Fairview Health Services v. Quest Software Inc.

Background

Fairview purchased licenses for Quest’s Active Roles software beginning in 2004 and continued buying licenses and annual maintenance services through 2019. The 2004 Software License Agreement granted perpetual licenses and provided maintenance services, including access to new software versions. It also allowed Quest to audit Fairview’s use and invoice Fairview for additional licenses or upgrades if Fairview used more software than it had purchased.

In 2013, Quest began using a Software Transaction Agreement that also granted software licenses, provided maintenance services, and included a true-up provision requiring payment for over-deployed quantities. That agreement contained a forum-selection clause stating that actions seeking enforcement of the agreement or its provisions had to be brought in state or federal courts in Travis or Williamson County, Texas.

Fairview signed two 2015 quotations for a total of 2,700 licenses. Those quotations incorporated the 2013 agreement and stated that it superseded other agreements concerning the products listed in the quotations. Fairview later signed quotations concerning maintenance services for its licenses. Quest also contended that Fairview accepted the 2013 agreement through a click-wrap agreement while installing a software update, but that agreement was not presented to the court.

After Fairview stopped renewing maintenance services for 2020, Quest audited Fairview’s software use. Quest allegedly found that Fairview had deployed 69,064 more licenses than it had purchased and claimed that Fairview owed $4,183,178.85. Fairview filed a declaratory judgment action concerning which agreement governed, whether the alleged over-deployment breached the agreements, how over-deployment should be calculated, and what fees Quest could charge. Quest asserted counterclaims for breach of the 2013 agreement and copyright infringement.

Motion to Transfer Venue

Quest moved to transfer the case under 28 U.S.C. § 1404(a), relying on the forum-selection clause in the 2013 agreement. The parties did not dispute that Minnesota was a proper venue, and Fairview did not argue that the clause was invalid. The dispute was whether the clause applied to this action.

The court concluded that the 2015 quotations unambiguously bound Fairview to the 2013 agreement for the 2,700 licenses purchased in 2015. The quotations did not, however, replace the 2004 agreement for licenses Fairview had already purchased. The 2017 and 2018 quotations governed specified maintenance services but did not show that the 2013 agreement replaced the 2004 agreement for the licensing and true-up issues at dispute. The court also found that the limited record did not establish whether the alleged click-wrap agreement was a written amendment executed by an authorized Fairview representative, as required by the 2004 agreement.

The court therefore concluded that the 2013 agreement clearly governed only 2,700 of Fairview’s 38,081 licenses at that stage. Because Fairview’s claims did not seek enforcement of the 2013 agreement and Quest’s counterclaims under that agreement concerned only a small part of the dispute, the court found that the record did not support transfer. It denied Quest’s Motion to Transfer Venue.

Motion to Dismiss Counterclaims

Fairview moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim, to dismiss Quest’s breach-of-contract and copyright-infringement counterclaims. At this stage, the court accepted the counterclaim’s factual allegations as true and viewed them in Quest’s favor.

For the breach-of-contract counterclaim, Fairview argued that the true-up provision allowed over-deployment so long as Fairview paid the resulting fees. The court interpreted Quest’s theory as alleging that Fairview breached the agreement by exceeding its license limits and then refusing to pay the amounts required by the true-up provision. The court found that Quest plausibly alleged a failure to pay and denied dismissal of the breach-of-contract counterclaim.

For the copyright counterclaim, the court explained that a copyright owner may sue for infringement when a licensee exceeds the license’s scope and the violation relates to an exclusive copyright right. The 2013 agreement granted Fairview a license only to the quantities identified in the applicable order. Although the true-up provision provided a remedy for over-deployment, it did not expressly give Fairview the right to exceed those quantities. The court therefore found that Quest plausibly alleged that Fairview exceeded the license’s scope by using more copies than it purchased.

The court also found a sufficient connection between the numerical license limit and Quest’s copyright rights because Quest alleged that Fairview used more copies of the software than it purchased and did not pay for the excess use. It denied dismissal of the copyright-infringement counterclaim.

Disposition

Judge Susan Richard Nelson ordered that Defendants’ Motion to Transfer Venue and Plaintiff’s Motion to Dismiss were both denied. The opinion did not decide the ultimate merits of Fairview’s declaratory claims or Quest’s counterclaims.