KOFAX, INC v. USA

Filing 33

ORDER denying 21 Defendant's Motion for Summary Judgment. Signed by Senior Judge James F. Merow. (lae) Copy to parties.

KOFAX, INC v. USA

Doc. 33

In the United States Court of Federal Claims
No. 11-449 C
(Filed August 8, 2013)
KOFAX, INC.,
Plaintiff,
v.
THE UNITED STATES,
Defendant.

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ORDER
This order addresses defendant’s motion for summary judgment, plaintiff’s
opposition thereto and defendant’s reply. (ECF Nos. 21 (Mot.), 27-30 (Opp’n), 32
(Reply).)
FACTS
In an Amended Complaint (ECF No. 9) plaintiff, Kofax, Inc., pursuant to 28
U.S.C. § 1498(b), seeks to recover monetary damages for copyright infringement by
the United States. The asserted copyright infringement occurred during a Central
Intelligence Agency (CIA) project involving contracting for a system which would
enable CIA to digitize a very substantial backlog of its human resources documents.
Kofax develops information capture software which it licenses, installs,
supports and maintains. (Am. Compl. ¶ 6, ECF No. 9; Def.’s Answer ¶ 6, ECF No.
11.) The Kofax software involved in the instant copyright infringement claim are
Ascent Capture (Ascent) and Indicius Advanced Capture Suite (Indicius). (Id.) This
software was registered with the United States Copyright Office. (Am. Compl. ¶ 8,
ECF No. 9; Def.’s Answer ¶ 8, ECF No. 11; Mot. 4, 5, ECF No. 21.)
Sometime early in the summer of 2006, a CIA official contacted Gary Randall
Blevins, Chief Operating Officer and Executive Vice President of EDAC Systems,
Inc. (EDAC) to discuss EDAC submitting a proposal to provide the infrastructure to
meet CIA’s “HR Conversion Project requirements.” (Opp’n, Ex. 2 (Blevins’ Dep.),

Dockets.Justia.com

PA0018-23, ECF No. 28-1.) EDAC was an authorized reseller of Kofax software
whose obligations and duties in this respect were governed by a Reseller Agreement
with Kofax. (Opp’n, Ex. 3, PA0088-94, ECF No. 27-3.) The Kofax-EDAC Reseller
Agreement in its part 4, “Licensing Customers,” provided (in part):
Software is available by license from Licensor [Kofax], which license may be resold
by Reseller [EDAC]. Such Software and Documentation, including an end user
license, shall be delivered to the end user or to such other location as shall be
specified by the Reseller…. All purchase orders submitted to Licensor by reseller
shall be subject solely to the terms of this agreement, and any preprinted terms on any
purchase order form used for convenience of Reseller shall not alter or amend the
terms of this Agreement. All such orders are subject to written acceptance by
Licensor, which acceptance shall reference the terms of this Agreement.

