CASE 0:20-cv-01326-SRN-LIB Doc. 59 Filed 02/22/21 Page 1 of 18
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
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`
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`Case No. 20-cv-01326 (SRN/LIB)
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`ORDER
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`Fairview Health Services,
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`Plaintiff,
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`v.
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`Quest Software, Inc. et al.,
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`Defendants.
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`
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`John Rock and Kathryn A. Stephens, Rock Hutchinson, PLLP, 120 South Sixth Street,
`Suite 2050, Minneapolis, MN 55402, for Plaintiff.
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`Benjamin W. Hulse, Blackwell Burke PA, 431 South Seventh Street, Suite 2500,
`Minneapolis, MN 55415; and Bradford J. Axel and Theresa Wang, Stokes Lawrence,
`P.S., 1420 Fifth Avenue, Suite 3000, Seattle, WA 98101, for Defendants.
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`
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`SUSAN RICHARD NELSON, United States District Judge
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`
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`This matter is before the Court on the Motion to Transfer Venue [Doc. No. 27] filed
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`by Defendants Quest Software, Inc. and One Identity, LLC, and the Motion to Dismiss
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`[Doc. No. 21] filed by Plaintiff Fairview Health Services. Based on a review of the files,
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`submissions, and proceedings herein, and for the reasons below, the Court DENIES both
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`motions.
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`I.
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`BACKGROUND
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`This dispute arises out of a software transaction between Fairview Health Services
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`(hereafter, “Fairview”) and Quest Software, Inc. and One Identity, LLC (collectively,
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`“Quest”). Beginning in 2004, Fairview purchased licenses for Quest’s Active Roles
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`software, a program which “facilitate[s] the administration and management of a
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`company’s information technology accounts.” (Am. Compl. [Doc. No. 14], at ¶ 16.) The
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`transaction between Fairview and Quest included two components: First, Fairview
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`purchased perpetual licenses to use the Active Roles software; and second, Fairview signed
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`annual “maintenance services” agreements, which entitled Fairview to various forms of
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`technical support as well as software updates. (See Rock Decl. [Doc. No. 57], Ex. A, at
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`§§ 2, 10 (2004 Software License Agreement between Fairview and Quest).) Fairview
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`continued purchasing additional licenses periodically, and paying for maintenance services
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`annually, through 2019. (See Am. Compl. ¶¶ 16-19, 29.)
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`In December 2019, Fairview notified Quest that it would not renew its maintenance
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`services for the following year. (Id. ¶ 29.) Thereafter, Quest conducted an audit of
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`Fairview’s use of the Active Roles software, and allegedly found that Fairview had
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`deployed the Active Roles software well in excess of the licenses Fairview had purchased.
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`(Id. ¶¶ 30-32.) According to Quest, its audit revealed that Fairview had deployed the
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`software using 69,064 licenses more than Fairview had purchased over the years. (Id. ¶ 32.)
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`Based on the results of its audit and its interpretation of the parties’ contracts, Quest
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`concluded that Fairview owed a license fee of $4,183,178.85. (Id. ¶¶ 35, 37.) Fairview
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`disputed the extent of its alleged over-deployment, and when the parties could not reach an
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`agreement, brought this declaratory judgment action. (Id. ¶¶ 32-38.)
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`Fairview seeks a declaratory judgment clarifying: 1) whether the parties’ 2004
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`Software License Agreement or their 2013 Software Transaction Agreement (“2004 SLA”
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`and “2013 STA,” respectively) governs Fairview’s Active Roles licenses; 2) whether over-
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`deploying the Active Roles software beyond the allotted licenses constitutes a breach of
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`the applicable agreement; 3) which accounts can be included in calculating whether an
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`over-deployment has occurred; 4) how much Quest can charge for over-deployments; and
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`5) that Quest’s exclusive remedy for an over-deployment is the right to invoice Fairview
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`for the appropriate fees. (Id. ¶¶ 67-83.) Quest filed a counterclaim alleging that Fairview
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`breached the 2013 STA and that Fairview’s over-deployment renders it liable for copyright
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`infringement, and seeking a declaratory judgment that the 2013 STA governs Fairview’s
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`deployment of the Active Roles software. (Answer & Countercl. [Doc. No. 16], at ¶¶ 42-
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`52.)
