Vondran Legal® - Software Litigation - Quest files suit in California.  Call us if you are facing a software audit, dispute or litigation (877) 276-5084.  We are a leading United States software litigation firm.

Introduction

Who is Quest Software?  According to Wikipedia:

Quest Software, also known as Quest, is a privately held software company headquartered in Aliso Viejo, California, United States. Quest provides cloud management, software as a service, security, workforce mobility, and backup & recovery. The company was founded in 1987 and has 53 offices in 24 countries.  Quest Software was founded in 1987 in Newport Beach, California, with a line of products for HP Multi-Programming Executive (MPE). In 1995, Vinny Smith joined the company. The following year, Quest entered the database management market with an Oracle SQL database tuning product.[citation needed] In 1997, Quest opened an office in the United Kingdom.

This blog discusses a recently filed software infringement and breach of contact claim in the Central District of California.

Sample allegations in the complaint

Here is a look at some of the key allegations being made.

6. The Court has personal jurisdiction over HealthEquity because the parties submitted to the jurisdiction of this Court pursuant to an enforceable venue provision in the parties' license agreement, which requires the parties to file lawsuits arising from their licensing relationship in Orange County, California.

7. The relevant license term provides: Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any conflict of laws principles that would require the application of laws of a different state.

Any action seeking enforcement of this Agreement or any provision hereof shall be brought exclusively in the state or federal courts located in Orange County, California. Each party hereby agrees to submit to the jurisdiction of such courts.

A. Quest Licenses Toad Software to Customers

9. The Toad family of software is one of the product lines developed and licensed by Quest Software Inc. (“Quest”), which allows customers (usually companies and other larger organizations) to streamline workflow and manage their databases.

10.Toad products offered for licensing by Quest include but are not limited to Toad for:

Oracle BaseEdition

Toad for Oracle XpertEdition

and

Toad for SQL Server ProfessionalEdition (collectively “Toad Software”). 

11.Quest owns copyrights for Toad software and licenses the software to customers, including HealthEquity.

12.As a result of Quest's extensive efforts, Toad Software are valuable, proprietary products, and the software, its structure, sequence and origin are highly confidential trade secrets belonging to Quest.

13.Toad Software contains material wholly original to Quest and consist of copyrightable subject matter under the U.S. Copyright Act of 1976, 17 U.S.C. § 101 et. seq. 14.Among others, 

Quest owns the following copyright registrations for Toad Software:

TXu002207806

TX0006821526

TX0008458364

TXu002250718

TX0008460900

TX0008464315

TX0008460910

TX0008460911

TX0008460913

TX0008460915

TX0007429172

TX0007486179

B. HealthEquity Licensed Toad Software From Quest 15.Between May 2001 and May 2022, HealthEquity purchased 245 licenses for Toad Software. For the products at issue in this lawsuit, the Toad Software is licensed by “Seat.” 16.In addition to purchasing software licenses, HealthEquity has also purchased maintenance services. Maintenance services provide licensees with two primary benefits during the maintenance period. First, maintained licensees receive customer support services for the maintained software. Second, during the maintenance period, maintained licensees are entitled to upgrade their licensed software to the most recent version that has been released at no additional cost.

C. HealthEquity Agreed to the 2021 Software Transaction Agreement 17.On May 10, 2022, HealthEquity purchased 45 licenses for Toad Software through a software reseller.

19.HealthEquity accepted the terms of the 2021 STA when it installed Toad Software on its servers and workstations.

20.Specifically, when HealthEquity installed Toad Software, it clicked through and agreed to the terms of the 2021 STA. Without this affirmative assent to the terms of the license, HealthEquity could not have deployed copies of the Toad Software found on its systems.

21. The 2021 STA provides the following threshold requirement for agreement to the terms of that contract before proceeding with the installation: PLEASE READ THIS AGREEMENT CAREFULLY BEFORE USING THIS PRODUCT. BY DOWNLOADING, INSTALLING OR USING THIS PRODUCT, YOU ACCEPT AND AGREE TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. FOR ORDERS PLACED OUTSIDE THE UNITED STATES OF AMERICA, PLEASE GO TO http://quest.com/legal/sta.aspx TO VIEW THE APPLICABLE VERSION OF THIS AGREEMENT FOR YOUR COUNTRY OR REGION. IF YOU DO NOT AGREE TO THE TERMS AND CONDITIONS OF THIS AGREEMENT OR THE APPLICABLE VERSION OF THIS AGREEMENT FOR YOUR COUNTRY OR REGION, DO NOT DOWNLOAD, INSTALL OR USE THIS PRODUCT. IF YOU HAVE A SIGNED AGREEMENT WITH PROVIDER THAT IS SPECIFICALLY REFERENCED IN AN ORDER THAT IS EXECUTED BETWEEN YOU AND PROVIDER, THEN THAT SIGNED AGREEMENT WILL SUPERSEDE THIS AGREEMENT.

