Opinion
CIVIL ACTION NO. 01-11352-PBS.
March 29, 2002.
MEMORANDUM AND ORDER OF JUDGMENT
Introduction
This star-crossed case involves a dispute over an astrology software contract. Defendant Esoteric Technologies Pty, Ltd. ("Esoteric"), an Australian corporation, entered into a contract for publishing and distributing its flagship product, "Solar Fire," with plaintiff Astrolabe, Inc. ("Astrolabe"), a company located in Brewster, Massachusetts. When Esoteric threatened to terminate, Astrolabe filed this action seeking a declaratory judgment that termination would be an unexcused material breach, and it obtained a preliminary injunction.
The black hole of the dispute is the so-called "best efforts" clause in the contract. Esoteric filed a counterclaim, alleging, among other things, that Astrolabe failed to use its best efforts to market the most recent version of Solar Fire world-wide; Astrolabe denied this allegation. After a jury trial, both sides lost. The jury found that Astrolabe failed to meet its burden of proving a breach of contract by Esoteric and that Esoteric did not prove its mirror-image counterclaim. After this stalemate, the frustrated parties turn to this Court to resolve various outstanding questions of law concerning other clauses in the contract. Esoteric has also moved for judgment notwithstanding the verdict or, in the alternative, a new trial. Esoteric's motion for judgment notwithstanding the verdict is DENIED. Further rulings of law are set forth below.
I. BACKGROUND
Based on the evidence, the jury could have found the following facts. Esoteric authored the windows-based astrological software "Solar Fire," which creates astrological charts for sophisticated astrologers. Earlier software programs, such as the one originally sold by Astrolabe, were DOS-based programs. In 1993, Esoteric entered into a contract with Astrolabe, giving Astrolabe the exclusive rights to publish, manufacture, market, distribute, and sell Solar Fire worldwide (except Australia and later New Zealand). Solar Fire became the world's leading English-language astrological software program.
In time, Esoteric came to believe that Astrolabe had breached various terms of this contract, particularly the obligation to use its "best efforts" in the marketing and sale of Solar Fire. Esoteric threatened termination of the contract. Astrolabe brought this action, seeking a declaratory judgment that the Solar Fire contract (the "Agreement") remained in force and that Esoteric could not terminate. Astrolabe also brought four other claims. First, it claimed that Esoteric had breached the Agreement by not offering Astrolabe the right of first refusal on Esoteric's other astrological software programs. Second, it asserted that its work in helping to develop Solar Fire earned it an "ownership interest" in the work. Third, it asserted breaches of the covenant of good faith and fair dealing and of Mass. Gen. Laws ch. 93A. Lastly, it claimed that the Agreement entitled it to indemnification by Esoteric for attorney's fees incurred in this litigation.
This "best efforts" clause provides:
2. The Author hereby grants and assigns to the Publisher the following exclusive rights in the Work during the term or terms of copyright and all renewals and extensions thereof, and the Publisher shall pay to the Author royalties, as follows, during the term or terms such rights are protected by copyright. The Publisher recognises the rights of the Author in all respects. The Author recognises the rights that it has granted to the Publisher in all respects.
(A) To use their best efforts to publish and market the Work in the form of a computer-generated software program throughout the world, except Australia (see Section 2, below), in original and future versions; the royalty being on the individual sales thereof, sold everywhere, to be paid according to the following schedule, with the following provisions and exclusions. . . .
Agreement, ¶ 2.
Esoteric counterclaimed, alleging that Astrolabe had breached the contract by failing to use best efforts in marketing Solar Fire. It also claimed that Astrolabe had made three late payments and failed to register the copyright on the Solar Fire program. Esoteric also asserted breaches of the covenant of good faith and fair dealing and of Mass. Gen. Laws ch. 93A. Finally, it claimed that the Agreement was unenforceable as a matter of public policy, because the Agreement's term was the life of the Solar Fire copyright.
Prior to trial the Court reserved three claims which did not involve questions of fact and should be resolved as a question of law: (1) the duration of the copyright; (2) the right of first refusal; and, (3) indemnity. On cross motions for judgments as a matter of law, this Court dismissed Astrolabe's ownership claim, one of Esoteric's breach of contract claims, as well as both parties' 93A claims. Two questions were subsequently submitted to the jury: (1) whether Astrolabe had met its burden of proving that Esoteric materially breached the Agreement by seeking termination; and (2) whether Esoteric had met is burden of proving that Astrolabe materially breached the contract by failing to use best efforts in marketing and selling Solar Fire. The jury answered "no" to each of these questions, finding that neither party had met its burden. This Court then invited the parties to submit motions for rulings on their remaining claims.
