Logic Associates, Inc. v. Time Share Corp.

• Decision Date: 29 February 1984
• Docket Number: No. 82-524,82-524
• Citation: Logic Associates, Inc. v. Time Share Corp., 474 A.2d 1006, 124 N.H. 565 (N.H. 1984)
• Parties: LOGIC ASSOCIATES, INC. v. TIME SHARE CORPORATION.
• Court: New Hampshire Supreme Court

Page 1006

474 A.2d 1006

124 N.H. 565

LOGIC ASSOCIATES, INC. v.TIME SHARE CORPORATION.

No. 82-524.

Supreme Court of New Hampshire.

Feb. 29, 1984.

Wadleigh, Starr, Peters, Dunn & Chiesa, Manchester (James C. Wheat, Manchester, on brief and orally), for plaintiff.

Moulton, Smith, Samaha & Vaughan P.C., Littleton, and Fine & Ambrogne, Boston, Mass. (Robert F. Sylvia, Boston, Mass., on brief and orally, and Stephen U. Samaha, Littleton, on brief), for defendant.

KING, Chief Justice.

In this casewe address the validity of a license and service agreement containing a covenant not to compete in a defined market area.There are two questions presented: first, whether the interpretation of the covenant not to compete was, by virtue of the agreement, a matter for arbitration; and second, the meaning of the contract clause "in competition with."For the reasons which follow, we affirm the decision of the superior court that arbitration was not required and affirm the court's construction of the phrase "in competition with."

The defendantTime Share Corporation(Time Share) is engaged in the business of selling computer time services.The plaintiffLogic Associates, Inc.(Logic), which was formed by a former employee of Time Share, provides software programs for the printing industry.In 1972, Time Share and Logic entered into a written contract, under which Logic agreed to purchase time-sharing services on Time Share's computers and lease the software programs, originally designed by Time Share, to its printing industry customers.Logic agreed to pay Time Share based upon the amount of its customer use of Time Share's hardware.Logic's customers were connected to Time Share computers by telephone lines.The time-sharing contract was intended to cover the period from August 1, 1972, to August 1, 1975.

Time Share and Logic entered into a new time-sharing agreement in 1974 which superseded the 1972 agreement.This agreement, like the 1972 time-sharing agreement, contained a provision under which Logic agreed to use Time Share's services exclusively.

In 1974, one of Logic's printing customers, Eastern Press, demanded its own in-house computer to run Logic's software programs.However, for Logic's programming or application software to operate properly, it had to be used in conjunction with Time Share's own operating software.

Eastern Press requested a small mini-computer known as a stand-alone system to operate Logic's software.As a result of this request, on July 3, 1974, Time Share and Logic executed a license and service agreement which allowed Logic to purchase stand-alone mini-computers from Time Share.It is this agreement that is the focus of the parties' dispute.

After the license and service agreement was executed, Time Share helped Logic install the mini-computer on the premises of Eastern Press in Connecticut.When the mini-computer was operational, the data of Eastern Press was removed from Time Share's computers.Eastern Press then operated the Logic software independently of Time Share's computers.Later, Logic purchased another stand-alone mini-computer from Time Share for the Danbury Press located in Connecticut.

In the license and service agreement, Logic agreed to pay Time Share fifty dollars each month toward a $40,000 licensing fee for the Eastern Press system, and Logic also paid fifty dollars each month for the Danbury Press system.According to the agreement's payment schedule,

"LOGIC shall pay Two Thousand Five Hundred ($2,500) Dollars on July 15, 1974; Two-Thousand Five Hundred ($2,500) Dollars on October 15, 1974, and the balance in monthly payments beginning one month from the date of the software being operational on Hewlett-Packard hardware on the premises of EASTERN PRESS in New Haven, Connecticut.The payments shall be Fifty ($50) Dollars per month per system installed by LOGIC for single corporate uses and Twenty-five ($25) Dollars per month per port for time-sharing systems installed by LOGIC for multiple corporate users."

(Emphasis added.)The license and service agreement also provides for Logic to pay Time Share a penalty charge if Logic installed or provided time-sharing services in competition with the services of Time Share in a defined marketing area.

"The TSC [Time Share] marketing area is the states of New England, New York and New Jersey plus any area within 50 miles of a TSC multiplexor location.LOGIC will not install or provide time-sharing systems in competition with TSC in said marketing area except by paying an additional penalty charge of One Hundred Seventy-Five ($175) Dollars per month per port for each such time-sharing service installed, which charge shall decrease to Seventy-Five ($75) Dollars per month per port once 12 ports are so installed.These penalty payments are not included in the Forty-Thousand ($40,000) Dollar purchase price.This penalty provision shall expire 5 years from the date of this Agreement.This penalty provision shall not apply to any area which becomes part of the marketing area of TSC after installation of such a time-sharing system by LOGIC in such area."

(Emphasis added.)

The license and service agreement also contains an arbitration clause which provides:

"Any dispute concerning this Agreement shall be settled by arbitration in Hanover, New Hampshire under the rules of the American Arbitration Association in accordance with the Law of New Hampshire.Such award will be binding and may be entered in any Court of competent jurisdiction."

The meaning of the contractual phrase "in competition with" became a subject of dispute, both after Time Share sold Logic a computer for use in a business in Hartford, Connecticut in 1976, and when Logic sought to buy another computer from Time Share to use in Hanover, New Hampshire.Logic intended to use the computers to provide time-sharing services for multiple corporate users in neutral locations.Logic, in effect, attempted to establish its own time-sharing system for Logic customers.

There was evidence introduced at trial indicating that during the period of the contractual dispute in 1976, the two principals of Logic believed that they were prevented by the license and service agreement from operating a time-sharing system within Time Share's market area without incurring a penalty charge.However, Time Share and Logic were subsequently unable to agree on the definition of the term "in competition with" in the license and service agreement.Logic's position was that the Hartford location was not in competition with Time Share's system because it only served Logic's customers, and not Time Share's present customers (those customers remaining after Logic removed its customers from the Time Share system).Logic maintained that the contractual prohibition against providing time-sharing services "in competition with" Time Share only precluded potential Logic competition for Time Share'sremaining customers.

In clear contrast, Time Share contended that the time-sharing systems "in competition with" it should include those systems provided to Logic's customers who were being serviced on Time Share's system, as well as those systems provided to Time Share's customers.It further argued that, at the very least, the prohibition on competition included all past time-sharing customers who originally used Time Share's computers, only later to use a time-sharing system not owned by Time Share.Time Share further claimed that it was losing money due to Logic's practice of removing customers from Time Share's system.

Time Share contended that Logic "cancelled" the Hanover computer...