KaZee v. University of Texas Medical Branch is a case in the Eastern District of Texas in which a healthcare software vendor, KaZee, Inc., sued two officers of a public university medical branch over the use of its PEARL electronic medical records software. KaZee said the university’s use at sites outside the programme the licence covered was unauthorised. The allegations below are KaZee’s, as recorded in the court’s orders, unless stated otherwise.
Background
KaZee provides information technology products and services to the healthcare industry, including PEARL. It agreed to license PEARL to the University of Texas Medical Branch at Galveston (UTMB) for use at member sites within its Correctional Managed Health Care Program (CMHCP), under a “Master License” that set out the type of license, the scope of use and the methods of termination. The agreement was originally made with Medical Information Management Systems, Inc.; UTMB later signed a maintenance agreement and a source code agreement with Business Computer Applications, Inc., and KaZee is the successor to both.[1] A later order dates the Master License to August 1999.[4]
The dispute
After PEARL was implemented at the agreed sites, KaZee learned of alleged use at other sites outside the CMHCP. UTMB acknowledged that its legal department had initially agreed that the licence could be used only for the UTMB/TDCJ/TT project “unless there is another agreement in place” and supplied a list of sites that had used PEARL. KaZee asserted that the use was a material breach that could be cured by paying USD 20 million in licence fees, and negotiated for several years while UTMB kept using the software.[1]
KaZee first sued UTMB in January 2018 (No. 4:18-cv-53). UTMB pleaded sovereign immunity and failure to exhaust administrative remedies before the State Office of Administrative Hearings, the parties signed a tolling agreement and the suit was dismissed without prejudice. After more failed talks KaZee wrote that unless UTMB paid USD 20 million within 60 days the agreement would be terminated. UTMB contested the breach and the fees and said any claim under the agreement belonged in the administrative forum. KaZee filed this suit on 15 January 2019 against UTMB’s president and its chief information officer in their official capacities, pleading copyright infringement and misappropriation of trade secrets under the Defend Trade Secrets Act, and sought preliminary and permanent injunctions against the continuing use.[1]
Decision or outcome
Motion to dismiss (2 March 2020). The district court adopted the magistrate judge’s recommendation and denied the motion to dismiss. It held that the copyright claim arises under the Copyright Act because it alleges ongoing infringement and seeks an injunction, a remedy the Act provides, even though the parties also had a contract; that the trade secret claim arises under a federal statute; that the claims did not “arise under” the agreement so the contract’s administrative dispute process did not require dismissal; and that sovereign immunity did not bar the claims because they could proceed against the officers under the Ex parte Young exception.[1]
Pleadings and discovery (October 2020). The defendants had deliberately not pleaded defences about KaZee’s termination of the Master License, noting that doing so could waive their claimed immunity, and filed their original answers on 7 May 2020. In September 2020 they asked to add defences that KaZee had not adequately terminated the Master License or the licence to use PEARL. On 30 October 2020 the magistrate judge granted leave only to file the amended answers after the preliminary injunction hearing, kept the original answers as the live pleadings for that hearing, denied the request to reopen discovery and ordered a further deposition of UTMB’s corporate representative on whether the Master License was effectively terminated and whether any licence permitted UTMB’s current use.[2] In a second order the same day she granted in part KaZee’s motion to compel, ordering UTMB to produce an “EMR Lite Analysis” and one licensing email.[3]
December 2020. The court denied KaZee’s motion for sanctions over the defendants’ disclosures and deposition, noting the defendants stated they did not intend to raise express or implied licence or estoppel defences at that stage, but allowed KaZee to depose five further witnesses before the hearing.[4] It also denied the defendants’ motion to exclude extrinsic evidence about the Master License.[5] The orders read stop before the preliminary injunction hearing, set for November 2020 and then moved on; the result was not found in the records read.
Significance for software licensing and SAM practice
The case shows a scope dispute in the public sector. The licence tied use to a defined programme and set of sites, the vendor treated use elsewhere as unlicensed, and the dispute then turned on forum and immunity questions before any of the licensing merits. The court’s ruling that a copyright claim for use beyond the licence could proceed against officers, even though the institution itself enjoyed immunity, is a point of civil procedure rather than a ruling that the use was unlicensed; no finding on that was read.
Lessons learned
- Treat site and programme limits as hard limits. The Master License covered use within one programme, and the vendor’s claim was built on use at other sites that the university itself listed.[1]
- Do not rely on sovereign immunity as a licensing defence. The court let the infringement claim proceed against the officers under the Ex parte Young exception.[1]
- Settle the termination position early. The defendants kept termination defences out of their original answers and then sought to add them months later; the court controlled when they could be used.[2]
- Internal analyses and licensing emails can be ordered produced. The court ordered UTMB to hand over an internal analysis and a licensing email.[3]