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`After Fairview initiated this lawsuit, Quest filed a Motion to Transfer Venue,
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`seeking to enforce a forum-selection clause in the 2013 STA. Fairview, in turn, filed a
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`Motion to Dismiss Quest’s breach of contract and copyright infringement counterclaims.
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`Both motions require the Court to interpret the 2004 SLA and 2013 STA, as well as various
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`purchase quotations signed by Fairview, which are either attached to or embraced by the
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`pleadings. Accordingly, the Court next reviews the record pertinent to these agreements.
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`2004 Software License Agreement
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`A.
`In 2004 and 2005, Fairview purchased 18,101 licenses for the Active Roles software
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`from Quest. (Am. Compl. ¶ 17.) These purchases were governed by a standard-form 2004
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`Software License Agreement, which provided:
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`Subject to the terms and conditions of this Agreement, . . . Quest hereby
`grants to Licensee, and Licensee accepts from Quest, a perpetual, non-
`exclusive, non-transferrable and non-sublicensable right to use the Software
`described on the applicable Quotation Form. . . .
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`(Rock Decl., Ex. A (“2004 SLA”), at § 2.) In addition, the 2004 SLA defined “Software”
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`to include “corrections, enhancements, and upgrades to the Software that Quest may make
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`available pursuant to Section 10 below.” (Id. § 1(e).)
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`Section 10 of the 2004 SLA addressed “maintenance services,” which included
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`various forms of technical support. (Id. § 10.) The maintenance services provision
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`contemplated that Fairview would pay an annual fee in exchange for twelve months of the
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`described technical support, and then the agreement would automatically renew to provide
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`another twelve months of support until canceled by the parties. (See id.) One of the
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`“maintenance services” was:
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`Quest shall make available to Licensee new versions and releases of the
`Software, including Software corrections, enhancements and upgrades, if
`and when Quest makes them generally available without charge as part of
`Maintenance Services for the Software.
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`(Id.) The parties appear to agree that this maintenance services feature entitled Fairview to
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`upgraded versions of the software. (Am. Compl. ¶ 43 (“Fairview was entitled to receive
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`updated versions of the Active Roles software by virtue of the licenses it purchased in
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`2004.” (citing sections 1(e), (2), and (10) of the 2004 SLA)); Answer & Countercl. ¶ 19
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`(“[D]uring the maintenance period, maintained licensees are entitled to upgrade their
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`licensed software to the most recent version that has been released at no additional cost.”).)
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`The 2004 SLA also included a “Usage Verification” provision, which the parties
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`have referred to as a “true-up provision.” The true-up provision entitled Quest to audit
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`Fairview’s deployment of the Active Roles software, and provided that:
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`If Licensee’s use of the Software is found to be greater than contracted for,
`Licensee will be invoiced for the additional licenses or license upgrades
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`(based on the applicable units of measure, e.g., servers, server tiers or users)
`and the unpaid license fees shall be payable in accordance with this
`Agreement. Additionally, if the unpaid fees exceed five percent (5%) of the
`license fees paid for the subject Software, then Licensee shall also pay
`Quest’s reasonable costs of conducting the audit.
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`(2004 SLA § 16.) The 2004 SLA also stated that “[n]either this Agreement nor any
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`Quotation Form may be modified or amended except by a writing executed by a duly
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`authorized representative of each party.” (Id. § 17(j).)
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`Fairview regularly purchased additional licenses in the following years until it
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`acquired a total of 38,081 licenses by January 2016. (Am. Compl. ¶ 17.) It is alleged that
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`Fairview signed a Support Renewal Quotation every year in order to extend the annual
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`maintenance services it received. (Id. ¶ 18.)
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`2013 Software Transaction Agreement
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`B.
