Computer Associates v. State Street Bank

Citation

Computer Assocs., Inc. v. State Street Bank & Trust Co., 789 F. Supp. 470 (D. Mass. 1992) (full-text).

Factual Background

Plaintiff, Computer Associates, is in the business of developing, marketing, and supporting computer software programs. Plaintiff is the owner of Datacom, a software program that organizes, stores, and retrieves data. Defendant, State Street is a bank that acts as custodian of hundreds of billions of dollars in assets for a large number of mutual funds, who uses programs it leases from Computer Associates, including the Datacom program.

The parties executed an agreement in 1983 and ’84 to extend direct use of the software to one of defendant’s customers, GTE Shareholders Services Inc. (“GTE”), in exchange for a royalty payment equivalent to 15% of the royalty fee State Street paid. State Street had a choice to obtain a GTE-specific license amendment but chose a more general timesharing amendment. Only GTE and State Street had direct access to Datacom on the State Street mainframe computer to support its own application programs. The defendant then introduced a new service called Horizon which used an application program written by defendant but was dependent upon plaintiff’s system in order to work. Defendant offered the service to all its customers.

Plaintiff Computer Associates brought an action for breach of contract and copyright infringement. Defendant State Street moved for a preliminary injunction enjoining plaintiff from terminating maintenance support for Computer Associates’ software products installed on State Street’s computer.

Trial Court Proceedings

A preliminary injunction may be granted if State Street Satisfied four criteria: (1) irreparable injury if the injunction is not allowed; (2) such injury outweighs any harm that granting injunctive relief may cause the non-moving party; (3) an injunction is in the public interest; and (4) a likelihood of success on the merits.

The court found that State Street would likely suffer irreparable injury if the injunction was not allowed based on the finding in that the absence of maintenance support, the functionality of the Datacom program would likely erode. Furthermore, even if the Datacom program were to remain functional, the Bank and its customers could not continue to rely on the availability of that program which would harm the Bank’s business and its reputation.

The court also established that the injury the Bank would suffer if the injunction was not granted far outweighed any injury plaintiff, Computer Associates, would suffer if an injunction was granted. Computer Associates argued that the injury it suffered would be the irreparable injury of copyright infringement. The court responded by stating that the injunction was to protect defendant against termination of maintenance support, not an injunction to protect plaintiff against copyright infringement. Denying the motion would not terminate infringement, if it was occurring. Additionally, infringement results only from the unauthorized copying of copyrighted material. It is undisputed that State Street’s possession of its copies of Computer Associates’ software is lawful and thus State Street’s use was not infringing. Computer Associates also argued that injury may result from a loss of trade secrets and proprietary information, but the court found that State Street’s customers did not have access either to the source code for Computer Associates’ programs or access to the object code. The court concluded that there was no risk from State Street’s use of the programs that copies of Computer Associates’ programs would reach third parties on any fixed medium.

The court also decided that an injunction would be in the public interest. Because State Street manages hundreds of billions of dollars of assets, it is in the public interest that stability be maintained in the supervision of those assets.

In reviewing the likelihood of success on the merits, the court reviewed two contract provisions that were at issue. The two issues were a use provision in the Basic Agreement between the parties and a use provision in a later amendment (“Timesharing Amendment”) to the Basic Agreement.

The court concluded that the clause in which the terms “timesharing” and “service bureau” appeared were ambiguous and decided to consider the parol evidence in search of a meaning that the parties mutually manifested to one another by communications outside the written agreement. The court agreed with the Bank that its sole immediate purpose for entering the Timesharing Amendment was to allow GTE to use the ADR programs. Computer Associates argued that the Bank adopted the more general form of amendment, rather than a GTE-specific amendment, because it foresaw the Horizon program’s use of the ADR software. The court disagreed and found the timing of the Bank’s sales pitch for its Horizon service and the adoption of the Timesharing Amendment to be coincidental. The court received testimony, which it gave credit to, that the parties adopted the Timesharing Amendment for the specific purpose of allowing GTE to build its own application programs around the ADR software tools. Both parties were aware from their oral and written communications of that purpose which is the reason an option for a GTE-specific amendment was made available.

The court then stated that if the use made by Bank customers violated the Basic Agreement, Computer Associated would be entitled to some relief, including but not limited to terminating maintenance support. Because some services were permissible while others were taboo, the court decided to examine what intent the parties manifested with respect to a customer obtaining self service through the use of on-line access provided by the Bank. The court determined that the contract simply did not address the question presented by this case because there was little evidence that was presented on the meaning of the words and phrases used in the relevant provision of the Basic Agreement. The court referred to the existing gap as an “omitted case.” A court faced with an omitted case seeks a fair bargain by extrapolating from the contract. The legal process for determining an answer for an “omitted case” for a gap in contract terms is closely analogous to the process for filling in gaps in statutes.

The judge determined that filling the gap was unnecessary for two reasons. First, in the context of the present motion for preliminary injunction, the judge decided that he did not need to resolve debatable issues about whether the gap–filling determination is for a jury or a court because the court was both the fact finder and the lawmaker in the current case.

Second, although filling gaps may be critical to an award of damages at a later stage of proceedings, it was not essential to the judge’s determination that defendant’s motion for a preliminary injunction to be granted. The court granted defendant’s motion for a preliminary injunction and directed the parties to confer to determine whether they could agree upon the terms of an order that would be consistent with the court’s opinion.