Cullinet Software, Inc. v. McCormack & Dodge Corp.

• Decision Date: 03 December 1986
• Citation: 23 Mass.App.Ct. 231,500 N.E.2d 831
• Parties: CULLINET SOFTWARE, INC. v. McCORMACK & DODGE CORPORATION.
• Court: Appeals Court of Massachusetts

Page 831

500 N.E.2d 831

23 Mass.App.Ct. 231

CULLINET SOFTWARE, INC. v. McCORMACK & DODGE CORPORATION.

Appeals Court of Massachusetts,

Norfolk.

Argued Nov. 26, 1985.

Decided Dec. 3, 1986.

Richard K. Donahue, Lowell (Donald R. Ware, Boston, with him), for plaintiff.

William A. Fenwick, Palo Alto, Cal. (Alice E. Richmond, Boston, with him), for defendant.

Before DREBEN, SMITH and FINE, JJ.

SMITH, Justice.

In 1981, Cullinet Software, Inc. (Cullinet), ¹ was a Massachusetts corporation engaged in the development, acquisition, and marketing of computer software products for business, financial, and commercial use. Its main product line centered on a database management system it had developed for use on IBM mainframe computers. ² Cullinet's business, in 1981, extended throughout the world, and it had subsidiaries and marketing representatives in twenty-four different countries.

McCormack and Dodge (M & D) in 1981 was also a Massachusetts corporation. It was engaged in the development and marketing of applications software. Such software allows a computer to perform a specific function such as accounts payable or a general ledger analysis of financial information. One of M & D's products at the time was General Ledger Plus (G/L Plus), a software system that performed general ledger accounting functions. That product was sold by M & D, both domestically and throughout the world.

In the spring of 1981, Cullinet approached M & D in an attempt to acquire rights to the G/L Plus system. Negotiations ensued leading to the signing of a software license agreement (Agreement) between the two companies on August 25, 1981. The Agreement was drafted by lawyers for Cullinet and included the following paragraph entitled "Recitals": "Licensor has developed the System (as defined in Section 1.7 hereof). [Cullinet] desires (a) to obtain rights to use and evaluate the System, (b) to receive consultation and advice as to the operation of the System with, and as to the integration of the System into, certain products licensed by [Cullinet] and its affiliates and (c) to obtain a non-exclusive license to market and sublicense the System throughout the United States of America and Canada, all upon the terms and conditions hereinafter set forth."

The Agreement provided that M & D would deliver to Cullinet a specific version ("Release 1.7") of M & D's G/L Plus system (System) and related technical information. Section 3.1 granted to Cullinet a non-exclusive license, limited to the United States and Canada, to use the System in connection with Cullinet's business, including the right "to make modifications to or improvements in the System for any purpose." ³ Another section (§ 3.2) granted Cullinet a non-exclusive license to market and sublicense the System to users of Cullinet database management systems, subject to certain limitations: Cullinet would market the System "only with an interface ... to be used with a [Cullinet] database management system," and Cullinet would not implement any interface that could be used with products other than Cullinet's. ⁴

Cullinet was given a "limited right" to use the name "McCormack & Dodge General Ledger Plus" for purpose of identifying the "source of the System." After February 28, 1982, Cullinet was prohibited from representing to users or prospects "that its version of the System [was] the same as [M & D's] version of the System." ⁵ M & D expressly retained its own rights to use and market the System and to grant such rights to others (§ 3.6). The Agreement included an integration clause which stated that the "Agreement contains the full understanding of the parties ... and supersedes all prior understandings and writings relating thereto."

The controversy between the parties concerns the language in Article VI, which provides:

"6.1 Term. The term of this Agreement shall be five years from the date hereof.

"6.2 Assignment of Rights to [Cullinet]. Upon the expiration of this Agreement pursuant to 6.1 above, Licensor shall automatically, by operation of this Agreement and without the execution of any further documents or the payment of any further consideration or the taking of any further action by Licensor or [Cullinet], assign to [Cullinet] all right, title and interest in and to the System sufficient to permit [Cullinet] to use and to sublicense the System, in perpetuity, without limitation, subject, however, to the Licensor's rights contained in [s] 3.6 ⁶ of this Agreement; provided, however, that notwithstanding the foregoing, [Cullinet] will not during the term of this Agreement or thereafter implement any interface for the System to be used with any product other than a database management system marketed by [Cullinet]."

Shortly after the parties signed the Agreement, differences arose in regard to the interpretation of Article VI. It became apparent that each party considered the geographic scope of the agreement to be of crucial importance. Cullinet claimed worldwide rights while M & D argued that only United States and Canadian rights were involved. As a result of the dispute, Cullinet filed an action in the Superior Court against M & D. It contended that under the language of Article VI, at the expiration of the five-year term in § 6.1, it had the right to market the System worldwide. Cullinet sought a declaration to that effect. M & D, in its answer and counterclaim, contended that the Agreement barred Cullinet from marketing the System outside the United States and Canada forever.

Cullinet moved for partial summary judgment on its complaint, arguing that the language of the Agreement was clear and unambiguous and supported its interpretation that the geographic limitation would be removed at the end of five years. M & D cross-moved for summary judgment, asserting that its own interpretation was clear from the language of the Agreement and that the rights were forever limited to the United States and Canada. After a hearing on the motions, a Superior Court judge ruled, in effect, that the language was not clear but instead was uncertain and equivocal on the disputed point. He ordered an evidentiary hearing to receive extrinsic evidence for the purpose of elucidating the terms of the Agreement. Pursuant to Mass.R.Civ.P. 42(b), 365 Mass. 805 (1974), he severed the issue raised by Cullinet's complaint from any other issues that might be raised by M & D's counterclaim.

At the four-day hearing, the parties introduced oral and documentary evidence in support of their respective interpretations of the Agreement. Cullinet maintained that the language in Article VI was clear that upon the expiration of the Agreement under § 6.1, new rights were granted to Cullinet under § 6.2, subject to certain limitations, none of a geographic nature. M & D on the other hand, contended that in the context of the Agreement "without limitation" had only a temporal and not a geographic meaning. It claimed that the Agreement did not contain any mention of worldwide rights and that none could be read into it by implication.

After the hearing, the judge filed a memorandum of decision that included his findings of fact, rulings of law, and order for judgment. Reversing, sub silentio, the ruling that he had made at the hearing on the motions, the judge now concluded that the language of the Agreement was clear and unambiguous. He stated that the language of the Agreement itself, "demonstrates without any substantial doubt that after August 31, 1986, the locus of Cullinet's rights continues to be the United States and Canada and does not extend beyond them." ⁷ In a separate section of the memorandum, he reviewed the extrinsic evidence introduced at the hearing and concluded that it "confirmed" his decision.

Judgment entered in accordance with the judge's decision. Cullinet has appealed from that judgment. It claims that the judge erred in that he (1) misconstrued the language of the Agreement, (2) misused parol evidence to contradict terms of the Agreement, (3) made clearly erroneous findings of fact, and (4) wrongfully excluded certain evidence.

A reading of the Agreement demonstrates that the judge erred in his conclusion that the Agreement was clear and unambiguous on its face. An...