Opinion ID: 2373925
Heading Depth: 1
Heading Rank: 2

Heading: Technical Background and Reseller Agreement

Text: In order to understand this appeal more fully, we must attempt to understand something about which we know very little  computer technology. A computer is not like a manual typewriter, on which we can actually see the physical connection between input  manually pressing a key, and output  the hammer striking a sheet of paper. One who presses a few keys on a computer keyboard that produces information or text on a video-display screen is largely unaware of what actually occurs within the machine to allow the information to be presented. However, a rudimentary understanding of computer technology helps one to grasp the relationship between CCC and ISI. There are three basic components involved in the computer process: hardware, operating-system software, and application software. All of those components have distinct responsibilities that must be carried out with precision and in harmony. See 11 McGraw-Hill Encyclopedia of Science & Technology 124-26 (7th ed. 1992) ( McGraw-Hill ); Encyclopedia of Computer Science 641-49 (1976). Hardware, the most obvious component of the computer process, consists of all of the physical objects that make up a computer; i.e., a central processing unit, or CPU (the part of the computer that contains the electronic circuits), a keyboard, a video display, and a printer. See generally Linda G. Christie & John Christie, The Encyclopedia of Microcomputer Terminology (1984) ( Microcomputer Terminology ) (defining computer-related terms). Operating-system software interacts directly with the hardware and tells the computer how to perform the most basic functions. For example, without a software-operating system, a computer would not know how to place a character on the video-display screen and would be nothing more than a useless mass of silicon and plastic. Simply stated, operating-system software turns the hardware into a usable machine. See McGraw-Hill, supra, at 125-26. The operating-system software often accompanies the computer's major hardware component, the CPU. See Microcomputer Terminology, supra. Application software interacts directly with operating-system software to comprise the final set of instructions required to make a computer perform a given task. Application software ranges from off-the-shelf packages, such as familiar wordprocessing programs like WordPerfect, which may be purchased at the neighborhood-software store, to custom designed, user-specific programs. Application software does not interact with the computer hardware but interacts exclusively with the operating-system software. See McGraw-Hill, supra, at 125-26. Therefore, application software is usually designed to interact with one type of operating-system software. Ibid. Because of that limitation, the computer industry has developed standard operating-system software packages that run with a great majority of computer hardware. Two of the most notable standard operating systems are MS-DOS and UNIX. [1] See Time-Life, supra, at 96-97. The CCC computer-assisted learning system consists of hardware, operating-system software, and application software. The CCC system's hardware is the amalgamation of numerous physical components that CCC has assembled together into what it calls the Microhost. The Microhost's operating-system software, also developed by CCC, is a modification of the UNIX operating system. CCC system's application software is essentially the heart of the CCC product line. CCC has spent over twenty years researching and developing an extensive library of educational-curriculum software, which CCC describes as Courseware. The CCC integrated-learning system reinforces what is being taught to the student in the classroom. Visualize a computer laboratory of students working at numerous computer terminals. When a student punches into the computer a four-digit identification number followed by the student's first name, the words Hello, Student    flash on the terminal screen. Each computer session begins where the student finished the previous day. When the student types an incorrect answer, the computer politely suggests Try again. When the student finishes the lesson, the screen displays the student's results and the computer records the student's performance. Students use the CCC computer-assisted instruction system to extend their classroom lessons and to enhance learning and performance. Teachers accompany their classes to the computer laboratory, where they help students understand the problems and relate the instructions from the classroom to the computer laboratory. Teachers need no expertise as computer operators or programmers. The teachers are trained on how the system works and are familiarized with the available software curriculum, or Courseware. CCC is in large measure the creation of Dr. Patrick Suppes, formerly of Stanford University, who spent over two decades researching and developing the CCC system. Except in the Northeast, CCC markets, distributes, and sells its products directly to educational institutions throughout the United States. [2] Over the past fifteen years, CCC has developed a distribution arrangement in the Northeast with Phyllis Kaminer (Kaminer), the President