Actuate Corp. v. Aon Corp. was a copyright and licensing lawsuit in the United States District Court for the Northern District of California between the reporting software publisher Actuate (later part of OpenText) and two of its customers: Aon Corporation, and TWG Warranty Group, a former Aon subsidiary that Aon had sold to Onex. Actuate claimed that Aon had run its per-CPU licences on multi-core processors contrary to click-through terms delivered with an upgrade, and that TWG Warranty’s licence had been voided when it was sold. In 2012 Judge William Alsup found triable issues over which terms governed Aon, but held that a stock sale does not transfer a licence held by the company sold and granted TWG Warranty summary judgment of non-infringement and its attorney’s fees.[1][3] Actuate’s claims against Aon were dismissed with prejudice under a settlement agreement.[2]
Background
Aon. Between 1998 and 2003 Aon bought CPU-based licences for Actuate’s iServer, eReports and Query software. In September 2003 it signed an end user software license agreement (EUSLA) with Actuate. When it was signed, processors had a single core. In total Aon licensed ten CPUs of the software. In January 2006 Actuate delivered version 8; to download and install it, Aon employees had to click through new terms, the “2005 Clickwrap”, which defined a CPU as a single-core processor. In 2008 and 2009 Aon ran the software on ten CPUs with twenty cores, which “would have been in violation of the 2005 Clickwrap”.[1]
TWG Warranty. Aon Warranty Group (AWG), an Aon subsidiary, held a perpetual licence to the same software. In 2006 Aon sold AWG to a subsidiary of Onex for about USD 800 million. Before the sale took effect AWG was renamed TWG Warranty Group; it kept all its assets, employees and operations, and its shares were sold. TWG Warranty then went on using the Actuate software without a new licence.[1]
The dispute
Against Aon, the question was whether its use was governed by the 2003 EUSLA, which counted CPUs without distinguishing cores, or by the 2005 Clickwrap, which did. Against TWG Warranty, the question was whether the name change and stock sale voided its licence, so that it needed a new one. Copyright infringement could be claimed only if a licensee acted outside the scope of a limited licence.[1]
Decision or outcome
Aon: which terms govern. The court denied both Actuate’s and Aon’s motions for summary judgment. The 2003 EUSLA did not expressly say it was a master agreement for all Actuate software, but Aon produced evidence, including Actuate emails saying “We have linked all AON family companies to this particular contract” and that “Aon has a master license agreement”, from which a jury could find that both sides intended it to cover the software at issue. If it did, a jury could find that ten CPUs with twenty cores were within its CPU-based grant; if not, the 2005 Clickwrap would apply and the use would be outside the licence. The court rejected Aon’s fallback argument that the employees who clicked through lacked authority: Aon had requested version 8 and issued an installation guide telling staff to accept the licence terms.[1] Actuate and Aon then settled, and on 2012-07-06 Actuate’s claims against Aon were dismissed with prejudice, each side bearing its own fees, with the court retaining jurisdiction to enforce their settlement agreement of 2012-07-03.[2]
TWG Warranty: licence after a stock sale. The court accepted that copyright licences are not transferable without consent, but held that a purchase of shares does not, as a matter of law, transfer the corporation’s assets, including its licences, to the shareholder. Actuate’s authorities involved mergers and asset transfers; here there was “only a change in stock ownership”, and no evidence that assets moved or that the corporate veil was pierced. The licence was not void, Actuate did not argue that TWG Warranty exceeded it, and TWG Warranty was entitled to judgment of non-infringement.[1] The court’s June 2012 order granted that judgment, and in August 2012 it awarded TWG Warranty its reasonable attorney’s fees and costs, finding the claim against it “objectively and legally unsound”.[3] Actuate’s appeal of the fees ruling was dismissed with prejudice by stipulation in October 2012.[4]
Significance for software licensing and SAM practice
The case touches two recurring questions. The first is metric drift: a per-CPU licence written for single-core processors became contentious when multi-core processors arrived, and the answer depended on whether negotiated terms or later click-through terms governed (see processor and core licensing). The second is what happens to licences in a divestiture. Here the divested subsidiary held its own licence and was sold by a sale of shares, so the licence stayed with it. The court distinguished mergers and asset transfers, which were at issue in cases such as Cincom v. Novelis. For Actuate’s dispute with IBM after an acquisition, see Actuate v. IBM.[1][3]
Lessons learned
- A sale of a subsidiary’s shares does not by itself transfer the subsidiary’s licences, so they usually stay with the divested company; check whether the licence instead names the parent or limits use to affiliates. TWG Warranty’s licence survived the stock sale because the licensee entity itself was unchanged.[1][3]
- A licence metric such as ‘CPU’ can change meaning as hardware changes; know which document defines it for each licence you hold. Whether ten CPUs with twenty cores were licensed depended on which agreement applied.[1]
- Click-through terms accepted when installing an upgrade may be argued to replace the metric in your negotiated agreement; route such acceptances through whoever manages the contract. The court held that employees clicking through on Aon’s instructions had authority to accept the terms.[1]
- Emails in which the vendor treats a negotiated agreement as a master agreement can be evidence of which terms govern. Actuate’s own emails let a jury find the 2003 EUSLA covered all of Aon’s licences.[1]