Gen Digital, Inc. v. Sycomp, a Technology Company, Inc.

Background

Gen Digital, formerly known as Symantec, sued Sycomp, a Technology Company, Inc. and North American Systems International for breach of contract. Gen Digital alleged that it had separate written agreements with Sycomp and North American under which they provided information-technology services and agreed to indemnify Gen Digital if their products or services infringed or misappropriated third-party intellectual-property rights.

Gen Digital alleged that Sycomp and North American recommended that it obtain Solaris operating-system patches from Terix. It claimed that Sycomp and North American assisted with obtaining and delivering the patches and that the parties formed a partly oral and partly written “Solaris Patching Agreement.” Gen Digital later sought indemnification after legal disputes involving Terix’s Solaris patches and an indemnity demand involving Hewlett Packard Enterprise Services.

The amended complaint asserted five contract counts: count one, breach of Sycomp’s written Product Purchase Agreement; count two, breach of that agreement as allegedly amended orally; count three, breach of North American’s written Service Delivery Agreement; count four, breach of that agreement as allegedly amended; and count five, breach of the alleged Solaris Patching Agreement against both defendants.

Legal standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12. At this stage, the court accepts well-pleaded factual allegations as true but does not accept conclusory statements or unreasonable inferences. The complaint must contain enough factual matter to state a claim that is plausible on its face.

Sycomp: Counts Two and Five

The court held that the alleged Solaris Patching Agreement was an attempt to modify the Product Purchase Agreement, not a separate agreement. The Product Purchase Agreement required contract modifications to be in a written amendment signed by both parties. Gen Digital did not allege compliance with that requirement.

Gen Digital argued that California Civil Code section 1698(b) allowed an oral modification because the agreement had been performed. The court rejected that argument because Gen Digital alleged that Sycomp breached the alleged oral agreement; therefore, the agreement had not been fully performed. The court also rejected Gen Digital’s waiver and equitable-estoppel arguments. It found that Gen Digital did not allege conduct showing that Sycomp waived the written-modification requirement, and the written contract itself put Gen Digital on notice of that requirement.

The court therefore concluded that counts two and five failed against Sycomp.

North American: Count Three

Count three alleged that North American breached the written Service Delivery Agreement. Gen Digital argued that North American’s recommendation of Terix’s Solaris patches triggered the agreement’s indemnification provision under a theory of contributory copyright infringement.

The court found that Gen Digital did not adequately allege that North American knew of infringing activity. Gen Digital alleged that North American was aware of Terix’s statements that Terix had the necessary licenses, but it did not provide a factual basis for North American’s alleged awareness. Even awareness of those statements would not establish knowledge that Terix lacked the licenses. The court also found that Gen Digital did not adequately allege inducement because North American did not provide a service, product, or device shown to have been used to infringe copyright, and the allegations did not show that North American acted with an intent to induce infringement.

Because Gen Digital did not adequately allege that North American’s services infringed third-party intellectual-property rights, the court dismissed count three.

North American: Counts Four and Five

Counts four and five depended on Gen Digital’s theory that North American’s conduct created an implied-in-fact contract—an agreement shown through the parties’ conduct—or otherwise amended the written Service Delivery Agreement. The court found that Gen Digital did not allege enough facts to show that North American mutually intended to provide Solaris patches. Gen Digital alleged only that North American assisted with obtaining and delivering the patches, without explaining how North American did so beyond recommending them.

The court also rejected Gen Digital’s allegations of a “Sycomp/NASI/Terix partnership” or “NASI/Terix team.” Gen Digital did not allege that the parties agreed to the same terms, described the supposed partnership inconsistently, or identified the additional contractual obligations North American accepted.

Gen Digital alternatively argued that Sycomp and Terix had ostensible authority to bind North American. The court explained that ostensible authority exists when a principal causes or allows a third person to believe that an agent has authority. It found that Gen Digital did not adequately allege that North American gave Sycomp or Terix authority to change the Service Delivery Agreement, or that North American caused Gen Digital to believe they had that authority. The few communications involving North American were not enough to establish such authority.

Disposition

The court granted Sycomp’s and North American’s motions to dismiss in full, without leave to amend. It dismissed counts two, three, four, and five of the amended complaint with prejudice. The opinion did not rule on count one.

Judge Charles R. Breyer issued the order on January 6, 2025.