Opinion ID: 199239
Heading Depth: 3
Heading Rank: 1

Heading: Income from AOL and Lexis-Nexis

Text: In April 1994, AccuSoft entered into an agreement with AOL to license the IFL software for distribution as a component of AOL's software products. This agreement was amended by the parties in July 1995. The amendment provided that AOL's license would run for a period of one year from the amendment's effective date (July 1, 1995), and, thereafter, would renew for additional one-year periods automatically, at specified royalty rates, unless terminated by the parties. AOL continued to make payments, and neither party moved to terminate the agreement, with the result that the license continued in effect after August 31, 1996. During the “audit phase” of this case, both Snowbound and AccuSoft asserted that the revenue stream issuing from this agreement after August 31, 1996, belonged to it under the settlement agreement. In February 1995, AccuSoft entered into a licensing agreement with Lexis-Nexis which permitted Lexis-Nexis to “distribute, lease and market” the IFL as a component of the programs used to access Lexis-Nexis' services. An addendum to the agreement, signed the same day, specified that the agreement would initially terminate in December 1995, but that Lexis-Nexis could, at its option, extend the agreement for a second and then a third year by paying stated amounts before the end of each -13- prior year. It also provided that Lexis-Nexis could, by paying an additional amount before the end of the second year, convert the license to a “perpetual, fully paid-up license” effective January 1, 1998. In January 1997, Lexis-Nexis paid AccuSoft $35,000, representing the $25,000 annual renewal for the 1997 calendar year and the $10,000 specified for converting the license to a perpetual license. Both AccuSoft and Snowbound argued before the master that this income belonged to it under the settlement agreement. In his memorandum, the master ruled that AccuSoft was entitled to retain the entirety of both the AOL revenue stream and the Lexis-Nexis payments, because the settlement agreement did not affect the continuation of licensing agreements already in effect on June 5, 1996 -- when the settlement agreement was signed -- nor did it provide for royalties to be paid on such licenses. The master noted that nothing in the settlement agreement expressly addressed the continuation of existing licenses. He also found nothing in the agreement to implicitly require their termination or transfer to Snowbound. Although the settlement agreement clearly did transfer AccuSoft's copyright in the IFL to Snowbound, the master accepted AccuSoft's contention that a non-exclusive license issued by AccuSoft before the settlement agreement was signed would -14- continue in effect under 17 U.S.C. § 204(e).7 The master also agreed with AccuSoft that the language accomplishing the transfer of copyright did not transfer AccuSoft's collateral contractual rights in existing IFL licensing agreements, including the right to receive payment under such agreements. Turning to the AOL and Lexis-Nexis licensing agreements, the master found in each case that the agreements constituted continuing licenses, rejecting Snowbound's argument that the renewal of the licenses was tantamount to issuance of a “new” license after August 31, 1996. The master interpreted the AOL agreement to create, in effect, a perpetual license, conditioned only on payment, that would continue “unless and until an affirmative act is done by either AccuSoft or AOL which breaks the continuity of the license.” Similarly, the LexisNexis agreement “continue[d] in effect from the date of the Addendum . . . without a new grant or extension of rights.” On this basis, the master ruled that AccuSoft could retain any and all revenues resulting from annual renewals of the AOL agreement 7 This section provides, in pertinent part, that “a nonexclusive license, whether recorded or not, prevails over a conflicting transfer of copyright if the license is evidenced by a written instrument signed by the owner of the rights licensed . . . and . . . the license was taken before execution of the transfer.” 17 U.S.C. § 204(e). Nothing in Snowbound’s appeal suggests that Snowbound disputes the applicability of this statute or the import of its application. -15- after August 31, 1996, as well as the entirety of the January 1997 payment from Lexis-Nexis. On appeal, Snowbound's principal contention is that the master improperly interpreted the settlement agreement. Snowbound admits that there is a “lack of pertinent language” in the settlement agreement, but argues that “the entire tenor of the Settlement Agreement is that after August 31, 1996, AccuSoft was to have no further dealings of any kind with the IFL” (emphasis added). Snowbound also notes that the settlement agreement provided for royalty payments to be made to Snowbound, and that AccuSoft had paid royalties to Palo on IFL sales even before the settlement agreement was signed. Given this “historical and contractual context,” Snowbound argues, it “makes no sense . . . to infer that Palo intended AccuSoft to keep the entirety of [the income from AOL and Lexis-Nexis].” Taking a different tack, Snowbound also argues that the AOL agreement, at least, is not properly viewed as a continuing license, because its terms allow AccuSoft to terminate upon 120 days notice for any reason. We are not persuaded to adopt the interpretation of the settlement agreement that Snowbound proposes. As we have previously stated, when sophisticated business entities enter into a settlement agreement, they “rely upon and have a right to -16- expect a fairly literal interpretation of the bargain that was struck and approved by the court.” Jewett, 711 F.2d at 1101. We have also made clear that we do not consider it our place to “rewrite contracts freely entered into between sophisticated business entities.” Mathewson Corp. v. Allied Marine Indus., Inc., 827 F.2d 850, 855 (1st Cir. 1987). Here, it is undisputed that the parties are business entities of reasonable sophistication who drafted a settlement agreement with the extensive participation of attorneys on both sides. It is also undisputed that the settlement agreement does not, by its terms, either terminate pre-existing licenses issued by AccuSoft or transfer collateral contractual benefits resulting from existing licensing agreements to Snowbound. Under such circumstances, we consider it “far wiser for a court to honor the parties' words than to imply other and further promises out of thin air.” Id. We are particularly loath to do so given the conclusory arguments advanced by Snowbound in favor of its interpretation. We do not consider it obvious that the master's decision is contrary to the “entire tenor” of the agreement, and Snowbound provides nothing beyond its bare assertion to convince us otherwise. While Snowbound's contention that it “makes no sense” to infer that Palo/Snowbound intended that these revenues should pass to AccuSoft royalty-free strikes us as plausible, it -17- is also irrelevant to our analysis. Whether or not Snowbound anticipated this result (and we acknowledge the possibility that Snowbound simply did not consider what would happen to continuing agreements), it is not our role “to accomplish by judicial fiat what a party neglected to achieve contractually.” Northern Heel Corp. v. Compo Indus., Inc., 851 F.2d 456, 466 (1st Cir. 1988) (quoting RCI Northeast Serv. Div., 822 F.2d at 204) (internal punctuation omitted). Furthermore, we note the master's finding that Palo knew of at least the AOL licensing agreement during settlement negotiations, which Snowbound does not dispute. Under such circumstances, Snowbound took the risk that its unspoken understanding was incorrect and thus was not entitled to rest on this unilateral belief that future rights associated with the AOL agreement were comprehended in the language of the settlement agreement. Finally, we find no merit in Snowbound's argument that the AOL license renewal constituted a “new” license simply because it was subject to termination at either party's discretion. We do not agree that the fact that AccuSoft could have terminated its agreement with AOL, but did not, amounts to the same thing as the affirmative grant of a new license. As previously noted, the settlement agreement did not oblige -18- AccuSoft to terminate the license; AccuSoft therefore did not violate the agreement by taking no action. For the foregoing reasons, we affirm the master's decision with respect to the revenues received under the AOL and Lexis-Nexis licensing agreements.