`In 2013, Active Roles version 6.9 was released and Quest, then operating as Dell
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`Software, began using the standard-form 2013 Software Transaction Agreement. (Answer
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`& Countercl. ¶ 21; id., Ex. 2 (“2013 STA”).) The 2013 STA granted a “non-exclusive,
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`nontransferable . . . and non-sublicensable license to access and use the quantities of each
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`item of Software identified in the applicable Order.” (2013 STA § 2(a).) Where the
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`software was installed on the customer’s own equipment, the license was perpetual. (Id.
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`§ 2(b).) As with the 2004 SLA, the 2013 STA provided for annual maintenance services
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`which entitled the customer to new versions of the Active Roles software. (Id. § 10.) And
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`like the 2004 SLA, the 2013 STA included a true-up provision:
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`If Customer’s deployment of the Software . . . is found to be greater than its
`purchased entitlement to such Software, Customer will be invoiced for the
`over-deployed quantities at Dell’s then current list price plus the applicable
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`Maintenance Services and applicable over-deployment fees. All such
`amounts shall be payable in accordance with this Agreement. Additionally,
`if the unpaid fees exceed five percent (5%) of the fees paid for the applicable
`Software, then Customer shall also pay Dell’s reasonable costs of conducting
`the audit.
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`(Id. § 15.) The 2013 STA also included the following forum-selection clause, which Quest
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`seeks to enforce in its Motion to Transfer Venue:
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`Any action seeking enforcement of this Agreement or any provision hereof
`shall be brought exclusively in the state or federal courts located in Travis or
`Williamson County, Texas.
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`(Id. § 17(a).)
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`Quest asserts that Fairview agreed to be bound by the 2013 STA when it signed
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`several purchase quotations. In 2015, Fairview signed a quotation to purchase another
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`1,000 licenses, along with maintenance services for those 1,000 licenses. (Answer &
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`Countercl., Ex. 3 (“2015 Quotation”).) The quotation provided that:
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`CUSTOMER’S SIGNATURE ON THIS QUOTATION CONSTITUTES
`CUSTOMER’S COMMITMENT TO PURCHASE THE PRODUCTS SET
`FORTH ABOVE PURSUANT TO THE TERMS AND CONDITIONS OF
`THE [2013 SOFTWARE TRANSACTION AGREEMENT], WHICH IS
`INCORPORATED HEREIN BY REFERENCE. THIS QUOTATION AND
`THE AGREEMENT(S) REFERENCED HEREIN CONTAIN THE
`ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
`THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY AND ALL
`OTHER AGREEMENTS AND COMMUNICATIONS, WRITTEN OR
`ORAL, EXPRESS OR IMPLIED WITH RESPECT THERETO.
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`(Id. at 3.) Fairview also signed a second quotation in 2015, which included the same
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`language, for another 1,700 licenses and maintenance services for those licenses. (Williams
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`Decl. [Doc. No. 30], Ex. A, at 2.) And in 2017, Fairview signed another quotation renewing
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`maintenance services for 38,101 licenses. (Answer & Countercl., Ex. 4 (“2017
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`Quotation”).) This quotation included slightly different language from the 2015 quotations:
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`Maintenance Services for the One Identity Products set forth above will be
`provided by One Identity under the terms of the agreement [sic] pursuant to
`the terms and conditions of the [2013 Software Transaction Agreement] . . . .
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`(Id. at 3.) Similarly, in 2018, Fairview signed a Support Renewal Quotation extending
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`maintenance services for all of its licenses. (Rock Decl., Ex. B (“2018 Quotation”).) The
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`quotation provided that:
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`Maintenance Services are as described on https://www.oneidentity.com/
`support and are subject to the terms and conditions under which the licenses
`covered by the Maintenance Services were purchased.
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`(Id. at 2.) Finally, Quest contends that when Fairview installed Active Roles version 6.9 on
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`its computer systems in 2016, it was prompted (and required) to view and accept the 2013
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`STA. (Am. Compl. ¶ 40.)
