Fair Isaac Corporation v. Federal Insurance Company

Background

Fair Isaac Corporation (FICO) licenses and maintains the Blaze Advisor software. FICO and Chubb & Son, an unincorporated division of Federal Insurance Company, entered into a license agreement in 2006. The agreement was later amended to provide an enterprise-wide license. After a 2016 merger involving Federal’s corporate parent, FICO claimed that Federal breached the agreement by failing to obtain consent for an assignment or transfer, using the software outside the United States, allowing third parties to use or access it, and continuing to use it after FICO attempted to terminate the agreement.

FICO asserted one breach-of-contract claim and three copyright claims. The copyright claims concerned alleged unauthorized reproduction and distribution, continued use after termination, and ACE American’s alleged unlicensed use and reproduction of Blaze Advisor. Defendants asserted counterclaims alleging that FICO breached the agreement by attempting to terminate it and breached the implied duty of good faith and fair dealing by refusing to consent to Federal’s continued use.

Expert-testimony rulings

The court applied Federal Rule of Evidence 702 and the standards governing reliable and relevant expert testimony.

* FICO’s motion to exclude William McCarter was denied. His opinions about defendants’ profits, use of Blaze Advisor, and market alternatives were sufficiently connected to evidence and industry experience. The court treated FICO’s objections largely as challenges to the opinions’ weight and credibility rather than their admissibility. * FICO’s motion to exclude Dr. Steven Kursh was granted in part and denied in part. The court excluded opinions interpreting the geographic scope of the license, the “no assignment” clause, and defendants’ mitigation-of-damages defense. The court denied the motion as to his other opinions, including opinions concerning licensing, software use, and damages. * FICO’s motion to exclude W. Christopher Bakewell was granted in part and denied in part. The court excluded portions of his disgorgement opinions that incorrectly placed on FICO the burden of apportioning defendants’ profits among different contributing factors. The court denied the motion as to his other opinions, including opinions about actual damages and whether particular revenues had a sufficient connection to the alleged infringement. * Defendants’ motion to exclude R. Bickley Whitener was denied. The court found that his opinions about how Blaze Advisor contributed to insurance revenue used a permissible methodology and the correct legal standard. * Defendants’ motion to exclude Brooks Hilliard was granted in part and denied in part. The court excluded opinions interpreting the license’s terms and opinions that Dr. Kursh’s report was vague or undefined. It denied the motion as to his other rebuttal opinions, including opinions about pricing, discounts, and Blaze Advisor’s contribution to revenue. * Defendants’ motion to exclude Neil Zoltowski was granted in part and denied in part. The court excluded his actual-damages opinions because they focused on what FICO would have charged rather than the objective fair-market license fee between a willing buyer and willing seller. The court did not exclude his disgorgement opinions.

Motion to strike

FICO’s motion to strike Patrick Sullivan’s declaration was denied. Although FICO argued that defendants had not properly disclosed Sullivan as a person with discoverable information, the court found that FICO already knew of Sullivan through discovery and that any disclosure failure was harmless.

Summary judgment on FICO’s contract claim

FICO’s motion for summary judgment was denied. Defendants’ motion was granted in part and denied in part.

The court granted defendants’ motion on FICO’s claim that Federal breached Section 3.1 of the license by installing Blaze Advisor outside the United States. The agreement defined “Territory” as the United States in its definitions section, but the term was not used in the agreement’s operative provisions. The court held that the agreement unambiguously did not impose a geographic restriction on the software’s installation or physical location.

The court did not resolve FICO’s Section 3.1 claim concerning third-party use and access. The scope of the enterprise-wide license and the meaning of “Client and its Affiliates” were ambiguous, and factual disputes existed about the alleged use by consultants. The court also found factual disputes about whether any consultant’s use was a material breach.

Both parties’ motions concerning Section 10.8 were denied. That provision addressed assignments, transfers, changes of control, mergers, and expanded use of the software. The court found reasonable competing interpretations of whether a merger required consent before any continued use or only before expanded use. Evidence about the parties’ intent and whether Federal expanded its use after the merger created genuine factual disputes.

FICO’s motion concerning Section 9.3 was denied. Section 9.3 required use of the software to stop when the agreement was terminated, but FICO’s argument depended on proving that Federal had previously breached Sections 3.1 or 10.8. The court could not make that finding as a matter of law.

Copyright claims and damages

Defendants’ motion for summary judgment on FICO’s copyright claims was denied. Factual disputes remained about whether Federal was authorized to distribute Blaze Advisor to affiliates or consultants and whether Federal continued using the software after FICO’s attempted termination. The court also denied summary judgment on ACE American’s alleged use because defendants offered no independent basis for resolving that claim after the court denied summary judgment on the related claims against Federal.

The court rejected defendants’ argument that FICO’s damages were necessarily too speculative. FICO could seek actual damages measured by the fair market value of Blaze Advisor, using the reasonable license fee that a willing buyer and willing seller would have agreed to. The court also held that FICO’s claim for disgorgement of profits could proceed because FICO presented evidence connecting Blaze Advisor’s use to revenue from insurance sales. The burden would first be on FICO to show a connection between the infringement and relevant revenue, after which defendants would bear the burden of showing what profits were attributable to other factors.

The court also rejected defendants’ argument that FICO could not seek profits earned partly by nonparties. The relevant question was whether those profits could fairly be treated as profits of the infringers. The court further rejected defendants’ argument that the license’s limitation-of-liability clause barred FICO’s damages because the clause contained exceptions for intellectual-property violations and unauthorized use.

Counterclaims and final order

FICO’s motion for summary judgment on defendants’ counterclaims was denied, and defendants’ motion for summary judgment on their breach-of-contract counterclaim was also denied. The court held that the two counterclaims were not redundant because they relied on different alleged facts, and factual disputes remained about whether Federal breached the agreement and whether FICO had a valid basis to terminate it.

The court granted FICO permission to file a supplemental motion for summary judgment, and allowed each party to file a supplemental motion limited to defendants’ statute-of-limitations defense and the related predicate-act doctrine. Judge Wilhelmina M. Wright otherwise left the contract, copyright, and counterclaim disputes for further proceedings.