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MOBIUS MGMT. SYS. v. FOURTH DIMENSION SOFTWARE

November 30, 1994

MOBIUS MANAGEMENT SYSTEMS, INC., Plaintiff against FOURTH DIMENSION SOFTWARE, INC., Defendant.

LORETTA A. PRESKA, U.S.D.J.


The opinion of the court was delivered by: LORETTA A. PRESKA

Plaintiff, Mobius Management Systems, Inc. ("Mobius"), seeks damages and a permanent injunction against defendant, Fourth Dimension Software, Inc. ("Fourth Dimension"), for breach of contract, for violations of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and for common law unfair competition. After holding a bench trial on October 6 and 7, 1994, I find that Mobius is entitled to injunctive relief, damages in the amount of $ 63,026.40, the amount of reasonable attorney fees it expended on this matter, and the costs of this action.

 BACKGROUND

 Both Mobius and Fourth Dimension market software products for customers that use IBM mainframe computers. After Mobius brought a Lanham Act claim against Fourth Dimension concerning a side-by-side comparison of the products distributed by Fourth Dimension, the parties entered into a settlement agreement that contained a list of representations that Fourth Dimension could not make about Mobius's software package. Mobius brought the instant action after Fourth Dimension sent a letter to a prospective Mobius customer that compared the Mobius product to the Fourth Dimension product. That letter stated that, because of various advantages that the Fourth Dimension had over the Mobius software, the customer would save money if it purchased the Fourth Dimension product instead. According to Mobius, that correspondence contained several statements that Fourth Dimension had promised not to make in the previous settlement. In addition, Mobius argues, those statements, as well as several others mentioned in the letter, were false and therefore violated § 43(a) of the Lanham Act.

 The parties made cross motions for summary judgment. I denied those motions for two reasons: first, I found that the settlement agreement was ambiguous as to whether certain statements listed in the agreement categorically could not be repeated by Fourth Dimension; and second, explanation about the technical aspects of the subject matter was needed before the truth or falsity of the statements could be determined. A bench trial was held on October 6-7, 1994. After observing the witnesses who testified at trial and reviewing that testimony and the parties' submissions, I make the following findings of fact and conclusions of law.

 I. Findings of Fact

 A. Background

 Mobius and Fourth Dimension are both in the business of, among other things, developing and marketing computer soft ware programs for MVS *fn1" system main frame computers. (Tr. 16 (Gross); *fn2" Tr. 120 (Hollander); Miller Dep. at 32; Complaint PP 1-2).

 Mobius's flagship product, introduced in 1982 under the name "INFOPAC," is a report distribution system, a product that allows large organizations to process, store, and retrieve reports containing financial data and other information. It saves substantial paper and human resources by permitting reports to be viewed on-line or printed out in packets automatically collated for each recipient. (Tr. 13-14 (Gross)). After this product attained marketplace success, Mobius began using the name INFOPAC for nearly its whole line of products; its report distribution system was renamed INFOPAC-RDS. (Tr. 13, 15-16 (Gross)).

 Fourth Dimension markets a report distribution product, called CONTROL-D, which is in direct competition with INFOPAC-RDS. (Tr. 21 (Gross)).

 B. The First Advertisement

 In or about April, 1993, Mobius became aware that Fourth Dimension had provided a potential customer with a document entitled "REPORT DISTRIBUTION, A Quick Comparison." (Plaintiff's Exh. 2 (the "First Advertisement")). The First Advertisement contained a chart listing approximately 100 product functions or features, indicating CONTROL-D's purported superiority over INFOPAC with a series of "Y's" and "N's." The context of the document -- focusing on report distribution -- made clear that CONTROL-D was being compared with Mobius's competing product, INFOPAC-RDS. Many of the statements concerned the basic architecture of the products and went to features and functions critical to the operation of a report distribution product. (Tr. 21-23, 26 (Gross)).

 Alleging that the First Advertisement contained more than 70 false statements, and having been unsuccessful in obtaining a retraction or apology, Mobius commenced a Lanham Act suit against Fourth Dimension in this Court in May 1993. The parties entered into a settlement agreement (the "Agreement") in June of 1993. Under the Agreement (Plaintiff's Exh. 3 at 2), Fourth Dimension promised, among other things, to destroy all copies of the First Advertisement and not to "disseminate, either orally or in writing" 65 statements about INFOPAC contained in the First Advertisement. The prohibited statements were listed in Appendix 2 to the Agreement (the "Appendix 2 Statements").

 The only first-hand account of the negotiations leading to the settlement was provided by Mr. Gross. Although Fourth Dimension was represented in the negotiations by two attorneys and a staff member, Bob Weslosky, it only offered testimony as to the intent of the parties by its President, Yossie Hollander, who was not present at the negotiations and never spoke with anyone from Mobius about the terms of the settlement. (Tr. 155 (Hollander)). I credit Mr. Gross's account, both because of his personal knowledge of the events at issue and because I find his account to be credible.

 Mr. Gross met with Mr. Weslosky and attorneys for both sides in on-and-off discussions over three days in early June 1993, during and after Mr. Gross's deposition in the prior action. Demonstrating INFOPAC-RDS on a computer screen and referring to the INFOPAC-RDS User's Manual, Mr. Gross explained to Fourth Dimension's representatives why each of the challenged Fourth Dimension claims about INFOPAC-RDS was false. The parties agreed, item by item, what to include in Appendix 2 only after agreeing that each such item was in fact false. Certain items were rephrased before being included, and others were omitted because Mr. Gross was unable to convince Fourth Dimension's representatives that they were false. (Tr. 28-42 (Gross)).