(Id. at PA0088-89.)
Part 25 of the Kofax-EDAC Reseller Agreement provided, “[i]t is understood
that Reseller is an independent contractor and not an agent, partner or joint venturer
of Licensor and may not bind or incur any obligation or liability on behalf of Licensor
in any manner whatsoever.” (Id. at PA0093.) Part 26 of the Kofax-EDAC
Agreement provided that it “shall be construed and interpreted in accordance with the
laws of the State of California without giving effect to California’s conflicts of laws
principles thereof.” (Id.)
Shortly after the initial discussions with CIA concerning submitting a proposal,
during the period of June-July 2006, EDAC (Mr. Blevins) contacted Mr. Nick Caruso
of Kofax concerning pricing for licensing the Kofax software required for the
proposal EDAC would submit to the CIA. (Id., Ex. 2 (Blevins’ Dep.), PA0026-27,
ECF No. 28-1.) EDAC considered Kofax’s initial $2.2M price quote to perpetually
license the selected software to be excessive. (Id., Ex. 4, PA0105, ECF No. 27-4.)
Mr. Caruso suggested that instead of a perpetual license for selected software, a
substantial price discount could be offered by providing a special project license
limited to a 2-year term, approximating the anticipated duration of the CIA’s HR
conversion project. (Id., Ex. 2 (Blevins’ Dep.), PA0031-36, ECF No. 28-1; Ex. 7,
PA0122, ECF No. 29-2.)
Plaintiff in its Opposition Brief (Opp’n 5-8, ECF No. 27), with supporting
exhibits (ECF Nos. 27-30), details negotiations which transpired over some six
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months between Kofax and EDAC concerning the pricing of licenses for software
selected for its proposal to CIA and the information provided to CIA in this respect.
In March of 2007, the CIA officials involved obtained approval to enter into a
contract with EDAC without full and open competition. (Id. Ex. 5, PA0107, ECF No.
27-5.) On March 29, 2007, EDAC sent Kofax its purchase order No. 22487 for the
Kofax software selected for the CIA HR conversion project (Id., Ex. 2 (Blevins’
Dep.), PA0069-72, ECF No. 28-1; Ex. 19, PA0222, ECF No. 30-4.) For the Ascent
and Indicius Software, EDAC’s Purchase Order noted “[e]xpires in 2.5 [y]ears” on
each listed item. (Id., ECF No. 30-4.)
On March 30, 2007, Kofax issued Invoice No. 247370 and shipped the
software described on the invoice to EDAC. (Opp’n, Ex. 2 (Blevins’ Dep.), PA007379, ECF No. 28-1; Ex. 20, PA0224, ECF No. 30-5.) The Kofax invoice does not
match the items listed on EDAC’s Purchase Order and the shipped items were,
apparently, different versions of the software. The Kofax invoice contains no
mention of license term limits for these different versions of software. The deposition
testimony is confusing. Mr Blevins testified that the “[e]xpires in 2.5 [y]ears”
notations in the EDAC purchase order were in error as “it was meant to calculate 300
million images or plus.” (Id., Ex. 2, PA0072, ECF No. 28-1.) That is, the license
limits were in the number of images scanned, not the time involved. Mr. Blevins
further testified:
Q

And when you saw it and you saw that expires in two and a half years, did
you say anything to Diane about how you need to change that?

A

Absolutely, until we got the invoice, and then it became a moot point because
they billed us as perpetual licenses for everything, and they changed the part
numbers and the product on 11 of the 17 items that were on their invoice.

(Id. at PA0073.)
As for the different product shipped by Kofax, Mr. Blevins testified:
Q

When they shipped the wrong product, did you call them?

A

Nick called me. I was on the road. He called me on my cell phone,
as I recall. We are going back now, you know, five or six years. I
don’t remember where I was other than he did call me to let me know
that he was changing the configuration, and he just wanted to let me
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know, because I was not in the office to authorize that or anything
like that, and once he told me what he was doing, I was fine with it
because there was no limitations in terms of the license. We agreed
that it was going to be for the length of the HR project, but that was
it.

