Teragram Corporation v. Marketwatch.Com, Inc.

• Decision Date: 05 April 2006
• Docket Number: No. 05-1635.,No. 05-1636.,05-1635.,05-1636.
• Citation: 444 F.3d 1
• Parties: TERAGRAM CORPORATION, Plaintiff, Appellant/Cross-Appellee, v. MARKETWATCH.COM, INC., Defendant, Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — First Circuit

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444 F.3d 1

TERAGRAM CORPORATION, Plaintiff, Appellant/Cross-Appellee, v. MARKETWATCH.COM, INC., Defendant, Appellee/Cross-Appellant.

No. 05-1635.

No. 05-1636.

United States Court of Appeals, First Circuit.

Heard January 9, 2006.

Decided April 5, 2006.

Lee T. Gesmer, with whom Joseph J. Laferrera, Kurt E. Bratten, and Gesmer Updegrove LLP were on brief, for appellant/cross-appellee.

Maria E. Recalde, with whom Mark J. Ventola, Sheehan Phinney Bass + Green, P.A., William P. Kelly, and McCarthy & Kelly LLP were on brief, for appellee/cross-appellant.

Before LYNCH, Circuit Judge, BOWMAN,^* Senior Circuit Judge, and HOWARD, Circuit Judge.

LYNCH, Circuit Judge.

This is a contract dispute between Teragram Corporation and Marketwatch.com, Inc., a.k.a. "ScreamingMedia."¹ The dispute centers on three software products, referred to collectively as "the Teragram Software," which Teragram licensed to ScreamingMedia. The first two products, (1) Entity Extraction, SDK, and TLGREP Entity Compilers and (2) Entity Extraction English Dictionaries and Grammars, are together referred to as the "Entity Extraction Software," while the third, Summarization Engine with English Data, is referred to as the "Summarization Software."

Teragram sued for breach of contract and sought damages of $193,520, representing the annual licensing and support fees for the first two years of the three-year contract; ScreamingMedia counterclaimed that Teragram misrepresented its products and was itself in breach of contract, thus excusing ScreamingMedia from its payment obligations. The district court, on cross-motions for summary judgment, issued judgment in favor of Teragram with respect to the Summarization Software and limited Teragram's damages award to the amount of one year's licensing and support fees for that product, totaling $36,816. The court also entered judgment in favor of ScreamingMedia with respect to the Entity Extraction Software and awarded nominal damages of $1.00. The court reached different results as to each product in part because ScreamingMedia did not give timely notice to Teragram of the alleged material failure of the Summarization Software, but did give timely notice of the alleged material failure of the Entity Extraction Software.

Teragram appeals the issuance of summary judgment against it with respect to the Entity Extraction Software; it also appeals the limit the district court set on the damages award in its favor. ScreamingMedia cross-appeals from the issuance of summary judgment in Teragram's favor with respect to the Summarization Software.

We affirm the district court's judgment.

I.

The facts are not in dispute. ScreamingMedia was, at all relevant times, in the business of providing summarized textual content, such as news stories, to mobile phone users and other third parties. Initially, the company employed human editors to consolidate full-text news stories into 160-character digests that would fit on mobile phone screens. In 2001, however, it began to seek out software that would both automate the summarization process and insert hyperlinked stock market ticker symbols into the text of summarized articles.

To this end, in June 2001, ScreamingMedia entered into discussions with Teragram, a linguistic technology company. Teragram accepted ScreamingMedia's invitation to participate in a competitive evaluation of its software and installed LINUX versions of its software on ScreamingMedia's computer server. At the conclusion of that evaluation process, ScreamingMedia decided to license Teragram's software, and the parties entered into a licensing agreement ("Agreement") effective on October 17, 2001. The interpretation of this Agreement is at the crux of the present dispute.

Under the Agreement, ScreamingMedia received from Teragram a limited license to the Teragram Software. The Agreement also required Teragram to provide to ScreamingMedia certain maintenance and support services that were set forth in an Exhibit B.

Pursuant to the Agreement, ScreamingMedia was obliged to pay Teragram a total of $59,944 annually (over a three-year period) for the Entity Extraction Software, consisting of $50,800 in license fees and $9144 in support fees. As for the Summarization Software, ScreamingMedia was to pay Teragram a total of $36,816 annually, consisting of $31,200 in license fees and $5616 for support fees. Payment of these fees was due "30 days following the Delivery Date of [the] software and on the anniversaries of the Delivery Date." The Agreement defined "Delivery Date" as "the date [the particular Teragram Software in question] is delivered to Licensee."