 In particular, the parties discussed and agreed on the falsity of three items that came to be implicated in this action: Item 8 ("INFOPAC provides for pre-allocated VSAM datasets"); Item 9 ("INFOPAC does not provide for dynamic allocation of required space"); and Item 65 ("INFOPAC creates 2 VSAM datasets for every report version"). (Tr. 33-42 (Gross)). As to at least Item 65, Mr. Hollander personally was consulted by phone and had to be convinced of the item's falsity before authorizing Mr. Weslosky to add it to the list of prohibited statements. (Tr. 328-30 (Gross)). Thus, the testimony conclusively shows that the parties agreed that the statements included in Appendix 2 were false.

 These negotiations focused almost exclusively on the INFOPAC-RDS product. It was INFOPAC-RDS that was compared to CONTROL-D in the First Advertisement. Fourth Dimension even obtained a ruling from this Court that Mr. Gross's demonstration during his deposition involve only the functions of INFOPAC-RDS. In any event, I credit Mr. Gross's testimony that most of the items included in Appendix 2 make sense only as applied to a report distribution product. (Tr. 30-31, 42-45, 330-31 (Gross)). Although Fourth Dimension notes that Mr. Gross distinguished in his deposition between INFOPAC and INFOPAC-RDS, (Gross Dep. at 13-14, 266), the parties appear otherwise to have used the terms interchangeably. ( Plaintiff's Exh. 1 P 8 (prior Complaint using both terms); Gross Dep. at 13, 258 (Fourth Dimension counsel referring to INFOPAC)). Fourth Dimension's counsel stressed that "if I use the term INFOPAC, I am referring to INFOPAC-RDS." (Gross Dep. at 13; Miller Dep. at 110 (customer testifies terms used interchangeably)).

 On May 17, 1993, counsel for Mobius sent a draft of a settlement agreement to counsel for Fourth Dimension. (Defendant's Exh. B). Yossie Hollander, Fourth Dimension's Chief Executive Officer who was responsible for approving the settlement agreement, (Tr. 135 (Hollander)), had two principal objections to that draft. First, the draft would have prohibited Fourth Dimension from making certain statements "or their equivalent." (Tr. 132 (Hollander); Defendant's Exh. B at 3). Hollander objected to this because he felt that no person could understand what an "equivalent" statement was. (Tr. 132 (Hollander 132)). Second, the draft had no provision permitting Fourth Dimension to make truthful statements. Hollander would not sign an agreement unless it contained a provision permitting truthful claims. (Tr. 141 (Hollander)). This "truthful claims provision" was included as paragraph 7 of the agreement to assure that Fourth Dimension would be free to make truthful comparative statements about Mobius products. *fn3"

 Fourth Dimension also expressed concern about agreeing to bar statements about products that were subject to evolving technology. This concern was addressed by limiting the life of the Agreement to three years through what is commonly referred to as a "sunset clause." (Tr. 47-48 (Gross)).

 The action finally was settled pursuant to a Stipulation and Agreement of Settlement dated June 7, 1993 (Plaintiff's Exh. 3; Tr. 25-27 (Gross)). The agreement included, among other things, the truthful statements provision (paragraph 7), the three year sunset provision, and a list of 65 statements that could not be said by Fourth Dimension because the parties had determined that they were false (Appendix 2). The overwhelming weight of the evidence establishes that the parties understood, agreed and intended (a) that the Appendix 2 Statements applied to the RDS product, (b) that the Appendix 2 statements were false, (c) that the intent of the Agreement was to bar Fourth Dimension from repeating those statements not just as applied to INFOPAC products generally but also and more particularly as applied to INFOPAC-RDS. (Tr. 42-45, 331-33 (Gross)).

 C. The Second Advertisement

 In late 1993, Mobius and Fourth Dimension were competing for the business of M&I Data Services, Inc. ("M&I"), a Wisconsin company that processes customer statements and other data for banks. M&I signed a contract on December 31 to purchase INFOPAC-RDS, subject to an "acceptance clause" permitting it to test the product for 60 days and reject it if not satisfied. Starting in late 1993 and continuing into early 1994, M&I ran tests on both INFOPAC-RDS and CONTROL-D. (Tr. 50-53 (Gross)).

 Fourth Dimension sent a letter to M&I on or about December 16, 1993, listing a series of purported advantages of CONTROL-D over INFOPAC-RDS that closely tracked the Appendix 2 Statements, but were phrased to avoid express mention of INFOPAC. After hearing Fourth Dimension's witnesses Michael Anderson and Thomas Trogdon testify about the origination of this letter, I find that Fourth Dimension understood both that the substance of the Appendix 2 Statements applied to the RDS product and that making such statements about INFOPAC-RDS would violate the Agreement. (Tr. 169, 175-76 (Anderson); Tr. 245-49 (Trogdon)).

 On or about January 6, 1994, Charles Miller, an M&I employee principally involved with the testing of CONTROL-D and in favor of M&I's purchasing the Fourth Dimension product, telecopied to Thomas Trogdon, Fourth Dimension's Vice-President in charge of marketing in the Midwest, a two-page document purporting to reflect one set of results emanating from the testing. (Defendant's Exh. L (the "January 6 Chart")). Mr. Miller did not Create the document, and was only involved to a minor extent in the underlying testing of the INFOPAC product. No Fourth Dimension representatives were directly involved in the INFOPAC testing. (Miller Dep. at 20-21, 35-36, 57; Tr. 214 (Anderson)).

 The January 6 Chart -- which was the sole basis offered at trial by Fourth Dimension for the truth of its statements (Tr. 169 (Anderson)) -- does not indicate many important variables underlying the testing, does not reflect changes in subsequent testing leading to different results, and does not establish the basic functional abilities of either product. (Tr. 334-41 (Gross)). It provided, at ...


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