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`Notably, the pleadings do not fully account for all 38,081 licenses Fairview
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`purchased between 2004 and 2016. As noted above, Fairview alleges that it purchased a
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`total of 38,081 licenses by January 2016. (Id. ¶ 17.) Fairview purchased 18,101 of those
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`licenses in 2004 and 2005, and another 2,700 licenses in 2015. (Id.; see 2015 Quotation.)
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`But the pleadings do not identify when the remaining 17,280 licenses were purchased.
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`However, the 2017 and 2018 quotations indicate that those licenses had been purchased
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`prior to 2015. Those quotations each included three line-items: (1) maintenance services
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`for 35,381 licenses, (2) maintenance services for 1,700 licenses, and (3) maintenance
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`services for 1,000 licenses. (2017 Quotation at 2; 2018 Quotation at 1.) Because the latter
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`two entries correspond to the two transactions in 2015, a reasonable inference can be drawn
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`that all of the 35,381 licenses in the first entry had been purchased prior to the 2015
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`transactions. But that conclusion does not itself entail that the unaccounted-for 17,280
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`licenses were purchased under the 2004 SLA, nor does it show that the licenses were
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`purchased under the 2013 STA. Accordingly, the Court will not consider the unaccounted-
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`for licenses in its transfer analysis at this stage.
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`II.
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`DISCUSSION
`Standard of Review
`A.
`Quest, invoking the forum-selection clause in the 2013 STA, moves to transfer
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`venue to the United States District Court for the Western District of Texas pursuant to 28
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`U.S.C. § 1404(a). Under § 1404(a), “[f]or the convenience of parties and witnesses, in the
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`interest of justice, a district court may transfer any civil action to any other district or
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`division where it might have been brought or to any district or division to which all parties
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`have consented.” 28 U.S.C. § 1404(a). “Although a forum-selection clause does not render
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`venue in a court ‘wrong’ or ‘improper’ . . . , the clause may be enforced through a motion
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`to transfer under § 1404(a).” Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of
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`Texas, 571 U.S. 49, 59 (2013). In evaluating a motion under § 1404(a) premised on a
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`forum-selection clause, the Court must engage in a three-step inquiry. “First, the Court
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`must determine whether the District Court of Minnesota is a proper venue, without regard
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`to the forum-selection clause. . . . Second, the Court must determine the validity of the
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`forum-selection clause. If the clause is valid, then third and finally, the Court must weigh
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`a series of factors to determine the enforceability of the clause.” Rogovsky Enter., Inc. v.
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`Masterbrand Cabinets, Inc., 88 F. Supp. 3d 1034, 1040–41 (D. Minn. 2015).
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`Fairview moves to dismiss Quest’s first and second counterclaims under Federal
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`Rule of Civil Procedure 12(b)(6). When considering a motion to dismiss a counterclaim
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`under Rule 12(b)(6), the Court accepts the facts alleged in the counterclaim as true, and
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`views those allegations in the light most favorable to the counterclaimant. See Hager v.
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`Arkansas Dep’t of Health, 735 F.3d 1009, 1013 (8th Cir. 2013). However, the Court need
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`not accept as true wholly conclusory allegations or legal conclusions couched as factual
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`allegations. Id. In addition, the Court ordinarily does not consider matters outside the
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`pleadings on a motion to dismiss. See Fed. R. Civ. P. 12(d). The Court may, however,
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`“consider the pleadings themselves, materials embraced by the pleadings, exhibits attached
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`to the pleadings, and matters of public record.” Illig v. Union Elec. Co., 652 F.3d 971, 976
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`(8th Cir. 2011) (quoting Mills v. City of Grand Forks, 614 F.3d 495, 498 (8th Cir. 2010)).
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`To survive a motion to dismiss, a counterclaim must contain “enough facts to state
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`a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
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`(2007). Although a counterclaim need not contain “detailed factual allegations,” it must
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`contain facts with enough specificity “to raise a right to relief above the speculative level.”