Section 4 of the Agreement, entitled "Term and Termination," provided that "[t]he license for each Teragram Product shall not commence until the Delivery Date for such Teragram Product," and that the Agreement would "terminate as to each Teragram Product upon the third anniversary of such Teragram Product's Delivery Date, unless earlier terminated in accordance with this [section]." The section went on to specify:

This Agreement and the licenses granted hereunder may be terminated by either party in the event of a material breach hereof by the other which is not cured within thirty (30) days after the breaching party's receipt of notice of such breach from the nonbreaching party....

Section 7 of the Agreement set forth a standard "repair-or-replace" warranty:

Teragram warrants that the Teragram Products, for a period of thirty (30) days after delivery to [ScreamingMedia], shall perform substantially in accordance with the Documentation. [ScreamingMedia's] exclusive remedy and Teragram's sole liability under this warranty shall be for Teragram to correct any material failure of the Teragram Products to perform as warranted, if such failure is reported to Teragram within the warranty period.... In the event that Teragram cannot, after repeated efforts, remedy such failure, Teragram shall refund all license and support fees received by Teragram from [ScreamingMedia] with respect to the defective Teragram Product hereunder and terminate the Agreement as to such Teragram Product....

The next paragraph, which limits both the warranties and the definition for breach of warranty, states in bold type:

THE ABOVE ARE THE ONLY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, THAT ARE MADE BY TERAGRAM AND TERAGRAM DISCLAIMS ALL OTHER WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR THAT THE OPERATION OF THE TERAGRAM PRODUCTS WILL BE UNINTERRUPTED OR ERROR-FREE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY TERAGRAM, ITS

AGENTS OR EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE WARRANTIES IN THIS AGREEMENT. SUCH WARRANTIES SHALL NOT BE DEEMED TO HAVE FAILED OF THEIR ESSENTIAL PURPOSE SO LONG AS TERAGRAM IS MAKING GOOD FAITH EFFORTS TO CORRECT DEFECTS OR FAILURES UNDER THE TERMS OF THE WARRANTY.

Section 9(a) of the Agreement, entitled "Limitation of Liability," set a limit on the form and amount of ScreamingMedia's recovery in event of breach:

REGARDLESS OF WHETHER ANY REMEDY SET FORTH IN THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL TERAGRAM ... BE LIABLE FOR ANY INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL, OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE) ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE THE TERAGRAM PRODUCTS EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO CASE SHALL TERAGRAM'S AGGREGATE LIABILITY FOR ANY ONE MATTER ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEED THE AMOUNT ACTUALLY RECEIVED BY TERAGRAM FROM [SCREAMINGMEDIA] UNDER THIS AGREEMENT IN THE TWELVE (12) MONTHS PRECEDING THE OCCURRENCE OF SUCH MATTER, AND FOR ALL MATTERS, IN THE AGGREGATE, THE TOTAL AMOUNT ACTUALLY RECEIVED BY TERAGRAM FROM [SCREAMINGMEDIA] UNDER THIS AGREEMENT.

Teragram first delivered to ScreamingMedia a LINUX version of the Summarization Software on October 23, 2001. It made subsequent deliveries of new releases of the Summarization Software on November 2, 6, 8, 9, and 27, 2001, and on December 10, 2001. Also on December 10, 2001, Teragram made its first delivery of the LINUX versions of the Entity Extraction Software. Teragram later delivered new LINUX versions of that software on January 20, 2002 and Windows-compatible versions on January 21, 2002.² In between the various delivery dates, the parties frequently communicated by e-mail.

On December 18, 2001, ScreamingMedia sent an e-mail to Teragram requesting an invoice for the 2001 annual fees. Teragram replied by e-mail the next day, with an invoice for the amount of $96,760. Teragram followed up on January 23, 2002 with a second e-mail, again attaching a copy of the invoice; that same day, ScreamingMedia responded by e-mail that the invoice had already been approved and that payment was "probably caught up in [the] morass" of the company's "end-of[-] quarter accounting." When payment was not made by February 19, 2002, Teragram sent a third e-mail and invoice to ScreamingMedia, again requesting payment. These e-mails were cordial in tone.³

The next day, on February 20, 2002, Teragram received by overnight mail a letter from ScreamingMedia. The letter, which was dated February 19, 2002, alleged that "Teragram ... is in material breach of the ... License Agreement" because the Teragram Software "has substantially failed to achieve the results that Teragram warranted."⁴ According to the letter, "Teragram insisted, both in verbal communications between the parties as well as in its product literature ..., that its product would allow" ScreamingMedia "to locate company names, names of executives, places and other entities (concepts) within textual documents" and "to discover...