SAMUEL S. POPE, JR. v. JAMES I. MARUNA and IN-TOUCH INTERACTIVE DATASYSTEMS, INC.
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RENDERED: October 23, 1998; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO. 1997-CA-001633-MR
SAMUEL S. POPE, JR.
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE ELLEN B. EWING,JUDGE
ACTION NO. 95-CI-005082
JAMES I. MARUNA and
IN-TOUCH INTERACTIVE
DATASYSTEMS, INC.
APPELLEES
OPINION
AFFIRMING
* * * * *
BEFORE:
GUDGEL, CHIEF JUDGE; GUIDUGLI and SCHRODER,Judges.
GUIDUGLI, JUDGE.
Samuel S. Pope, Jr. (Pope) appeals from a
final judgment of the Jefferson Circuit Court in his declaratory
judgment action against James I. Maruna (Maruna) and Interactive
Datasystems, Inc. (IDS), which denied Pope a declaratory judgment
and awarded Maruna and IDS damages on their counterclaim against
Pope.
For the reasons stated herein, we affirm.
This case involves a computer software license
agreement entered into between Pope, the computer programmer, and
Maruna, the salesman and president of IDS.
Pope initiated this
action seeking a declaratory judgment rescinding the Master
License Agreement between the parties.
IDS and Maruna
counterclaimed alleging breach of contract, fraud in the
inducement, and tortious interference with IDS’s business
relationships.
The case was tried to the court without a jury.
On June 9, 1997, the trial court entered findings of fact,
conclusions of law and judgment.
Appellant has failed to show
the trial court’s findings of fact are clearly erroneous as
required by Kentucky Rule of Civil Procedure (CR) 54.02 before
same can be set aside.
We will summarize the facts relevant to
this appeal.
Pope and Maruna met in August, 1993, to discuss the
development of a computer touch-screen system to collect data for
businesses.
They met several times to discuss the project.
Pope
had previously written a program which would become the
foundation for the system Pope and Maruna developed together.
They agreed Maruna would market the system while Pope continued
to refine the software.
On December 20, 1993, Maruna incorporated IDS in the
State of Delaware.
corporation.
Maruna was the sole shareholder of the
Thereafter, on February 14, 1994, Maruna and Pope
negotiated the Master License Agreement (license agreement) and
Covenant Not to Disclose (covenant) at issue in this case.
The
contracts together gave Maruna exclusive sales, marketing and
distribution rights over Pope’s software in exchange for Pope
receiving a percentage of sales.
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Pope delivered a program to Maruna which Maruna began
to sell through IDS.
to prospective buyers.
Meetings were held with demonstrations made
Demonstration copies of the software were
sent to potential customers with a time limitation copy
protection device or “time bomb.”
This feature disabled the
software after a pre-set amount of time to guard against theft or
copying.
Paragraph 5.8 of the license agreement provided that
Pope warranted that he had no knowledge of any “counters or other
devices to limit access to the Software with passage of
time...that have not been fully disclosed to the Licensee
[Maruna].”
Pope’s and Maruna’s testimony on this issue
conflicted - Pope states Maruna knew of the protection and Maruna
states he had no knowledge of it at the time the documents were
executed.
The “time bomb” required customers to obtain quarterly
updates or the software would be rendered useless.
Pope planned
to update the software of each customer personally and intended
to include the time bomb in the final saleable version of the
software, not just the demonstration copies.
The business proceeded from approximately April, 1994,
to August, 1994, when Maruna became aware Pope intended to
include the time bomb in the final versions of the software.
Maruna demanded Pope remove the time bomb protection from the
software.
Pope unfortunately believed that he could only protect
his proprietary interests in the software by use of the time
bomb.
Rather than rely on the terms of the license agreement he
had signed to protect his interests, Pope breached that agreement
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and engaged in a form of self-help which ultimately cause the
complete downfall of a promising business venture.
Maruna argued, and the trial court found, that the time
bomb rendered the software unmarketable and unfit for its
intended use.
Maruna then ceased marketing the product and
contacted purchasers with the offer of refunds.
except one accepted the refund offer.
Every customer
The one customer that
wanted to continue using the software negotiated a deal whereby
the $5,000 deposit it had paid IDS as a deposit for purchase
would become a two-year rental agreement.
On September 8, 1995, Pope filed a declaratory judgment
action seeking to void the license agreement, alleging IDS and
Maruna had: repudiated the agreement by failing to make monthly
reports to Pope of gross revenues received; not paid Pope any
money; and, generally failed to perform their duties under the
license agreement.
Prior to the filing of an answer or responsive
pleading, Pope filed an amended complaint which was served on
IDS’s registered agent for service of process in Delaware, by the
Kentucky Secretary of State, by certified mail pursuant to KRS
454.210.
When no answer or responsive pleading had been filed
within 20 days, Pope filed a motion for default judgment on
October 20, 1995.
Default judgment was granted by order entered
October 23, 1995.
On November 8, 1995, Maruna and IDS filed a
motion to set aside the default judgment.
The default judgment
was set aside by order entered November 13, 1995.
