In their Technology Law column, Richard Raysman and Peter Brown talk ‘Silver Mgmt. Grp. V. AdvisorEngine’, in which the Delaware Chancery Court dealt with a software program license dispute that involved each the fee and time period provisions. The courtroom determined for the licensor on the term problem and the licensee on the fee difficulty.

Developing software in-house can be rather useful. An in-residence software team is well privy to the organization rules and emblem pointers and may tailor the software advent method and rollout to better comport with company priorities and synergistic aims. Moreover, due to the fact that builders are intently monitored by way of management—as a minimum relative to maximum off-web page developers—the business enterprise can capture inefficiencies on the outset and in flip mitigate an inability to satisfy frequently strict improvement timelines. Conversely, in-house development is inhibited by means of the need to lease personnel with selective information, which may be a prolonged manner if not anything else due to negotiations and bureaucratic pink tape seemingly endemic to large corporations. In addition, education in-house personnel on a unmarried mission includes imparting custom designed talents and information not easily transferable to other software products. Outsourcing is usual for a motive.

One different apparent pitfall to contracting with an outside software provider is an multiplied penchant for disputes to be resolved in litigation. This outcome is especially established whilst contractual realities battle with hastily evolving business priorities. For instance, the Delaware Chancery Court (the courtroom perhaps maximum associated with company governance and shareholder litigation), became to a settlement dispute with admire to if and when a software program licensee can terminate a license for externally-furnished software upon improvement of its in-residence software. In Silver Mgmt. Grp. V. AdvisorEngine, C.A. No. 2018-0421-KSJM, 2019 WL 125553 (Del. Ch. March 18, 2019), the courtroom treated a software license dispute that involved both the fee and time period provisions. It found for the licensor on the time period issue and the licensee on the fee trouble.

Facts and Procedural Background

In 2014, plaintiff Silver Management Group (Silver) hired defendant AdvisorEngine to broaden lower back-office software in help of AdvisorEngine’s planned wealth control platform (the Software). A year later, the Software went live and Silver and AdvisorEngine’s predecessor-in-interest (Vanare) ultimately performed a license in which Silver granted AdvisorEngine get admission to to the Software for a seven-yr time period (together with its amendments and schedules, the License). The License obligated AdvisorEngine to pay a month-to-month charge, which changed into calculated as a percentage of gross revenue derived from sales from the Software and different software program products offered on the Advisor Engine platform. The charge become not contingent on AdvisorEngine’s use of the Software, however alternatively challenge to the monthly minimal and maximums of use of the Software by way of AdvisorEngine’s clients.

In December 2017, AdvisorEngine acquired an extra software product that was advertised and allotted as a facet of a “unified” software gadget that covered AdvisorEngine’s suite of software program merchandise, inclusive of Silver’s Software. Silver demanded that the bills from sales of the new software program merchandise be covered in the calculation of Silver’s month-to-month price beneath the License. AdvisorEngine declined. By May 2018, AdvisorEngine had created a substitute for the Software. Even though the Software arguably became duplicative of AdvisorEngine’s software program, AdvisorEngine couldn’t terminate the seven-year term of the License absent a cloth breach by using Silver. In what the courtroom described as “opportunistic”, AdvisorEngine terminated the License because Silver’s criticism approximately the License fee apportionment constituted a fabric breach. AdvisorEngine in flip supposed to terminate the License on this foundation and ceased using the Software.

The immediate lawsuit accompanied. Silver introduced six reasons of movement, along with that AdvisorEngine breached the License through failing to recalculate the charges within the aftermath of its incorporation of the Software right into a bundled software product it offered. AdvisorEngine counterclaimed that, inter alia, the whole lot of its licensing fees become predicated on the usage of the Software. Since it ceased the use of the Software in July 2018, AdvisorEngine argued it not owed prices to Silver under the License, however the seven-yr time period. Silver answered with a request for a declaratory judgment that AdvisorEngine’s termination of the License turned into invalid. The events pass-moved for precis judgment on Silver’s breach of contract claim and AdvisorEngine moved for precis judgment on this counterclaim.

Legal Analysis and Conclusions

Applying New York regulation to its major analysis, the court granted AdvisorEngine’s movement for precis judgment. Silver noted two provisions of the License de facto requiring the calculation of its expenses thereunder to encompass charges derived from the sale of the wider software suite. First, Silver noted that its prices comprised a percent of the sales from the “Vanare Platform Services.” As referred to above, Vanare is the predecessor-in-hobby to AdvisorEngine. The License described “Vanare Platform Services” because the “wealth control platform and associated generation and business operations services of Vanare and its fully owned subsidiary, NestEgg Wealth, Inc.”

Silver argued that the Software constituted a product “associated” to Vanare’s “wealth management platform.” The court docket rejected this argument on grounds that the subordinate clause finishing the definition, “of Vanare and its absolutely-owned subsidiary, NestEgg Wealth, Inc.,” modified the right away preceding phrase “related technology and business operations offerings.” The amendment meant that, pursuant to the plain language of the License, the “related era” ought to be of “Vanare” to be compensable below the License. Among different reasons, the court docket concluded that the Software could not be “related era” due to the fact the usage of the phrase “and its entirely owned subsidiary, NestEgg Wealth, Inc.” might be superfluous if Vanare as defined within the License became intended to consist of all of its utterly-owned subsidiaries. Superfluity in agreement interpretation inasmuch as courts are to set up “longstanding standards of settlement interpretation [that] give effect to each time period[.]” For those motives, the court docket granted AdvisorEngine’s motion for precis judgment that it did now not breach the License by using failing to boom its expenses to account for the advent of its proprietary software.

However, the court denied AdvisorEngine’s motion for summary judgment on its counterclaim regarding its payment obligations. AdvisorEngine argued that it did not breach the License by ceasing to use the Software (and hence pay any License charges) due to the fact its price duties hinged on its use of the Software. AdvisorEngine ceased use of the Software in June 2018 as soon as it created its internal replacement. The court docket held that “AdvisorEngine’s argument reveals no support inside the [License].” The costs owed to Silver did no longer rely upon AdvisorEngine’s use of the Software, so its cessation of use become of irrespective of. Instead, the termination provisions had been operative and in impact until validly terminated. AdvisorEngine had not validly terminated the License by using “unilaterally determin[ing] to end use of Silver’s [Software].” The court denied AdvisorEngine’s motion for summary judgment in this counterclaim.

Richard Raysman is a associate at Holland & Knight and Peter Brown is the essential at Peter Brown & Associates. They are co-authors of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press).