Quest Software, Inc. v. DirecTV Operations, LLC was a lawsuit in the United States District Court for the Central District of California, filed in October 2009, in which Quest alleged that DirecTV had deployed its Foglight monitoring software on more CPUs than its licence allowed and on IBM AIX servers when the licence covered Windows NT servers only. Quest sued for copyright infringement and breach of contract.[1][3] In September 2011 Judge Andrew J. Guilford granted DirecTV summary judgment on the copyright claim, on the contract claim about AIX use and on Quest’s claims for maintenance fees, but let the contract claim for overdeployment go to trial.[1] In February 2012 the court barred Quest from proving overdeployment with data from its own counting tool, as a sanction for discovery violations.[2] The parties reported a settlement at the pretrial conference on 30 April 2012.[3]
Background
DirecTV used Foglight mainly to monitor servers supporting its customer service call centres. In 2002 the parties signed a licence agreement made up of Quest’s standard form and a negotiated addendum. The agreement allowed DirecTV to use Foglight on its Windows NT servers only and on a set number of CPUs.[1]
The agreement did not treat overdeployment as an automatic breach. DirecTV could increase the number of CPUs “by up to 10% per product” at no additional fee, and could go beyond that if it paid for the additional CPUs.[1] Paragraph 16 required DirecTV, at Quest’s request and not more than once a year, to provide a signed statement of its usage and to permit Quest to review its deployment. If use was “greater than contracted for”, DirecTV would “be invoiced for the additional licenses”.[2] An attachment to the agreement required payment only for software that was “installed and used”.[2]
From 2005 DirecTV moved its call-centre servers from Windows NT to AIX. Its server administrator, Hewlett Packard (HP), told Quest the migration would run from June 2006 to June 2007. Quest continued to provide support after Foglight was installed on the AIX servers, its consultants installed and customised Foglight on them, and a March 2007 statement of work signed by the parties provided for deploying Foglight “on as many AIX servers as possible”.[1]
The dispute
In June 2007, at Quest’s request, HP produced reports showing the number and type of servers running Foglight. In late 2008 Quest invoiced DirecTV for true-up fees on the overdeployed licences, for “retroactive” maintenance on those licences and for 2009 maintenance. DirecTV refused to pay and Quest sued.[1] The June 2007 data came from a counting tool that Quest used to measure deployment; DirecTV argued that flaws in the tool inflated the count.[2]
Decision or outcome
Summary judgment (September 2011)
| Claim | Ruling |
|---|---|
| Copyright: use on AIX servers | Granted for DirecTV. Quest had granted an implied licence: DirecTV paid Quest to adapt Foglight to AIX, Quest delivered and installed it, and the statement of work showed Quest intended that use.[1] |
| Copyright: use on more CPUs than licensed | Granted for DirecTV. Applying the Ninth Circuit’s test in MDY v. Blizzard, the court held that the overdeployment and true-up provisions were covenants, not conditions limiting the licence’s scope, so their breach gave a contract claim only.[1] |
| Contract: use on AIX servers | Granted for DirecTV. Quest was equitably estopped: it knew of the AIX use, helped install it, trained DirecTV staff, and never said the use was unlicensed or asked for fees.[1] |
| Contract: overdeployment | Denied. There was a genuine dispute about when Quest learned of the overdeployment, and the true-up clause was evidence that Quest meant to enforce its rights.[1] |
| Maintenance fees for 2009 | Granted for DirecTV. The agreement said that failure to pay a maintenance renewal invoice “shall constitute Licensee’s cancellation of Maintenance Services”, and DirecTV did not pay the December 2008 invoice.[1] |
| “Retroactive” maintenance on overdeployed licences | Granted for DirecTV. The true-up clause required licence fees only; it did not mention maintenance.[1] |
The court also refused to let Quest add, so close to trial, a new theory that DirecTV had altered the software, or a quasi-contract claim for restitution.[1]
Sanctions and pretrial rulings (February 2012)
A magistrate judge had ordered Quest to produce information about its use of “a true-up tool for measuring Foglight’s overdeployment” by its customers. Quest produced about 350,000 documents nearly two months late without reviewing them, and Quest and its counsel were ordered to pay over USD 25,000. The district court then imposed issue sanctions: Quest and its experts could not rely on the June 2007 data from the counting tool to prove DirecTV’s use or damages, and Quest could not argue that the full Foglight list price or DirecTV’s historical price was the right measure of true-up fees. The court refused terminating sanctions because it did not find bad faith.[2]
In the same order the court ruled on the evidence for trial:[2]
- Price of a true-up. The court repeated the magistrate judge’s finding that the agreement did not identify a price for true-ups, so the law implied a reasonable price, and evidence of what Quest charged other customers could be admissible.