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The first assignment of error in this appeal is that
the trial court erred in setting aside the default judgment
because the defendants had been properly served and had failed to
answer or file a responsive pleading within twenty days.
Regardless of the merits of this argument, the order setting
aside the default judgment was a final and appealable order under
CR 54.02(1) because it contained the recitation, “This is a final
and appealable order there being no just cause for delay.”
Because Pope did not appeal from the order within thirty days as
required by CR 73.02, judicial review of the issue has been
waived.
After the default judgment was set aside the parties
proceeded with discovery.
and 11, 1996.
memoranda.
A bench trial was held on September 10
Thereafter, the parties submitted post-trial
On June 9, 1997, the Jefferson Circuit Court entered
judgment in favor of this appeal.
Pope then filed this appeal.
Pope claims the trial court erred in denying him a
declaratory judgment releasing all parties from the Master
License Agreement because the agreement was in perpetuity, and it
was abandoned by IDS and Maruna.
In the June 9, 1997, findings
of fact, conclusion of law and final judgment appealed from, the
trial court specifically found, “[t]he language of the license
agreement unequivocally states that the agreement is in
perpetuity without limitation.”
The language the trial court was
referring to is found in paragraph 1 of the Master License
Agreement:
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1. Purchase and Sale of the License.
Upon the terms and subject to the conditions
set forth herein, Programmer does hereby
grant in perpetuity to Licensee without
limitation from the date hereof until the end
of time, the sole, exclusive, irrevocable,
worldwide marketing rights to the Software,
including specifically, but without
limitation, all intellectual property rights
owned or otherwise assertable by Programmer
to the sale, marketing, or distribution of
such software in any form or manner
whatsoever, the sole and exclusive rights to
make copies and grant licenses and
sublicenses of the Software and market,
promote or make business arrangements for the
distribution of such Software or specific
modules thereof in whatsoever manner Licensee
shall deem fit, and full right, title, and
interest to any and all proceeds produced in
any way or whatsoever form from the Software.
Based upon the clear, unambiguous language of the document, Pope
cannot convince us that the finding of “perpetuity” is clearly
erroneous.
The trial court then correctly ruled contracts in
perpetuity are terminable after a reasonable time not at will.
Electric and Water Board v. South Central Bell, Ky. App., 805
S.W.2d 141 (1990).
What amount of time is “reasonable”, as
between the parties to this appeal, is yet to be determined.
Pope testified at the hearing that he already had a purchase
order for the software, separate from IDS and Maruna.
Termination of the Master License Agreement by the trial court
would have rewarded Pope for his breach of contract by allowing
him to sell the software as his exclusive property.
Because the
software was clearly developed jointly with IDS and Maruna, the
trial court properly refused to terminate the agreement.
-6-
Moreover, the trial court’s refusal to grant Pope’s
declaratory judgment was not an abuse of discretion because
substantive intellectual property laws, such as copyright laws,
are implicated by the Master License Agreement at issue, and
copyright law is preempted by federal law.
U.S. Art. 1, § 8, cl.
7; see also, Validity, Construction, and Application of Computer
Software Licensing Agreements, 38 ALR 5th 1 (1996).
Pope’s next assignment of error is the trial court
erred in awarding damages to IDS and Maruna.
the damages awarded were speculative.
Pope also claims
The trial court awarded
IDS and Maruna judgment against Pope in the amount of $40,589.17,
court costs, judgment interest, and attorneys’ fees incurred
attempting to persuade Pope to remove the time bomb from the
software.
Pope fails to persuade us this judgment was an abuse
of discretion.
Further, the damages awarded are not speculative,
but are based on the evidence.
The court awarded $20,968.19 for expenditures incurred
in 1994.
This amount was supported by documents and testimony.
The court awarded $17,500 for rescinded sales caused by Pope’s
breach.
This amount was supported by evidence of lost business
in the amount of $22,500.
The trial court awarded $2,121 for
general expenses IDS incurred.
This amount was supported by
documents and testimony and none of the items were duplicated in
the previous awards.
The total of these three items is
$40,589.19, two cents more than the amount shown on the judgment.
IDS and Maruna waive any claim to the additional two cents.
-7-
Pope
fails to cite any controlling law supporting his argument on
damages.
Lastly, Pope claims that because customer refunds were
made “voluntarily,” the trial court erred in awarding $17,500 for
rescinded sales caused by Pope’s breach.
This argument is
contrary to the findings of the trial court.
In fact, the
refunds to which Pope objects saved him from potential multiple
judgments.
Had the customers not been notified and the refunds
issued when they were, Pope would be required to indemnify IDS
and Maruna “...from all losses...relating to or arising out
of...any breach or default in the performance of the
Programmer...” as set forth in paragraph 7.2 of the license
agreement.
For the foregoing reasons, we affirm the judgment of
the Jefferson Circuit Court.
SCHRODER, JUDGE, CONCURS.
GUDGEL, CHIEF JUDGE, CONCURS IN RESULT ONLY.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
James H. Highfield
Louisville, KY
Robert W. Griffith
Bethany A. Breetz
Louisville, KY
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