This Court found that Astrolabe had failed to make any showing that would entitle it to an ownership interest in the Solar Fire program. While Astrolabe may have provided some programming know-how and suggestions about program functionality, it offered no evidence of either party's intent that Solar Fire become a joint work. See 17 U.S.C. § 101 (defining "joint work," as "prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole."); see also 17 U.S.C. § 201(a) (authors of a joint work co-own the copyright).
Esoteric claimed breach based on three royalty payments that were late by "a few days." The Court found as a matter of law that this breach was not material, that is, an "essential and inducing feature of the contract." See Lease-It, Inc. v. Massachusetts Port Authority, 33 Mass. App. Ct. 391, 396 (1992); Restatement (Second) of Contracts §§ 4, 235. As Esoteric had shown no damages from these late payments, it failed to state a claim on which relief could be granted.
Neither party had made any showing of breach or other conduct having "an extortionate quality that gives it the rancid flavor of unfairness." Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 55 (quoting Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 598 N.E.2d 666, 670 (1992)). A simple breach of contract is an insufficient basis for 93A liability. Dooyang, 147 F.3d at 55.
II. RULINGS
A. Renewed Motion for Judgment as Matter of Law
Astrolabe and Esoteric each move, pursuant to Fed.R.Civ.P. 50(b), for judgment as a matter of law on the issue of best efforts. A renewed motion for judgment as a matter of law under Rule 50(b) (the rule formerly known as "judgment notwithstanding the verdict" or J.N.O.V.) is subject to a demanding standard. See Censullo v. Brenka Video, Inc., 989 F.2d 40, 42 (1st Cir. 1993). A Court may reverse the jury's verdict "only if the evidence, viewed from the perspective most favorable to the nonmovant, is so one-sided that the movant is plainly entitled to judgment, for reasonable minds could not differ as to the outcome." Gibson v. City of Cranston, 37 F.3d 731, 735 (1st Cir. 1994) (citation omitted). See also Rolon-Alvarado v. Municipality of San Juan, 1 F.3d 74, 76-77 (1st Cir. 1993). In short, a JNOV is appropriate only where "there is a total lack of evidence in support of [the] plaintiff's case." Censullo, 989 F.2d at 42. Neither party comes close to meeting this strict standard.
"'Best efforts' is equal to a good faith effort to meet one's obligations[, pursuant to which parties are] allowed to give consideration to their own interest. . . ." Macksey v. Egan, 36 Mass. App. Ct. 463, 472 n. 16, 633 N.E.2d 408, 414 n. 16 (1994); see also Arthur D. Little Intn'l Inc. v. Dooyang Corp., 928 F. Supp. 1189, 1201 (D.Mass. 1996). Astrolabe's promise to employ its "best efforts" means that, in marketing and publishing the Solar Fire program, it was required "to put its muscles to work to perform with full energy and fairness the relevant express promises and reasonable implications therefrom." Macksey, 36 Mass. App. Ct. at 472, 633 N.E.2d at 414.
Astrolabe asserts that it has used its best efforts in selling Solar Fire. However, with respect to version 5, it concedes that it did not even send out a mailing to herald the program's arrival, as it had with previous versions. Astrolabe insists that its one-on-one personal marketing approach to astrological experts through e-mails and at trade shows is the best way to sell the product. Esoteric repeats the argument it made during trial, stating that Astrolabe failed to take certain steps espoused by its marketing trial expert in the publishing and distribution of Solar Fire version 5. Esoteric does not, however, respond to the evidence, produced by Astrolabe at trial, that sales of version 5 were comparable to those of previous versions and that Solar Fire was still the leading software. While Esoteric believes that Astrolabe should reach out to a broader market of horoscope-lovers, the jury could have found that the evidence was insufficient to prove this was feasible. In addition, both sides agreed that the software needed to be translated into other languages in order to be marketable abroad. However, the contract didn't specify which party was responsible for providing the translation of the software. The jury could reasonably infer that Astrolabe, a small, niche Cape Cod company with limited finances and unimpressive marketing expertise in an obscure market, used its best efforts even if a tonier firm with more marketing know-how would have done better. The parties' renewed motions for judgment as a matter of law are DENIED.
Esoteric moves, in the alternative, for a new trial, pursuant to Fed.R.Civ.P. 59. This Court may grant a new trial where the jury's verdict is against the clear weight of the evidence. See Newell Puerto Rico, Ltd. v. Rubbermaid, Inc., 20 F.3d 15, 22 (1st Cir. 1994); Kearns v. Keystone Shipping Co., 863 F.2d 177, 181 (1st Cir. 1988) (citing 11 C. Wright A. Miller, Federal Practice and Procedure § 2806 (1973)). A trial court should set aside a jury verdict only to prevent a miscarriage of justice. See Kearns, 863 F.2d at 181. I do not find that the jury verdict is in conflict, believing it entirely reasonable for the jury to find that neither side proved a breach of the contract, and that instead the scales hung in equipoise. Esoteric's Rule 59 motion is DENIED.
