SAPC, INC. v. Lotus Development Corp.
| Decision Date | 07 December 1988 |
| Docket Number | Civ. A. No. 87-0858-K. |
| Citation | 699 F. Supp. 1009 |
| Parties | SAPC, INC., Plaintiff, v. LOTUS DEVELOPMENT CORPORATION and Mitchell D. Kapor, Defendants, and LOTUS DEVELOPMENT CORPORATION and New Sai, Inc., Counterclaim-plaintiffs, v. SAPC, INC., Julian E. Lange, Richard A. Lange and Tracy R. Licklider, Counterclaim-Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Mark A. Michelson, Choate, Hall & Stewart, Boston, Mass., for plaintiff.
Testa, Hurwitz & Thibeault, Bernard J. Bonn, III, Boston, Mass., for Mitchell D. Kapor.
Henry B. Gutman, Esq., Kerry Conrad, O'Sullivan Graw & Karabell, New York City, for Lotus Development Corp.
Skadden, Arps, Slate, Meagher & Flom, Thomas J. Dongherty, Lori Weiner Lander, Boston, Mass., for Lotus Development Corp. and New SAI, Inc., counterclaim plaintiffs.
The complaint in this case alleges a claim for copyright infringement. Defendants assert, among other defenses, that any cause of action that may have existed was assigned to defendant Lotus Development Corporation in an Asset Purchase Agreement of June 7, 1985 between plaintiff, as seller, and Lotus as buyer. Jurisdiction in this court depends upon whether plaintiff has asserted a claim arising under the Copyright Act.
Case law holds that federal jurisdiction should be declined by the court where a claim purportedly arising under the Copyright Act is essentially for a declaration of ownership or contractual rights. See Topolos v. Caldewey, 698 F.2d 991 (9th Cir. 1983); Stepdesign, Inc. v. Research Media, Inc., 442 F.Supp. 32 (S.D.N.Y.1977). It is nevertheless permissible in appropriate circumstances for a federal court to exercise pendent jurisdiction over state law claims where the complaint states a valid federal law claim. United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).
In this case, the court, with the consent of the parties, bifurcated the trial. The first phase concerns whether the Asset Purchase Agreement transferred to buyer any claim for copyright infringement that seller had against buyer, and thus either extinguished the claim by merging the opposing interests into single ownership or at the least precluded any later assertion of the claim by seller. If the court concludes that the Asset Purchase Agreement does not, by such a transfer, have the legal effect of extinguishing SAPC's rights in any claim for copyright infringement, the second phase will plainly involve questions arising under the Copyright Act — questions that would require the court to examine the computer programs involved, the extent of the alleged copying by defendant, and an application of the Copyright Act to the facts of the case. E.g., Topolos v. Caldewey, 698 F.2d at 994.
The argument for jurisdiction in this court is reinforced by the fact that the outcome of Phase One (determining whether an assignment or transfer of a "copyright" includes a cause of action for prior copyright infringement) could, under a conceivable resolution of other issues in Phase One, involve an interpretation of one or more provisions of the Copyright Act. Moreover, even if this suggestion is rejected and the Phase One issue is determined to be purely one of contract interpretation, this court is permitted, under Gibbs and its progeny, in the interests of fairness to the parties and efficient use of judicial resources, to exercise pendent jurisdiction over the state law contract issues. That is so even if, when determined, the outcome of Phase One moots the question of copyright infringement. Cf. Kennedy v. Wright, 851 F.2d 963 (7th Cir.1988) (). I conclude that this court may and should exercise pendent jurisdiction over all Phase-One issues, even if none of them is considered to be an issue arising under The Copyright Act.
Under an order for phased trial pursuant to Fed.R.Civ.P. 42(b), Phase One of this case was tried before the court, without a jury. This phase of trial concerned the interpretation of the June 7, 1985 Asset Purchase Agreement between Plaintiff Software Arts Production Corporation ("SAPC") and Defendants Lotus Development Corporation and Mitchell D. Kapor ("Lotus"). The order regulating trial, entered with the consent of the parties, identified the ultimate issue for the first phase of trial in this way: "whether all pre-existing causes of action for copyright infringement were transferred in conjunction with the copyrights in question by means of the Asset Purchase Agreement" (Docket No. 66). I will first consider whether the contract is complete and unambiguous in relation to this issue; an affirmative answer to this question would obviate any need to address issues regarding admissibility of evidence outside the contract.