(Id. at PA0077.)
EDAC paid Kofax’s $570,234.00 invoice in full. (Opp’n Ex. 20, PA0224-25,
ECF No. 30-5.) The shipment of software covered by Kofax invoice No. 247370 also
included Kofax’s End User License Agreement (EULA). (Def.’s Answer ¶13, ECF
No. 11.) The actual physical installation of the software at the CIA was accomplished
by a combination of EDAC and Kofax personnel with the majority of the
development, programming, and configuration performed by Nick Caruso of Kofax.
(Opp’n, Ex. 2 (Blevins’ Dep.), PA0056-57, ECF No. 28-1.) The United States
procured the licenses for the installed Ascent and Indicius software from EDAC as
a reseller of the Kofax software and accepted the terms of the EULA that
accompanied this software. (Def.’s Answer ¶¶ 9, 13, ECF No. 11.)
Paragraphs 1(a), 3, 4, 13(b),(f) of the EULA state:
1. Software License.
(a) License Grant. Under the terms and conditions of this Agreement, Kofax Image
Products, Inc. (“Kofax”) grants You a non-exclusive, personal, non-transferable, nonsublicensable right to install the enclosed software program, in object code form only
(the “Software”) on Your networked or standalone computers for access and use by
the quantity of users (“Seats”) specified on the applicable invoice. Installation on a
network server for the sole purpose of your internal distribution of the Software is
permitted only if you have purchased an individual Software license for each
networked computer to which the Software is distributed. Use of the Software at or
by more than the specified number of concurrent Seats is expressly prohibited.
Additional Seats may be available for additional license fees. This Agreement does
not convey to You an interest in or to the Software, but only a limited right of use
revocable in accordance with the terms of this Agreement.…
3. Ownership. No title to or ownership in the Software is transferred to You. You
acknowledge and agree that Kofax and its suppliers (including but not limited to,
Adobe Systems, Inc. and OmniPlanar) own and retains all rights, title and interest in
the Software and ownership of all intellectual property rights in the Software,
including any adaptations or copies. You acquire only a license to use the Software.
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The Software is the proprietary product of Kofax and/or its suppliers and is protected
by the United States copyright laws and international provisions. You must treat the
Software as any other copyrighted material with the exception that (a) You may make
a single copy of the Software in non-printed machine-readable form for each Seat
licensed, and (b) You may make a single copy of the Software solely for back-up or
archival purposes. You agree not to attempt in any way to obliterate or destroy the
trade secret or copyright notice in all copies of the Software. You may produce and
maintain a number of copies of the documentation that correspond the number of
Seats licensed, but you may not distribute, post or otherwise make such
documentation available to third parties without the express written permission of
Kofax. You may not use, copy, modify, or transfer the Software or any
documentation accompanying this Software except as expressly provided in this
Agreement. You agree to keep a written record of all installations and copies of the
Software made and the disposition thereof, and to furnish a copy of such record to
Kofax upon request. Such records must be maintained for a period of three (3) years
from the date of creation.
4. Term. This license is effective until terminated. You may terminate it by
destroying the Software and accompanying documentation and all copies thereof.
This license will also terminate if You fail to comply with any term or provision of
this Agreement. You agree upon such termination to destroy the Software and
accompanying documentation and all copies thereof.
13. Miscellaneous.…
(b) Governing Law. The validity and performance of this Agreement shall be
governed by California law (without reference to choice of law principles) and
applicable federal law. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply.…
(f) Entire Agreement; Modification. This Agreement sets forth the entire
understanding and agreement between You and Kofax and may be amended only in
a writing signed by both parties.

(Am. Compl., Ex. 5, ECF No. 9-5.)
The EULA accompanying the Kofax software at issue concludes with the
following statement at the bottom of its final page:
YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT,
UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS AND
CONDITIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE AND
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EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN YOU AND
KOFAX REGARDING THE SOFTWARE, WHICH SUPERSEDES ANY
PROPOSAL OR PRIOR AGREEMENT OR ADDITIONAL LICENSE TEXT
ACCOMPANYING THE SOFTWARE ORAL OR WRITTEN, AND ANY OTHER
COMMUNICATIONS BETWEEN YOU AND KOFAX RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.

