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Medical College of Wisconsin Inc. v. Attachmate Corp.

United States District Court, E.D. Wisconsin

February 19, 2016

THE MEDICAL COLLEGE OF WISCONSIN INC., Plaintiff,
v.
ATTACHMATE CORPORATION, Defendant.

ORDER

J.P. Stadtmueller U.S. District Judge

This case arises out of a software licensing dispute. (See generally Docket #1). Plaintiff, The Medical College of Wisconsin, Inc. (“Medical College”), filed its complaint on February 5, 2015, alleging that Defendant, Attachmate Corporation (“Attachmate”), violated both the Wisconsin Deceptive Trade Practices Act (Wis. Stat. Ann. § 100.18(1)) and the implied covenant of good faith and fair dealing. (See Docket #1 ¶¶ 58-69). The Medical College also sought declarations that it did not infringe Attachmate’s software copyrights and did not breach the parties’ software licenses, otherwise known as End User License Agreements (“EULA”). (Docket #1 ¶¶ 32-42). Attachmate counterclaimed with breach of contract and copyright infringement claims. (Docket #38 ¶¶ 35-50).

Currently before the Court are three motions: (1) Attachmate’s motion to dismiss the Medical College’s Wisconsin Deceptive Trade Practices Act (“WDTPA”) claim pursuant to Federal Rule of Civil Procedure 12(b)(6); (2) Attachmate’s motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56;[1] and (3) the Medical College’s motion for summary judgment, also brought pursuant to Federal Rule of Civil Procedure 56.[2](Docket #28, #41, #46).

For the reasons outlined below, the Court will: (1) grant Attachmate’s motion to dismiss the WDTPA claim (Docket #28); (2) grant in part and deny in part Attachmate’s motion for partial summary judgment (Docket #41); and (3) deny the Medical College’s motion for summary judgment in its entirety (Docket #46). Therefore, the live issues remaining after summary judgment in this case are: (1) whether the Medical College breached its duty to implement internal safeguards to prevent unauthorized copying, distribution, or use of Reflection software under Section 4 of the EULA; (2) the determination of an appropriate damage award for the Medical College’s breach of Section 1 of the EULA; and (3) liability and damages with respect to Attachmate’s copyright claim.

1.MOTION TO DISMISS[3]

1.1 Background

Attachmate asks this Court to dismiss the Medical College’s WDTPA claim. (Docket #28). Before delving into the legal arguments underlying the motion, the Court will first provide an overview of: (1) the parties; and (2) the Medical College’s allegations with respect to this claim. The relevant facts for the purpose of this portion of the Court’s Order will be taken from the complaint. (See Docket #1); see also Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2002) (“As a general rule, on a Rule 12(b)(6) motion, the court may consider only the plaintiff's complaint.”).

1.1.1 The Parties

The Medical College is a Wisconsin corporation existing under the laws of the State of Wisconsin with its principal place of business located at 8701 Watertown Plank Road, Milwaukee, Wisconsin 53226. (Docket #1 ¶ 1). It operates as a not-for-profit corporation dedicated to clinical care, research, community engagement, and the education of physicians and scientists. (Docket #1 ¶ 9).

Attachmate is a corporation existing under the laws of the State of Washington, with its principal place of business located at 705 5th Avenue South, Suite 1100, Seattle, Washington 98104. (Docket #1 ¶ 2). Attachmate is the creator and licensor of a software line called “Reflection.” (Docket #1 ¶ 12). The Reflection line of software comprises various products, including, but not limited to: (1) Reflection for HP Version 10.0; (2) Reflection for IBM Version 10.0; (3) Reflection for UNIX and Open VMS Version 10.0; (4) Reflection for UNIX and Open VMS 2014 Version R1; and (5) Reflection X Versions 6.00 and 10.0. (Docket #1 ¶ 12). Generally, Reflection products allow Windows-based devices to connect to non-Windows-based operating systems. (Docket #1 ¶ 13). This is known as “terminal emulation” software. (Docket #1 ¶ 13).

