MSC.Software Corp. v. Altair Engineering, Inc. was a trade secret lawsuit between two vendors of engineering simulation software. It was heard in the United States District Court for the Eastern District of Michigan. MSC alleged that former MSC employees who joined Altair brought trade secrets from its ADAMS/Solver multi-body dynamics solver into Altair’s competing MotionSolve product.[1] A jury found for MSC and awarded USD 26.1 million. The court set the award aside as excessive, and after a decade of litigation it entered final judgment for the defendants on damages in December 2017.[1][2] The case is about intellectual property in software rather than about customer licensing. It shows how software features are valued when one vendor claims another has used its code or know-how.
Background
MSC filed the complaint on 2007-07-05.[4] The defendants were Altair Engineering, Inc. and several individuals who had worked at MSC. Altair counterclaimed against MSC.Software Corporation and Hexagon AB.[3] The court described the subject matter as follows. The trade secrets were features of a multi-body dynamics solver that MSC marketed as ADAMS/Solver. Altair competes with MSC and markets a solver called MotionSolve. A multi-body dynamics solver is a computer program that takes a physical description of a multi-body system as input, converts it into equations, solves them numerically and produces output describing the model’s behaviour.[1]
The dispute
The claims included misappropriation of trade secrets, breach of the employees’ confidentiality agreements and breach of non-solicitation restrictions.[1] The jury found that three trade secrets had been incorporated into MotionSolve and misappropriated. Two of them were described as discontinuity checking and Jacobian refactorization; the description of the third is redacted in the public copy.[1] The jury awarded damages as a single-payment reasonable royalty of USD 26,100,000, almost all of it against Altair, with small amounts against two individual defendants.[1]
The court upheld the liability findings. In an earlier ruling, quoted in its November 2014 decision, it rejected Altair’s arguments that the trade secrets were publicly known, had no economic value, or were not knowingly misappropriated.[1]
Decision or outcome
Damages vacated (2014). On 2014-11-13 the court granted Altair’s motion for judgment as a matter of law and for a new trial or remittitur on damages. It held that the damages were excessive and against the great weight of the evidence. The jury had not been asked to apportion damages among the trade secrets, and the computation MSC used for a single-payment royalty was not based on admissible evidence.[1] The court observed that, more than six years into the case, MSC had not set out a viable damages theory. Its first damages expert had been excluded under the Daubert standard in January 2014.[1] In its conclusion the court found that MSC had proved Altair hired away MSC employees and gained information from them contrary to their contractual obligations, and had proved the misappropriation of three ADAMS/Solver trade secrets. What MSC had not done was introduce competent evidence of the damages caused.[1]
Summary judgment (2017). The court ordered a new trial on damages for the three technical trade secrets. Before that trial it granted Altair’s motion to exclude MSC’s new damages expert. It then allowed Altair to move for summary judgment.[2] On 2017-12-13 it granted the motion. MSC conceded that its multimillion-dollar damages claim was unsupported once its expert was excluded. The court rejected MSC’s fallback requests for nominal damages, or for the USD 36,591 reasonable royalty that Altair’s expert had been expected to give in rebuttal. It directed entry of a final judgment that included all defendants.[2] The order noted that “an appeal looms”.[2]
Appeals (2018). Three appeals were docketed in the Sixth Circuit (Nos. 18-1022, 18-1067 and 18-1068). On 2018-08-29 the court entered a Rule 33 order, the Sixth Circuit’s mediation procedure.[5] No published appellate decision has been found. The district court docket closed on 2017-12-13.[4]
Significance for software licensing and SAM practice
The case did not concern how customers license Altair software, and no court record states that customers’ rights to use MotionSolve were affected. It matters to licence managers in two ways. First, it shows how courts value software functionality: as a reasonable royalty that both parties would have agreed to, supported by expert evidence. The value the owner places on its own product is not enough.[1] Second, it is a reminder to check what a vendor’s contract covers if the vendor’s own product faces an IP claim. Altair’s standard Simulation Software License Agreement promises to defend customers against third-party claims that the Software infringes “a patent or copyright”. The clause states Altair’s entire liability for such claims and does not mention trade secrets.[6] For other disputes, see software licensing litigation.
Lessons learned
- Read the indemnity scope. Altair’s standard simulation agreement indemnifies customers against claims that the Software infringes a patent or copyright, and says nothing about trade secrets.[6] Customers that depend on a product facing such a dispute should check whether their negotiated agreement covers it.
- Liability and damages are separate. The jury found misappropriation, but the court vacated the USD 26.1 million award and later entered judgment for the defendants because there was no admissible evidence of damages.[1][2]
- Follow the docket to the end. Reports of the 2014 verdict were overtaken by the 2014 remittitur decision and the 2017 judgment. The appeals were then referred to mediation.[2][5]