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Helios & Matheson North America., Inc. v. Vegasoft Oy

May 24, 2007


The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge


Plaintiff Helios & Matheson North America, Inc. f/k/a The A Consulting Team, Inc. ("Helios") is the long-time sole distributor in the United States, Canada, Venezuela, and Israel, of software products (the "Software") owned and developed by Defendant Vegasoft Oy, a Finnish corporation ("Vegasoft"). Acting pursuant to a contract between the parties, Vegasoft terminated the distributorship. Helios sues Vegasoft for breach of contract, tortious interference with contract, reformation of contract, and permanent injunction, and moves for a preliminary injunction and a temporary restraining order pursuant to Fed. R. Civ. P. 65, compelling Vegasoft to provide a password generator so that Helios may continue to service its existing clients with Vegasoft's updated Software.

The Court declined to issue a temporary restraining order prior to a hearing on the motion for a preliminary injunction, which took place on May 21, 2007. The Court heard testimony at that time from two witnesses called by Helios: Matti Karajalainen ("Karajalainen"), the CEO of Vegasoft, and Shmuel Bentov ("Bentov"), the CEO of Helios. The Court allowed both parties to make post-hearing submissions. Upon reviewing the parties' submissions, and considering the testimony and exhibits at the hearing, as well as the briefs and witness affidavits filed prior to the hearing, the Court now denies Helios' motion for a preliminary injunction.


I. The 2002 Agreement

In 2002, the parties signed a Distributor Agreement (the "2002 Agreement") granting Helios exclusive rights to distribute the Software. The 2002 Agreement replaced a prior contract that had governed their relationship since 1991 (the "1991 Agreement"). The 2002 Agreement altered the royalty structure so as to grant Vegasoft 50% of all Helios revenue from sale or renewal of the Software, and required Helios to support the Software and establish a service to do so.

Under the 2002 Agreement, sales of the Software are considered final only upon receipt of a Software License Agreement ("SLA") "in the standard form," a copy of which was attached as Schedule A. Plaintiff's Exhibit 2 at ¶ 10. The standard SLA contains language arguably requiring Helios to automatically renew the software license on an annual basis at a client's request. It also limits Helios' liability to the amount of the license fees paid by the client.

The 1991 Agreement allowed for-cause termination on 30 days notice. The 2002 Agreement contains the same for-cause termination language, but added new language permitting either party to terminate without cause upon 90 days written notice. It is clear that Vegasoft added the 90 day termination clause. Bentov testified that Vegasoft never told him that it had added an at-will termination clause in its proposed new agreement. Vegasoft sent the proposed agreement to Bentov, who had it for more than a week. He then signed the 2002 Agreement, initialing each of its seven pages. Bentov had an ample opportunity to review the agreement before signing, but he testified that he was not aware that such a clause was part of the contract until it was invoked in 2007. Under the 2002 Agreement, if the distributorship is terminated, Helios must cease using the Software "except as may be specifically permitted in writing by VEGASOFT at its sole discretion for the purpose of servicing existing agreements with [Helios'] clients." Id. at ¶18(b)(1) (emphasis added).

II. Termination of the Agreement and Subsequent Events

On February 9, 2007, Vegasoft gave Helios written notice of its termination of the 2002 Agreement effective May 10, 2007. Vegasoft has contacted Helios' existing licensees for the Software, informing them that Helios' distributorship has been terminated and that they should deal directly with Vegasoft to renew their licenses. One of those clients, Miami-Dade County, has indicated by email to Helios that it plans to contract with Vegasoft directly for renewal of the Software. Karajalainen also testified that he has been informed that General Electric has agreed to enter into a contract with Vegasoft.

III. Future Impact of Termination

Nine Helios clients are scheduled for renewal in June 2007, including the Iowa Department of Transportation and the U.S. Comptroller of the Currency. Vegasoft represented in Court that it is willing to renew all existing clients' Software, without the involvement of Helios. Five of these clients contract with Helios for other software products in addition to the Software. Helios also has four such multi-software clients whose renewals are not due until after July 1, 2007.

Helios asserts that its lost annual license renewal revenue due to Vegasoft's termination would be $340,000. Helios had software sale and licensing revenues of approximately $1.5 million in 2006, and software consulting revenues of $23.4 million. According to Bentov, Helios had approximate profits of $6 million from its consulting business and $750,000 from its software sale and licensing business. Assuming the accuracy of this information, it supports Bentov's ...

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