B. Right of First Refusal
The Agreement grants Astrolabe "the right of first refusal on any future Works dealing with astrological computer software programs, outline of which [Esoteric] will submit. . . ." (Agreement, ¶ 13.) Astrolabe interprets this clause to require Esoteric to offer Astrolabe an exclusive publishing contract on substantially the same terms as the Agreement for each new piece of astrological software Esoteric offered. Esoteric claims that this provision requires it to offer Astrolabe the opportunity to obtain publishing, distribution, and/or marketing rights to its future software programs on substantially the same terms as Esoteric offers them to third parties.
By its terms, this Court applies Massachusetts law to the Agreement's interpretation. (Agreement, ¶ 16.) The Supreme Judicial Court has held that a "'right of first refusal' and expressions of similar import refer to a right that arises only after the owner has received an enforceable offer to buy." Roy v. George W. Greene, Inc., 404 Mass. 67, 70, 533 N.E.2d 1323, 1325 (1989); see also Schwanbeck v. Federal-Mogul Corp., 412 Mass. 703, 709, 592 N.E.2d 1289, 1293 (1992) (quoting Roy). As a matter of law, this contract provision requires Esoteric, for each new piece of astrological software it authors, to offer Astrolabe a contract on substantially the same terms and conditions that Esoteric has been offered by third parties. See Roy, 404 Mass. at 70, 533 N.E.2d at 1325 (quoting King v. Dalton Motors, Inc., 109 N.W.2d 51 (Minn. 1961)). Therefore, if Esoteric solicits and receives an offer to purchase an exclusive right to distribute and to publish its next software, it must offer it first to Astrolabe on the same rights or conditions. However, if Esoteric is offering a nonexclusive right to distribute and to publish new software, it must offer Astrolabe the non-exclusive right on the same terms and conditions.
There was also a dispute as to whether Astrolabe breached the contract (6 6) by failing to register the copyright. This dispute is now moot as Astrolabe has agreed to register the copyrights. Now that the parties have agreed, a failure to do so will be considered a breach.
The Agreement grants Astrolabe exclusive publishing rights "during the term or terms of copyright and all renewals and extensions thereof." (Agreement, ¶ 2.) Esoteric claims that, as a result of this provision, the Agreement has no fixed duration, and is therefore terminable at will or unenforceable.
The parties first dispute whether Paragraph 2's "term . . . of copyright" refers to United States or Australian copyright law. Paragraph 6 makes clear that the United States' copyright term should apply, as that paragraph requires Astrolabe to "copyright . . . in compliance with United States Copyright Law and the Universal Copyright Convention." In addition, as the Agreement states that Massachusetts law applies, presumably United States law would also apply. (Agreement, ¶ 16.)
Under United States law, the term of a copyright is the life of the author plus seventy years. See 17 U.S.C. § 300, et seq.
Esoteric attempts to extend the exceptionally long duration of the Agreement into an argument that the Agreement is a "perpetual contract" that is either unenforceable or terminable at will. In support of its claim, Esoteric inaptly cites several cases in which Massachusetts courts interpret contracts without a specified duration and find that they are terminable at will. See, e.g., The Serpa Corp. v. McWane, Inc., 199 F.3d 6, 14 (1st Cir. 1999) (holding plumbing supplies distribution contract without a durational term to be terminable at will); Simons v. American Dry Ginger Ale Co., Inc., 335 Mass. 521, 523, 140 N.E.2d 649, 653 (1957) (same regarding contract for repair services). No such conclusion is warranted here. The parties concretely and unambiguously set forth the duration of the Agreement. Though long, it certainly does not fall into the line of cases interpreting contracts without durational terms.
Moreover, even if this Court were to conclude that the Agreement was perpetual, the presumption against the enforcement perpetual contracts is rebuttable. See Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 217 F.3d 8, 11 (1st Cir. 2000) ("[W]here the presumption against perpetuity applies, it can be rebutted by evidence that the parties intended a permanent arrangement."). Here the parties clearly set forth their intentions that Astrolabe's exclusive rights to Solar Fire would last for as long as exclusive rights were possible, i.e., the duration of the copyright.
However, the Supreme Court has recently granted certiorari in a copyright case challenging the statutory term as unconstitutional. See Eldred v. Ashcroft, 255 F.3d 849 (D.C. Cir. 2001) cert. granted 122 S.Ct. 1062 (Feb. 19, 2002) (01-618). If the statute is invalidated, Esoteric may revisit the issue.
Accordingly, Esoteric's request for reformation of the Agreement is DENIED.
