In re Lear Corporation is a post-trial opinion of the United States Bankruptcy Court for the Southern District of New York on a software licence claim. Actuate Corporation, a business intelligence and reporting software vendor, filed a claim of US$1,144,000 in the chapter 11 cases of the automotive supplier Lear Corporation. It alleged that Lear had used Actuate software on more CPUs than it had licensed. After a three-day trial, Judge Sean H. Lane granted Lear’s objection in October 2012 and disallowed the claim, holding it was brought after the four-year limitations period had run.[1]
Background
In 2001 Lear chose Actuate software to produce quality assurance reports from its business data. Negotiations began from Actuate’s template agreement and went through several drafts. The parties disputed which text governed: Lear relied on a version signed on 15 November 2001 that it could not show Actuate had countersigned, while Actuate pointed to a click-through licence that Lear staff accepted at each installation or upgrade.[1]
On 16 November 2001 Lear issued a purchase order for US$164,490 for a two-CPU licence with maintenance. Actuate’s agreements counted a CPU as a single core of a processor, so Lear’s dual-core server needed two CPUs of licence. Actuate staff installed the software on a production server in December 2001.[1]
In 2002 an upgrade crashed the production server. To resolve it, Actuate agreed to a copy being installed on a second machine, for which it issued a one-CPU licence key. Lear then used that second server, called ActuateDev1, as a pre-deployment environment to test upgrades before they went to production. Lear’s evidence was that it was never used for production work, although it was used for volume testing.[1]
The dispute
Actuate claimed that Lear had used the software on CPUs for which it had paid nothing, and sought payment at production-licence rates for the extra server. Lear argued that Actuate had known of and authorised the use, that the agreement allowed a disaster-recovery copy, and that the claim was barred by the statute of limitations, consent and acquiescence, laches and equitable estoppel. Actuate also moved after trial for terminating sanctions, alleging that Lear had destroyed evidence.[1]
Decision or outcome
The court decided the case on limitations. Under California law, which the parties agreed applied, a contract claim must be brought within four years of accrual, subject to a discovery rule. Counting the bankruptcy filing of 7 July 2009 as tolling the deadline, Actuate must have known or had reason to know of the conduct before July 2005. The court found that it had: Actuate itself arranged and authorised the installation on ActuateDev1 in 2002 to supplement the production licence, never told Lear the use was unauthorised, and never set an expiry date for it, while its sales staff received presentations on Lear’s server set-up before June 2005.[1]
The court noted that Actuate did not disapprove of the use until 2009, after it had made an internal decision to monetise development use by customers, and that Lear stopped using the software when Actuate complained. It denied Actuate’s late sanctions motion as untimely but took an adverse inference that ActuateDev1 was a high-value server with multiple users, and it rejected Actuate’s alternative request for relief based on alleged misconduct.[1]
Significance for software licensing and SAM practice
The opinion shows a limit on a vendor’s ability to claim for historic over-deployment: where the vendor’s own staff installed or approved the extra copy, the claim can start to run from that moment and expire. It also shows how a vendor’s claim can be priced at production rates for a server used only for testing, and how disputes over which of several agreement versions governs can complicate an audit response. The opinion discusses a click-through licence at length; compare Actuate v. Aon, where click-through terms delivered with an upgrade also affected which CPU definition applied.[1]
Lessons learned
- A vendor that installs, or issues keys for, an extra copy and then stays silent for years may lose the right to claim for it; keep the emails and key records that show the vendor knew. The court treated Actuate’s own 2002 installation and licence key as the point from which time ran.[1]
- Know what your agreement says about back-up, disaster-recovery and pre-production copies, and get any extra installation approved in writing. The agreement versions allowed one back-up copy for disaster recovery, a term the agreement left undefined, and the use of a second server as a test environment was contested.[1]
- Be clear which version of the agreement governs when a signed copy, a vendor template and click-through terms all exist. The court expressed doubt that Lear’s signed version controlled, yet the claim failed on other grounds.[1]
- Keep servers and logs that show actual usage under a litigation hold; destroying a server cost Lear an adverse inference even though it won. The court drew an adverse inference about ActuateDev1 despite refusing terminating sanctions.[1]