1.1.2 The Facts

Beginning in or about 2002, the Medical College began to purchase certain Reflection software from Attachmate. (Docket #1 ¶ 12). Since that time, the Medical College has purchased at least 764 licenses to different versions of Reflection software from Attachmate. (Docket #1 ¶ 14).

The parties’ relationship continued at arms length until approximately September of 2014. (Docket #1 ¶ 14). At that time, Attachmate requested the Medical College to conduct an audit to determine whether there was any discrepancy between the number of software licenses that the Medical College owned and the number of licenses that the Medical College deployed. (Docket #1 ¶¶ 15-17). The Medical College complied with that audit in or about October of 2014. (Docket #1 ¶ 16).

Using the audit data, Attachmate sent the Medical College a table which compared: (1) the number of “installations” of the various types and versions of Reflection software found on the Medical College’s computers; and (2) the number of licenses owned by the Medical College. (Docket #1 ¶ 17). This table showed a number of discrepancies. (Docket #1 ¶ 17). Specifically, Attachmate reported that while Reflection X was installed on 2, 505 computers, the Medical College had purportedly only purchased 7 licenses for that particular software. (Docket #1 ¶ 18). In addition, the audit purportedly showed that two other programs-for Reflection for HP (version 10.0) and Reflection for IBM (version 10.0)-were installed but were not licensed by the Medical College. (Docket #1 ¶ 19). Though the Medical College owned 764 licenses for the Reflection line of software, 750 of those licenses were allegedly not “installed.” (Docket #1 ¶ 20).

In total, based on the audit, Attachmate represented that the Medical College had installed at least 2, 500 Reflection[4] programs that it had not purchased. (Docket #1 ¶ 21). In order to bring the Medical College back into compliance with the Reflection software license, Attachmate represented that the Medical College needed to purchase $1, 067, 416.00 worth of additional licenses-plus a 12% interest charge going back to the release dates of the software-for a total of $2, 604, 495.04. (Docket #1 ¶ 26). Attachmate demanded full payment within thirty (30) days. (Docket #1 ¶ 27).

The Medical College disagreed with Attachmate’s findings. Specifically, the Medical College claimed that Attachmate failed to account for the licenses that the Medical College already owned and actually used. (Docket #1 ¶¶ 22-23). If Attachmate would have taken this information into account, the Medical College claims that Attachmate would have found that the Medical College used Reflection software consistent with the number of licenses that it owned. (Docket #1 ¶ 24). Moreover, despite its own best efforts, the Medical College asserts Attachmate refused to work cooperatively to resolve any issues raised by the audit in a “fair and equitable manner under the circumstances.” (Docket #1 ¶¶ 28, 31). At bottom, the Medical College claims to be a victim of Attachmate’s “history of assuming circumstances concerning an alleged over-deployment of its software products so as to maximize its claim for license fees and interest from its customers….” (Docket #1 ¶ 25). Further, the Medical College claims that Attachmate’s business strategy was merely “an effort to unjustly reap a windfall from [its] customers.” (Docket #1 ¶ 25).

1.2 Legal Standard

“A motion to dismiss pursuant to [Rule] 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). “To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must state enough facts that, when accepted as true, ‘state a claim for relief that is plausible on its face.’” Spierer v. Rossman, 798 F.3d 502, 510 (7th Cir. 2015) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” McCauley v. City of Chicago, 671 F.3d 611, 615 (7th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009)). The Court must “tak[e] all factual allegations as true and draw[] all reasonable inferences in favor of the plaintiffs.” Pugh v. Tribune Co., 521 F.3d 686, 692 (7th Cir. 2008).

1.3 Analysis

The Medical College claims that Attachmate violated the WDTPA by “ma[king] untrue, deceptive, or misleading representations in an attempt to sell additional [software] licenses.” (Docket #1 ¶ 67). Attachmate, however, asks this Court to dismiss the Medical College’s WDTPA claim pursuant to Rule 12(b)(6). (Docket #28). In support of its motion, Attachmate argues that the Medical College’s claims arise out of the parties’ pre-existing contractual relationship; in other words, according to Attachmate, since the purported misrepresentations were not made to “the public, ” Attachmate cannot be liable as a matter of law under the WDTPA.[5] (Docket #29 at 1). The Medical College opposes[6] Attachmate’s motion by arguing that the representations in question were made with respect to new offers to form new contracts. (See Docket #11 at 10-13). Under this theory, even if the parties were bound by contract with respect to their prior licensing agreements, the Medical College was a member of “the public” for the purpose of the negotiations that underlie the instant WDTPA claim. (Docket #11 at 10-13).