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`Id. at 555. “Threadbare recitals of the elements of a cause of action, supported by mere
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`conclusory statements,” are insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
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`Twombly, 550 U.S. at 555).
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`In order to evaluate both parties’ motions, the Court must examine the 2004 SLA,
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`the 2013 STA, and several purchase quotations signed by the parties. The Court finds that
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`it may consider these documents at this stage, because they have either been attached as
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`exhibits to Fairview’s Amended Complaint or to Quest’s Answer and Counterclaim, or are
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`“materials embraced by the pleadings.” Illig, 652 F.3d at 976. However, to the extent the
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`Court is required to interpret the applicable agreements, it may do so only insofar as the
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`documents are unambiguous. See Minnesota Vikings Football Stadium, LLC v. Wells
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`Fargo Bank, Nat’l Ass’n, 193 F. Supp. 3d 1002, 1011 (D. Minn. 2016) (“The interpretation
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`of an unambiguous contract is a question of law . . . .”). With the foregoing standards in
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`mind, the Court first turns to Quest’s Motion to Transfer Venue.
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`B. Motion to Transfer Venue
`Quest seeks transfer based solely on the forum-selection clause in the 2013 STA.
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`As noted above, in evaluating a motion to transfer venue based on a forum-selection clause,
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`the Court must engage in a three-step inquiry. “First, the Court must determine whether the
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`District Court of Minnesota is a proper venue, without regard to the forum-selection
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`clause. . . . Second, the Court must determine the validity of the forum-selection clause. If
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`the clause is valid, then third and finally, the Court must weigh a series of factors to
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`determine the enforceability of the clause.” Rogovsky Enter., Inc., 88 F. Supp. 3d at 1040–
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`41. The parties do not dispute that the District of Minnesota is a proper venue, nor does
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`Fairview argue that the forum-selection clause is invalid. Rather, Fairview argues that the
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`forum-selection clause does not apply to this dispute. Because “[a] forum-selection clause
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`must be applicable before it can be enforceable,” the Court must determine whether the
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`2013 STA’s forum-selection clause applies to this matter. Civil Ag Grp., Inc. v. Octaform
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`Sys., Inc., 267 F. Supp. 3d 1112, 1115 (D. Minn. 2017) (collecting cases). In conducting
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`that inquiry, the Court “must interpret the language of the clause, which is done according
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`to the plain language of the contract and the intent of the parties as expressed in the disputed
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`clause.” Id. (citations omitted).
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`The disputed forum-selection clause applies to “[a]ny action seeking enforcement
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`of this Agreement or any provision hereof.” (2013 STA § 17(a).) Fairview argues that its
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`declaratory judgment action does not “seek[] enforcement of” the 2013 STA; indeed,
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`Fairview maintains that the 2004 SLA, not the 2013 STA, governs the parties’ licensing
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`dispute. In response, Quest argues that the 2013 STA superseded the 2004 SLA, and that
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`Quest’s counterclaim for breach of the 2013 STA renders this action one “seeking
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`enforcement of” the 2013 STA.
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`In order to determine whether this is an “action seeking enforcement of” the 2013
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`STA, the Court must first examine the extent to which the 2013 STA governs the parties’
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`relationship. Initially, Fairview purchased at least 18,101 Active Roles licenses pursuant
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`to the 2004 SLA. (Am. Compl. ¶ 17.) These licenses were perpetual, unlike the annual
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`maintenance services component of the transaction. (See 2004 SLA §§ 2, 10.) Quest argues
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`that the 2004 SLA could not apply to Fairview’s deployment of the Active Roles version
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`6.9 software, because that version did not exist in 2004. However, the 2004 SLA, by its
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`plain terms, entitled Fairview to “new versions and releases of the Software” as part of the
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`maintenance services component of the transaction—and Quest has admitted that
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`proposition. (Id. § 10; Answer & Countercl. ¶ 19 (“[D]uring the maintenance period,
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`maintained licensees are entitled to upgrade their licensed software to the most recent
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`version that has been released at no additional cost.”).)
