Thryv, Inc. Hits Micro Focus With Texas DJ and Breach of Contract Action over ULA Type Certification
By Pam Fulmer
Those readers who follow the software industry and our blog know that Micro Focus has areputation for its brass knuckles audit tactics deployed against its customers to increase revenues. On a new twist to the Micro Focus audit playbook, Plaintiff Thryv, Inc. ("Thryv") alleges in a new suit that Micro Focus has breached the parties' license agreement and seeks a declaration from the Texas court that it owns certain perpetual licenses arising out of an unlimited license agreement certification process. According to the Complaint Thryv seeks a declaratory judgement "finding that Micro Focus has conveyed perpetual licenses to Thryv under the Agreement consistent with the certification it provided in July 2016, and that Thryv has no further payment obligations under the Agreement." Oracle customers certifying off Unlimited License Agreements ("ULA") may also find this case instructive.
Thryv is a "print and digital marketing company that delivers cloud-based business
software on a subscription basis as well as a host of marketing products to over 400,000 small businesses in the United States." Thryv contends that in late 2014 it "requested a proposal from Micro Focus to supply software for a specific project known as kGen/Monarch." Not knowing the exact configurations for the system, Micro Focus "proposed a "Volume License Addendum (“VLA”), whereby Thryv would be licensed to deploy and use an unlimited amount of specific types of Micro Focus software for a specified period of time." The parties agreed that at the end of the time frame "Thryv was to certify the deployment of the software and Micro Focus would then grant a perpetual license for the actual quantities of software deployed at that time (the “Certification Date”)."
Thryv contends that as the Certification Date approached, and as the contract was vague as to what information would be required, it requested a certification template from Micro Focus. After some delays Micro Focus provided such a template. Thryv claims that "the template was vague and requested information that was not required by the Agreement," and that "Micro Focus did not provide any other information to Thryv on how to complete the certification." The request for information not required by the Agreement is something we see frequently in Oracle ULA certifications. According to the Complaint, "Thryv timely and accurately listed all user counts and core counts that were deployed as of the Certification Date and provided the required certification under the Agreement to Micro Focus. Micro Focus acknowledged receipt of the certification document and indicated in writing that it would contact Thryv when the certification had been reviewed, if it had any questions. Micro Focus did not verify the certification as required by the Agreement. In fact, Micro Focus never contacted Thryv regarding the certification." Thryv alleges that under the Agreement the number of core and user counts specified by Thryv "as of the Certification Date became the maximum entitlement under the perpetual license going forward." Again this is very similar to an Oracle ULA certification.
Thryv contends that in November of 2018, over two years after it completed the certification form, Micro Focus commenced an audit. The Complaint alleges that only In mid-2020, nearly eighteen months after the audit began, "Micro Focus for the first time provided documentation indicating that it had not granted license entitlements for all items listed in the certification." Now Micro Focus claims that it disagrees with Thryv's interpretation of the certification requirements under the contract with Thryv's claimed license entitlement, and that Thryv owes it millions of dollars in licensing fees and back support. Specifically Thryv seeks a "declaratory judgment finding that Micro Focus has conveyed perpetual licenses to Thryv under the Agreement consistent with the certification Thryv provided in July 2016, and that Thryv has no further payment obligations under the Agreement." Thryv also seeks damages of between $200,000 to $1 million, dollars and the recovery of its attorneys' fees pursuant to the license agreement and Texas law.
Certainly a bad fact for Micro Focus is that it never responded to the Certification and apparently gave no indication to Thryv that it did not agree with the user and core count that Thryv had provided, and did not follow-up with any questions concerning the certification. Thryv will no doubt argue that Micro Focus is estopped from changing position now and that it has an express or at least an implied license to use the software given the conduct of Micro Focus.
This is a cautionary tale that American businesses using enterprise software should take note of. Customers certifying off unlimited license agreements involving Oracle, Micro Focus or other software vendors should consider retaining experienced legal counsel to advise them on what the contract requires, and potential risks and how to mitigate those risks involved in the certification process.