(Id.)
DISCUSSION
Plaintiff claims that the CIA procured 2.5-year term special project licenses for
Kofax Ascent and Indicius software and infringed Kofax’s copyright by continuing
to use this software after the 2.5-year license term that was procured had expired.
Defendant moves for summary judgment based on the EULA accompanying
the software that CIA procured. The EULA contains, in paragraph 13(f), an
integration clause stating, “[t]his Agreement sets forth the entire understanding and
agreement between you and Kofax and may be amended only in writing signed by
both parties.” (Am. Compl., Ex. 5, ECF No. 9-5.) The only reference to license terms
in the EULA is contained in its paragraph 4 which reads, “[t]his license is effective
until terminated.” (Id.) Defendant asserts that this text unambiguously describes a
perpetual license, and the integration clause serves to establish the document is fully
integrated thus precluding the introduction of evidence, extrinsic to the EULA, such
as Kofax-EDAC license negotiations, to otherwise interpret the license term.
Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1328 (Fed. Cir. 2003).
Plaintiff takes issue with defendant’s assertion that the EULA comprises a fully
integrated agreement, noting that the EULA does not mention: “(1) who is purchasing
software programs from Kofax; (2) what software was purchased; (3) how many
licenses were provided; (4) what price would be paid; or (5) where or when the
software would be delivered for use.” (Opp’n 25, ECF No. 27.)
The presence of an integration clause raises a strong presumption the contract
is a fully integrated agreement unless, as in the present circumstance, the document
is obviously incomplete. Rumsfeld, 329 F.3d at 1328-29. Parol evidence “must be
admissible on the issue of the extent to which a written agreement is integrated for,
… the writing cannot prove its own integration.” Sylvania Elec. Prods. v. United
States, 198 Ct. Cl. 106, 128, 458 F.2d 994, 1006 (1972). Extrinsic evidence as to the
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license purchase is crucial to complete the agreement reached. Other provisions
which are mandatory for federal government procurements would also be included.
G. L. Christian and Assocs. v. United States, 160 Ct. Cl. 1, 312 F.2d 418 (1963),
reh’g denied, 160 Ct. Cl. 58, 320 F.2d 345 (1963), cert. denied, 375 U. S. 954 (1963).
Plaintiff also takes issue with defendant’s assertion that EULA’s paragraph 4
text, “[this license] is effective until terminated,” establishes a perpetual license.
Plaintiff argues that a perpetual license requires the use of the term “perpetual.”
(Opp’n 27, ECF No. 27.)
Upon careful consideration of the extensive briefs submitted by the parties, it
is concluded that contrary to its integration clause, the EULA which accompanied the
software at issue is not a fully integrated agreement. The EULA is obviously
incomplete, particularly with respect to the purchase of the Kofax licenses including
the price paid and what relationship the purchase price paid had with respect to the
scope of the Kofax licenses procured. Purchase of a term limited license for use of
the software at issue, were that to be established, would in no way be in conflict with
paragraph four of the EULA which accompanied the software as any such license
would be effective, unless terminated during the term purchased and the license
would expire by its own terms at the conclusion of the use purchased. Therefore,
paragraph four of the EULA accompanying the software can be applied whether the
Kofax license purchased is for a limited term or in perpetuity, and does not serve to
create solely a perpetual license independent of the procurement transaction which
is missing from the document.
The parties agree that the CIA procured the Kofax licenses from EDAC, a then
authorized Kofax license reseller. (Def.’s Answer ¶ 9, ECF No. 11.) EDAC
negotiated pricing and paid Kofax for the licenses it then sold to the CIA. (Opp’n
9-10, ECF No. 27; Ex. 2 (Blevins’ Dep.), ECF No. 28-1.) EDAC could resell and
convey to the CIA only the licenses for which it had paid Kofax and acquired for the
installation and use of software under its sole source contract with the CIA to provide
the infrastructure for digitizing a large backlog of HR records. Thus, if EDAC
purchased a limited license from Kofax, it could resell only what it acquired, not a
perpetual license. Rhone Poulene Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d
1323 (Fed. Cir. 2002). However, if EDAC purchased a perpetual license from Kofax,
if could resell the perpetual license. Id.

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From the facts asserted by the parties in their comprehensive briefs and
supporting exhibits, as discussed earlier, there emerge genuine and material issues of
fact with respect to the scope of the licenses purchased by EDAC from Kofax and
then resold to CIA. From the testimony and documents presented, the scope of the
relevant licenses EDAC obtained and resold for the software involved could be
limited to a 2.5-year term, or limited to the duration of the CIA HR records project,
or limited as to the number of images to be taken1/, or not be limited at all, i.e., be
perpetual.
CONCLUSION
It having been determined that the EULA accompanying the relevant Kofax
software procured by the CIA is compatible with either limited or perpetual licenses,
and that there exist genuine and material issues of fact concerning the scope of the
relevant Kofax software licenses procured by the CIA from EDAC, as an authorized
Kofax reseller, the requirements for summary judgment pursuant to RCFC 56(a) have
not been met. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).
Accordingly, it is ORDERED that defendant’s motion for summary judgment
(ECF No. 21) is DENIED.

s/ James F. Merow
James F. Merow
Senior Judge

1/

Kofax distributed a “dongle” with its products that connects to a server and counts
images. (Opp’n, Ex. 2 (Blevins’ Dep.), PA0029, ECF No. 28-1.)
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