We have been following a very interesting licensing dispute filed in the Eastern District of New York by Tibco Software Inc. ("TIBCO") against OptumRx Administrative Services, LLC ("OptumRx"). According to TIBCO's Second Amended Complaint ("SAC") its "software facilitates the analysis of data and/or the transfer of data, particularly between software platforms that would otherwise not be able to communicate with one another". TIBCO is no stranger to litigation arising out of software audits and has filed several lawsuits over the years against its customers for breach of license agreement and copyright infringement related to a software audit.
TIBCO alleges that the agreement at the center of the licensing dispute is an Enterprise Agreement. TIBCO's Enterprise Agreement is similar in certain respects to Oracle's Unlimited License Agreement ("ULA"). Under each agreement a licensee may sign up for a certain fixed period of time and deploy as many copies as it wants of the licensed software within its IT environment. At the end of the fixed period, here three years, the licensee certifies the number of copies of the software it is using in its environment and that amount becomes its fixed perpetual license entitlement. The parties agreed to additional payment and other terms in the event that an "Extraordinary Corporate Event" occurred during the period of the Enterprise Agreement.
An "Extraordinary Corporate Event" was defined as "a corporate transaction which results in Customer acquiring, being acquired by, merged, or otherwise combined with another entity or into another entity's legal or corporate structure (including an acquisition of all or substantially all of the assets of another entity) which, prior to the corporate transaction, was not part of the Customer or its legal or corporate structure." According to the contract:
"During the Enterprise Term, Customer's right to deploy shall not extend to any Extraordinary Corporate Event unless the process in Section 3 of this Order is followed. For clarity, the process stated in Section 3 will only be applicable if Customer experiences an Extraordinary Corporate Event as defined below and if the new corporate entity (which is not part of the legacy Customer entity) wants to deploy Software pursuant to this Order Form." (emphasis added)
If an Extraordinary Corporate Event occurred during the term, then OptumRx would need to execute a new Order Form and under certain circumstances pay additional licensing fees to TIBCO based on the amount of annual revenues of the acquired companies, which would be deploying the software.
"In the event Customer enters into an Extraordinary Corporate Event during the Enterprise Term, it can accommodate additional usage of the Software licensed under this Order Form by executing a subsequent Order Form with Licensor in accordance with pricing schedule stated below (a "Future Order") provided: (i) the Future Order must represent a binding non-cancelable commitment on the part of Customer with no additional terms and conditions, (ii) Customer must deliver the signed Order Form for the Future Order (substantially in the form set forth herein) to Licensor on or before three (3) years from the Order Form Effective Date, (iii) the Software is still generally available as of the date of the Future Order, and (iv) Customer agrees to purchase the first year annual Silver level Maintenance relating to the Future Order. For the avoidance of doubt, no Future Order form and no reporting is required by Customer in the event Customer enters into an Extraordinary Corporate Event where the new corporate entity wants to license Software under this Order Form and the annual revenue of the new corporate entity (excluding the value of the legacy Customer entity) is less than one billion dollars (as stated in the new corporate entity's most recent audited statement prior to the Extraordinary Corporate Event)." (emphasis added)
TIBCO contends that during the unlimited deployment period, OptumRx acquired 3 companies whose annual revenues exceeded the $1 billion revenue threshold and were using the software and that therefore additional license fees were owed to TIBCO. Although TIBCO does not have concrete evidence that the newly acquired companies were actually using the software, the SAC alleges that
"57. On July 20, 2020, pursuant to Section 1 of the Enterprise Agreement, OptumRx provided TIBCO its Deployment Report, which gave notice of the Number of Units of the Licensed Software it had deployed during the Enterprise Term. The numbers OptumRx reported were consistent with a doubling of OptumRx's production capacity.
58. On information and belief, the large increase in OptumRx's deployment of the Licensed Software to process additional data reflects OptumRx's usage of the Licensed Software to process data associated with the Acquired Companies."
In short, TIBCO is alleging that since OptumRx's production capacity had doubled, it must be using the software to process the data of the newly acquired companies, and therefore owes additional licensing fees to TIBCO for the usage.
For its part, OptumRx argues that an Extraordinary Corporate Event only occurs when a new company is acquired with revenues that exceed the thresholds, and that company wants to deploy the TIBCO software. According to OptumRx, none of the acquired companies is deploying the software. Counsel for OptumRx argues this in a related letter brief:
"There is no dispute that ORx [OptumRx] acquired three companies with annual revenues above the contractually-specified threshold during the contract term – called Genoa Healthcare, Avella Specialty Pharmacy and Diplomat Pharmacy (the "Acquired Entities") – but ORx denies that any of those companies wanted to license TIBCO's Software and further denies that such Software was ever deployed to those companies. Perhaps because it knows these denials are well-founded, TIBCO has advanced an alternative, insupportable interpretation of the Order Form, namely that TIBCO would be owed additional fees if ORx itself used TIBCO Software to process data "from" or "used by" the Acquired Entities, even if ORx never allowed those Entities access to the Software or deployed it to their servers. That rewriting of the language of the Order Form appears to be TIBCO's primary theory of liability. . ."
We are not able to review a copy of the license agreement as it has not been attached to the SAC, although it may be included in those letter briefs filed under seal. However, it appears that TIBCO may not have included any restriction making clear that the software could not be used for the benefit of another company, without paying an additional licensing fee. TIBCO is the master of its own license agreement. It chose to define an Extraordinary Corporate Event as the acquisition of a company that exceeded a certain threshold in revenues and where the acquired company wanted to deploy the software. Had it wanted to do so it could also have included a clause that additional licensing fees would need to be paid if OptumRx used its software to process data for the benefit of these newly acquired companies. However, it does not appear to have done so. TIBCO should be stuck with the contract that it drafted.
Readers of our blog may remember that Mars accused Oracle of overreaching in the Mars v. Oracle lawsuit when Oracle tried to take the position during the audit that users who accessed output data manipulated by Agile, should be counted as users requiring a license. Mars pushed back hard on this assertion pointing out the ridiculousness of the Oracle argument that "an employee who lacks an Agile user account, who is not trained on Agile, who never logs into Agile, and who never even touches a machine that uses the software fictitiously becomes a "user of the program" by reading data exported from Agile." TIBCO is making a similar argument here, by essentially claiming that the companies acquired by OptumRx deploy and use the software even though TIBCO has no evidence that they directly accessed the software or that it was deployed on their servers.
In short, enterprise software companies continue to seek to expand the definition of what it means to use their software. We see this all of the time with Oracle's prospective licensing argument involving VMware and its assertion that Oracle is owed a licensing fee for every server where the Oracle software may be used in the future even if the software is not currently installed and/or running. We predict that enterprise software customers will continue to see software publishers trying to take an expansive view of what it means to use or deploy enterprise software. So be on the lookout for these types of issues, and take steps to protect yourself in the event of an audit.
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