- “Installed and used”. DirecTV could offer evidence, including industry custom, that software installed on both platforms during the migration, on servers being phased out in standby or disaster-recovery mode, or in test and development environments was not “used” and needed no licence.
- Audit clause. DirecTV could not argue that Quest had to request a formal audit or a signed usage statement before invoicing for overdeployment; paragraph 16 required DirecTV to cooperate when asked but did not limit how Quest could measure deployment.
- Waiver and estoppel. A clause requiring written amendments did not exclude evidence of Quest’s conduct and oral statements, including an alleged oral enterprise agreement, for DirecTV’s waiver and estoppel defences.
- Pre-dispute pricing talks. Discussions about pricing for overdeployed software in 2006 to 2008 were not settlement negotiations and could be used as evidence.
Resolution
At the pretrial conference on 30 April 2012 counsel told the court that the matter had settled, and Quest filed a stipulation to dismiss the case and a settlement agreement under Federal Rule of Civil Procedure 41(a)(1) the next day.[3] No settlement terms were found in the sources reviewed, and there was no trial on the extent of the overdeployment or the amount owed.
Significance for software licensing and SAM practice
The rulings are district court decisions and are not binding precedent. They show how an overuse claim can narrow when the agreement and the vendor’s own conduct are examined:
- Covenant, not condition. Because the licence allowed extra CPUs for an extra fee, exceeding the CPU count was a contract matter, not copyright infringement.[1] Compare Attachmate v. Health Net, where over-installation was pleaded in copyright as well.
- Vendor involvement in deployment. Quest’s consultants installed the software on the platform it later said was unlicensed, which defeated both its copyright and contract claims for that use.[1] The Ontario case Actuate v. Symcor raised a similar estoppel argument about a platform restriction.
- Maintenance on shortfalls. The true-up clause did not mention maintenance, so back-maintenance could not be added to the true-up invoice.[1]
- Measurement tools. The vendor’s counting tool and its use with other customers became a discovery issue, and the count from the tool was excluded when Quest did not produce the information.[2]
Current Quest licence types and contract terms are covered in Quest Software licensing.
Lessons learned
- A CPU limit backed by a true-up clause may be treated as a contract covenant, so overuse is a payment claim rather than copyright infringement. The court applied the covenant and condition test and granted DirecTV summary judgment on copyright.[1]
- A vendor that helps deploy its software on an unlicensed platform may be estopped from charging for that use. Quest’s installation, customisation and training on AIX, without objection, estopped its AIX claim.[1] Keep records of vendor-assisted deployments and statements of work.
- A true-up clause that mentions only licence fees may not support back-maintenance charges. The court read the clause as written.[1] Read the true-up and maintenance clauses together before accepting an audit invoice.
- Counts from the vendor’s own tool can be challenged, and the vendor may have to disclose how the tool works. Quest was barred from relying on its tool’s data after failing to produce the ordered information.[2]
- Check whether the agreement prices true-ups; if it is silent, list price is not automatically the measure. The court treated the true-up price as open, to be set at a reasonable price, and Quest was barred from arguing for list price.[2] Terms such as “installed and used” can also leave room to argue that standby, migration and test copies need no licence.