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`Quest contends that Fairview later agreed to the 2013 STA by signing several
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`purchase quotations. In 2015, Fairview signed two quotations, totaling 2,700 licenses.
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`(2015 Quotation; Williams Decl., Ex. A.) The quotation forms each listed two line-items:
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`one for the quantity of new licenses purchased, and one for a commensurate amount of
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`maintenance services. (See 2015 Quotation at 2.) The quotations also stated:
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`CUSTOMER’S SIGNATURE ON THIS QUOTATION CONSTITUTES
`CUSTOMER’S COMMITMENT TO PURCHASE THE PRODUCTS
`SET FORTH ABOVE PURSUANT TO THE TERMS AND
`CONDITIONS OF THE
`[2013 SOFTWARE TRANSACTION
`AGREEMENT], WHICH
`IS
`INCORPORATED HEREIN BY
`REFERENCE. THIS QUOTATION AND THE AGREEMENT(S)
`REFERENCED HEREIN CONTAIN THE ENTIRE AGREEMENT
`BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
`MATTER HEREOF AND SUPERSEDE ANY AND ALL OTHER
`AGREEMENTS AND COMMUNICATIONS, WRITTEN OR ORAL,
`EXPRESS OR IMPLIED WITH RESPECT THERETO.
`
`(Id. at 3 (emphasis added).) Thus, the 2013 STA unambiguously applied at least to the
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`2,700 additional licenses purchased in 2015.
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`The next question is whether the 2015 quotations also superseded the 2004 SLA
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`with respect to the (at least) 18,101 licenses Fairview had already purchased. The
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`emphasized language above makes clear that insofar as the 2015 quotations bound
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`Fairview to the 2013 STA, they did so only with respect to the 2,700 licenses purchased in
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`2015. Neither quotation mentioned the thousands of perpetual licenses Fairview had
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`already purchased. Rather, the quotations stated only that Fairview purchased “the products
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`set forth above [namely, the 2,700 licenses and corresponding maintenance services]
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`pursuant to” the 2013 STA, and that the 2013 STA “supersede[s] any and all other
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`agreements . . . with respect thereto.” (Id.) The Court finds that the 2015 quotations
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`unambiguously bound Fairview to the 2013 STA with respect to the 2,700 licenses
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`purchased in 2015, but did not supersede the 2004 SLA with respect to previously
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`purchased licenses.
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`Quest also points to the 2017 purchase quotation and the 2018 Support Renewal
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`Quotation. In the 2017 quotation, Fairview agreed that the “Maintenance Services for the
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`One Identity Products set forth above,” which included all 38,101 licenses, “will be
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`provided by One Identity . . . pursuant to the terms and conditions of the [2013 Software
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`Transaction Agreement].” (2017 Quotation at 3.) Thus, under the 2017 quotation, the
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`maintenance services provided in 2017 were governed by the 2013 STA. But the parties’
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`dispute revolves around the licenses granted in § 2 of the 2004 SLA and 2013 STA, and
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`the true-up provisions found in § 15 and § 16 of those agreements—not the maintenance
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`services provided for in § 10 of the agreements. Because the parties’ dispute does not
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`pertain to the maintenance services provided in 2017, the 2017 quotation does not entail
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`that the 2013 STA’s forum-selection clause applies to this action.
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`Similarly, the 2018 Support Renewal Quotation renewed Fairview’s maintenance
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`services, “subject to the terms and conditions under which the licenses covered by the
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`Maintenance Services were purchased.” (2018 Quotation at 2.) Thus, the maintenance
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`services provided in 2018 were governed by both the 2004 SLA, with respect to the (at
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`least) 18,101 licenses purchased under the 2004 SLA, and the 2013 STA, with respect to
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`the 2,700 licenses purchased in 2015. But, again, that Fairview agreed to the 2013 STA
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`with respect to some of the maintenance services purchased in 2018 does not entail that the
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`2013 STA wholly displaced the 2004 SLA. And because the parties’ dispute does not
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`pertain to the maintenance services provided in 2018, the 2018 Support Renewal Quotation
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`does not subject this action to the 2013 STA’s forum-selection clause.