The WDTPA provides that:

No…corporation…with intent to sell…merchandise…to the public for sale, …shall make, publish, disseminate, circulate, or place before the public, …in this state, in a newspaper, magazine or other publication, or in the form of a book, notice, handbill, poster, bill, circular, pamphlet, letter, sign, placard, card, label, or over any radio or television station, or in any other way similar or dissimilar to the foregoing, an advertisement, announcement, statement or representation of any kind… which…is untrue, deceptive or misleading.

Wis. Stat. Ann. § 100.18(1) (emphasis added). In order to bring a claim of fraudulent misrepresentation under Section 100.18(1), a plaintiff must prove: (1) “that with the intent to induce an obligation, the defendant made a representation to ‘the public’”; (2) “that the representation was untrue, deceptive or misleading”; and (3) “that the representation caused the plaintiff a pecuniary loss.” K & S Tool & Die Corp. v. Perfection Machinery Sales, Inc., 2007 WI 70, ¶ 19, 301 Wis.2d 109, 121-122, 732 N.W.2d 792, 798 (emphasis added). Attachmate’s motion challenges the Medical College’s ability to satisfy the first element of its WDTPA claim as a matter of law. (See generally Docket #29).

The WDTPA does not define the meaning of “the public.” Fricano v. Bank of Am. NA, 2016 WI.App. 11, ¶ 28, ___Wis.2d___, ___N.W. 2d___. Over the years, however, Wisconsin courts have added interpretive gloss to this statutory phrase, see State of Wisconsin v. Automatic Merch of Am., 64 Wis.2d 659, 664, 221 N.W.2d 683, 686 (1974), much of which has resulted in an expansion of liability under the WDTPA. For example, “the public” need not “mean a large audience, and a statement made to one person may constitute a statement made to ‘the public’ under this statute.” Kailin v. Armstrong, 2002 WI.App. 70, ¶ 44, 252 Wis.2d 676, 709, 643 N.W.2d 132, 149. Moreover, actionable representations are “not limited to media advertising, ” Automatic Merchandisers of Am., Inc., 64 Wis.2d at 663, and need not be made in the context of advertisements at all, Bonn v. Haubrich, 123 Wis.2d 168, 173, 366 N.W.2d 503, 505 (Ct. App. 1985) (holding that actionable conduct may also be made to “the public” in the context of individual, oral sales promotions).

Notwithstanding the broad applicability of Section 100.18, the Wisconsin Supreme Court placed a limit on the reach of the WDTPA: “a person remains a member of ‘the public’ until a ‘particular relationship’” exists between the parties. Fricano v. Bank of Am. NA, 2016 WI.App. at ¶ 28 (citing K & S Tool & Die Corp., 301 Wis.2d 109, ¶ 27); see also State v. Automatic Merchandisers of Am., Inc., 64 Wis.2d 659, 664, 221 N.W.2d 683, 686 (1974) (“The important factor is whether there is some particular relationship between the parties.”) (emphasis added). “[A] plaintiff is no longer a member of ‘the public’ for the purpose of Wis.Stat. § 100.18(1) once he or she has entered into a contract to purchase the offered item.” K & S Tool & Die Corp., 2007 WI 70, ¶ 26. Courts applying the “particular relationship” test observe that rule recognizes “that those who have long-term, established relationships are in a better position than most to protect themselves in the context of that relationship.” Uniek, Inc. v. Dollar General Corp., 474 F.Supp.2d 1034, 1039 (W.D. Wis. 2007). Moreover, “[s]tatements made by the seller after a person has made a purchase or entered into a contract to purchase logically do not cause the person to make the purchase or enter into the contract.” Kailin, 2002 WI.App. 70, ¶ 44 (emphasis added).