22.The 2021 STA also provides that all prior license terms are superseded by a customer's acceptance of the 2021 STA terms upon installation of Toad Software: Entire Agreement. This Agreement contains the total agreement between the two parties regarding the subject matter covered herein and supersedes any other agreements, written, oral, expressed, or implied, including any confidentiality agreement between the parties. Unless there is a prevailing signed Agreement between the Parties, all Orders are governed solely and exclusively by this Agreement and any additional or varying terms stated on a Signed Order or a Governing Quotation. In the event of a conflict between the terms of this Agreement and the terms contained in an Order, the terms of a Signed Order or Governing Quotation shall control. For all other Orders, in the event of a conflict between the terms of this Agreement and the terms contained in an Order, the terms of this Agreement shall control. Neither this Agreement, nor an Order, may be modified or amended except by a writing executed by a duly authorized representative of each party. No other act, document, usage or custom shall be deemed to amend or modify this Agreement or an Order and Customer agrees that all additional or inconsistent terms that may be contained in any purchase order or other documentation submitted by Customer in connection with an Order are not applicable. Customer agrees that all of Customer's licenses for such Product, regardless of license date, will be governed by the version of the Software Transaction Agreement and applicable Product Terms in effect on the date of the most recent license purchase. (Emphasis added).

23.“Product” is defined as the Software and/or Appliance(s) provided to Customer by Provider. 

24.“Software” is defined as “any and all software that is provided or made available to Customer under this Agreement as well as any new versions and releases of such software that are made available to Customer pursuant to this Agreement, and all copies of the foregoing. Software includes On-Premises Software and SaaS Software (as defined in the Software License Section), along with software that is delivered on an Appliance.”

D. Quest's Audit Reveals HealthEquity Deployed Toad Software in Excess of Licenses Purchased 25.In late 2021, Quest requested an audit of HealthEquity's computing environment. Quest conducted a fair and thorough audit using their standard procedures.

26.That audit revealed that HealthEquity's deployment of Toad Software exceeded its license entitlement in violation of the applicable license agreement, and that HealthEquity made unauthorized copies of Toad Software that infringed Quest's copyrights for those products.

27.Specifically, the license grant in the relevant STA, along with the corresponding Product Guide, provided that HealthEquity could not install or provide access to end users in excess of the number of licenses purchased.

28.HealthEquity is required to purchase licenses sufficient to make up the shortfall for the licenses. In addition, HealthEquity must also pay for the maintenance fees on the over-deployed quantities, as well as any applicable overdeployment fees. 

29.The parties engaged in very brief negotiations in an attempt to resolve the breach, but HealthEquity ended those discussions by initiating a lawsuit in Utah State Court, which Quest has moved to dismiss as being filed in an improper venue.

30.By its copyright infringement and breach of contract, HealthEquity has deprived Quest of more than $1 million in license, maintenance, and other fees to which Quest is entitled.

31.Quest's understanding of the scope and extent of HealthEquity's overdeployment of all Quest software, including the Toad Software is subject to further investigation and discovery. Specifically, Quest will conduct an ongoing inquiry regarding:

(1) the number of devices at HealthEquity with Quest software installed on its hard drives and servers,

and

(2) the number of users and devices to which HealthEquity provided the ability to access or use Quest software.

Quest Software Licensing Agreement

(c) Software as a Service. If an Order provides Customer with a right to access and use Software installed on equipment operated by Provider or its suppliers (“SaaS Software”), (i) the License for such SaaS Software shall be granted for the duration of the term stated in the Order (the “SaaS Term”), as such SaaS Term may be extended by automatic or agreed upon renewals, and (ii) the terms set forth in the Software as a Service Addendum available at https://www.quest.com/legal/saas-addendum.aspx (the “SaaS Addendum”) which are incorporated herein and made part of this Agreement. 

If any item of Software to be installed on Customer's equipment is provided in connection with SaaS Software, the License duration for such Software shall be for the corresponding SaaS Term, and Customer shall promptly install any updates to such Software as may be provided by Provider. (d) MSP License. If an Order indicates that Software is to be used by Customer as a managed service provider, Customer shall be granted a License to use such Software and the associated Documentation to provide Management Services (an “MSP License”). “Management Services” include, without limitation, application, operating system, and database implementation, performance tuning, and maintenance services provided by Customer to its customers (each, a “Client”). 

If an Order indicates that an MSP License will be used to support a specific Client, Customer may not Use the MSP License to support any Client other than the Client named on the Order. Customer shall ensure that

(i) each Client only uses the Software and Documentation as part of the Management Services provided to it by Customer,

(ii) such use is subject to the restrictions and limitations contained in this Agreement, including, but not limited to those in the Export Section of this Agreement, and the applicable Order,

and

(iii) each Client cooperates with Provider during any compliance review that may be conducted by Provider or its designated agent. At the conclusion of any Management Services engagement with a Client, Customer shall promptly remove any Software installed on its Client's computer equipment or require the Client to do the same.

