InStep Software, LLC v. Instep (Beijing) Software Co., Ltd.
Filing
147
MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 4/2/2013. Mailed notice. (np, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
INSTEP SOFTWARE, LLC,
Plaintiff,
v.
INSTEP (BEIJING)
SOFTWARE CO., LTD.,
Defendant.
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Case No. 11-CV-3947
Judge John W. Darrah
MEMORANDUM OPINION AND ORDER
Plaintiff InStep Software, LLC filed suit against Defendant Instep (Beijing)
Software Co., Ltd. on June 9, 2011. The Complaint seeks a declaratory judgment that a
Software License Agreement between the parties has terminated. Defendant moved to
dismiss the Complaint, but this motion was denied, as was Defendant’s motion for
reconsideration of the dismissal. Thereafter, Defendant filed an answer, again denying
the existence of diversity jurisdiction and denying the parties entered into a Software
License Agreement. Defendant did not assert any affirmative defenses. Now, Plaintiff
moves for summary judgment, seeking entry of a declaratory judgment that the Software
License Agreement, and the included grant of license and rights to the Licensed Property
to Defendant under it, terminated May 13, 2011. Defendant opposes this motion.
BACKGROUND
Local Rule 56.1(a)(3) requires a party moving for summary judgment to provide
“a statement of material facts as to which the moving party contends there is no genuine
issue.” Rule 56.1(b)(3) then requires the nonmoving party to admit or deny each factual
statement proffered by the moving party and to concisely designate any material facts
that establish a genuine dispute for trial. See Schrott v. Bristol-Myers Squibb Co.,
403 F.3d 940, 944 (7th Cir. 2005). A litigant’s failure to dispute the facts set forth in an
opponent’s statement in the manner dictated by Local Rule 56.1 results in those facts’
being deemed admitted for purposes of summary judgment. Smith v. Lamz, 321 F.3d
680, 683 (7th Cir. 2003).
Local Rule 56.1(b)(3)(C) permits additional material facts to be provided by the
nonmoving party. Local Rule 56.1(a)(3) then allows the moving party to submit a
concise reply to these additional facts. Rule 56.1 requires statements of facts to consist of
short, numbered paragraphs. To the extent that a response to a statement of material fact
provides only extraneous or argumentative information, this response will not constitute a
proper denial of the fact, and the fact will be admitted. See Graziana v. Village of
Oak Park, 401 F. Supp. 2d 918, 937 (N.D. Ill. 2005). Similarly, to the extent that a
statement of fact contains a legal conclusion or otherwise unsupported statement,
including a fact which relies upon inadmissible hearsay, such a fact is disregarded.
Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997). Many of the purported
facts submitted by Defendant were disregarded, as they were argumentative, sought to
introduce a legal conclusion, or otherwise unsupported by the record.
The following is taken from the parties’ statements of undisputed material facts
submitted in accordance with Local Rule 56.1. Plaintiff is an Illinois limited liability
company with its principal place of business located in Chicago, Illinois. (Pl.’s SOF ¶ 1.)
Plaintiff develops and licenses engineering software for government entities and other
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industries. (Id.) Defendant is a Chinese limited liability Sino-foreign equity joint venture
with its principal place of business in Beijing, People’s Republic of China. (Id. ¶ 2.)
Plaintiff, along with Li Wenjuan and Li Xiaomin, is a party to the joint-venture
Defendant. (Id.) Plaintiff’s claim arises under 28 U.S.C. § 2201(a), to determine the
rights of the parties under the License Agreement. (Id. ¶ 3.) Jurisdiction is premised
upon diversity, pursuant to 28 U.S.C. § 1332(a)(2), and venue is proper under 28 U.S.C.
§ 1391(a)(2). 1 (Id. ¶ 4.)
In China in 2002, Li Xiaomin and Li Wenjuan owned and operated a company
called “Beijing Kuyin Technology Co., Ltd.” (“Kuyin”), which sold the software of one
of Plaintiff’s competitors. (Id. ¶ 5.) However, on November 27, 2002, an agreement was
entered into between Kuyin and Plaintiff, entitled the “Beijing Kuyin Technology Co.,
Ltd. and InStep Software LLC Co-Operation Agreement.” (Id. ¶ 7.) In or around
January 2005, Li Xiaomin and Li Wenjuan formed the Defendant joint venture, as well as
“Instep Asia Limited,” a Hong Kong company, which became a 33.3% shareholder of
Defendant. (Id. ¶ 8.) Instep Asia Limited, Li Xiaomin, and Li Wenjuan entered into the
“Contract for Sino-Foreign Equity Joint Venture.” (Id.)
