Diggan v. Cycle Sat, Inc.

• Decision Date: 25 March 1998
• Docket Number: No. 96-1318,96-1318
• Citation: 576 N.W.2d 99
• Parties: Michael DIGGAN d/b/a Jemi Software, Appellant, v. CYCLE SAT, INC., Appellee.
• Court: Iowa Supreme Court

Page 99

576 N.W.2d 99

46 U.S.P.Q.2d 1372

Michael DIGGAN d/b/a Jemi Software, Appellant, v. CYCLE SAT, INC., Appellee.

No. 96-1318.

Supreme Court of Iowa.

March 25, 1998.

Peter C. Riley of Tom Riley Law Firm, P.C., Cedar Rapids, and Matthew F. Berry, Clear Lake, for appellant.

Robert R. Rush and Elizabeth D. Jacobi of Lynch, Dallas, Smith & Harman, P.C., Cedar Rapids, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, LAVORATO, NEUMAN, and TERNUS, JJ.

NEUMAN, Justice.

Plaintiff Michael Diggan, a computer programmer, sued his former employer, defendant Cycle Sat, Inc., claiming it breached an implied contract to pay him for developing software, and breached an implied license for use of the software in its "cycle cypher," a downlink system for capturing television commercials sent over satellite. The district court granted Cycle Sat summary judgment, finding the claims barred by the five-year limitation period of Iowa Code section 614.1(4) (1995). On Diggan's appeal, we affirm in part, reverse in part, and remand for further proceedings.

I. Background Facts and Proceedings.

Cycle Sat operated a satellite communication network used for transmitting commercials nationwide to television stations. To automate the network, it contracted with North Iowa Electronics, Inc. (NIE) to produce the necessary computers. Michael Diggan, an independent computer programmer acquainted with NIE, developed software in May 1987 to command the cycle cypher's receipt of satellite signals. Thereafter Cycle Sat hired him to work for the company. As Cycle Sat's employee, Diggan made modifications and enhancements to the downlink software.

Prior to becoming an employee, Diggan had received from Cycle Sat's parent company a $1500 advance on commissions and royalties for the software he had developed. No express agreement was ever concluded between Diggan and Cycle Sat, however, regarding full payment and royalties for development and use of the software. Thus throughout his term as an employee, Diggan refused to give Cycle Sat the crucial source code for the program.

In late 1989, Cycle Sat offered Diggan a lump sum payment of $10,000 for his development interest in the software. Diggan refused the offer. Cycle Sat then pressed the issue by threatening to fire Diggan unless he turned over the software, including the source code. On January 18, 1990, Diggan resigned rather than turn over the code.

By a letter from legal counsel dated January 30, 1990, Cycle Sat notified Diggan of its claimed ownership of the software. It demanded return of all computer data, information, software, and programs in Diggan's possession. Diggan, through counsel, responded on February 5, 1990, demanding that Cycle Sat cease using the software.

A. Federal copyright litigation. Based on the facts sketched above, Diggan commenced a suit for copyright infringement in federal court. A jury found, by special verdict, that Diggan owned the copyright to the disputed program. It awarded no damages for copyright infringement, however, because Cycle Sat prevailed on its affirmative defense of implied license. Whether Diggan was entitled to compensation for Cycle Sat's use of the license--a state law claim--remained unanswered. ¹

The parties differ somewhat over the impact of the federal jury's verdict. Cycle Sat--in its unsuccessful motion to dismiss Diggan's subsequent suit in state court--claimed the jury's verdict precluded any further action by Diggan to collect compensation from Cycle Sat. We believe, however, the posture of the case at this point closely resembles Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir.1990), a copyright infringement case decided by the United States Court of Appeals for the Ninth Circuit. Because the court's opinion so nicely illuminates the path from complex federal copyright litigation to garden-variety state contract claims, we pause to consider it here.

Effects involved a dispute over the copyright to special effects footage incorporated into a horror movie. The movie maker's refusal to pay any more than half the promised amount for the footage sparked the legal controversy. Effects, 908 F.2d at 556. As in the case before us, the court concluded that Effects held a copyright to the footage but had nevertheless given the movie maker implied license to use the special effect sequence in the film. Id. at 558-59. Citing the leading treatise on copyright law, the court found that "[a] nonexclusive license may be granted orally, or may even be implied from conduct." Id. at 558 (citing 3 M. Nimmer & D. Nimmer, Nimmer on Copyright § 10.03[A], at 10-36 (1989)). Pertinent to the case before us, the circuit court affirmed a finding of no copyright infringement but noted the controversy was not yet over:

[P]laintiff doesn't leave this court empty-handed. Copyright ownership is comprised of a bundle of rights; in granting a nonexclusive license to Cohen, Effects has given up only one stick from that bundle--the right to sue Cohen for copyright infringement. It retains the right to sue him in state court on a variety of other grounds, including breach of contract.

Id. at 559 (emphasis added). Diggan, like the plaintiff in Effects, left the federal courthouse with valid state law claims to pursue.

B. State court action. Five years to the day after Diggan demanded Cycle Sat cease using his software, Diggan sued Cycle Sat in Winnebago County district court. He pleaded two contract theories: (1) breach of implied contract to pay for software development; and (2) breach of "implied license" to use the software. In an amended answer, Cycle Sat alleged that "Diggan's causes of action for payment accrued on or about January 1988, the date of Cycle Sat's first use of the subject software." On Cycle Sat's subsequent motion for summary judgment, the district court ruled that Diggan's claims had accrued no later than January 18, 1990, the date he resigned under pressure from Cycle Sat. Thus, the court concluded, the suit filed on February 6, 1995, was commenced outside the limitations period. This appeal by Diggan followed.

II. Standard of Review.

Our review of an appeal from a summary judgment ruling takes two steps. First, we examine the entire record to determine whether genuine issues of material fact exist; if no factual dispute exists, we determine whether the district court correctly applied the law. Putensen v. Hawkeye Bank, 564 N.W.2d 404, 407 (Iowa 1997). Summary judgment is properly granted if the only controversy concerns the legal consequences flowing from undisputed facts. McClendon v. Beck, 569 N.W.2d 382, 384 (Iowa 1997). Application of a statutory limitation period to undisputed facts involves a pure question of law. Bob McKiness Excavating & Grading, Inc. v. Morton Bldgs., Inc., 507 N.W.2d 405, 408 (Iowa 1993).

III. Issues on Appeal.

The parties agree that actions on unwritten contracts must be filed within five years of the date the cause of action accrued. See Iowa Code § 614.1(4). This five-year limitation period governing actions on unwritten contracts also applies to actions on implied contracts. In re Lunt's Trust, 237 Iowa 1097, 1101, 24 N.W.2d 467, 469 (1946); Anderson v. Anderson, 234 Iowa 277, 285, 12 N.W.2d 571, 576 (1944). "The general rule is that a cause of action accrues when the aggrieved party has a right to institute and maintain a suit." Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457, 462 (Iowa 1984). In the case of a contract dispute, that right accrues and the limitations period begins running upon breach of the contract. Brown v. Ellison, 304 N.W.2d 197, 200 (Iowa 1981).

Our task is to determine the date or dates of accrual for the claims alleged by Diggan....