TIBCO Software Inc. v. GAIN Capital Group, LLC was a lawsuit in the United States District Court for the Northern District of California, filed in June 2017, in which TIBCO alleged that GAIN Capital, an online foreign exchange trading firm, had deployed TIBCO messaging software beyond the unit counts fixed at the end of two “Enterprise” periods. TIBCO relied on an on-site audit performed by KPMG in 2016 and sued for breach of contract, breach of the implied covenant of good faith and fair dealing, unpaid fees under a 2016 order form, and copyright infringement.[1] GAIN denied the claims and counterclaimed, alleging among other things that KPMG had not performed the audit correctly.[2] In August 2018 the court allowed GAIN to subpoena KPMG for its audit methodology and its communications with TIBCO about the audit, and in December 2018 the parties dismissed all claims and counterclaims with prejudice.[2][5]
Background
The facts below are TIBCO’s allegations in its amended complaint; the court did not decide them.
In November 2008 GAIN licensed TIBCO Enterprise Message Service and TIBCO Hawk under an order form and TIBCO’s Software License Terms and Conditions. The licence created a one-year “Enterprise Term”. The order form, as quoted in the complaint, defined “Enterprise” as “an unlimited Number of Units” deployable during that year, “at which time, the Number of Units then deployed in Production and Non-Production use by Licensee becomes fixed and Licensee may not thereafter deploy additional Units.”[1]
A December 2010 order form, under the same terms, set a new Enterprise period ending on 30 December 2012. GAIN then gave TIBCO an End of Term Deployment Report. TIBCO alleged that 21 units of Enterprise Message Service and 9 units of Hawk had been deployed at the end of that period, so those became GAIN’s maximum, usable in perpetuity within the scope of the licence.[1]
The dispute
The 2016 audit
TIBCO retained KPMG in about May 2016 to conduct an on-site audit and notified GAIN on 18 May 2016. TIBCO alleged that GAIN delayed the audit for months, for example by not offering dates or producing deployment records, and KPMG audited GAIN on site on 23 and 24 August 2016.[1]
According to TIBCO, KPMG found 209 units of Enterprise Message Service and 81 units of Hawk deployed after 30 December 2012 beyond the fixed maximum, and 9 units of TIBCO ActiveSpaces Enterprise Edition with no licence at all. In October 2016 TIBCO sent GAIN a “Bill of Materials” at list price plus support and maintenance of USD 19,275,829, and USD 22,064,629 with one additional year of forward support. GAIN did not pay it.[1]
The 2016 licence
In November 2016 the parties signed a new order form covering 9 units of ActiveSpaces Enterprise Edition, 59 units of Enterprise Message Service and 81 units of Hawk, which also reinstated maintenance on the units licensed in 2008 and 2010. TIBCO issued two invoices totalling USD 5,243,800, and alleged that GAIN did not pay them.[1]
Claims and counterclaims
The amended complaint pleaded four claims: breach of contract for overdeployment, breach of the implied covenant of good faith and fair dealing (for GAIN’s conduct during the audit), breach of the 2016 order form, and copyright infringement.[1] GAIN counterclaimed for fraud in the inducement, negligent misrepresentation, unfair competition, and rescission for unilateral and mutual mistake.[3] GAIN’s position, as the court summarised it, was that KPMG did not perform the audit correctly and that TIBCO deliberately gave KPMG incorrect instructions so that it “was certain to conclude” GAIN had exceeded its licences.[2]
Decision or outcome
There was no ruling on the merits. The published orders concern discovery.
Discovery from the auditor (August 2018)
GAIN subpoenaed KPMG for, among other things, the number of TIBCO customer audits KPMG had performed, the methods and results of all such audits since June 2013, its communications with TIBCO about them, and its fee agreements with TIBCO. TIBCO sought a protective order. KPMG took no position but said it objected to the discovery.[2]
Magistrate Judge DeMarchi held that “some discovery of KPMG is relevant” to GAIN’s defences and counterclaims, “particularly as it relates to the methodology used by KPMG to conduct the audit and the instructions provided by TIBCO to KPMG”. She reasoned that whether KPMG used a different method for GAIN than for other customers using the same software bore on GAIN’s claim. She allowed GAIN to obtain, for audits from 1 January 2013 of the TIBCO products at issue:[2]
- documents sufficient to show KPMG’s audit methodology and the results of audits using it;
- all communications between TIBCO and KPMG about instructions for, conduct of, and methodology of those audits; and
- documents showing the engagement between TIBCO and KPMG under which the GAIN audit was performed, including any master agreement covering it.
She refused discovery about audits of other customers’ use of other TIBCO software and about TIBCO and KPMG engagements unrelated to the GAIN audit. She rejected TIBCO’s privacy objection, leaving confidential information to be handled under the protective order or by redaction.[2] Judge Davila denied TIBCO’s motion for relief from that order.[4]
In a second order the same day, the court limited TIBCO’s own request for communications between GAIN and its UK affiliate. The claims concerned only the named US defendant and the audit appeared to cover only US deployments, and the Copyright Act does not apply to conduct outside the United States.[3]
Dismissal
On 4 December 2018 TIBCO and GAIN stipulated that the action, all of TIBCO’s claims and all of GAIN’s counterclaims be dismissed with prejudice, each party bearing its own costs and fees.[5][6] No settlement terms were filed.
Significance for software licensing and SAM practice
- Enterprise periods that freeze. The licence was unlimited during a set term, but whatever was deployed on the last day became the permanent ceiling. Under TIBCO’s reading, every later deployment needed a new licence.[1] The same construction was at issue in TIBCO v. Bank of America.
- Audit claims at list price. The audit demand was priced at list price with back support and a year of forward support, several times what the parties later agreed for a new licence covering similar quantities.[1]
- Auditor independence can be tested. The court treated the vendor’s instructions to a third-party auditor, and the auditor’s methodology across customers, as discoverable when the customer challenges the audit.[2] Compare Quest Software v. DirecTV, where the vendor’s counting tool became a discovery issue.
Lessons learned
- An enterprise period that ends by freezing the deployed count turns the count on the last day into the licence limit. TIBCO’s order forms fixed the Number of Units deployed at the end of each Enterprise period, and it treated every unit above that as unlicensed.[1] Plan the end-of-term deployment, and put controls on new installs after the term ends.
- Report end-of-term deployments accurately and keep the evidence, because later growth is measured against that report. TIBCO measured GAIN’s alleged overdeployment from the counts in GAIN’s 2012 End of Term Deployment Report.[1]
- A customer that disputes an audit can seek the auditor’s methodology and the vendor’s instructions to the auditor. The court allowed GAIN that discovery, limited to the products and period in issue.[2]
- Delaying an audit can itself be pleaded as a breach of the implied covenant of good faith. TIBCO’s second claim rested on GAIN’s alleged delay between May and August 2016.[1][3] Respond to audit notices within the contract’s timelines and record any objections in writing.
- Buying a licence after an audit does not settle the audit claim unless the agreement says so. TIBCO sued both for the past overdeployment and for the unpaid 2016 order form signed after the audit.[1] A post-audit purchase should state expressly which past use it covers.