The "parol evidence rule", as commonly understood, forbids consideration of evidence introduced for the purpose of contradicting unambiguous terms of an integrated agreement. It does not, however, preclude consideration of evidence of background facts that explain the context in which the agreement was made. See Louis Stoico, Inc. v. Colonial Development Corp., 369 Mass. 898, 902, 343 N.E.2d 872, 875 (1976) (citations omitted). The most significant background facts in this case are undisputed.
SAPC was the copyright owner and originator of "VisiCalc", the computer industry's first interactive computerized spreadsheet. For a brief period in 1980, Defendant Kapor worked for Personal Software Inc., which was the exclusive marketing agent for VisiCalc.
In 1982, Kapor formed Defendant Lotus Development Corporation, and developed "Lotus 1-2-3". Plaintiff and Defendants agree that Lotus 1-2-3 had a severe, if not fatal impact on SAPC's sales of VisiCalc.
In late March and early April 1985, Lotus and SAPC began negotiations for the purchase and sale of VisiCalc and other SAPC assets. These negotiations were consummated on June 7, 1985, and the parties executed the "Asset Purchase Agreement" (Plaintiff's Exhibit 1).
Plaintiff alleges that in October 1982 it considered suing Lotus for copyright infringement and decided against suit based on the state of the law at the time and the low probability of success on the merits. It is stipulated by the parties, nevertheless, that no representative of SAPC, at any time during negotiations leading to the Asset Purchase Agreement, made any statement about any possible claim for copyright infringement. I conclude however, that this evidence extrinsic to the Asset Purchase Agreement should not be considered as bearing on the interpretation of the Asset Purchase Agreement unless that agreement is determined to be ambiguous in relation to a matter material to the issue to be decided in the first phase of trial.
The parties in this case, although advancing different contentions about interpretation of the Asset Purchase Agreement, contend as their respective primary assertions that it is an unambiguous, integrated agreement. Also, the agreement contains an integration clause. According to Massachusetts law, that clause is presumptive evidence of the parties' manifested intent that the contract be the complete and final statement of the agreement. See Charles A. Wright, Inc. v. F.D. Rich Co., 354 F.2d 710, 714 (1st Cir.), cert. denied, 384 U.S. 960, 86 S.Ct. 1586, 16 L.Ed.2d 673 (1966). The presumption of finality created by the integration clause is reinforced in this instance by the completeness and specificity of the Asset Purchase Agreement as a whole. I conclude that the contract was manifestly meant to be a complete and integrated document.
In these circumstances, if the language of the contract has an ascertainable meaning as to the issues in dispute, the court must not consider extrinsic evidence to vary or modify that meaning. See Roberts-Neustadter Furs, Inc. v. Alyce B. Simon, 17 Mass.App.Ct. 262, 269 n. 4, 457 N.E.2d 668, 673 (Mass App.Ct.1983). In deciding whether an ambiguity exists, the court looks first to the words of the contract.
The critical provision of the Asset Purchase Agreement is section 2.1 "Acquired Assets".
SAPC argues that section 2.1 of the Asset Purchase Agreement, specifically the transfer of "copyrights", does not, without express reference to an accrued cause of action, transfer such a cause of action to Lotus. SAPC further argues that this provision, when read together with the document as a whole, establishes clearly that only "certain assets" specifically enumerated in the agreement were sold to Lotus. SAPC argues that the court's decision, although one resolving a question of traditional contract interpretation, must be informed by the substantive law of copyright, which holds that when a party transfers or assigns a copyright to another, that transfer does not include prior causes of action for copyright infringement. See Eden Toys, Inc. v. Florelee Undergarment Co., 526 F.Supp. 1187 (S.D.N.Y.1981), rev'd on other grounds, 697 F.2d 27 (2d Cir. 1982); see generally 3M. Nimmer, Nimmer...
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SAPC, Inc. v. Lotus Development Corp.
...all of SAPC's rights as part of the transaction pursuant to which Lotus acquired all rights related to the Visicalc program. 699 F.Supp. 1009. A Tangled The trial judge found the most significant background facts undisputed. 2 We adopt these factfindings, which are not clearly erroneous. F.......