EPL, Inc. v. USA Federal Credit Union, 97-8427

• Citation: 173 F.3d 1356
• Decision Date: 29 April 1999
• Docket Number: No. 97-8427,97-8427
• Parties: 12 Fla. L. Weekly Fed. C 792 EPL, INC., an Alabama Corporation, Plaintiff-Counter-Defendant-Appellee, v. USA FEDERAL CREDIT UNION, a federally chartered credit union, Defendant-Counter-Claimant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1356

173 F.3d 1356

12 Fla. L. Weekly Fed. C 792

EPL, INC., an Alabama Corporation, Plaintiff-Counter-Defendant-Appellee, v. USA FEDERAL CREDIT UNION, a federally chartered credit

union, Defendant-Counter-Claimant-Appellant.

No. 97-8427.

United States Court of Appeals, Eleventh Circuit.

April 29, 1999.

Harold S. White, Jr., William D. Matthews, Atlanta, GA, David A. Brewer, Moore, Brewer & Burbott, LaJolla, CA, for Defendant-Counter-Claimant-Appellant.

George E. Bullwinkel, Bullwinkel Partners, Ltd., Chicago, IL, C. Stephen Trimmier, Trimmier Law Firm, Birmingham, AL, Rachel Anderson Snider, Susan L. Howick, Macey, Wilensky, Cohen, Wittner & Kessler, Atlanta, GA, for EPL, Inc.

Appeal from the United States District Court for the Northern District of Georgia.

Before HATCHETT, Chief Judge, BIRCH, Circuit Judge, and KEITH ^*, Senior Circuit Judge.

PER CURIAM:

Appellant USA Federal Credit Union (USA) appeals the district court's grant of summary judgment in favor of EPL, Inc. (EPL) on USA's counterclaim that sought damages and injunctive relief for EPL's alleged breach of a software license agreement. Because we find that genuine issues of material fact exist regarding (1) whether EPL's development of a translated form of its "VISION" software to operate on an Unisys Series A computer system violated the software license agreement, and (2) whether EPL's invoice for support services in 1994 was a valid demand for payment under the Initial Support Period of the software license agreement, we reverse the district court's summary judgment rulings and remand for trial.

I. BACKGROUND

On September 28, 1988, USA entered into a ten year software license agreement (agreement) with Norell Financial Services (NFS) that allowed USA to use, translate and modify a specialized type of computer banking software that NFS owned called VISION. At the time the parties entered into the agreement, VISION ran only on one kind of computer system, Unisys Series V. The agreement granted USA a non-exclusive license to translate VISION to operate on the newer Unisys Series A computer system. Under paragraph 1.03(h) of the agreement, NFS allowed USA to

translate the VISION source code from V series systems architecture to A series systems architecture computer systems and retain a copy of such translated source code, which translated source code and all object code compilations thereof, and all rewritten modules thereof are and shall be licensed programs as defined herein which are and shall remain the exclusive property of NFS. [USA] shall periodically furnish to NFS on magnetic tape, one copy of such translated VISION source code. NFS shall not sell or otherwise market such translated and modified VISION product without the prior written consent of USA....

Subsequent to the date of the agreement, EPL acquired most or all of NFS's assets, including the rights to the VISION software.

After signing the agreement, USA began translating the VISION software to operate on the Unisys Series A architecture. In 1993, EPL contracted with The Progeni Corporation (Progeni) to create its own translated version of VISION to operate on the Unisys Series A architecture. USA disputed EPL's ability to translate VISION under the agreement. ¹ EPL responded through filing a lawsuit against USA alleging that USA disparaged its copyright of VISION through informing other parties, including Unisys, that "EPL could not market VISION A because of USA's rights and that USA would institute litigation if EPL marketed VISION A." EPL sought a declaratory judgment, injunctive relief and compensatory and punitive damages. USA counterclaimed, alleging that EPL breached paragraph 1.03(h) of the agreement, which prohibited EPL from selling or marketing USA's translated product without USA's permission, and sought injunctive relief and compensatory damages.

USA's counterclaim also alleged that EPL breached part two of the agreement, that contained a "Maintenance and On-going Support Services" contract. Under paragraph 2.01 of the agreement,

The Software Support Services ... shall commence upon the first to occur of (i) Customer's first use of either VISION or SLIMS to process Customer's live data or (ii) October 1, 1989, and shall continue for a term of 36 months after Customer's first use of VISION (as translated and modified by Customer from Manufacturer's "V" Series system architecture to Manufacturer's "A" Series system architecture) unless sooner terminated.

