architecture and code, to anyone else. It does not say, e.g.,
“Customer may allow its consultants to use the software as long as
the consultants do not use the software to develop their own
products.” It says that only the customer may use it, and that the
customer must keep the software confidential.

The undisputed facts show that Compuware knew in 1997 that
Unitech was using the licensed software and therefore that HCSC was
not maintaining its confidential nature. That is, Compuware knew in
1997 that HCSC was violating the terms of the agreement, but it did
nothing until 2000, when it became aware that Unitech was using the
licensed software for developing its own software. Compuware
introduces evidence that consulting companies in the business use
licensed software all the time, but in the face of exclusive
licenses, that just suggests that violations of exclusivity and
confidentiality clauses are commonplace. If there are to be
exceptions for consultants, they must be expressly stated in the
language of the contracts, or the licenses must be otherwise so
formulated as to conform to the practice of using consultants.
Compuware does not argue that the contract was amended by conduct
of the parties or course of dealing, so any such argument is
waived. I note that the agreement was amended many times, and had
Compuware wished to authorize the use of its software for
particular purposes by consultants, it might have specifically done

so in writing, and limited external use to those purposes, when it


in February 2001. Moreover, Unitech does not plausibly argue that
it was prejudiced. It cites no authority that having to pay damages
by itself constitutes prejudice, arguing only that “all of these
costs and expenses”’--apparently referring to damages--could have
been avoided had Compuware acted sooner. However, there is no
evidence that this is true. Here, if Compuware’s claim that it
stopped using Compuware software in March 2000, on receiving
Compuware’s demand letter, is true, the delay did not cost it any
additional damages. If Unitech continued to violate Compuware’s
copyrights, it is hardly entitled to the advantages of an equitable
doctrine, which, like all equity, requires clean hands. TRW Title
Ins. Co. v. Security Union Title Ins. Co., 153 F.3d 822, 829 (7th
Cir. 1998). Laches does not apply.

The trade secrets claim is based on the Illinois Trade Secrets
Act, 765 ILCS 1065/2(d) (“ITSA”), which has a five year statute of
limitations, id. § 1065/7. The trade secrets claim depends on a
construction of the parties’ written bargains, specifically the
nondisclosure provisions, to determine what measures Compuserve
took to maintain the confidentiality of the software, so the claim
‘arises under” the agreement. Compuware argues that nonetheless the
shorter contractual limitations period is ineffective because the
longer statutory ITSA period controls. “[I]n the absence of a
controlling statute to the contrary, a provision in a contract may

validly limit, between the parties, the time for bringing an action


barred by the contractual limitations period. As the Seventh
Circuit has stated, “arising out of” and “arising under” are
familiar phrases. Omron Healthcare, Inc. v. Maclaren Exports Ltd.,
28 F.3d 600, 602 (7th Cir. 1994). If the resolution of the dispute
“depend[s] on an understanding of the parties’ written bargain and
of its implied terms,” id., then it “arises out of” that agreement.
All disputes “the resolution of which arguably depend on the
construction of an agreement ‘arise out of’ that agreement for

purposes of an arbitration clause.” Id. Compuware’s argument that
this reasoning only applies to arbitration cases is unpersuasive.
It is the “arises out of” language that is key.

The copyright infringement claim arises purely under the
Copyright Act, 17 U.S.C. §§ 101 et seqg., and does not depend on the
license agreements, which are not required for the interpretation

of that claim. The Copyright Act provides in pertinent part that

the copyright owner has the exclusive right:

(1) to xveproduce the copyrighted work in copies or
phonorecords

(2) to prepare derivative works based upon the copyrighted
work;

(3) to distribute copies or phonorecords of the copyrighted
work to the public by sale or other transfer of ownership, or
by rental, lease, or lending;
17 U.S.C. § 106(a). Understanding these rights does not require
interpretation of the license agreement. A rational jury could

conclude that there is enough evidence of Unitech’s unauthorized

use of the software to find violations of § 106(a)(1) & (3) by at


became aware of Unitech’s use of the software in 1997. See Dawn
Equipment Co. v. Micro-Trak Systems, Inc., 186 F.3d 981, 988 (7th
Cir. 1999) (“Had the parties wished to [include a certain
contractual provision], they had ample opportunity to do so in the
written agreement.”).

Compuware invokes Michigan’s “continuing breach of contract”
doctrine, citing Adams v. City of Detroit, 591 N.W.2d 67, 71 (Mich.
App. Ct. 1998), which directed the trial court to treat the denied
benefits in that case as like “installment contracts, each
deficient payment of benefits marking the time from which a
separate claim accrues,” for the purposes of the statute of
limitations. However, the case is disanalogous. The present case
involves not an installment contract but a one-time license
agreement with subsequent amendments. Compuware argues,
alternatively, that the Project Schedules “incorporate and are
governed by the terms of the license agreement, but each represents
a new contract for the software products identified therein.” That
would exclude the Project Schedules signed before February 7, 2000,
but permit those signed afterwards. However, Compuware offers no
argument that the Project Schedules are indeed separate contracts
as opposed to amendments, and I conclude that they are not. The
contract claim is barred.