and CEO of ISI. Evidently, Kaminer developed some expertise in the field of education and computers, and, in 1972, became associated with a company known as Educomp of Connecticut. In her position at Educomp of Connecticut, Kaminer developed a relationship with CCC. Following Educomp of Connecticut's refusal to make an arrangement with CCC for the promotion of CCC products, Kaminer left Educomp of Connecticut and sought her own arrangement with CCC. CCC entered its first distribution contract with Kaminer in 1975. At that time, Kaminer was the principal of a company known as Educomp of New Jersey, located in Tenafly, New Jersey. The 1975 agreement gave Educomp of New Jersey the exclusive right to market CCC products in the states of New York, New Jersey and Connecticut and in the region of Eastern Pennsylvania. [3] The 1975 agreement was to run until 1980. The record suggests that sometime between 1975 and 1980, Kaminer changed the name of her company to ISI and moved the headquarters to Englewood Cliffs, New Jersey. In 1980, CCC entered into a new distribution agreement with ISI. The 1980 agreement gave ISI the exclusive right to purchase or license the CCC products    for purposes of selling, leasing or renting such products to the market in the States of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Washington D.C. The 1980 agreement was to run until 1984. The 1984 agreement between CCC and ISI, labeled ReSeller Agreement, contained many of the same provisions as the 1980 agreement. ISI highlights several provisions contained in the 1984 agreement that it deems relevant: 1. CCC conferred on ISI an exclusive right to sell and license CCC's products within ISI's territory. 2. CCC required ISI to use its best efforts to develop a demand for and Resell the [CCC] Products within the Market   . 3. CCC obligated ISI to devote all of its energies and resources to developing a demand for the [CCC] Products. 4. CCC prohibited ISI from selling any products competitive with CCC's products. 5. CCC required ISI to maintain at least four full-time sales representatives to promote and sell CCC's products. 6. CCC obligated ISI to maintain adequate facilities    to promote demand for and Resell [CCC's] Products. 7. CCC required ISI to promote CCC's products through advertising and exhibition at trade shows, conventions and the like. 8. CCC authorized ISI to extend its use of the CCC name, trademark and logo in ISI's advertising    public relations materials and manuals. 9. CCC gave ISI the right to sublicense the CCC copyrighted Courseware. 10. CCC allowed ISI to receive sublicense fees from its customers for the CCC Courseware and to pay CCC license fees for each sublicense in accordance with a price schedule established by CCC. 11. CCC required ISI to prepare customers' sites for installations of the CCC product in accordance with CCC specifications; CCC installed the products. 12. CCC required ISI to establish and maintain a program for the benefit of the users of the CCC products so that they may obtain training in the use and operation of the CCC products. 13. The agreement was to be interpreted in accordance with the laws of the State of California. In ISI's view, under the terms of the 1984 agreement, it had the responsibility of locating customers, persuading them to purchase CCC's products, selecting the site at which the product was to be installed, and placing the purchase orders with CCC. Following CCC's installation of the product, ISI would train the teachers and instructors to use the product. Thereafter, ISI had a duty to follow-up with the customer to provide continuing training at those locations. Ninety-seven percent of ISI's revenue came from the sale of CCC's products. In 1988, in an effort to remain competitive within the computer-assisted-instruction industry and to avoid product obsolescence, CCC decided to change the direction of its business. Around that time, CCC began negotiations with IBM to allow its application software, or Courseware, to run on the MS-DOS standard operating system. By allowing its Courseware to run on MS-DOS, CCC would increase the accessibility of its product line. Thus, such an arrangement would allow CCC's Courseware to run on the popular IBM Personal Computer family, thereby eliminating CCC's need to assemble and market its own Microhost hardware. Presumably, such an arrangement would allow CCC to market its products more competitively to smaller school districts because the smaller districts would not be locked-in to purchasing the CCC Microhost, and could purchase a less expensive and more versatile IBM-PC instead. CCC's efforts to change business directions caused CCC to reconsider its relationship with ISI. In 1989, CCC offered to ISI a new written agreement (the 1989 agreement) that modified the 1984 Reseller Agreement. That agreement reduced ISI's marketing territory to three states: New Jersey, New York, and Massachusetts. The balance of ISI's prior territory comprising Maine, New Hampshire, Vermont, Rhode Island, Connecticut, Delaware, Maryland, and the District of Columbia was taken over by CCC and has been marketed directly by CCC since August 1, 1989. The 1989 agreement eliminated ISI's exclusive right to sublicense the CCC Courseware in the assigned territory.