On February 23, 2005, the parties entered into the “Instep (Beijing) Software Co.,
Ltd. and InStep Software LLC Co-Operation Agreement.” (Id. ¶ 9.) On February 27,
2006, the parties entered into a new Co-Operation Agreement. (Id.) Under the CoOperation Agreements, Kuyin and Defendant promoted the sale of Plaintiff’s eDNA
software suite in China. (Id. ¶ 10.) On May 4, 2007, Instep Asia transferred its one-third
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As mentioned above, Defendant denies jurisdiction exists, as it argued in its
Motion to Dismiss and Motion for Reconsideration, which were both previously denied.
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equity stake in Defendant to Plaintiff, pursuant to an “Equity Transfer Agreement.” (Pl.’s
SOF ¶ 12.) That same day, Li Xiaomin and Anthony Maurer (on behalf of Plaintiff)
entered into the Software License Agreement between Plaintiff and Defendant. (Id. ¶
13.)
Section 2.1 of the Software License Agreement grants a license from Plaintiff to
Defendant of the “Licensed Property,” which consists of software owned or held by
Plaintiff, described as “eDNA service, interfaces and clients, subject to relevant United
States and Chinese import/export laws and restrictions.” (Id. ¶ 16.) That section of the
Software License Agreement further provides “[r]oyalties and pricing for sales in the
People’s Republic of China shall be established by mutual agreement in writing between
[Plaintiff] and [Defendant]. The royalties and pricing must be renewed annually. Grant
of this license and rights is contingent on this mutual agreement.” (Id. ¶ 17.) The royalty
agreement in Section 2.1 of the Software License Agreement provides that Plaintiff
grants Defendant “a non-transferable right and license” and included a requirement for a
written annual agreement on royalties and pricing. (Id. ¶ 18.) The waiver provision,
Section 8.5 of the Software License Agreement, further provides:
The failure of any party at any time to require performance by the other
party of any provision hereof shall in no way affect the right to require
such performance in full at any time thereafter. Nor shall the waiver by
any party of a breach of any provision hereof constitute a waiver of the
provision itself. Any waiver hereunder shall be in writing and executed by
an officer of the party agreement to such waiver.
(Id. ¶ 19.) Additionally, the Software License Agreement states in Section 8.8 that “This
agreement embodies all of the terms and conditions of the agreement between the parties
with respect to the matters set forth herein and supersedes any and all prior or
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contemporaneous agreements, representations, understandings or discussions of any kind
between the parties in respect of the subject matter hereof.” (Id. ¶ 20.)
The “Statement of Xiaomin Li” was filed in support of Defendant’s Motion to
Dismiss; it was submitted with a Chinese-language “Joint Venture Agreement as
maintained in the governmental offices in China” and allegedly signed by Plaintiff’s
representative, John Kalanik. (Id. ¶ 24.) The Statement of Xiaomin Li was also
submitted with an unsigned “true and correct translation” of the putative agreement in
English. (Id.) However, there are errors in the English translation, including the
omission of the date. (Id. ¶ 26.) Additionally, the Chinese version and English version
differ on whether or not Plaintiff may appoint members to the board of directors. (Id.)
Nothing in any version of any draft or putative version of the Joint Venture Contract
refers to the Software License Agreement or purports to modify any of its provisions or
the requirement of § 2.1 of the Software License Agreement that the parties reach and
annually renew a written agreement on royalties and pricing. (Id. ¶ 28.) Plaintiff has not
received royalties or other revenue from Defendant’s licensing of Plaintiff’s eDNA
software. (Id. ¶ 30.) Plaintiff claims it did not sign or authorize anyone to sign the
Chinese version of the Joint Venture Agreement, and the English version is unsigned;
Defendant disputes this.
On May 6, 2011, Plaintiff sent Defendant a cover letter and “Schedule for
Royalties and Pricing for Sales in the People’s Republic of China,” proposing terms for
customer pricing. (Id. ¶ 34.) The letter further provided, in pertinent part:
“We refer to the Software License Agreement, dated as of
May 4, 2007, between you and us (the ‘SLA’) Pursuant to
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Section 2.1 of the SLA, accompanying this letter is a
Schedule for Royalties and Pricing for Sales in the People’s
Republic of China (the “Schedule”). The Schedule reflects
our royalties and pricing for the software licensed to you
under the SLA, as well as the associated pricing for
maintenance and support. These royalties and pricing have
been generally accepted in the marketplace and are fair and
reasonable for the rights granted and services performed.