The copyright claim is a different story. As Compuware urges,

this does not “arise out of” the license agreement and so is not


the cited testimony does not support this reading. See HCSC’s L.R.
56.1(a) Statement, Tab 12 at 109-112. Neither is there any evidence
from which a rational jury could conclude that Compuware should
have found this use of its software any sooner. No evidence in the
record indicates that the § 106(a)(2) claim is time-barred.
Unitech further argues that the copyright claim is barred by
laches. Laches is an equitable doctrine, also available at law,
that “addresses delay in the pursuit of a right when a party must
assert that right in order to benefit from it.” Hot Wax, Inc. v.
Turtle Wax, Inc., 191 F.3d 813, 820 (7th Cir. 1999). The party
asserting the defense of laches must demonstrate: “(1) an
unreasonable lack of diligence by the party against whom the
defense is asserted and (2) prejudice arising therefrom.” Id. The
§ 106(a) (2) claim is timely, but laches can be used to contract a
statute of limitations. Hutchinson v. Spanierman, 190 F.3d 815, 823
(7th Cir. 1999). Unitech’s argument for unreasonable delay is that
in 1997-1999, Compuware did not investigate whether Unitech’s use
of its software was authorized. However, this only goes to the §
106(a) (1) and (3) claims, which are time-barred anyway. It does not
reach the § 106(a) (2) claim. Unitech does not argue that Compuware
should have known before 2000 that Unitech was using Compuware’s
software as the basis for its own programs. There was no
unreasonable delay between finding out in February 2000 that

Unitech was using Compuware products to develop its own, and suing


© inate Order Form (08/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

Elaine E. Bucklo

Sitting Judge if Other
than Assigned Judge

Notified counsel by telephone.
Docketing to mail notices.
Mail AO 450 form,

Copy to judge/magistrate judge.

courtroom

MPS deputy’s

CASE NUMBER 01 C 873 DATE 5/24/2002
CASE Compuware Corp. vs. Health Care Service Corp., et al.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
qd) Oo Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) Oo Answer brief to motion due___. Reply to answer briefdue___.
(4) Qa Ruling/Hearing on set for at :
(5) oO Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at .
(7) Qa Trial[set for/re-set for] on
(8) im) [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) (General Rule2i OCFRCP41(a)(1) OM FRCP41(a)(2).
ee _| [Other docket entry] Defendants’ motions for summary judgment (37-1 and 48-1) are granted in
part and denied in part. Summary judgment is granted as to count I and count III, and on the section 106
(a)(1) and (3) claims under count II. The motion is denied as to section 106 (a)(2) claims under Count II.
Enter Memorandum Opinion and Order.
(il) = [For further detail see order attached to the original minute order.]
No notices required, advised in open court.
6
No notices required. umber of notices
o | Notices mailed by judge’s staff.

MAY 2,8, 200e
p

dato msiled notice

Med

initials

“central Clerk’s Office

mailing depoty initials



software for, however, for the purposes of this claim; all that
matters is that Compuware knew that HCSC had violated its
confidentiality agreement by permitting Unitech to use the
software, and took no steps to stop this. As a matter of law doing
nothing to enforce a confidentiality agreement is not a reasonable
effort in the circumstances to maintain a trade secret. The
defendants are entitled to summary judgment on the ITSA count.

I Grant the defendants summary judgment on count I (the
contract claim) and count III (the ITSA claim), and on the §
106(a) (1) and (3) claims under Count II (the copyright claim). I
DENY summary judgment on the § 106(a)(2) claims under count II.

ENTER ORDER:
Lone LBahl-

Elaine E. Bucklo
United States District Judge

Dated: May2y, 2002

11


on such contract to a period less than that prescribed in the
general statute of limitations . .. . ” Taylor v. Western and
Southern Life Ins. Co., 966 F.2d 1188, 1204 (7th Cir. 1992)
(quoting Order of United Commercial Travelers of Am. v. Wolfe, 331
U.S. 586, 608 (1947)). That is correct, so the ITSA claim is not
time-barred.

The ITSA fails in any event, however, because HCSC and Unitech
have brought forward undisputed evidence that Compuware failed to
preserve the confidentiality of the licensed software. ITSA
protects certain commercial information that:

(1) is sufficiently secret to derive economic value, actual or

potential, from not being generally known to other persons who

can obtain economic value from its disclosure or use; and

(2) is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy or confidentiality.
Pope v. Alberto-Culver Co., 694 N.E.2d 615, 617 (Ill. App. Ct.
1998) (quoting 765 ILCS 1065/2). Here, it is undisputed that
Compuware. knew that HCSC allowed Unitech to use the licensed
software, and Compuware did not do anything about it until it
discovered that Unitech was using it for a purpose of which
Compuware disapproved. The sole evidence of efforts to maintain
confidentiality offered by Compuware is that employees, customers,
and prospective customers were required to sign nondisclosure
agreements. See Response to Unitech’s Motion for Summary Judgment,

at 8-11. The undisputed evidence shows that these were not

enforced. It doesn’t matter what Unitech was using the licensed

10


least Unitech and of Unitech’s preparation of derivative works to
find violations of § 106 (a)(2). HCSC has a license to use the
software.

