Compuware Corp. v. Health Care Service Corp. was a lawsuit in the United States District Court for the Northern District of Illinois, filed in February 2001. Compuware, a Michigan vendor of mainframe software, sued Health Care Service Corporation (HCSC), which does business as Blue Cross and Blue Shield of Illinois, for breach of contract, and sued HCSC and Unitech Systems, Inc. for copyright infringement and misappropriation of trade secrets.[1] On 24 May 2002 Judge Elaine Bucklo granted the defendants summary judgment on the contract claim, on the trade secret claim and on two of the three copyright theories, and denied it on the claim that Unitech had prepared derivative works from the licensed software.[1]
Background
Compuware sells software that runs on mainframe computers. In 1984 it entered into a permanent licence agreement with HCSC, governed by Michigan law, under which it kept ownership of the software. A 1993 amendment stated that the licensed software could be used only by HCSC and only at the licensed locations. Twenty-five Software Product Schedules signed between 1984 and 2000 identified the products and the locations to which each was licensed.[1]
The dispute
In 1997 Compuware salespeople who were exploring Unitech as a possible customer found that Unitech was already running Compuware software licensed to HCSC. In February 2000 Compuware found that HCSC had been giving Unitech use of the software since 1984, and that Unitech had been developing its own software line that Compuware believed was based on Compuware’s products. Compuware then sued.[1]
HCSC relied on a clause in the 1984 agreement under which no action arising out of the agreement could be brought more than one year after the cause of action accrued. It pointed to a statement by Compuware’s designated corporate witness that Unitech had told Compuware in 1997 that it was using the software on the HCSC computer, and to 1997 notes by the salespeople. Compuware replied that it had thought it was acting merely as a consultant to HCSC and had not known before February 2000 that Unitech was using the software to develop its own products.[1]
Decision or outcome
- Contract claim barred. Applying Michigan’s plain-language rule, the court read the licence as allowing use only by the customer, with a duty to keep the software confidential. It held that if consultants were to be allowed, the contract had to say so, and that Compuware had not argued that the contract was amended by the parties’ conduct. Compuware knew in 1997 that HCSC was allowing Unitech to use the software, so the one-year limitation had run. The court rejected the “continuing breach” argument because the licence was a one-time agreement with amendments, and it found that the later product schedules were amendments, not separate contracts.[1]
- Copyright claim partly barred. The copyright claim did not depend on interpreting the licence, so the contractual limitation did not apply, but the three-year statutory period did. Claims for unauthorised reproduction and distribution were barred because Compuware knew of Unitech’s use in 1997 and sued in February 2001. The claim that Unitech prepared derivative works while using the software to develop its own products was not shown to be late, because there was no evidence that Compuware should have known of that use before February 2000, and the court rejected the defence of laches. That claim survived.[1]
- Trade secret claim failed. The Illinois Trade Secrets Act claim was not time-barred, because the contractual limitation could not shorten the statutory period for that claim in the court’s analysis, but it failed on the merits. Compuware knew that HCSC had let Unitech use the software and took no action until it learned of the development use. The court held that doing nothing to enforce a confidentiality agreement was not a reasonable effort to keep a trade secret.[1]
The record reviewed for this article is the summary judgment opinion; later events in the case were not located in a primary record.
Significance for software licensing and SAM practice
This is a district court decision on Michigan and Illinois law and is not binding precedent. It is an early example of a mainframe vendor pursuing a customer over third-party use, a theme that recurs in outsourcing and shared-services arrangements:
- Third-party use. A licence limited to “the customer” does not stretch to a contractor or affiliate by custom, and the court said exceptions for consultants must be written into the contract.[1]
- Shortened limitation periods. A contractual one-year period can end a claim long before the statutory period would, and it ran from when the vendor knew of the use.[1]
- Licence history. Decades of schedules and amendments were treated as one agreement. A licence manager reviewing an old agreement needs the full set of schedules.[1]
Other disputes over use of licensed software by someone other than the customer are covered in Micro Focus v. Insurance Services Office and Software AG v. Consist Software Solutions. For the wider picture see software licensing litigation.
Lessons learned
- A licence that says the software may be used only by the customer does not allow a contractor to use it unless the contract says so; name outsourcers and consultants in the licence. The court said that exceptions for consultants “must be expressly stated” in the contract.[1]
- A vendor that learns of third-party use and does nothing loses time. The one-year contractual limitation ran from 1997, when Compuware knew Unitech was using the software.[1]
- Confidentiality clauses that are not enforced do not protect a trade secret claim. Compuware’s non-disclosure agreements were undisputedly not enforced against HCSC.[1]
- Where a licence has been amended many times by schedules, a court may treat each schedule as an amendment, not a new contract with a fresh limitation period. The court held that the product schedules were amendments.[1]