The contours of the “particular relationship” test are purposefully ill-defined. K & S Tool & Die Corp., 301 Wis.2d 109, ¶ 24-27 (“The use of ‘the public, ’ in the context of § 100.18(1)…d[oes] not lend itself to the formulation of a bright-line test.”). Determining whether a person is a member of “the public” is ultimately a case-specific inquiry that depends upon the “peculiar facts and circumstances” of the parties’ relationship “and must be tested by the statute in the light of such facts and circumstances.” Id. (internal citations omitted). Thus, while the question of whether a particular plaintiff qualifies as the public is “not a pure issue of law, ” Roundy's Supermarkets, Inc. v. Nash-Finch Co., No. 08C0142, 2008 WL 5377907, at *3 (E.D. Wis. Dec. 23, 2008), it can be decided by the Court where “the undisputed facts establish that the plaintiff had a particular relationship with” the defendant, Bates v. Wisconsin-Dep't of Workforce Dev., 636 F.Supp.2d 797, 811 (W.D. Wis. 2009) aff'd sub nom. Bates v. Wisconsin Dep't of Workforce Dev., 375 F. App’x 633 (7th Cir. 2010). Compare Northcentral Tech. Coll. v. Doron Precision Sys., Inc., No. 13-CV-425-SLC, 2013 WL 5719459, at *3 (W.D. Wis. Oct. 21, 2013) (dismissing the plaintiff’s claim because the complaint alleged that the parties were under contract when the alleged representation was made) with United Concrete & Const., Inc. v. Red-D-Mix Concrete, Inc., 2012 WI.App. 88, ¶ 16, 343 Wis.2d 679, 819 N.W.2d 563 aff'd in part, rev'd in part on other grnds, 2013 WI 72, ¶ 16, 349 Wis.2d 587, 836 N.W.2d 807 (finding that a dispute of fact about the parties’ status as contracting parties rendered the question appropriate for the jury).

On the one hand, where the parties to a WDTPA claim are already bound by contract for the item in dispute, courts have found a “particular relationship” to exist and preclude a Section 100.18 claim. See K & S Tool & Die Corp., 2007 WI 70, ¶ 26; see e.g., Uniek, Inc., 474 F.Supp.2d at 1040 (finding that defendant was entitled to summary judgment because after thirteen years of business dealings and the execution of a “letter of understanding” the parties had formed a “particular relationship”); Kailin, 252 Wis.2d 676, ¶ 44 (affirming a ruling that the plaintiffs were no longer members of “the public” with respect to statements made after the parties entered into a contract to purchase real estate). On the other hand, where the parties are not bound by contract, WDTPA claims may survive. See, e.g., Fricano, 2016 WI.App. 11, ¶ 30 (declining to overturn a jury verdict that the parties were not in a “particular relationship” at the relevant time period because there “was no contract at the time the Bank misrepresented its knowledge of the condition of the property”). In this sense, a finding that the plaintiff is (or is not) a member of the public depends both on: (1) timing (i.e., were the parties bound by contract when the defendant made the alleged misrepresentation); and (2) the items offered for sale (i.e., were the parties bound by contract for the goods/services at issue). See e.g., Fricano, 2016 WI.App. 11, ¶ 30 (quoted above); MBS-Certified Pub. Accountants, LLC v. Wisconsin Bell Inc., 2013 WI.App. 14, ¶ 19, 346 Wis.2d 173, 189, 828 N.W.2d 575, 583 (reversing a decision to dismiss a WDTPA claim because “there was no contract in place with any of the defendants for the billed services at issue; indeed that is crux of this suit-that MBS and others were billed for services for which they never contracted”) (emphasis added); Blanchar v. Lake Land Builders, Inc., 2009 WI.App. 21, ¶ 19, 316 Wis.2d 357, 763 N.W.2d 249 (concluding “as a matter of law, based on the undisputed facts, that [the plaintiff] was still a member of ‘the public’ with respect to Lake Land at the time of [the defendant’s] alleged misrepresentations”).