Tactical Law will be monitoring the case for further developments. Check our blog for periodic updates about the case. The case is Thryv, Inc. Vs. Micro Focus (Us), Inc., TX District & County - Tarrant District (141st District Court), Case No. 141-319074.
By Pam Fulmer
Recently Rimini filed its opposition to Oracle’s motion for an order to show cause why Rimini should not be held in contempt in the Rimini I litigation. Many of the legal arguments made by Rimini have already been previewed in the briefing on the various motions for summary judgment pending before the court in Rimini II. Below are some observations of some of the key arguments for those following the litigation and this blog.
Rimini claims that it does not host any Oracle software itself but instead accesses the software only from siloed, client hosted and client specific environments. Our readers may remember that the Nevada federal court and the Ninth Circuit took issue with Rimini’s legacy support model (Process 1.0), in which Rimini locally hosted its clients’ software environments on its own systems and used generic development environments to create updates. Rimini contends that under Process 2.0 no copying of Oracle code happens outside of the client’s siloed and specific environments and the client’s Oracle license allows such copying for that client. As a result, Rimini asserts that there is no violation of the injunction in its completely new and redesigned process. As for any objection that the code is copied into RAM, any RAM copies created are not copyright infringement as they are made in the client’s environment, which is fully licensed.
Rimini also asserts that the Process 2.0 was not actually litigated in Rimini I. Rimini argues that where a redesigned process is more than colorably different from that previously adjudicated process, adjudication of that new process in a summary contempt proceeding, which is what Oracle is trying to do, is not appropriate or constitutional. In fact, Rimini filed the Rimini II litigation for the purpose of getting a declaration from the court that its process is legitimate and does not constitute copyright infringement.
Another interesting Oracle argument is that Rimini can’t cross-use what it learns in one customer’s environment to solve a problem in another customer’s environment. Rimini argues that the conduct now accused by Oracle is the re-use of Rimini’s “know-how”, including Rimini work product not containing any Oracle code, gained by performing work for Client A to perform similar work for Client B. Rimini argues that this is not copyright infringement, but Rimini’s own knowledge that cannot be controlled by Oracle. In a heavily redacted Declaration, Rimini’s expert Professor Owen Astrachan has this to say:
Rimini also argues that Oracle’s copyrights have not been infringed as Rimini has not created a derivative work, which would require that Rimini “substantially incorporate protected material from the preexisting work.” That in turn requires that the new work be “substantially similar” to the protected work, requiring a substantial similarity analysis, including analytic dissection, which Rimini argues Oracle has not done. Rimini argues that it is irrelevant that the Rimini file, when later sent to and incorporated into a client’s PeopleSoft environment, causes that modified environment as a whole to become a derivative work (which is licensed and compliant with the injunction) because that does not make the stand-alone file (i.e., something 100% Rimini-created) a derivative work.
Another interesting issue in the litigation that Rimini argues was not litigated and decided in Rimini I involves the issue of cloud hosting. In Rimini I the injunction prohibited Rimini from reproducing, creating derivative works of, or using PeopleSoft software or documentation on, to or from “any computer systems other than a specific licensee’s own computer systems”. This requirement is a creature of the PeopleSoft license and not one of the exclusive rights granted by the Copyright Act. Rimini contends that the client’s cloud account where the software is hosted by Windstream is under the control of the client and thus is compliant with the requirements of the PeopleSoft license, which require the software to be hosted on the client’s “computer systems”. Rimini disputes that the physical hardware in the cloud environment needs to be owned by the client to be part of the client’s “computer systems”, and instead argues that the dispositive issue is control over the virtual environment and not ownership of the physical hardware.
Finally, Rimini argues that it has not violated the part of the injunction prohibiting distribution. For every single file that Oracle alleges Rimini “distributed,” Rimini argues that Oracle does not even contend, let alone prove, that the file contains Oracle code or is substantially similar to an Oracle copyrighted work. Rimini also argues that Oracle software has not been distributed as distribution under the Copyright Act requires proof of several elements, including that the work “changed hands” and that it was disseminated “to the public”, which Rimini claims is not the case here.
Tactical Law will continue to monitor the case. Check back here periodically for updates.
By Tactical Law Attorneys and From Time to Time Their Guests