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KEANE DEALER SERVS. v. HARTS

July 1, 1997

KEANE DEALER SERVICES, INC., Plaintiff, against WILLIAM R. HARTS and SMITH BARNEY, INC., Defendants. WILLIAM R. HARTS and SMITH BARNEY, INC., Third-Party plaintiffs, -against- KEVIN R. KEANE, Third-party defendant.


The opinion of the court was delivered by: BAER

 HAROLD BAER, JR., District Judge:

 Defendants and third-party plaintiffs Smith Barney, Inc. and William Harts ("defendants") move for summary judgment (1) dismissing plaintiff's complaint and (2) granting them the relief they seek in their counterclaim and third party complaint--a declaration that they have not infringed plaintiff and/or third party defendant's copyright. For the reasons discussed below, the motion is GRANTED.

 BACKGROUND

 Plaintiff Keane Dealer Services, Inc. ("KDSI") brought this action alleging copyright infringement by defendants. Defendants counterclaimed against plaintiff and filed a third-party complaint against plaintiff's principal, Kevin Keane. *fn1" Keane and defendant Harts worked together at Shearson Lehman Brothers ("Lehman"), not a party to this action, and together developed a software program known as SLBX. The program, an automated trading system, traded a proprietary account of Lehman's against incoming retail order flow. The details are unimportant except that the program was only valuable so long as a retail order flow existed.

 In March 1993 defendant Smith Barney entered into an Asset Purchase Agreement with Lehman, which included purchasing all of Lehman's retail branches and retail order flow. The Agreement also included the OMS system, which processed Lehman's retail order flow and contained the SLBX interface that fed the relevant data regarding retail orders to SLBX. The transaction closed in July 1993 and the retail order flow was transferred to Smith Barney as of September 3, 1993.

 Following the sale, Keane and Harts talked to Smith Barney about working there, as their sole role at Lehman had been development and operation of SLBX and after the closing their role disappeared. Harts accepted an offer of employment from Smith Barney. Keane declined. Instead, he sought but failed to become a consultant at Smith Barney. He left Lehman and formed KDSI. When he left, it was made clear that he had no proprietary rights in SLBX, but that he was entitled to market the underlying concepts which he had brought with him to Lehman.

 It is undisputed that, following the sale, people from Smith Barney called Lehman's counsel to ask how SLBX complied with securities regulations and that Lehman readily answered any questions concerning SLBX. Accordingly, Lehman's counsel, Richard Chase, testified at his deposition that "shortly after" Smith Barney began using SLBX, i.e., in September 1993, he became aware of Smith Barney's use of the program when one of Smith Barney's attorney's called him with questions about the system. Chase Depo. at 66; Chase Aff. P 6. Chase also testified, and his testimony is undisputed, that Lehman chose to take no action against Smith Barney with respect to its use of SLBX. "The conclusion that was reached was that we would not object to Smith Barney's use of the system." Chase Depo. at 76. He went on to testify that after the closing

 
there were . . . a number of issues pending between the two firms with respect to the Shearson asset sale. . . . My sense that there was, again, either a tacit or explicit quid pro quo that our not objecting to the use of the SLBX system would be helpful in other aspects of the relationship between the two firms.

 Chase Depo. at 85. See also Deposition of Donald L. Crooks at 32 ("There were a lot of things going on between Smith Barney and Lehman . . . . We just . . . disregarded [their use of SLBX] because of these other things."). While Chase used the term "quid pro quo", he failed to identify any specific consideration that Lehman received.

 In late 1994, Keane approached Lehman with an offer to buy all rights to SLBX, allegedly because he had an unnamed Canadian firm interested in the program. The parties executed an agreement, dated July 12, 1995, granting Keane all rights in the program in exchange for royalties of 10% of any gross revenue from Keane's use of the program. Notably, there are two changes between the original draft agreement (written by Keane) and the final agreement. First, Keane's version granted him rights "retroactively" to September 4, 1993 (the day after Smith Barney received the retail flow), while the final agreement merely makes the transfer effective September 4, 1994, without use of the word "retroactively". More importantly, Keane's draft contains a representation that Lehman has not granted any third parties any rights to SLBX, while the final agreement contains no such representation. There was apparently no negotiation between the parties with regard to these changes.

 DISCUSSION

 I. Implied ...


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