Paragraph 2.04 of the agreement, entitled "Expiration of Initial Support Period," provides:

Upon the expiration of the Initial Support Period, Customer shall have the following options with respect to Software Support Services from the expiration of the Initial Support Period until the end of the term of this Agreement (the "Second Support Period"):

(a) If customer elects to discontinue Software Support Services, Customer shall pay a monthly Software Support Fee commencing on the first day of the Second Support Period and the first day of each month thereafter for the remainder of this Agreement....

(b) If USA elects to continue to receive Software Support Services, the Software Support Fee payable by customer during each year of the Second Support Period shall be 50 percent of the annual maintenance and support fees charged by NFS for VISION and SLIMS which Software Period commences on each anniversary of such date for the remainder of the term of this Agreement.

USA received support services under the Initial Support Period at the rate of $25,000 per year, beginning in 1991. On January 1, 1994, and again on January 14, 1994, EPL demanded $33,375 for support services for that year. On February 15, 1994, EPL purported to terminate the contract pursuant to paragraph 4.06(a)(i) of the agreement, because USA failed to pay timely for the annual fee. ² USA tendered payment on February 18, 1994. USA alleged in its counterclaim that the Second Support Period began 36 months after October 1, 1989, and that its payment in mid-February was therefore timely. EPL, in its amended complaint, alleged that USA failed to pay timely for the annual fee and thus breached the agreement.

The district court, in an interlocutory order, found that the language of paragraph 1.03(h) of the contract was unambiguous and meant "that EPL could not sell or otherwise market the VISION A product created by USA. Paragraph 1.03(h) does not in any way limit the marketing or selling of any other VISION A product." The district court supported this conclusion through harmonizing paragraph 1.03(h) with paragraph 7.17 of the agreement, which provided in part that "[EPL] may develop other credit union software products that will compete with or replace VISION and which may execute on 'A' Series system architecture...." The district court therefore set the scope of review for this first issue as, "the only relevant inquiry for the independent expert is whether EPL copied USA's translated VISION product." Further, the district court instructed the parties that "the review of the source codes and related code should be viewed with an eye to duplication, not general similarity."

Thereafter, the district court considered the parties' motions for summary judgment. With regard to USA's alleged failure to pay timely for the annual 1994 support services fee, the district court granted partial summary judgment in favor of USA. The district court found that the Initial Support Period began when USA "went live" with its data in mid-February 1991, and that payment for the Second Support Period became due 36 months thereafter; thus, the district court found that "USA's tender of payment on February 18, 1994 was timely."

The district court next analyzed EPL's alleged breach of paragraph 1.03(h) of the agreement. EPL's expert, Dr. William Appelbe, compared USA's modified VISION version 109 program with EPL's VISION 3.0 program, both having been derived from a common ancestor, EPL's VISION 109.1 program. Appelbe's report focused on the changes, or "patches," that EPL and USA made to the original program to determine "systematic occurrences of similarities in both parties ['] patches, which cannot be attributed to coincidence, obviousness, or uniqueness." Appelbe concluded that "beyond any reasonable doubt, [ ] no measurable copying of program source code has occurred, and its highly unlikely that any copying of the design changes has occurred either." The district court held that EPL satisfied its initial summary judgment burden.

USA offered the reports of two experts, Paul Kimpel and Dr. Jay Schlag, to rebut Appelbe's report and support its contention that EPL breached the agreement through impermissible copying of USA's translated VISION program. Schlag's report compared USA's modified VISION version 111 program with EPL's VISION 2.0 program, and found duplication of code within these subprograms between 26 and 79 percent, with an average rate of duplication of 50.9 percent. The district court found that Schalg "did not attempt to distinguish between portions of the underlying VISION program that were left unchanged and the 'patches,' or changes, made by the respective parties." Adhering to its scope of review, the district court held that the 50.9 percent overlap that Schlag found between the two programs was not sufficient to show a high degree of similarity between the modified programs, and concluded that "no reasonable trier of fact could conclude by a preponderance of the evidence that EPL is marketing USA's computer program."

EPL filed a motion for reconsideration two weeks before trial, alleging that the district court erred in granting summary judgment in favor of USA on the wrongful termination of the agreement claim. EPL argued that a document that both parties signed in 1989 amended the contract and moved the date for commencement of annual software support services from October 1, 1989, to January 1, 1990, and that "[t]his new date...