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`Finally, Quest argues that Fairview was required to review the 2013 STA and click
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`“agree” while installing the Active Roles version 6.9 software update on its computer
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`systems. But the 2004 SLA, by its terms, may not be “modified or amended except by a
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`writing executed by a duly authorized representative of each party.” (2004 SLA § 17(j).)
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`The click-wrap agreement allegedly executed by Fairview has not been presented to the
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`Court, and the limited record available at this stage does not establish that the agreement
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`constitutes a “writing executed by a duly authorized representative” of Fairview.
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`Accordingly, it is unclear whether the click-wrap agreement caused the 2013 STA to
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`supersede the 2004 SLA with respect to the licenses purchased under the 2004 SLA.
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`In sum, based on the limited record available at this stage of the proceedings, the
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`Court can only conclude that the 2013 STA governs 2,700 of Fairview’s 38,081 licenses.
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`Because Fairview’s declaratory judgment claims do not “seek[] enforcement of” the 2013
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`STA and Quest’s counterclaims based on the 2013 STA pertain to such a small sliver of
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`the dispute, the Court cannot yet say that this is an “action seeking enforcement of” the
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`2013 STA. Accordingly, the Court finds that the record at this stage does not support
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`transfer, and denies Quest’s motion.
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`C. Motion to Dismiss
`The Court next turns to Fairview’s Motion to Dismiss Quest’s counterclaims for
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`breach of the 2013 STA and for copyright infringement. In reviewing this motion, the Court
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`must accept the facts alleged in Quest’s counterclaim as true and view those facts in the
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`CASE 0:20-cv-01326-SRN-LIB Doc. 59 Filed 02/22/21 Page 15 of 18
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`light most favorable to Quest. See Hager v. Arkansas Dep’t of Health, 735 F.3d 1009, 1013
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`(8th Cir. 2013). For purposes of this motion, the Court assumes that the 2013 STA governs
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`Fairview’s alleged over-deployment of Active Roles licenses.
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`Regarding Quest’s breach of contract claim, Fairview argues that exceeding its
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`allowed licenses does not constitute breach under the plain terms of the contract. In support
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`of this argument, Fairview points to the contract’s true-up provision:
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`If Customer’s deployment of the Software . . . is found to be greater than its
`purchased entitlement to such Software, Customer will be invoiced for the
`over-deployed quantities at Dell’s then current list price plus the applicable
`Maintenance Services and applicable over-deployment fees.
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`(2013 STA § 15.) Fairview argues that because the agreement contemplated that Fairview
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`might over-deploy the Active Roles software and provided a mechanism for compensating
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`Quest in the event of such an over-deployment, over-deployment does not constitute a
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`breach of the contract. However, Quest’s breach of contract counterclaim is not premised
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`merely on the allegation that Fairview deployed the software to more accounts than
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`permitted by its license. Rather, the gravamen of Quest’s breach of contract claim is that
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`Fairview refused to pay for the alleged over-deployment, as required by the true-up
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`provision.1 The Court finds that Quest has plausibly alleged that Fairview failed to pay as
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`1 To be sure, Quest’s Answer and Counterclaim alleges simply that “Fairview has
`breached the 2013 STA by deploying Active Roles 6.9 software to . . . more enabled user
`accounts than allowed by Fairview’s license entitlement.” (Answer & Countercl. ¶ 44.)
`However, in this posture the Court must view the pleadings in Quest’s favor, and construes
`the Answer and Counterclaim to match Quest’s theory of breach: That by exceeding its
`allowed licenses and refusing to pay pursuant to the true-up provision, Fairview breached
`the 2013 STA.
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`CASE 0:20-cv-01326-SRN-LIB Doc. 59 Filed 02/22/21 Page 16 of 18
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`required by the true-up provision, and therefore denies Fairview’s motion to dismiss
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`Quest’s counterclaim for breach of contract.
