Fairview Health Services v. Quest Software, Inc. was a 2020 to 2021 lawsuit in the United States District Court for the District of Minnesota between Fairview Health Services and Quest Software, Inc. and One Identity, LLC (together “Quest”), the vendors of the Active Roles account management software. After Fairview gave notice that it would not renew maintenance, Quest audited its use of Active Roles and claimed USD 4,183,178.85 for 69,064 licences more than Fairview had bought. Fairview sued for a declaratory judgment; Quest counterclaimed for breach of contract and copyright infringement.[1] The court’s 2021 order addresses two questions that arise often: which of several generations of vendor terms governs a long-held licence estate, and whether over-deployment covered by a true-up clause is still copyright infringement.
Background
From 2004 Fairview bought perpetual Active Roles licences and paid annually for maintenance services, which included new versions and releases. Its purchases in 2004 and 2005 (18,101 licences) were under Quest’s standard 2004 Software License Agreement (SLA). The SLA’s “Usage Verification” or true-up clause let Quest audit deployment and said that if use was greater than contracted for, the licensee “will be invoiced for the additional licenses”, plus audit costs if the unpaid fees exceeded 5 percent of fees paid. The SLA could be amended only by a writing signed by authorised representatives of both parties. By January 2016 Fairview held 38,081 licences.[1]
In 2013, when Active Roles version 6.9 was released and Quest was operating as Dell Software, Quest began using a standard 2013 Software Transaction Agreement (STA). Its true-up clause priced over-deployed quantities “at Dell’s then current list price plus the applicable Maintenance Services and applicable over-deployment fees”, and it required enforcement actions to be brought in Travis or Williamson County, Texas. Fairview signed two 2015 quotations for 2,700 more licences that incorporated the 2013 STA, a 2017 maintenance quotation referring to it, and a 2018 support renewal “subject to the terms and conditions under which the licenses covered by the Maintenance Services were purchased”. Quest also said Fairview had accepted the 2013 STA when installing version 6.9 in 2016.[1]
The dispute
In December 2019 Fairview told Quest it would not renew maintenance for the following year. Quest then audited Fairview and concluded it had deployed Active Roles to 69,064 more accounts than licensed. Fairview disputed the count and sought declarations on which agreement governed, whether over-deployment was a breach, which accounts counted, how much Quest could charge, and that Quest’s only remedy was to invoice under the true-up clause. Quest moved to transfer the case to Texas under the 2013 STA’s forum clause; Fairview moved to dismiss Quest’s contract and copyright counterclaims.[1]
Decision or outcome
District Judge Susan Richard Nelson denied both motions on 2021-02-22.[1]
Which agreement governs. The 2015 quotations “unambiguously bound Fairview to the 2013 STA with respect to the 2,700 licenses purchased in 2015, but did not supersede the 2004 SLA with respect to previously purchased licenses”, because their entire-agreement language applied only to “the products set forth above”. The 2017 and 2018 quotations concerned maintenance services, not the licence grants and true-up clauses in dispute. The click-through acceptance during the version 6.9 installation had not been put before the court, and the record did not show it was a writing executed by an authorised representative as the 2004 SLA required for amendments. On that record the 2013 STA governed only 2,700 of 38,081 licences, so the case was not an action “seeking enforcement of” the 2013 STA and was not transferred.[1]
Breach of contract. Fairview argued that because the true-up clause anticipated over-deployment and set a payment mechanism, over-deployment could not be a breach. The court read Quest’s claim as being that Fairview refused to pay as the true-up clause required, and held that was a plausible breach.[1]
Copyright. Relying on MDY v. Blizzard, the court asked whether the quantity limit was a condition on the scope of the licence with a nexus to Quest’s exclusive rights. It distinguished Quest Software v. DirecTV, where the licence expressly allowed the customer to increase CPU counts by up to 10 percent and to go further on paying additional fees. The 2013 STA granted a licence only to “the quantities of each item of Software identified in the applicable Order”; the true-up clause gave a remedy for exceeding that quantity but no right to do so. Quest had therefore plausibly alleged that Fairview exceeded the scope of its licence and infringed by using more copies than it bought without paying for them.[1]
Later proceedings. The docket shows orders on motions to compel in September 2021, an order on a stipulation on 2021-10-20 and an order dismissing the case on 2021-10-29. The terms of any resolution are not in the public record.[2]
Significance for software licensing and SAM practice
The order is a pleading-stage decision and does not say what Fairview owed. It is still a clear illustration of how vendor paper accumulates over a long relationship:
- Layered terms. A customer that has bought from the same vendor for many years may hold licences under several generations of terms. Each purchase’s own documents decide which terms apply to those licences.[1]
- Pricing of shortfalls. The 2013 terms priced over-deployment at current list price plus maintenance and over-deployment fees, while the 2004 terms simply invoiced the additional licences. Which applied could change the size of the claim.[1]
- True-up clauses and copyright. Whether a true-up clause protects a customer from infringement claims depends on whether the licence grants a right to exceed the quantity or only a remedy if it is exceeded.[1]
See Quest Software licensing and software licence audit.
Lessons learned
- Signing a quotation that incorporates new terms may change the terms only for the items on that quotation, not for licences bought earlier. The court held the 2015 quotations bound Fairview to the 2013 STA only for the 2,700 licences they covered.[1]
- Maintenance renewals and licence grants can sit under different agreements; keep the agreement that governs each licence purchase. The 2017 and 2018 maintenance quotations did not decide which terms governed the licences themselves.[1]
- A true-up clause does not by itself make over-deployment licensed; it can coexist with a copyright claim. The court let Quest’s infringement counterclaim proceed because the true-up clause gave no express right to exceed the licensed quantity.[1]
- Ending maintenance can be followed by an audit, so check deployments against entitlements before giving notice. Quest’s audit followed Fairview’s December 2019 notice of non-renewal.[1]
- Audit clauses that price shortfalls at current list price plus maintenance and fees can make a shortfall far more expensive than the original licences. That was the pricing in the 2013 STA’s true-up clause.[1]