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Atlantis Information Technology, Gmbh v. Ca

September 28, 2011

ATLANTIS INFORMATION TECHNOLOGY, GMBH, PLAINTIFF,
v.
CA, INC., DEFENDANT.



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

MEMORANDUM & ORDER

Plaintiff Atlantis Information Technology, GmbH ("Atlantis") sued Defendant CA, Inc. ("CA") for CA's alleged underpayment of software royalties under the parties' licensing agreement. CA asserted both an affirmative defense and a counterclaim based on Atlantis' alleged failure to develop updates for the software. Pending before the Court are three motions for summary judgment: (1) Atlantis' motion for partial summary judgment on liability for its breach of contract claim;

(2) Atlantis' motion for summary judgment on CA's affirmative defense and breach of contract counterclaim; and (3) CA's motion for partial summary judgment as to the meaning of the words "installation" and "use" in the Software License Agreement (the "SLA").*fn1 The first motion is DENIED and the second motion is GRANTED IN PART AND DENIED IN PART. The third motion is DENIED AS MOOT, inasmuch as the Court addressed CA's arguments on that motion in its rulings on Atlantis' first motion.

Also pending is Atlantis' letter motion to preclude the testimony of one of CA's expert witnesses. That motion is GRANTED.

BACKGROUND

CA developed and licensed a software program called CA Endevor Software Change Manager ("Endevor") to businesses that develop mainframe applications. (Def. Update Opp. 2.) As CA helpfully explains, Endevor is akin to a "track changes" tool for software developers. (Id.) The program works with certain IBM-supported computer programming languages. (Id.) Programmers who use the "Natural" computer language, which is not supported by IBM, cannot use Endevor to manage their development unless they also deploy interfacing software as a bridge between Endevor's track changes function and the Natural programming language. (See id.) Atlantis' "E/NAT" software bridged that gap. (Alexander Gaugler Breach Declaration "Gaugler Breach Decl." ¶ 4.) With E/NAT, CA's customers could use Endevor to track the development of applications rooted in the Natural programming language.

I. The Software License Agreement

In February 1997, CA and Atlantis entered into a SLA that granted CA a worldwide license to use, market, distribute and sublicense E/NAT software. (See generally Gaugler Breach Decl. Ex. A, SLA ("SLA ¶ _").) In general terms, the SLA required CA to pay Atlantis substantial royalties in exchange for its licensing rights. (See SLA ¶ 5.1.)

Subsection 1(a) of Exhibit B to the SLA (the "Royalties Provision") described how to calculate royalties:

Royalties. For each copy of the Product distributed by CA to Customers, CA shall pay a royalty equal to forty percent (40%) of the Net License Fees revenues received by CA from the licensing of the Products by CA to Customers or Distributors and fifty percent (50%) of the Net Maintenance Fee revenues.

(SLA, Ex. B ¶ 1.a.) "Net License Fees" were defined in relevant part as "the aggregate license fee revenues (including year 1 maintenance service if bundled with the initial license price) collected by CA during each CA fiscal quarter pursuant to license agreements respecting the Product." (Id.) "Net Maintenance Fees" were defined in relevant part as "the aggregate maintenance renewal revenues collected by CA during each CA fiscal quarter pursuant to license agreements respecting the Product." (Id.)

Exhibit B's "Bundled Product Sales" clause described how royalties would be calculated when CA licensed E/NAT together with its own software programs:

Bundled Product Sales. If the Product is licensed or leased with other hardware or software products priced together or sold as a single unit or as part of a combined lease or license of the Product with such other products (a "Bundled Product Sale"), then the Net License Fee and Net Maintenance Fee amounts arising from such Bundled Product Sales will be the pro-rata amount attributable to the Product, with such allocation being based on CA's standard list prices for each of the products included in the Bundled Product Sale in question (i.e., a greater discount will not be applied to the Supplier Products than to the bundled CA software products included in the same sale). (SLA, Ex. B ¶ 1.b.)

Because royalties were pegged as a percentage of the licensing revenues CA received from its customers, the SLA contained a "reasonable efforts" clause that required CA to "use reasonable efforts to ensure that it does not offer discounts in excess of thirty percent (30%) from" Atlantis' then-prevailing list prices without first consulting Atlantis. (SLA Ex. B ¶

1.c.) II. The Second Amendment

In July 1998, CA and Atlantis executed Amendment

Number Two to the SLA (the "Second Amendment").*fn2 (Gaugler Breach Decl. ¶ 16.) The Second Amendment deleted the SLA's Royalties Provision and replaced with a clause that read, in relevant part:

Royalties. For each copy of the Product distributed by CA to Customers, CA shall pay an "Initial License Fee" which is defined as an amount equal to thirty-four percent (34%) of the "G1" list price for licensing and maintenance during the Initial License Period . . . for each license agreement respecting the Product. (Gaugler Breach Decl. Ex. B, Second Amendment ¶ 1.a.) The "G1 List Price" was "the one time [sic] fee paid by a licensee inclusive of usage and maintenance for a one year period (as provided in CA's then standard 'Order Form')." (Id. ¶ 1.b.)*fn3

According to Atlantis, the G1 List Price was determined by reference to a table where prices varied according to the processing power of the computer on which E/NAT was licensed, as expressed in millions of instructions per second, or "MIPS." (Pl. Breach Br. 11.)

III. Royalty Dispute, Settlement Agreement and Third Amendment

Around 2004, the parties began disputing the amount of CA's royalty obligation. (Gaugler Breach Decl. ¶ 25.) They eventually resolved their differences, and simultaneously executed a Settlement Agreement and a Third Amendment to the SLA (the "Third Amendment"). (Id. ¶ 26.)

A. Settlement Agreement

Dated December 10, 2004, the Settlement Agreement provided in relevant part that CA would pay Atlantis $500,000 and both parties would release each other "from any and all claims, known or unknown, asserted or unasserted, which arise out of or relate in any way to: (i) the Software License Agreement for the period February 28th, 1997 until [December 10, 2004]." (Gaugler Breach Decl. Ex. C, Settlement Agreement ¶ 3.) The release had two exceptions, but only one is relevant here: "Atlantis does not release CA . . . from any claims, obligations or liabilities relating to any royalties due Atlantis for: . . . any licensees and/or installations of the Products that have not been disclosed on any royalty report prepared by CA and delivered to Atlantis prior to June 30th, 2004." (Id. ¶ 4.)

B. Third Amendment

The Third Amendment was another attempt to clarify the royalty formula. In relevant part, the Third Amendment provided:

WHEREAS, the parties wish to amend the [SLA] by the addition of clarifying sections to the existing royalty and payment terms of the [SLA]; . . .

I. Amendments to the Principal Royalty and Payment Terms of the Agreement

1. Any and all royalty and payment terms of the [SLA], in particular, without limitation, Exhibit B of the [SLA], "Commercial Terms", shall hereby be amended to the following effect: Royalties. For each copy of the Product distributed by CA to customers, CA shall pay to Atlantis an amount equal to thirty-four percent (34%) of the "G1" list price, which fee shall be inclusive of maintenance for the one (1) year period after the delivery of the Product from CA to CA's customer. . . . (Gaugler Breach Decl. Ex. D, Third Amendment at 1.) The G1 List Price was defined in a way similar to the Second Amendment (id.), and this time the price table, which pegged royalties to the computing power of the machine on which E/NAT was licensed, was explicitly incorporated into the contract (id. at 2). As with the Second Amendment, the Third Amendment required CA to report certain data about its customers and their computers. (Id. at 3.)

The Third Amendment also contained language addressing how to compute royalties when E/NAT was ...


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