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`Fairview also moves to dismiss Quest’s counterclaim for copyright infringement. In
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`order to establish copyright infringement, a copyright holder must prove “(1) ownership of
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`a valid copyright, and (2) copying of constituent elements of the work that are original.”
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`Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). Although “[a]
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`copyright owner who grants a nonexclusive, limited license ordinarily waives the right to
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`sue licensees for copyright infringement,” the copyright owner may recover for
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`infringement if “(1) the copying . . . exceed[s] the scope of the defendant’s license and (2)
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`the copyright owner’s complaint [is] grounded in an exclusive right of copyright (e.g.,
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`unlawful reproduction or distribution).” MDY Indus., LLC v. Blizzard Entm’t, Inc., 629
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`F.3d 928, 939–40 (9th Cir. 2010), as amended on denial of reh’g (Feb. 17, 2011) (citations
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`omitted). In order for a licensee’s violation of a licensing agreement to constitute copyright
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`infringement, the contractual provision violated must constitute a condition on the scope
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`of the license, and “there must be a nexus between the condition and the licensor’s
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`exclusive rights of copyright.” Id. at 941.
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`The parties do not dispute that Quest has plausibly alleged ownership of a valid
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`copyright to the Active Roles software. Rather, Fairview argues that Quest has not
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`plausibly alleged infringement because, by virtue of the true-up provision, over-
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`deployment of the software does not exceed the scope of Fairview’s license. Fairview relies
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`primarily on Quest Software, Inc. v. DirecTV Operations, LLC, in which the court held that
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`a similar true-up provision in Quest’s contract with another of its clients constituted a
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`CASE 0:20-cv-01326-SRN-LIB Doc. 59 Filed 02/22/21 Page 17 of 18
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`contractual covenant, not a condition limiting the contract’s scope. No. SACV 09-1232 AG
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`ANX, 2011 WL 4500922, at *4 (C.D. Cal. Sept. 26, 2011). But the contract at issue in that
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`case expressly gave the defendant the right to exceed the number of licenses granted in the
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`contract. See id. at *8 (“Under the terms of the License Agreement, Defendant had the
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`‘right to increase the aggregate number of CPU’s . . . by up to 10% per product . . . at no
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`additional fee.’ Defendant could exceed this 10% threshold on the condition that it paid
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`Plaintiff additional license fees.”). By contrast, the 2013 STA granted Fairview a license
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`only to “the quantities of each item of Software identified in the applicable Order.” (2013
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`STA § 2(a).) While the true-up provision provided a remedy should Fairview be found to
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`exceed that quantity, the true-up provision did not expressly give Fairview the right to do
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`so. (See id. § 15.) Thus, Quest has plausibly alleged that by exceeding the numerical
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`limitation on Fairview’s licenses, Fairview exceeded the scope of its license.
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`Fairview also contends that Quest has not plausibly alleged a nexus between the
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`license’s numerical limitation and Quest’s exclusive rights. See MDY Indus., LLC, 629
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`F.3d at 941 (“[F]or a licensee’s violation of a contract to constitute copyright infringement,
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`there must be a nexus between the condition and the licensor’s exclusive rights of
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`copyright.”). But Quest has alleged that Fairview used more copies of its copyrighted work
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`than it purchased, and has not paid for the excess use as provided for by the true-up
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`provision. Consequently, Quest has plausibly alleged the required nexus between the
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`numerical limitation in its contract and Quest’s exclusive rights. See id. at 941 n.4 (“A
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`licensee arguably may commit copyright infringement by continuing to use the licensed
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`work while failing to make required payments, even though a failure to make payments
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`CASE 0:20-cv-01326-SRN-LIB Doc. 59 Filed 02/22/21 Page 18 of 18
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`otherwise lacks a nexus to the licensor’s exclusive statutory rights.”); Storage Tech. Corp.
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`v. Custom Hardware Eng’g & Consulting, Inc., 421 F.