Netbula v. Bindview Development

Citation: Netbula, LLC v. Bindview Dev. Corp., 516 F.Supp.2d 1137 (N.D. Cal. 2007).

Factual Background
Three defendants, Bindview Development Corp., Symantec Corp, and Eric Pulaski (the owner of Bindview) were alleged to have used and distributed software code belonging to plaintiff Netbula LLC. Symantec merged with Bindview and found software in a Bindview product that possibly belonged to Netbula. Netbula sued the defendants for copyright infringement, intentional fraud under California Civil Code §1709 for providing false and incomplete reports of software usage and the number of copies made, and breach of contract from an alleged oral settlement agreement with Symantec and Bindview.

Netubula created software titled RPC. RPC allows a program on a local computer to execute a command on a remote computer over a network. Netbula offered licenses to a software developer kit ("SDK") to computer programmers who used the SDK to develop applications and distribution licenses that gave the licensee the right to distribute RPC supporting programs and components. Netect Corp developed Hackershield using one of these licenses.

Bindview acquired Netect. Symantec was doing due diligence to acquire Bindview and found software that may belong to Netbula. They could not find the license for the software. Bindview tried to buy the license but Netbula was now on notice that Bindview had been making copies of its software beyond the scope of Netect’s license. No record of the license for Netect was ever found only evidence showing a sale was made.

Bindview began receiving letters from Netbula asking for royalties and a report of how many machines the software was copied to. Bindview sent the requested information saying it presumed it had bought 1000 licenses previously and would need to purchase another 680 licenses. Netbula objected that the information sent did not reflect “site licenses”. Netbula suggested that Symantec should be notified of the IP issues. Bindview gave a settlement offer and ordered Netbula to not tortiously interfere with their merger with Symantec.

Another report was finally made saying Bindview issued 54 cite licenses, 1627 non-site licenses and a list of downloads over a 5 year period. Netbula suggested a way to calculate copies from the number of site licenses using the number of employees but this was rejected. Netbula called Pulaski and Pulaski claimed Bindview should not have to pay for downloads and evaluation copies. Pulaski offered 50K in settlement or end up in court with Symantec for years but it was rejected.

Copyright Infringement
Defendant moved for summary judgement on the claim of copyright infringement. Defendant argued that Netbula assumed that the acquisition of Netect was an unlawful assignment. Plaintiff argued that since the Netect license was not in dispute defendant had the burden to establish the transfer was authorized and within the license’s scope. The court believed the issue was whether the law of merger created an impermissible transfer of rights of the Netect license. This then became a choice of law issue between state and federal law. The Bindview-Netect and Symantec-Bindview mergers occurred under Texas law which says mergers do not constitute a transfer or assignment of license rights. Plaintiff would like federal Copyright law to apply which generally prohibits transfers of licenses.

The court held that whether a license has in fact been transfered is a question of contract interpretation and therefore state law. Although it must be applied in a matter that does not conflict with Federal Copyright law or policy. The state law that applies is that of the original license contract with Netect and not that of the two mergers. The interpretation is now whether the original state law would find the mergers to be a transfer of license rights. Since the original license couldn’t be found a jury could not make a factual finding on this element of the claim. Any evidence presented by plaintiff was of current practices of Bindview and current licenses granted by Netbula, not of the relevant practices in 1998. Furthermore since only the scope of the license and not its existence are in dispute the burden is on the grantor as a matter of contract law to prove the copying was unauthorized. Summary judgement granted for defendants.

Fraud Claims
Plaintiff claimed that Pulaski made misrepresentations with respect to the first incomplete software usage report provided, that he claimed he would provide “complete and accurate information” about software usage during a phone call, and provided false reports in their SEC proxy statements, all of which delayed Netbula from bringing this action. The court found a lack of evidence that false representations were made or that scienter existed. Summary judgement granted for the Defendants.