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MPI Tech A/S v. International Business Machines Corp.

United States District Court, S.D. New York

February 6, 2017

MPI TECH A/S, Plaintiff,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.

          ORDER AND OPINION

          LORNA G. SCHOFIELD, District Judge.

         Plaintiff MPI Tech A/S (“MPI”) brings this action against Defendant International Business Machines Corporation (“IBM”) seeking declaratory and equitable relief and money damages relating to the payment of royalties arising from a software vending relationship between the parties. Plaintiff asserts claims for breach of contract, unjust enrichment, declaratory judgment and breach of the duty of good faith and fair dealing. Two matters are before the Court -- IBM's motion for summary judgment on all of MPI's claims, and MPI's objection to Magistrate Judge Debra C. Freeman's November 14, 2016, Order denying MPI's motion to amend its pleadings to add copyright infringement claims (the “Order”). For the following reasons, IBM's motion is granted, and MPI's objection is overruled.

         I.BACKGROUND

         A. Factual Allegations

         The following facts are taken from the parties' submissions and are undisputed unless otherwise indicated.

         MPI manufactures and licenses proprietary document management software. IBM manufactures and sells mainframe computers and related software and services. This dispute concerns an agreement pursuant to which MPI provided IBM with software that allowed files stored on IBM mainframe computers to be printed on certain printers and copiers.

         In 1990, IBM and MPI's predecessor, i-data Inc. (“i-data”), entered into a Master Work Agreement (the “MWA”). Section 1.1 of the MWA states that it “shall be implemented through one or more Statements of Work” and “provides basic terms applicable to all such Statements of Work.” The Statement of Work relevant to this dispute was referred to as “SOW-P.” SOW-P was executed by IBM and i-data in March 2000. MPI became a party to the MWA and SOW-P when MPI acquired i-data in 2002.

         SOW-P governs MPI's provision of software known as “transforms.” The transforms convert data from the format native to IBM's mainframe computers to one of the formats used by printers and copiers. Pursuant to SOW-P, the transforms, “includ[ing] Code, associated Documentation, Externals, Error Corrections and Enhancements, ” are “Licensed Work” which IBM may incorporate into its “Products” and offer to its customers. In return, SOW-P provides that MPI shall receive royalties for a maximum of ten years after “GA” of the Product. GA stands for “General Availability” and means “the time when a product and all ship group materials are available for shipment from IBM to all customers.” Prior to 2010, there were two GA dates under SOW-P: June 2000, for what the parties refer to as “Version 1” of the transforms, and June 2005, for “Version 2.” In 2009, one of IBM's customers requested an update to the transforms that would allow it to print multiple copies of a document such that each copy would be horizontally offset from the others in the printer tray for easier handling, a functionality called “jogging.” MPI initially offered to provide jogging on the condition that IBM would eliminate the ten-year limit on royalties, but IBM refused.

         In March 2010, MPI raised a concern that Version 2 updates had been delivered to some Version 1 customers. If this concern was well-founded, MPI noted in its email to IBM, it “would explain the lack of movement, over the past years, in migration from Version 1 to 2 and the resultant anomalies in Royalties.” IBM responded that some Version 2 updates “were made available for the ‘old' [Version 1] Transform” because a number of customer service requests remained open past the “End of Service” date for Version 1, which was August 2, 2006. IBM reassured MPI that, with one agreed upon exception in 2009, other Version 1 customers “have not received new product features in the new [Version 2] Transform product via the service stream” updates. IBM subsequently conducted an investigation and determined that only two Version 1 customers had downloaded the Version 2 updates. According to MPI, IBM never disclosed to MPI how many Version 1 customers obtained Version 2 updates.

         As a result of a telephone conversation between the parties on May 27, 2010, and assurances made by IBM, MPI dropped its demand to eliminate the ten-year limit on royalties and agreed to provide jogging at a cost of €10, 000, which it did the next day on May 28, 2010. The parties dispute the intended scope of this jogging update. MPI asserts that it meant to provide jogging only for the customer who had requested it, and IBM disputes that limitation. IBM released an update to its transform software including the jogging feature on December 14, 2010.

         On June 30, 2010, the parties executed Amendment 4 to SOW-P (“Amendment 4”), which memorialized the jogging update for “Cost: EUR10, 000” due “May 28, 2010.” Among the other terms included in Amendment 4 was the parties' agreement “to make best efforts to work on releasing a new Product at the same time as the next z/OS system release.” On July 23, 2010, the parties executed an Interim Negotiation Letter Agreement (“INLA”) to govern their discussions regarding a potential new product. The INLA provided: “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.” On December 20, 2010, after the parties failed to reach agreement on a new product, IBM notified MPI that IBM would allow SOW-P to expire on December 31, 2010. IBM also announced that, as of January 1, 2011, it would stop selling MPI's Version 2 product. IBM continued to pay MPI royalties on SOW-P until July 1, 2015, the expiration of the ten-year royalty period for Version 2 under SOW-P. IBM engaged Crawford Technologies, Inc. (“Crawford”) as its new transforms technology vendor, based on discussions IBM had commenced with Crawford in early 2010. IBM released the next version of the z/OS system in September 2011.

         B. Procedural History

         MPI commenced this action on June 23, 2015. The deadline to file amended pleadings or join additional parties was September 1, 2015. MPI amended its pleadings once before the September 1 deadline and twice afterward. The operative complaint is the Third Amended Complaint (hereafter, the “Complaint”). Discovery was completed on April 15, 2016, and IBM moved for summary judgment on May 20, 2016.

         On May 23, 2016, MPI moved for an order either (a) clarifying that the protective order in this action should be construed to allow MPI to use confidential discovery material to assert new claims in this action or a new action or (b) modifying the protective order to allow MPI to make such use of the confidential discovery material. On October 13, 2016, Judge Freeman denied MPI's motion in its entirety. Judge Freeman concluded that the plain language of the protective order prohibits MPI's proposed use of the confidential discovery material and that it would be unfair to modify the protective order because IBM had reasonably relied on it in producing documents to MPI.

         On October 24, 2016, MPI moved for leave to amend the Complaint and file a fourth amended complaint adding copyright infringement claims and, apparently, new defendants based on the confidential discovery material. On November 14, 2016, Judge Freeman denied MPI's motion. MPI filed the present objection to the Order.

         II. LEGAL STANDARD

         A. Summary Judgment

         The standard for summary judgment is well established. Summary judgment is appropriate where the record before the Court shows that there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Wright v. New York State Dep't of Corrections, 831 F.3d 64, 72 (2d Cir. 2016). “The same standard applies whether summary judgment is granted on the merits or on an affirmative defense such as the statute of limitations.” Giordano v. Mkt. Am., Inc., 599 F.3d 87, 93 (2d Cir. 2010).

         “The moving party bears the burden of establishing the absence of any genuine issue of material fact.” Zalaski v. City of Bridgeport Police Dep't, 613 F.3d 336, 340 (2d Cir. 2010) (citation omitted). Not every disputed factual issue is material in light of the substantive law that governs the case. “Only disputes over facts that might affect the outcome of the suit under the governing law will ...


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