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APPLIED INFORMATION MGMT. v. ICART

March 3, 1997

APPLIED INFORMATION MANAGEMENT, INC., Plaintiff, against DANIEL P. ICART and BROWNSTONE AGENCY, INC., Defendants.


The opinion of the court was delivered by: ROSS

 ROSS, United States District Judge:

 Plaintiff, Applied Information Management, Inc. ("AIM"), has brought this action against defendants Daniel P. Icart and Brownstone Agency, Inc. ("Brownstone") alleging copyright infringement, unfair competition, misappropriation of trade secrets, and breach of contract claims against both defendants in connection with Icart's modifications of certain computer software that AIM had provided to Brownstone. Defendant Brownstone has moved for summary judgment pursuant to Fed.R.Civ.P. 56 on all of AIM's claims. For the reasons described below, Brownstone's motion is granted in part and denied in part.

 In resolving the summary judgment motion on the copyright issue, the court has considered the central question of whether the agreement between AIM, a designer of custom computer systems, and Brownstone, a user of that software, confers on Brownstone entitlement to the rights granted by Section 117 of the Copyright Act, 17 U.S.C. ยง 117. That section allows the "owner of a copy of a computer program" to make copies of and adaptations to the program without infringing the copyright in the program. Resolution of the issue is complicated by the fact that an agreement of this nature may convey rights and interests in two, rather than only one, form of property: the developer may transfer copyright rights in the software program (intellectual property rights) and at the same time transfer rights in the copy of the program through the material object that embodies the copyrighted work (personal property rights). Because the technological developments that are the subject of such licensing agreements are relatively recent, the absence of clear legislative direction further complicates resolution of the issue. Furthermore, courts that have considered the question have not directly addressed the distinction between the two different forms of property rights involved.

 FACTUAL BACKGROUND

 In June 1987, Brownstone, an insurance broker specializing in coverage for smaller multiple dwelling buildings, and AIM, a designer of custom computer systems, entered into a Systems Purchase Agreement ("the Agreement"). Both Brownstone and AIM concur that the Agreement provided for Brownstone to purchase specified computer hardware from AIM. Brownstone contends that the Agreement also constituted a purchase of the software specified in the Agreement. AIM contends that it merely licensed the software to Brownstone. The Agreement itself provides that it constitutes an agreement:

 
for the purchase of the integrated information management system described below (the "System"). We agree as follows:
 
1. SYSTEM HARDWARE AND SOFTWARE
 
(a) You hereby purchase from AIM and AIM hereby sells to you the following computer hardware (the "Hardware"):
 
[list of hardware]
 
(b) AIM hereby grants to you and you hereby accept from AIM a license to use the following software developed by AIM or licensed to AIM (the "Application Software"):
 
AIM Plus
 
-Accounts Receivable/Sales Analysis/Invoicing
 
-Accounts Payable/Check Writing
 
-General Ledger
 
Custom Insurance Agency software as spec. in Schedule 2.
 
The license being granted to you with respect to the Application Software is perpetual, non-exclusive and non-transferable, (except in connection with and as a part of a sale or other transfer by you of the System). As part of the license, you will receive object and source code versions of the Application Software.
 
(c) AIM hereby transfers to you and you hereby accept from AIM a license to use the following software ...

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