Here, there can be no question that the Medical College and Attachmate were, at the time of the alleged misrepresentations, under contract for the items in dispute-Reflection software. (Docket #1 ¶ 12, 14-23, 64). The Medical College admits that it owns 764 licenses for Attachmate’s Reflection line of terminal emulation software. (Docket #1 ¶ 14). Importantly, the alleged representations at the core of this WDTPA claim arose entirely out of the obligations created by those software licenses-contracts to which the Medical College agreed to be bound.[7] (Docket #1 ¶¶ 14-21).

The Medical College’s position-that Attachmate’s offers are now being made with respect to new licenses for new software (Docket #11 at 11-13)-misconstrues the nature of the parties’ ongoing obligations to each other and the claims at issue here. Cf. Hackel v. Nat’l Feeds, Inc., 986 F.Supp.2d 963, 980 (W.D. Wis. 2013) (denying the defendant’s motion for summary judgment with respect to the WDTPA claim because “[t]he parties were not in a contractual relationship and Hackel was under no obligation to make future purchases from National”). During the time in which the alleged misrepresentations occurred, the Medical College was continuing to use Attachmate’s software and was, therefore, continuing to operate as bound under those software licenses. (Docket #1 ¶¶ 12, 14-23, 28). In addition, whether or not the Medical College over-deployed Reflection-and was therefore required to obtain additional licenses-turns on the language of the parties’ pre-existing license agreements. (Docket #1 ¶¶ 23, 31, 64). Thus, because the Medical College argues that, at all times relevant, it has acted “consistent[ly] with the total number of license[s] [that it has] purchased, ” the Medical College’s WDTPA claim is inextricably governed by-and bound up in-the same software licenses that it has been a party to with Attachmate for approximately 14 years. (Docket #1 ¶¶ 12, 14, 64).

The Medical College attempts to circumvent this conclusion by arguing that its relationship with Attachmate is analogous to the relationship between the parties in: (1) MBS-Certified Pub. Accountants, LLC., 2013 WI.App. 14; (2) Blanchar, 2009 WI.App. 21; and (3) United Concrete & Const., Inc., 2012 WI.App. 88. (Docket #11 at 11-13). These cases, however, are factually distinguishable.

Unlike the Medical College, the plaintiffs in each of the aforementioned cases had not been under contract with the defendants for the items, goods, and/or services in question at the time the alleged misrepresentations were made. For example, in MBS the plaintiffs alleged that certain telecommunications providers billed them for services that the plaintiffs never authorized. MBS-Certified Pub. Accountants, LLC., 2013 WI.App. 14, ¶ 6. Although the plaintiffs were already the defendants’ customers when the purported charges began to accrue, the crux of that suit was that “there was no contract in place with any of the defendants for the billed services at issue.” Id. at ¶ 19 (emphasis added). Similarly, in Blanchar, the court held the parties’ prior land contract did not, as a matter of law, take the plaintiffs out of the realm of “the public” for the purpose of a separate and distinct home construction project. Blanchar, 2009 WI.App. 21, ¶¶ 12-17 (explaining that “[t]he alleged misrepresentations occurred before the parties entered into the contract at issue, the construction contract”); see also United Concrete & Const., Inc., 2012 WI.App. 88, ¶ 16 (“A jury reasonably could find that a particular relationship existed between United and Red-D-Mix because of their past dealings; it just as reasonably could find that United was a member of ‘the public’ when Red-D-Mix, through Clark, solicited United’s business anew”).

Unlike the cases relied upon by the Medical College, the complaint clearly states that the software representations at issue here arose out of the parties’ pre-existing contractual obligations to each other. (Docket #1 ¶¶ 12-24). Thus, unlike the defendants in MBS, Blanchar, and United Concrete, Attachmate’s licensing representations were not made in the context of a new offer for sale for new software licenses. In other words, Attachmate was not “solicit[ing]” the Medical College’s “business anew.” United Concrete & Const., Inc., 2012 WI.App. 88, ¶ 16. Instead, the complaint alleges that the Medical College had maintained a business relationship with Attachmate under the terms of over 764 licenses that the Medical College had purchased since 2002. (Docket #1 ¶ 14). And, Attachmate’s purported “offers” were made based on the software that the Medical College had allegedly already installed and pursuant to previously purchased license ...


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