Hogan Systems v. Cybresource

Citation: Hogan Sys. v. Cybresource Int'l, Inc., 158 F.3d 319 (5th Cir. 1998).

Factual Background
Appellant, Hogan Systems, Inc. (“Hogan”), is the developer and owner of copyrighted data processing software used by banks across the world. Since the early 1980s, Hogan required all of its employees to sign a confidentiality agreement, stating that employees would not disclose or use any of Hogan’s software or related trade secrets without Hogan’s express written consent.

Hogan does not sell any of its software; rather it licenses it to its customers. All software license agreements include similar language to the confidentiality agreement and, in addition, include an agreement that employees will not to distribute any of Hogan’s software to third parties.

Appellee, Cybresource International, Inc. (Cybresource), is comprised of four former employees of Hogan that terminated their employment at various times between September 1995 and July 1996. Each of the four former Hogan employees signed identical confidentiality agreement while employed at Hogan. Although all four individuals were bound not to disclose any of the trade secrets or confidential information learned while working for the appellant, the confidentiality agreement explicitly excluded the employee’s general skills, knowledge and experience.

In October 1995, Cybresource signed a Professional Services Agreement (PSA) with Hogan that mirrored the terms of Hogan’s confidentiality agreement. The PSA, known as the Cybresource-Hogan Agreement, stipulated that the trade secret status of Hogan software and all related processes, technical mastery, and ideas of Hogan would be kept secret except as expressly authorized by Hogan. Finally, the agreement stipulated that the terms and promises found within would expressly survive any termination of the agreement.

Several months after the Cybresource-Hogan agreement was signed, Cybresource entered into a contract with Norwest, a company to whom Hogan had licensed its software in the past. Upon learning of the relationship between Cybresource and Norwest, Hogan informed Cybresource that it was in violation of the agreement between the two companies and that Hogan’s consent was required.

Cybresource insisted that their contract with Norwest did not violate any terms of pre-existing agreements. In support of this, Cybresource pointed to the Hogan-Norwest agreement signed in early 1980, which stated that confidentiality obligations are not violated if Hogan’s software is made available to non-employees while such non-employees are on the licensee’s premises for the purposes related to authorized use of the software. Cybresource claimed that their contract with Norwest was in line with all previously signed agreements, and therefore, Hogan’s consent was not needed.

Trial Court Proceedings
Hogan filed suit against Cybresource in July 1996, seeking injunctive and monetary relief for copyright infringement, breach of contract, trade secret misappropriation, unfair competition, and tortious interference with contractual relations.

In December 1996, after conducting an evidentiary hearing, the district court denied Hogan’s request to enter a preliminary injunction against Cybresource. Six months later, in June 1997, the district court granted Cybresource’s motion for summary judgment and entered a final judgment against Hogan. In addition, the district court granted Cybresource’s request for an award of attorney’s fees.

Appellate Court Proceedings
Hogan appealed the district courts grant of summary judgment on the grounds that copyright infringement and misappropriation of trade secrets amounting to a breach of contract had occurred.

The appellate court affirmed the district court's grant of summary judgment. When reviewing Hogan’s copyright infringement claim, the court concluded that the Hogan-Norwest license signed in 1980 allowed for independent contractors, in this case Cybresource, to come onto Norwest’s property with the purpose of working on the software. Since the language found in the contract clearly and unambiguously allowed for Norwest to bring “other people” to work on the software, meaning non-Hogan, non-Norwest employees, there could be no copyright infringement and therefore, summary judgment was proper.

Next, the appellate court looked at whether the district court's grant of summary judgment on the misappropriation of trade secrets claim was proper. In reviewing this claim, the court determined that the information Hogan claimed trade secrets were actually knowledge gained from the employee’s “general knowledge, skill, and experience” in the industry. The court reasoned that many individuals in the field obtain comparable abilities and expertise without ever being employed by Hogan and, therefore, the knowledge utilized by Cybresource did not exploit any specialized knowledge gained through working at Hogan.