McAllister Software v. Henry Schein

Citation: McAllister Software Sys., Inc. v. Henry Schein, Inc., 2008 WL 922328 (E.D. Mo. Apr. 2, 2008).

Factual Background
On April 1, 1990, McAllister Software Systems, Inc. (“Plaintiff”) entered into an Exclusive Distributor Agreement (“EDA”) with Henry Schein, Inc. (“Defendant”). The EDA granted Defendant the right to exclusively sell, distribute and license the Plaintiff’s Veterinary Management System software. The EDA granted Defendant exclusive rights as the distributor of the software, as well as rights to any updates, upgrades and all future software produced by the Plaintiff. The EDA did not provide for any event which would result in the termination of Defendant’s control over Plaintiff’s software, and prohibited Plaintiff from entering into distribution agreements with a the Defendant’s competitors for a period of two years after termination of the EDA.

Subsequently, the Plaintiff sought to have the EDA declared null and void from creation alleging that it violated the Rule against Perpetuities. The Defendant moved for summary judgment.

Trial Court Proceedings
The District court granted summary judgment in favor of the Plaintiff. The court reasoned that Sections 8(c) and 17(c) of the EDA violated the Rule against Perpetuities and the agreement was null and void from the time it was created.

Section 8(c) stated, “Schein shall have the right to be the exclusive distributor of any other software designed for the Market that [Plaintiff] produces, develops, or acquires the right to hereafter.” Section 17(c) stated that Plaintiff “will keep and maintain a current version of the software’s source code and supporting documentation in escrow with its attorney or a professional computer software agent. . . if [Plaintiff] fails to support the software to the reasonable satisfaction of Schein. . . Schein shall have the right to immediately obtain the source code from the escrowee.”

The EDA violated the Rule against Perpetuities because no “measuring lives” were stating in the EDA. Since both parties are corporations, the permissible “period for the suspension of the absolute power of alienation is 21 years.” Section 8(c) and 17(c) provided the Defendant with all future veterinary products the Plaintiff developed. Thus the property interest the EDA created suspended Plaintiff’s absolute power of alienation beyond a period of 21 years violating the Rule against Perpetuities.