1mage Software v. Reynolds & Reynolds

Citation: 1mage Software, Inc. v. Reynolds & Reynolds Co., 273 F.Supp.2d 1168 (D. Colo. 2003).

Factual Background
Plaintiff, 1mageSoftware, Inc. (“1mage”) is a developer of computer imaging software used to capture and archive business reports and paper documents. In 1994, 1mage licensed its software to Reynolds & Reynolds Co. (“Reynolds”), a corporation in the business of supplying forms to the automotive industry.

As part of the licensing arrangement, the parties executed a document called the “1994 Software Licensing Agreement”. The Agreement provided that Reynolds would receive perpetual exclusive and non-exclusive licenses to plaintiff’s “1MAGE” software line as well as “subsequent upgrades, updates, enhancements and new products in return for a one-time fee of $1.75 million. In addition, the 1994 Licensing Agreement included an alternative dispute resolution provision that required “any dispute arising out of or related to th[e] Agreement. . . whether in contract, tort or otherwise” to be settled by arbitration. In 1996, the parties entered into a subsequent “subscription and maintenance agreement” for 1MAGE Release 5.5, an updated version of the 1MAGE 3.3 software licensed in the 1994 Agreement.

In 2002, Reynolds terminated the 1996 Agreement and ceased paying the required annual fee. Despite terminating the Agreement, Reynolds continued to use and distribute Release 5.5 to various auto dealers. 1mage alleged that the defendant’s post-termination use of the software amounted to a misappropriation of trade secrets and infringed their copyrights in the 1MAGE software. In response to the allegations, Reynolds claimed that the 1996 Agreement was nothing more than a “maintenance agreement” and, therefore, Reynolds’ use of the Software was a “subsequent update, upgrade, [or] enhancement” of the 1994 Software Licensing Agreement.

Trial Court Proceedings
1mage brought suit against Reynolds, claiming that the company was bound by the 1996 Agreement. Reynolds made a motion to compel arbitration based on their belief that the 1994 Agreement, not the 1996 Agreement, governed their rights.

The district court granted the defendant’s motion to compel arbitration. In reaching this decision, the court looked at the 1994 Agreement, which indicated that all “subsequent update[s], upgrade[s], and enhancements” were to be part of the license. Therefore, the 1996 Agreement, which merely provided an update for IMAGE’s software, was not a separate agreement; rather it became part of the initial 1994 Software License. Given that the defendant’s violation of the plaintiff’s copyright led to a dispute arising directly out of the contract, the arbitration agreement included in the 1994 Software Licensing Agreement was binding upon the parties and the court stayed the proceedings, pending the outcome of arbitration.