The royalties and pricing are effective as of May 1, 2011.
Failure to accept the Schedule by executing and returning a
copy to us within four (4) business days of the date of this
letter will be deemed a rejection of our royalties and
pricing, which as you know, must be renewed annually and
upon which the SLA is contingent. Unless we mutually
agree on these terms, the SLA and the rights therefore will
cease to have further effect on the fifth (5th) business day
following the date of this letter.
(Id. ¶ 35.) Defendant rejected the proposed Schedule for Royalties and Pricing. (Id. ¶
37.) Plaintiff terminated the Software License Agreement by a letter, effective May 13,
2011. (Id. ¶ 40.) Defendant disputes the termination of the agreement and argues
Plaintiff failed to fulfill its duties under the Joint Venture Agreement.
LEGAL STANDARD
Summary judgment is proper “if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c).
The moving party bears the initial responsibility of informing the court of the basis for its
motion and identifying the evidence it believes demonstrates the absence of a genuine
issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). If the
moving party meets this burden, the nonmoving party cannot rest on conclusory
pleadings but, rather, “must present sufficient evidence to show the existence of each
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element of its case on which it will bear the burden at trial.” Serfecz v. Jewel Food
Stores, 67 F.3d 591, 596 (7th Cir. 1995) (citing Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 585-86 (1986)). A mere scintilla of evidence is not enough to
oppose a motion for summary judgment, nor is a metaphysical doubt as to the material
facts. Robin v. Espo Eng. Corp., 200 F.3d 1081, 1088 (7th Cir. 2000) (citations omitted).
Rather, the evidence must be such “that a reasonable jury could return a verdict for the
nonmoving party.” Pugh v. City of Attica, Ind., 259 F.3d 619, 625 (7th Cir. 2001)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (Anderson)).
In considering a motion for summary judgment, the court must view the evidence
in the light most favorable to the nonmoving party and draw all reasonable inferences in
the nonmoving party’s favor. Abdullahi v. City of Madison, 423 F.3d 763, 773 (7th Cir.
2005) (citing Anderson, 477 U.S. at 255). The court does not make credibility
determinations or weigh conflicting evidence. Id.
Under 28 U.S.C. § 2201(a), the Declaratory Judgment Act, a court “may
declare the rights and other legal relations of any interested party seeking such
declaration, whether or not further relief is or could be sought. Any such declaration shall
have the force and effect of a final judgment or decree and shall be reviewable as such.”
A district court has discretion to determine whether to consider a suit under the
Declaratory Judgment Act. Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) (citations
omitted). “As long as a live controversy exists between the parties, the district court has
discretion to declare the rights of the parties.” Northfield Ins. Co. v. City of Waukegan,
701 F.3d 1124, 1134 (7th Cir. 2012).
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ANALYSIS
Plaintiff moves for summary judgment, seeking a declaration that the May 4,
2007 Software License Agreement was terminated, effective May 13, 2011, thereby
terminating Defendant’s license and rights to the Licensed Property. Defendant argues
summary judgment for Plaintiff is not warranted, contending that Plaintiff’s conduct
“amounted to both a breach of its existing obligations at the time . . . and an anticipatory
breach of its obligations with regard to future performance.” (Def.’s Resp. at 5.) This
breach on the part of Plaintiff was so material, Defendant argues, that it precludes a
declaration in Plaintiff’s favor. (Id. at 6.) Essentially, Defendant relies upon the Joint
Venture Contract, which Defendant claims supersedes the Software License Agreement’s
requirements regarding renewal and pricing.
It is apparent from the statement of facts that the Software License Agreement
alone governed Defendant’s right to license the software at issue. Defendant asserts the
Joint Venture Agreement “imposed fiduciary obligations on both the parties and their
principals . . . .” (Def.’s Resp. at 12.) However, the Software License Agreement
provides that the contract “embodie[d] all of the terms and conditions of the agreement
between the parties with respect to the matters set forth herein and supersedes any and all
prior or contemporaneous agreements, representations, understandings or discussions of
any kind between the parties” regarding the subject matter of the Software License
Agreement. (Software License Agreement § 8.8.) “[W]here parties formally include an
integration clause in their contract, they are explicitly manifesting their intention to
protect themselves against misinterpretations which might arise from extrinsic evidence.”
