On March 28, 2004 federal judge John Tunheim issued his ruling on the Motions for Summary Judgment brought forward by defendants Softwares/Quantum/CHOF. Below is a summary of excepts, taken directly from the judges ruling, on each of counts iSystems has brought against Softwares/Quantum/CHOF.

COUNT 1 - Breach of Contract

A. 1996 Agreement
Defendants contend that they could not have breached the 1996 Agreement because iSystems materially breached the 1996 Agreement first, resulting in defendants receiving a perpetual license to use TQT in any way that they chose.

The Court is not persuaded that a "perpetual license to use" TQT can be understood as including a right to copy TQT. However, even if it could be so understood, the Court cannot determine that iSystems breached the 1996 Agreement so as to trigger that penalty.

B. Licenses
As noted above, the 1993 Agreement made it clear that Softwares did not own TQT, potentially implying that Softwares only received licenses. The 1996 Agreement explicitly refers to licenses. Further, invoices that Softwares received from plaintiffs directed recipients to "read the software license agreement ("license") carefully." Regardless of its protestations, Softwares nevertheless clicked acceptance of the 2001 Agreement. From these facts, a jury could conclude that Softwares was aware of and accepted all three of the licenses, and the defendants are therefore liable for any breach of the license terms.

The Court thus finds that there are multiple questions of material fact as to whether defendants are liable for breach of the 1993 and 1996 Agreements and the 1995, 1998 and 2001 licenses. Summary judgment is therefore inappropriate on this claim.


COUNT 2 - Copyright Infringement

Defendants assert that iSystems' copyright infringement claim must fail because iSystems cannot demonstrate (1) ownership of a valid copyright; and (2) that original elements of the work were copied.

1. Ownership of a valid copyright
The court is satisfied that Jeremy Kahn's registration certificate and the evidence of his unique participation in the development of TQT are sufficient to support his copyright of the product.

2. Original elements of the work were copied
Plaintiffs contend that there is sufficient evidence to establish that defendants had access to TQT, and that Quantum MIS is substantially similar to TQT. The court agrees. The Court therefore cannot grant defendants summary judgment on plaintiffs' copyright infringement claim.


COUNT 3 - Breach of Implied Covenant

In this case, plaintiffs allege that Softwares violated the "spirit and letter of the Development Agreement" by secretly developing Quantum MIS, using TQT customers to do so, and then converting TQT customers to Quantum MIS by making disparaging comments about TQT. Plaintiffs have adequately established the existence of a contract between themselves and Softwares. Further, plaintiffs have submitted evidence demonstrating that TQT users were involved in the Quantum MIS focus group, that Softwares misrepresented Quantum MIS as an "upgrade" of TQT, and that TQT sales have declined substantially. Plaintiffs have alleged sufficient facts to permit a jury to find that defendants, in bad faith, acted to prevent plaintiffs from collecting the fruits of the Developer Agreement. Summary judgment is therefore inappropriate on this count.


COUNT 4 - Breach of Fiduciary Duty

The Court finds that plaintiffs have not demonstrated any special circumstances distinguishing this case from an ordinary producer-distributor relationship. The Court therefore holds that a jury could not find that a fiduciary relationship existed between plaintiffs and defendants in this case. Accordingly, the Court grants defendants' motion for summary judgment on this claim.


COUNT 5 - Trade Secret Misappropriation

As the sole distributors defendants had a confidential relationship with plaintiffs that permitted defendants access to plaintiffs' alleged trade secrets. Plaintiffs assert that defendants used there secrets in the development and the marketing of Quantum MIS. Plaintiffs have presented sufficient evidence for a jury to conclude that defendants used their knowledge of TQT and their experience marketing TQT to create and market Quantum MIS. Thus summary judgment is inappropriate with respect to this claim.


COUNT 6 - Fraudulent Transfer

The Court finds no evidence that Softwares' transfer of assets to Quantum LLC was intended to hinder, delay, or defraud iSystems, or more specifically to avoid any liability that might accrue to this action. Softwares, Quantum, and CHOF all remain defendants in this case. There is no indication that, should plaintiffs prevail on there claims, they will be unable to recover from defendants. Summary judgment is therefore granted to defendants on this claim.


COUNT 7 - Consumer Fraud

Plaintiffs have withdrawn this claim, and the Court will accordingly dismiss it.


COUNT 8 - Disregard of Corporate Entity

The court is satisfied that given CHOF's intimate involvement in both Softwares and Quantum and the ease and frequency with which assets appear to be transferred between CHOF's subsidiaries, allowing CHOF and Quantum to escape liability because each is technically a separate business from Softwares would permit them an advantage they do not merit. Thus, the Court will not grant defendants' motion for summary judgment on this claim.


COUNT 9 - Conspiracy

"[A] conspiracy is a combination of persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means." Under Minnesota law, a corporation cannot conspire with itself. Similarly, a wholly owned subsidiary cannot conspire with its parent corporation.

Softwares and Quantum are both wholly owned subsidiaries of CHOF. All three are controlled and managed by the same small group of people. All share the goal of supporting CHOF and its membership. Thus the Court finds that a conspiracy cannot, as a matter of law, exist between CHOF, Softwares, and Quantum and this claim will be dismissed.


COUNT 10 - Deceptive Trade Practices

Plaintiffs maintain that defendants mailed announcements to TQT customers and represented at trade fairs that Quantum MIS was an upgrade of TQT, and that the previous version of TQT was broken. Plaintiffs have submitted evidence of at least one such advertisement. Plaintiffs have also submitted evidence that defendants represented to TQT users in the Quantum MIS focus group that TQT was unstable and had speed issues, among other things. Defendants contend that plaintiffs have failed to show that these alleged statements were false of misleading. The Court disagrees. Plaintiffs clearly maintain that TQT is a functioning product, and that Quantum MIS is a competing product copied, in large part, from TQT. Whether defendants' version or plaintiffs' version is a classic question of fact.

Defendants also contend that plaintiffs have not shown they were damaged in any way. There is evidence that TQT's sales have decreased substantially since defendants ceased marketing TQT and began developing and marketing Quantum MIS. This is sufficient evidence from which to conclude that plaintiffs were harmed by defendants' statements to current and potential TQT customers. Plaintiffs explicitly seek injunctive relief. Plaintiffs have adequately pled and supported their claim for violation of the Minnesota Deceptive Trade Practices Act, and the Court therefore will not grant defendants' motion for summary judgment on this claim.