Micro Data Base Systems v. State Bank of India

Citation: Micro Data Base Sys., Inc. v. State Bank of India, 177 F. Supp. 2d 881 (N.D. Ind. 2001).

Factual Background
Plaintiff, Micro Data Base Systems, Inc. (MDBS), is a computer software program company who has its principal office and place of business in Indiana. MDBS created and wrote the MDBS Data Management System, which was an original computer software program. The MDBS Software contains a large amount of material wholly original with MDBS, and is copyrighted. Defendant, State Bank of India, has it principal office and place of business in India. State Bank has a long standing, major office in Chicago that conducts banking activity in a broad region that includes Indiana.

MDBS has complied in all respects with the Copyright Act of July 30, 1947. MDBS Software was published by Plaintiff, and all copies and reproductions of it made by Plaintiff or under its authority or licenses have been printed, bound, published and otherwise reproduced in conformity with the laws governing copyright. Plaintiff has been the sole and exclusive proprietor of all rights, title, and interest in and to the copyright in said MDBS Software. In March of 1998 State Bank and MDBS entered into an End User License Agreement for MDBS IV. State Bank and MDBS entered into a second contract in the same month for an MDBS IV Runtime Distribution License Agreement.

Under the Agreement, State Bank agreed to maintain, and make available, those records necessary for MDBS to verify State Bank’s compliance with the contract. State Bank also agreed to submit to calendar quarterly reports, accounting for all of State Bank’s distributions of MDBS software and State Bank’s purchase of tokens. Moreover, State Bank agreed to provide good faith cooperation to assist MDBS in enforcing its’ rights.

MDBS charged a royalty for each copy of each MDBS module. MDBS customers agreed to track and account for shipment of MDBS modules by prepurchasing module-specific tokens for each copy of each module. Beginning in the early 1990’s, State Bank installed MDBS software in more than 130 State Bank offices around the world, including installing MDBS software to drive a third-party banking program known as IBSnet.

A firm known as Morgan Laboratories created IBSnet and sold it to State Bank. In May 1991, Morgan and MDBS entered into a software distribution agreement that allowed the installation of two MDBS modules known as DMS and RCV for IBSnet installations in geographical land boundaries of the country of India. State Bank was not a party to the Morgan-MDBS agreement.

In 1996, MDBS and Morgan sued each other and part of their settlement was to terminate their distribution agreement which included the authorized distributions of DMS and RCV modules for IBSnet installations in India. Because of the termination of the MDBS-Morgan license agreement, Morgan told State Bank that it could no longer distribute MDBS software to State Bank. State Bank consulted Kindle Banking Systems for help, but Kindle instructed State Bank to acquire MDBS licenses directly from MDBS and that it could not license MDBS software to State Bank.

On March 31, 1998, State Bank entered into a new license agreement with MDBS for installations of IBSnet and placed an initial order for tokens. MDBS explained to Kindle and State bank that State Bank, as an MDBS licensee, would itself be obligated to comply with the MDBS token system for licensing of all software modules. State Bank argued that its obligation to purchase and use tokens under its March 31, 1998 distribution license with MDBS should only apply to State Bank’s branches outside of India. The court found that the contract did not support State Bank’s argument. Under the March 31, 1998 agreement, State Bank agreed to account for all MDBS modules. State Bank failed to comply with MDBS inquiries about State Bank’s license compliance which led MDBS to sue for breach of contract and for copyright infringement pursuant to 17 U.S.C. §501.

Breach of Contract
Both parties stipulated that State Bank’s March 1998 license agreement with MDBS obligated State Bank, prior to distributing MDBS software, to purchase tokens from MDBS and attach the tokens to the software to be distributed. The court found that State Bank was in breach of contract because it failed to prepurchase and use the required tokens for each of State Bank’s installations of specified MDBS software modules. State Bank argued that MDBS failed to license all the modules necessary to run the IBSnet software and as such MDBS should not recover any alleged failure by State Bank to purchase the requisite licenses from MDBS.

The court found the argument to be unpersuasive because the argument was not raised or fully developed at or before the bench trial and State Bank did not plead the implied warranty with particularity nor did it prove its existence by a preponderance of the evidence. Further, State Bank argued that its March 31, 1998 distribution license agreement with MDBS only applied to State Bank’s international installations of MDBS software and had no application to State Bank’s installations of MDBS software within India. The court found that the distribution license was not geographically restricted and concluded that State Bank was liable for all MDBS modules that State Bank used, duplicated or distributed without proper MDBS tokens affixed pursuant to the March 1998 agreement.

Copyright infringement
Both parties stipulated and the court concluded that the MDBS software at issue in the case was copyrighted. The court found that State Bank waived its argument to personal jurisdiction based on its conduct. State Bank had actively participated in the discovery process as to all claims and failed to raise the issue through the proper means to ensure a quick and immediate resolution to the personal jurisdictional question; but rather waited almost nine months until the submission of its post-trial brief to raise the issue. The court was displeased with this type of tactic and concluded that State Bank was liable for copyright infringement for any unlicensed use, duplication or distribution of the copyrighted MDBS software within the United States. 17 U.S.C. §501.

The court then stated that any copyright infringement claims that arose outside of the United States must fail as a matter of law, because copyright laws of the United States do not have extraterritorial effect. Thus MDBS’s claim for damages based upon State Bank’s failure to properly use MDBS’s various modules pursuant to a valid license outside of the United State or its territories prior to March 31, 1998 is without merit. However, recovery for damages pursuant to the copyright claim were still viable because of the unauthorized use of two modules at State Bank’s New York office.

Damages
On May 26, 2001, State Bank disclosed extensive tokenless installations of MDBS modules. The court determined that State Bank distributed at least 414 MDBS modules without tokens in contravention of State Bank’s express agreement with MDBS. Prejudgment interest is part of the award of the compensation necessary to make the plaintiff whole. Because prejudgment interest is part of the compensation of MDBS under a state law contract theory, the Indiana measure of prejudgment interest was used.

The court then calculated a prejudgment interest on a per module basis at the rate of 8.0%, compounded annually, dating from each year in which State Bank should have paid royalties for particular installations of MDBS software modules. The damages awarded to the plaintiff totaled $ 447,000 plus pre-judgment interest of $66,409.