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TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 636 (7th Cir.
2007) (quoting Air Safety, Inc. v. Teachers Realty Corp., 706 N.E. 2d 882, 885 (Ill.
1999)). Thus, in reviewing the terms of an agreement that contains an integration clause,
like the clause in the Software License Agreement, the “four corners rule” applies, and
extrinsic evidence need not be considered. Id.
As set out above, the Software License Agreement provides that royalties and
pricing are established by written agreement between Plaintiff and Defendant and that the
royalties and pricing “must be renewed annually. Grant of this license and rights is
contingent on this mutual agreement.” (Software License Agreement § 2.1.) Plaintiff
provided Defendant a proposed Schedule for Royalties and Pricing on May 6, 2011, and
stated that the rights granted to Defendant under the Software License Agreement would
terminate on May 13, 2011, four business days later, if Defendant rejected the proposed
royalties and pricing terms. (56.1(a)(3) Statement Ex. 5.) Defendant did not accept the
proposed royalties and pricing terms. Because the grant of the license to Defendant was
expressly contingent on a mutual agreement on royalties and pricing, the parties’ failure
to agree to royalty terms resulted in the termination of the Software License Agreement.
Whatever reasons Defendant seeks to introduce to explain this failure to come to
agreement on the royalty terms, including a “drastic” increase in price and the possibility
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that Defendant would no longer be granted exclusive licensing rights, are irrelevant. 2
The simple fact is that the parties did not come to agreement as to the royalties and
pricing in 2011; this failure to agree on terms resulted in a termination of the Software
License Agreement, which was expressly contingent on the parties’ agreement on royalty
terms.
Defendant’s attempts to avoid this result by relying on the Joint Venture
Agreement, which it claims governs the relationship between Defendant and Plaintiff, are
unavailing. (Def.’s Resp. at 11.) Defendant argues that the “Joint Venture Agreement
and Software License Agreement were part of a single transaction” and that, therefore,
the agreements should be considered in tandem. (Id. at 12.) However, while the
agreements related to the same transaction, neither agreement incorporated the other by
reference, and the parties to each agreement were not entirely the same. See Rosenblum
v. Travelbyus.com Ltd., 299 F.3d 657, 663 (7th Cir. 2002) (considering two agreements
and stating upon review that “these agreements were both necessary, but self-contained,
as components of a comprehensive business transaction. While the contracts are related,
they are not two sections of the same agreement; they are separate, free-standing
contracts. Each contract delineates rights and duties independent of the other and that
pertain to a particular subject matter. One contract may be fully performed while the
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Defendant seems to suggest Plaintiff violated an implied covenant of good faith
and fair dealing in the Software License Agreement. However, Defendant never raised
this as an affirmative defense, nor asserted it as a counterclaim; it is therefore waived.
The Federal Rules of Civil Procedure require all affirmative defenses to be expressly
pleaded; otherwise, a defendant waives its right to rely on such defenses. See Fed. R.
Civ. P. 8(c). Moreover, even if Defendant had not waived this defense, Defendant failed
to present any facts in support of a finding of a violation of the implied covenant of good
faith.
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other is breached. . . .” and determining that the two agreements were complete on their
own.). Similarly, here, Defendant fails to demonstrate how the two agreements should be
construed as a single transaction. Moreover, this is contrary to the clearly expressed
integration clause of the Software License Agreement, as explained above. Absent
ambiguity in the terms of the Software License Agreement, the parol evidence rule bars
consideration of other agreements. The duties imposed upon Plaintiff by the Joint
Venture Agreement are therefore irrelevant to the analysis of the Software License
Agreement.
Because the parties failed to come to an agreement on the royalty and pricing
terms, the Software License Agreement and underlying grant of license and rights to the
Licensed Property to Defendant were terminated effective May 13, 2011.
CONCLUSION
In light of the foregoing analysis, Plaintiff’s Motion for Summary Judgment is
granted. Therefore, a declaratory judgment is entered, finding that the Software License
Agreement was terminated effective May 13, 2011.
Date: April 2, 2013
______________________________
JOHN W. DARRAH
United States District Court Judge
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