Attachmate Corp. v. Health Net, Inc. was a lawsuit in the United States District Court for the Western District of Washington, filed in August 2009, in which software publisher Attachmate alleged that Health Net, Inc. had installed copies of Attachmate’s Reflection software beyond its licences. Attachmate sued for copyright infringement and breach of contract.[1] In pre-trial rulings, Judge Marsha J. Pechman held that a click-through end user license agreement (EULA) requiring the customer to buy additional licences for unauthorised copies created a contract right that the Copyright Act does not preempt, and that Washington common law rather than Article 2 of the Uniform Commercial Code governed the software licences.[2] The case ended in January 2011 and is recorded as settled.[4]
Attachmate became part of Micro Focus when Micro Focus completed its acquisition of The Attachmate Group on 20 November 2014, and Micro Focus listed Attachmate Corporation among its subsidiaries.[5] OpenText closed its acquisition of Micro Focus on 31 January 2023.[6]
Background
According to the court’s orders, Health Net had purchased products in Attachmate’s Reflection family. In 2002 the parties negotiated and signed a EULA that required any modification to be made by a signed agreement, and in 2004 they signed a written amendment setting out licence scope and the pricing of maintenance services. Health Net renewed its maintenance plans from 2001 through the end of 2008.[2]
In 2005 a new EULA accompanied a new version of the Reflection software that Health Net purchased. That EULA required the customer to “promptly acquire the necessary additional licenses without the benefit of any otherwise applicable discount” in the event of unauthorised copying, distribution or use. The court found that Health Net accepted the 2005 EULA by click-through acceptance when it installed copies of the new version.[2]
The dispute
Attachmate alleged that Health Net had installed several thousand copies of Reflection software without valid licences and in breach of the EULAs.[1] It pleaded two claims: copyright infringement and breach of contract.[1] A December 2010 order refers to a KPMG audit of Health Net, which the parties’ damages experts addressed.[3]
Health Net argued that the contract claim was preempted by the Copyright Act; that the Uniform Commercial Code governed the licences, so that the 2005 EULA was an invalid modification of the signed 2002 and 2004 agreements; and that the UCC’s four-year limitation period barred the contract claim.[2] Among its affirmative defences, Health Net asserted that any over-installation was accidental and unintended and that the extra copies were not used, together with fair use and the essential step and archival copy provisions of 17 U.S.C. § 117.[2] Attachmate argued that the limitation period had been tolled because Health Net had fraudulently concealed its breaches, and that the continuing-breach rule applied to the maintenance contract.[2]
Decision or outcome
Preemption of the contract claim
In February 2010 the court denied Health Net’s motion for judgment on the pleadings. It applied the Ninth Circuit rule that a state-law claim survives preemption only if it contains an “extra element” that makes it qualitatively different from copyright. The 2005 EULA’s promise to acquire additional licences at a non-discounted rate for unauthorised copies was a promise to pay, so Attachmate’s contract rights exceeded its rights under the Copyright Act and the claim could proceed.[1]
In its October 2010 summary judgment order, the court drew the line more precisely:[2]
| EULA term | Ruling |
|---|---|
| 2005 EULA: promise to buy additional licences for unauthorised copies | Not preempted; the 2005 EULA was a stand-alone contract formed by click-through acceptance, not a modification of the earlier agreements |
| 2004 EULA: obligation to pay maintenance for copies requiring maintenance | Not preempted; the obligation to pay for maintenance is distinct from copyright rights |
| 2002 and 2004 EULAs: agreement not to copy or distribute, and to destroy excess copies | Preempted; no bilateral agreement on compensation for additional copies |
| 2002 EULA: duty to “implement internal safeguards to prevent any unauthorized copying, distribution or use” | Preempted; not qualitatively different from copyright rights |
The court also held that other alleged breaches of the 2002 and 2004 EULAs, concerning network server availability and reporting and destruction requirements, were not before it because they had not been pleaded in the complaint.[2]
Common law, not the UCC
The court rejected Health Net’s argument that Washington law applied Article 2 of the UCC to software licences, stating that the weight of authority favoured the common law. It therefore applied a six-year limitation period under Washington law, together with the discovery rule, and denied Health Net’s limitation motion because there were factual disputes about when any breach occurred and when Attachmate should have discovered it. It added that the limitation period on the continuing maintenance contract ran from its termination.[2]
Affirmative defences
Health Net conceded the fair use, essential step and archival defences, which were dismissed. The court also granted summary judgment against the defences of accidental over-installation and non-use as to the copyright claim, because liability under the Copyright Act does not turn on intent, while noting that intent could still be relevant to damages. It reserved ruling on whether those defences applied to the contract claim.[2] In December 2010 it excluded a supplemental expert report served by Health Net on damages as an unauthorised rebuttal report.[3]
Resolution
The case was terminated on 4 January 2011. The Federal Judicial Center’s Integrated Database, compiled from data reported by the courts, records the disposition as “Settled”.[4] No settlement terms were published in the sources reviewed, and the public record reviewed contains no judgment on the merits of the infringement or damages claims.
Significance for software licensing and SAM practice
The orders are district court rulings on pre-trial motions and are not binding precedent. They address questions that arise in software audits and over-deployment disputes:
- Two routes to recovery. An over-deployment claim can be framed in copyright and in contract. The court allowed the contract claim only for terms that added a promise to pay, such as the purchase-of-additional-licences clause and the maintenance fee obligation, and treated bare prohibitions on copying as preempted.[2]
- Later click-through terms. The court treated a EULA accepted by click-through on installing a new version as a separate contract from earlier signed agreements, even though those agreements required written modifications.[2] In this case, the court held that a EULA delivered with a new version formed a valid contract alongside the negotiated agreements.
- Non-discounted true-up pricing. The 2005 EULA’s requirement to buy additional licences “without the benefit of any otherwise applicable discount” was the term that the court held could support a contract claim not preempted by copyright.[1]
- Intent and non-use. For the copyright claim, the court held that accidental installation and non-use were not defences to liability, while leaving intent open as a damages question.[2]
- Maintenance on all copies. The court read the 2004 pricing formula as including an implicit agreement to pay maintenance for all copies that required maintenance.[2]
The terms discussed were those of Attachmate’s 2002, 2004 and 2005 agreements with Health Net as described in the orders. Current OpenText licence terms for former Micro Focus products are covered in OpenText licensing.
Lessons learned
- A click-through EULA accepted when installing a new version can form a separate contract alongside negotiated agreements. The court treated the 2005 EULA as a stand-alone contract formed by click-through acceptance, not as an invalid modification of the earlier signed agreements.[2]
- A term requiring non-discounted purchase of additional licences for unauthorised copies can support a contract claim in addition to copyright. Because the term was a promise to pay, the court held it was not preempted by the Copyright Act, while bare prohibitions on copying were preempted.[1][2]
- Accidental over-installation and non-use of extra copies are not defences to copyright liability. The court granted summary judgment against those defences on the copyright claim, while leaving intent open as a damages question.[2]
- Over-deployment can also affect maintenance fees. The court read the 2004 pricing formula as including an implicit agreement to pay maintenance for all copies that required maintenance.[2]