Hogan Systems, Inc. v. Cybresource International, Inc. is a 1998 decision of the United States Court of Appeals for the Fifth Circuit on a software vendor’s attempt to stop an independent service organisation from supporting a customer’s licensed software. The vendor, which licensed banking software to major banks, sued a company founded by its former employees that had contracted to support one of its bank licensees. The court affirmed judgment for the support company because the bank’s licence permitted it.[1]
Background
Hogan did not sell its software but licensed it to customers, including the bank Norwest, whose licences dated from 1980 and were later modified through a 1988 agreement with IBM, which marketed the software in North America. Four former Hogan employees formed Cybresource, which signed a professional services agreement with Hogan in 1995 and then, in 1996, contracted with Norwest to provide support services for the software without Hogan’s consent. Norwest’s licence said it would not make the software available to anyone “except to [Norwest’s] employees or [Hogan’s] employees or to other persons during the period such other persons are on [Norwest’s] premises for purposes specifically relating to [Norwest’s] authorized use of the licensed program”.[1]
The dispute
Hogan sued in July 1996 for copyright infringement, trade secret misappropriation, breach of contract and related claims, alleging that Cybresource used and copied its software without a licence. The district court denied a preliminary injunction in December 1996 and granted summary judgment to the defendants in June 1997. It then awarded them costs and attorney’s fees under the Copyright Act.[1]
Decision or outcome
On 1998-10-30 the Fifth Circuit affirmed. It held the quoted clause “clearly and unambiguously” allowed Norwest to bring persons who were not Norwest or Hogan employees onto its premises to work directly on the software, including independent software contractors, and that work done for Norwest’s benefit was not a transfer of the licence. Copyright licences are construed narrowly, the court said, but nothing in the clause limited the contractors to viewing the software. Hogan’s claim that contractors accessed the software remotely failed for lack of evidence of copying, and its trade secret claim failed because the skills in question were general knowledge that many people in the field acquired without working for Hogan. The court also upheld the costs and fees award.[1]
Significance for software licensing and SAM practice
The case is an early example of a court giving effect to a customer licence that allowed outside contractors to work on licensed software, defeating a vendor’s attempt to stop third-party support. Later Fifth Circuit decisions limited it to licences containing express third-party access language; see Compliance Source v. GreenPoint. For a case where third-party support of customers’ software was held to be infringing, see Oracle v. Rimini Street.[1]
Lessons learned
- Read the licence’s third-party access clause before assuming that support by others is infringing. Here the clause allowed “other persons” on the licensee’s premises to work on the software.[1]
- Clear wording is enforced as written, in both directions. The court said that if the vendor meant to exclude independent contractors, it should have said so in the clause.[1]
- Distinguish on-premises from remote access. The clause covered persons on the licensee’s premises, and the remote-access allegation failed only because the vendor did not show copying.[1]
- Losing a copyright claim can carry a costs and fees award. The district court’s award to the defendants was upheld.[1]