software, except for the software described on Exhibit B." Docket No. 39-2 at 40, ¶ 7.1; Docket No. 52 at 5, ¶ G. The parties agree that Exhibit B to the support agreement describes the W & C software. Docket No. 52 at 5, ¶ H. Exhibit B states:

The warranty software system handles various types of vehicle service contract and warranty programs. Also, the software processes and adjudicates claims. This software runs on IBM database called Unidata using the web middleware RedBack or U2logic's U2WeblinkTM middleware. This software was written from the specifications supplied by Client and is continually modified to the Client's specifications.

Docket No. 39-2 at 44.

Tom Orlando worked as a programmer for U2logic and helped develop the W & C software. He also provided maintenance and support to AAS under the agreements between the parties. Docket No. 52 at 5, ¶¶ J-K. On February 28, 2008, Mr. Orlando resigned from U2logic and subsequently began working for AAS. Id. On June 19, 2008, Paul Stratch, AAS operations manager, emailed U2logic, asking whether there remained a need for maintenance on the CRM software. Docket No. 39-2 at 48-49. Mr. Averch replied that the W & C software was "built on top of the CRM code, " which he testified was in an effort to tell AAS that the W & C software could not run without the CRM software. Docket No. 39 at 4-5, ¶ 16; Docket No. 39-2 at 13, pp. 77:4-78:11. In July 2008, AAS advised U2logic that it no longer had any need for CRM, Docket No. 52 at 5, ¶ L, and cancelled its license to use the CRM software. Docket No. 39 at 5, ¶ 17.

The parties dispute whether, after the CRM license was canceled in 2008, U2logic knew or had reason to know that AAS was continuing to use CRM software. Mr. Averch's deposition testimony on this point is inconsistent. When asked, he testified that he had reason to know as of 2008 that the CRM was likely being used as a part of the W & C software. Docket No. 39-2 at 3, p. 35:17-24. Later, he testif ied:

Q. [H]ow did the Warranty America warranty and claims software continue to run without CRM?
A. It didn't. They still used it.
Q. And you knew that in 2008?
A. No. I did not.

Id. at 13, pp. 77:23-78:3. U2logic argues that this testimony is ambiguous and supports Mr. Averch's declaration, which states that Mr. Averch believed that, after the CRM license was canceled, AAS and Mr. Orlando modified the W & C software in a way that no longer used CRM. Docket No. 42 at 3-4, ¶ 18; Docket No. 42-1 at 2, ¶ 7. AAS further disputes that it continued to use protectable elements of the CRM software, arguing the CRM software was "embedded" in the W & C software such that its use of the CRM software in conjunction with the W & C software did not violate U2logic's CRM software copyright. Docket No. 39 at 14; see also Docket No. 39-4 at 16. AAS also argues that the field numbers[3] and equate file monikers[4] it adopted from the CRM software are not protectable. Docket No. 39 at 15; see also Docket No. 39-4 at 13.

On October 11, 2012, AAS advised U2logic that it would cease using the WebLink software. Docket No. 52 at 6, ¶ M. The parties do not dispute that AAS was authorized to use WebLink through January 2013, having paid U2logic for the right to do so. Id. at 6, § N. AAS claims that it ceased using the WebLink software prior to January 2013 in order to "get out of the web environment." Docket No. 39 at 6, ¶ 26. However, the parties dispute whether sufficient evidence exists to conclude that AAS continued to use the WebLink software after January 31, 2013. Matthew McAdams, U2logic's expert, conducted an on-site inspection of AAS's Arvada, Colorado facility and reviewed AAS's log files[5] for May through August 15, 2013. Docket No. 42-3 at 10, 12. In Mr. McAdams' opinion, AAS used U2logic products regularly between May and August 15, 2013 and had U2logic products installed on three different servers. Id. at 12. U2logic argues that, based upon Mr. McAdams' opinion, a jury could conclude that AAS continued to use the WebLink software and infer that AAS ceased licensing WebLink to avoid paying licensing fees. Docket No. 42 at 5, ¶ 26. U2logic further argues that a jury could find that AAS continued to use U2logic software through August 2013 and had insufficient time to build replacement software, leading to the conclusion that AAS's use of U2logic software continued beyond the license term. Docket No. 42 at 6, ¶ 39. AAS's expert, Michael Horwith, asserts that the log files do not show that AAS actually used U2logic's software. Docket No. 39-4 at 13-14. AAS claims that, as of early October 2013, WebLink and other legacy software were deleted from AAS servers. Docket No. 39 at 8, ¶ 39. AAS argues that it did not delete WebLink until October 2013 in order to preserve data for possible litigation, but maintains that it did not use WebLink as middleware after January 31, 2013, having replaced it with another middleware product. Docket No. 39 at 7, ¶¶ 34-35; see also Docket No. 39-4 at 13.

On February 18, 2013, U2logic filed this case against AAS and Mr. Orlando. Docket No 1. On March 11, 2013, U2logic filed the First Amended Complaint. Docket No. 10. On November 15, 2013, U2logic dismissed all claims against Mr. Orlando. Docket No. 29. U2logic now asserts three claims against AAS: infringement of the CRM software copyright, infringement of the WebLink software copyright, and breach of the license agreement. Docket ...


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