D. Indemnity
Count 6 of Astrolabe's Amended Complaint requests a declaratory judgment that Astrolabe is entitled to recover its litigation costs in this matter from Esoteric. Astrolabe grounds this claim in Paragraph 7(B) of the Agreement, which states, "The Author [Esoteric] agrees to . . . indemnify the Publisher against any claim, suit, action, proceeding, recovery, or expense of any nature whatsoever arising from or based upon any breach or alleged breach of the covenants, warranties, or representations contained in subparagraph (A) hereof, or elsewhere in this agreement."
Written contracts must be construed to ascertain the intent of the parties and to effectuate their purpose. See Jenkins v. Uniroyal, Inc., 688 F. Supp. 56, 63 (D.Mass. 1987); Whittle v. Pagani Bros. Constr. Co., Inc., 282 Mass. 796, 798 (1981). "A contract should be construed to give it effect as a rational business instrument. . . ." Lewis v. Chase, 23 Mass. App. Ct. 673, 677 (1987).
Here, there is no indication that the parties intended Paragraph 7(B) to cover attorney's fees and litigation costs in an action between the parties for breach of the contract provisions. The Paragraph 7(A) covenants, referenced in Paragraph 7(B), involve Esoteric's ownership of the Solar Fire program, its right to enter the Agreement, its representation that the Solar Fire work did not violate other copyrights, and its representation that it had not granted others any rights to the program. The parties intended any indemnification rights to arise out of suits from third parties against Astrolabe regarding these issues. Paragraph 7 references only breaches of the Agreement's "covenants, warranties, and representations" and not each party's obligations under the contract.
Judgment shall enter for Esoteric on Count 6 of Astrolabe's Amended Complaint.
E. Astrolabe's Motion for Attorney's Fees and Costs
Astrolabe asks this Court to award it fees and costs pursuant to Fed.R.Civ.P. 54(d). Rule 54(d)(1) provides for the award of costs other than attorney's fees to the "prevailing party." Despite its protestations to the contrary, Astrolabe is not the prevailing party in this action. The jury found that neither of the parties had met its burden in showing breach of contract. Nor does this Court herein award judgment to Astrolabe on any of its remaining counts. As such, Astrolabe is not entitled to the award of costs under Rule 54(d)(1). Cf. Tunison v. Continental Airlines Corp., 162 F.3d 1187, 1191 (D.C. Cir. 1998) (recognizing that, in a small percentage of cases, there may be no "prevailing party"). Astrolabe's Motion for Attorney's Fees and Costs is DENIED.
III. JUDGMENT
The Court, having considered the evidence presented at trial, the verdict rendered by the jury, and the post-trial submissions of the parties, hereby enters judgment as follows:
1. The Court enters judgment in favor of Astrolabe on Esoteric's counterclaims of breach of contract (Counterclaims, Count II), and the breach of good faith and fair dealing (Counterclaims, Count III), in accordance with the verdict of the jury.
2. The Court enters judgment in favor of Esoteric on Astrolabe's claims of breach of contract (Amended Complaint, Counts I and II) and the breach of good faith and fair dealing (Amended Complaint, Count V), in accordance with the verdict of the jury.
3. The Court enters judgment in favor of Astrolabe on Esoteric's counterclaim for declaratory judgment (Counterclaims, Count I) regarding the duration of the Agreement. The Court further enters judgment that the duration of the Agreement is as set forth by the terms of that Agreement. The duration of the copyright shall be construed under United States law, i.e., the life of the author plus 70 years, unless later changed by law.
4. The Court dismisses each party's claim for unfair and deceptive business practices under Mass. Gen. Laws ch. 93A (Amended Complaint, Count IV; Counterclaims, Count VI), as no evidence of such practices was produced by either party at trial.
5. The Court dismisses Astrolabe's claim for ownership of the Solar Fire program (Amended Complaint, Count VII).
6. The Court enters judgment declaring that paragraph 13 of the Solar Fire Agreement, the "right of first refusal" provision, requires that, for each new piece of astrological software authored by Esoteric, Esoteric must offer to Astrolabe a contract on substantially the same terms and conditions as any offer Esoteric has received from a third party. Consequently, the Court orders judgment in favor of Esoteric on Astrolabe's claim for breach under this clause (Amended Complaint, Count III).
7. The Court enters judgment favor of Esoteric on Astrolabe's claim for indemnification (Amended Complaint, Count VI.)
8. The Court enters judgment in favor of Astrolabe on Esoteric's counterclaims for misrepresentation (Counterclaims, Count IV), and misappropriation of trade secrets (Counterclaims, Count V), which Esoteric waived during trial.
9. The Court orders that, by its terms, the Preliminary Injunction issued by the Honorable Judge Wolf, on October 2, 2001, has expired. No further injunction is here ordered. Esoteric's request for injunctive relief (Count VII) is hereby denied.
PATTI B. SARIS United States District Judge