However, the statute of limitations on copyright infringement
is three years. Pickett v. Prince, 207 F.3d 402, 404 (7th Cir.
2000); 17 U.S.C. § 507(b). Compuware became aware from some time in
the summer of 1997 that HCSC was allowing Unitech to use the
licensed software. The clock started running then on the filing of
a lawsuit for possible violations of § 106(a) (1) and (3), and the
limitations period ended three years later, in the summer of 2000.
This lawsuit was not filed until February 2001, so those claims are
barred.

There remains the claim for the violation of § 106(a) (2), for
the preparation of derivative works based on Unitech’s use of the
licensed software to develop its own products. Compuware introduces
evidence that it did not know until February 2000 that Unitech was
using its access to Compuware software for this purpose. HCSC
replies with evidence that Compuware learned about this in 1997,
referring to Sales Exception Forms from that year that call Unitech
“a developer of software.” By itself that would not be enough to
conclude that Unitech was developing software based on Compuware’s
proprietary products. HCSC refers me, further, to Gross’s
deposition to show that Compuware knew from this that Unitech was

in fact using Compuware software as the basis of its own work, but


the one year limitations period in the contract. HCSC offers a
statement by Compuware’s Rule 30(b) (6) corporate designee, Sean
O'Shea, agreeing that “Unitech told Compuware that it was using the

. software on the [HCSC] computer in 1997,” and that there were
no license agreements between Compuware and HCSC. HCSC also offers
notes made in the summer of 1997 from Bill Seno, Dan Schufrieder,
and Guy Gross, Compuware salesman who were feeling out Unitech as
a potential customer, indicating that Unitech was running the
licensed software. Compuware replies that this is true, but says it
thought that Compuware was merely acting as a consultant to HCSC,
and that what Compuware did not know prior to February 2000 was
that Unitech was working with Compuware software to develop its own
products.

That admission takes out the contract claim and (as I shall
explain below) the trade secrets claim as well. Michigan, whose law
governs here, uses a plain language rule in interpreting contracts.
Gelman Sciences, Inc. v. Fidelity and Cas. Co. of New York, 572
N.W.2d 617, 623 (Mich. 1998) (“[W]e must enforce the terms of the
contract as written, interpreting the unambiguous language in its
plain and easily understood sense.”). The license provides that the
licensed software “may be used only by the customer,” that is, by
HCSC, which shall “maintain the confidential nature of the
software.” It does not say that HCSC may allow anyone else to use

it or disclose the confidential aspects of it, presumably its


licensed to HCSC. In February 2000, Compuware found that HCSC had
been selling Unitech the use of certain Compuserve software since
1984, and that Unitech had been developing its own line of software
that Compuware believed was based on the Compuware software.
Compuware sued HCSC for breach of contract (count I), Compuserve,
Unitech, and “John Does” for copyright infringement (count II), as
well as for misappropriation of trade secrets (count III). The
defendants move for summary judgment, and I grant the motion in
part and deny it in part.

Summary judgment is proper when the record “show[s] that there
is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Fed. R. Civ.
P. 56(c). In determining whether a genuine issue of material fact
exists, I must construe all facts in the light most favorable to
the non-moving party and draw all reasonable and justifiable
inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986).

HCSC argues that all of Compuware’s claims are time-barred and
should be dismissed because the original 1984 agreement requires
that “no action arising out of this Agreement, regardless of form,
may be brought by either party more than one year after the cause
of action has accrued.” According to HCSC, Compuware knew or should
have known in 1997 that Unitech was using the licensed software on

the HCSC system, but it did not sue until February 2001, well after


H]
IN THE UNITED STATES DISTRICT COURT OCkE Tey

FOR THE NORTHERN DISTRICT OF ILLINOIS MAY 2 2
EASTERN DIVISION ‘O02

COMPUWARE CORPORATION, a
Michigan Corporation

Plaintiff,
No. 01 C 0873

Vv.

HEALTH CARE SERVICE
CORPORATION, a mutual legal
reserve company doing business
as BLUE CROSS BLUE SHIELD OF
ILLINOIS; UNITECH SYSTEMS, INC,
an Illinois corporation, and
various JOHN DOES,

Defendants.

MEMORANDUM OPINION AND _ ORDER

Compuware Corporation of Michigan sells software to run on
mainframe computers. It entered into a permanent license agreement
(governed by Michigan law) with Health Care Service Corporation of
Illinois (“HCSC”) in 1984, but retained ownership in certain
software licensed to HCSC. The agreement was amended in 1993 to
state that the licensed software may be used only by HCSC and only
at the licensed locations. The 1984 license was further amended by
twenty five Software Product Schedules entered into between 1984
and 2000, identifying the particular software at issue and the
locations to which it was licensed. In 1997, Compuware salesmen
looking into whether Unitech Systems, Inc., might be a potential

customer, discovered that Unitech was running Compuware software

WO