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G5 TECHNOLOGIES v. INTERNATIONAL BUSINESS MACHINES CORP.

September 19, 2005.

G5 TECHNOLOGIES, INC., Plaintiff,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.



The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

In this contractual dispute, plaintiff G5 Technologies, Inc. ("G5") alleges that defendant International Business Machines Corporation ("IBM") used jointly-developed software partly based on G5's trade secret and confidential information in commercial software applications without properly compensating G5. This dispute arises from a project on which these parties cooperated but which never proceeded past its initial phases. G5's contribution to the project included providing a team of experts, while IBM committed its resources to the development of software that IBM contends it then could freely use. Following discovery, IBM has moved for summary judgment, relying on what it contends are unambiguous terms in the interlocking agreements executed by the parties. For the following reasons, IBM's motion is granted.

  BACKGROUND

  The documents that are critical to the resolution of this dispute and which are quoted at length below, include a customer agreement that treated all shared information as nonconfidential unless protected by a confidentiality agreement; a confidentiality agreement that allowed IBM to use G5's confidential information for the purpose for which it was disclosed; and "statements of work" that gave IBM title to all of the documents detailing the processes on which G5 is suing, and permitted IBM to "freely use" any idea provided by G5. Taken together, these and the other documents described here unambiguously refute G5's claim that IBM used G5's confidential information for an impermissible purpose. The following facts are undisputed, or viewed in the light most favorable to the plaintiff, unless otherwise noted.

  The Parties

  G5 is a Delaware corporation with its principal place of business in New Jersey. G5 began in May 1999 as G5, LLC, becoming G5 Technologies, Inc. in February 2000. William M. Adams ("Adams") formed G5 with others and has served as G5's President and CEO since its inception. G5 was created as a spin off of AgileWeb, Inc. ("AgileWeb"). Adams was also President and CEO of AgileWeb from February 1996 to the summer of 2000. In November 2000, G5 acquired all of the stock of AgileWeb. At all relevant times, AgileWeb had no employees and its work was performed by G5 or other subcontractors. Through Adams, both AgileWeb and G5 were involved in the development of processes for the forming and operating of virtual companies. A virtual company, also called an "agile virtual enterprise," is a corporation comprised of a group of companies that have been selected from an array of candidate companies in order to work together to satisfy a temporary market need. G5 claims ownership in a system for forming and operating virtual companies called the Virtual Corporation Management System ("VCMS").

  IBM is a New York corporation with offices in this District. IBM needs no introduction. It is a famous, global company that provides computer hardware, software, and consulting services to individual consumers, businesses, and governments. IBM worked with G5 from 1999 to 2001 on a software development project funded in part by the Commonwealth of Pennsylvania ("Pennsylvania") involving VCMS. The information that G5 shared with IBM in late 1999 during the Pennsylvania Project is the source of this dispute. The Pennsylvania Project

  During 1999, G5 and AgileWeb made proposals to Pennsylvania's Department of Community and Economic Development ("DCED") aimed at obtaining funding to develop and commercialize VCMS. G5 and AgileWeb also engaged private companies such as IBM in discussions about developing and commercializing VCMS. In a letter dated September 17, 1999, DCED committed to provide up to $2.7 million in funding for the development of VCMS "on which AgileWeb has been working cooperatively with IBM and others." The letter stated that DCED and AgileWeb must enter into a definitive written agreement prior to funding, and provided for an allocation of the funds as follows: up to $2.1 million for "development of the VCMS architecture by IBM" on the condition that, among other things, direct private investment totaling $4 million would be made by sources to be identified by AgileWeb, in consideration for DCED receiving, among other things, "assignable licensees [sic] for 15 operable beta tests with industry groups or sectors"; and up to $600,000 "to support AgileWeb's development of the beta groups" that would participate in the VCMS testing.

  In a February 7, 2000 letter to DCED, Adams reported that the total cost for developing the VCMS software would be $5.9 million. Based on this calculation, IBM anticipated contributing approximately $4 million of its own funds in addition to the funding it anticipated receiving from Pennsylvania to develop the software. IBM's collaboration with G5 and AgileWeb was governed by five written agreements described in greater detail below: an August 1999 Confidentiality Agreement, a September 1999 Interim Negotiation Letter, a September 1999 IBM Customer Agreement, a November 1999 Statement of Work, and a May 2000 Statement of Work. Despite their initial work together, G5 and IBM did not conclude any final agreement about the development of a VCMS system.

  Confidentiality Agreement

  On August 14, 1999, Adams executed for G5 IBM's standard confidentiality agreement labeled the "IBM Agreement for Exchange of Confidential Information" ("Confidentiality Agreement"). IBM executed the Confidentiality Agreement on August 17. Under this agreement, if a party wished shared information to be protected, it had to execute a Supplement to the Confidentiality Agreement. The Confidentiality Agreement provided that "[e]ach time one of the parties wishes to disclose specific information to the other, the Discloser will issue a Supplement to this Agreement (Supplement) before disclosure." The recipient of confidential information agrees to use that information "for the purpose for which it was disclosed or otherwise for the benefit of the Discloser." (Emphasis supplied.) The Confidentiality Agreement also contains a merger clause providing that "[t]his Agreement and its Supplements are the complete and exclusive agreement regarding our disclosures of information and replace any prior oral or written communications between us." As described below, G5 contends that confidential information that it first shared with IBM on December 8, 1999 was covered by a Supplement to the Confidentiality Agreement dated December 13, 1999.

  Interim Negotiation Letter

  On September 29, 1999, Adams executed for G5 a letter of intent labeled an "Interim Negotiation Letter" ("INL"). IBM executed the INL on October 13. The INL "confirm[ed] [the] companies' understanding with respect to our preliminary discussions concerning the Virtual Corporation Management System (VCMS) project and how our companies may engage in business opportunities in the future." The INL expresses the subject matter covered by the letter as follows:
Both of us intend to play key roles in a VCMS Consortium (VCMSC) within the Commonwealth of Pennsylvania. Both of us maintain that we may be able to contribute to VCMSC participating companies and/or specified customers professional services, e-business infrastructure, and unique preexisting technologies. Prior to negotiating any definitive written agreements regarding how those services, infrastructure and technology should be marketed and sold, we agree that we need to evaluate the nature of each companies [sic] contribution to a potential VCMS solution.
As part of our evaluation, IBM will provide G5 with certain information regarding IBM's e-business framework technologies and solutions as well as any other information IBM and G5 consider to be relevant to the evaluation of IBM's potential contribution to the VCMS solution. G5 will provide IBM with information related to G5's potential contribution to the VCMS solution as well as any other information IBM and G5 consider to be relevant.
(Emphasis supplied.)
  The INL states that "[i]nformation disclosed during the course of our companies' discussions will not be considered confidential, despite any statements or legends to the contrary, unless it is or has been disclosed under the terms of the [Confidentiality Agreement] signed by both companies, effective August 17, 1999, and which is incorporated herein by reference." The INL goes on to state:
Although our companies may exchange proposals (written or oral), term sheets, draft agreements or other materials, neither company will have any obligations or liability to the other unless and until our companies' authorized representatives sign definitive written agreements. Exchanged terms are non-binding to the extent they are not included in definitive agreements. Either company can end these discussions at any time, for any reason, and without liability to the other. Each company remains free to negotiate or enter into similar relationships with others.
(Emphasis supplied.) The INL also provides that
 
neither company will rely on the successful conclusion of a business relationship. Any business decision either company makes in anticipation of definitive agreements is at the sole risk of the party making the decision, even if the other party is aware of, or has indicated approval of, such decision.
Finally, the INL contains a merger clause stating that it is
 
our complete and exclusive understanding on the subject and supersedes any prior oral or written discussions regarding the subject matter. This letter can only be modified by a writing signed by each party that states it amends this letter.
IBM Customer Agreement

  Also on September 29, Adams executed for AgileWeb an IBM Customer Agreement ("Customer Agreement"). IBM executed this Agreement on October 13. The Customer Agreement is the master agreement that a customer signs when it begins doing business with IBM, as it sets forth the general terms and conditions under which IBM will provide products or services to a customer. The Customer Agreement states that "all information exchanged is nonconfidential. If either of us requires the exchange of confidential information, it will be made under a signed confidentiality agreement."

  The Customer Agreement provides for the ownership of materials generated during the collaboration between IBM and AgileWeb, establishing two categories of materials: Type I Materials and Type II Materials. It is a sub-category of Type II Materials that is the subject of this dispute.

  The Customer Agreement defines Type I Materials as those created "during the Service performance period" in which AgileWeb retains "all right, title, and interest (including ownership of copyright)." The Agreement states that AgileWeb grants IBM "1) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, distribute (internally and externally) copies of, and prepare derivative works based on Type I Materials and 2) the right to authorize others to do any of the former."

  The Customer Agreement defines Type II Materials as those created "during the Service performance period or otherwise (such as those that preexist the Service)" in which IBM or third parties retain "all right, title, and interest (including ownership of copyright)." The Agreement states that IBM grants AgileWeb "1) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform, and distribute, within [AgileWeb's] Enterprise only, copies of Type II Materials." Under the Agreement, "Any idea, concept, know-how, or technique which relates to the subject matter of a Service and is developed or provided by either of ...


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