Customer agrees that it shall be liable to Provider for the acts and omissions of its Clients in connection with their use of the Software and Documentation and shall, at its expense, indemnify and defend Provider against any action, suit, or claim brought against Provider by a Client in connection with or related to Customer's Management Services and pay any final judgments or settlements as well as Provider's expenses in connection with such action, suit, or claim.

11. Infringement Indemnity. (a) Provider shall indemnify Customer from and against any claim, suit, action, or proceeding brought against Customer by a third party to the extent it is based on an allegation that the Software directly infringes any patent, copyright, trademark, or other proprietary right enforceable in the country in which Provider has authorized Customer to use the Software, including the country to which the Software is delivered to Customer, or misappropriates a trade secret in such country (a “Claim”). Indemnification for a Claim shall exclusively consist of the following: Provider shall

(1) defend or settle the Claim at its own expense,

(2) pay any judgments finally awarded against Customer under a Claim or any amounts assessed against Customer in any settlements of a Claim,

and

(3) reimburse Customer for the reasonable administrative costs or expenses, including without limitation reasonable attorneys' fees, it necessarily incurs in responding to the Claim. Provider's obligations under this Infringement Indemnity Section are conditioned upon Customer

(i) giving prompt written notice of the Claim to Provider,

(ii) permitting Provider to retain sole control of the investigation, defense or settlement of the Claim as long as such settlement shall not include a financial obligation on or admission of liability by Customer,

and

(iii) providing Provider with cooperation and assistance as Provider may reasonably request in connection with the Claim.

(b) Provider shall have no obligation hereunder to indemnify Customer as described under section (a) above against any Claim resulting from

(1) Use of the Software other than as authorized by this Agreement, a Signed Order, or a Governing Quotation,

(2) a modification of the Software other than by Provider,

(3) Customer's Use of any release of the Software after Provider has provided a non-infringing update at no charge,

or

(4) Use of the Software in conjunction with other products, services, or data not supplied by Provider if the infringement would not have occurred but for such use.

(c) If, as a result of a Claim or an injunction, Customer must stop using any Software (“Infringing Software”), Provider shall at its expense and option either

(1) obtain for Customer the right to continue using the Infringing Software,

(2) replace the Infringing Software with a functionally equivalent non-infringing product,

(3) modify the Infringing Software so that it is non-infringing,

or

(4) terminate the License for the Infringing Software and (A) for On-Premises Software, accept the return of the Infringing Software and refund the license fee paid for the Infringing Software, pro-rated over a sixty (60) month period from the date of initial delivery of such Software following an Order, or (B) for SaaS Software, discontinue Customer's right to access and use the Infringing Software and refund the unused pro-rated portion of any license fees pre-paid by Customer for such Software. This Section states Provider's entire liability and its sole and exclusive indemnification obligations with respect to a Claim and Infringing Software.

15. Compliance Verification. (a) Tracking. Customer shall maintain and use systems and procedures that allow Customer to accurately and completely track, document, and report Customer's installations, deployment, access of or provision of access to, or operation of each Product in the quantities and versions used and allow Provider to audit the same (the “Audit”). Audits may be performed by Provider or its designated agents.

Provider shall provide at least ten (10) days prior written notice to Customer before the start of an Audit and will conduct the Audit during normal business hours at Customer's facilities. Customer shall provide, and will require its Clients and Third Party Users to provide, their full cooperation and assistance with such audit and provide access to the applicable records and computers.

Causes of action alleged

COPYRIGHT INFRINGEMENT

BREACH OF CONTRACT

DECLARATORY JUDGMENT

Quest realleges and incorporates the allegations in Paragraphs 1-44. 41.An “actual controversy” within the meaning of 28 U.S.C. § 2201(a) exists between the parties concerning which agreement governs HealthEquity's deployment and use of Toad Software.

Pursuant to 28 U.S.C. § 2201(a), Quest is entitled to a declaratory judgment that HealthEquity and Quest are parties to the 2021 STA which HealthEquity accepted when it downloaded and installed Quest's software, and that the 2021 STA governs HealthEquity's deployment and use of Toad Software.

Relief Quest is Seeking

RELIEF Wherefore, Quest prays that the Court:

a) enter judgment in their favor and against HealthEquity on all claims;

b) award Quest its actual damages for HealthEquity's breach of the 2021 STA;

c) award Quest actual or statutory damages for HealthEquity's infringement of Quest's copyrights in the Toad Software;

d) award Quest pre-judgment interest on all damage amounts;

e) award Quest its reasonable litigation costs and attorneys' fees;

f) declare that Quest and HealthEquity are parties to the 2021 STA, and that contract governs HealthEquity's deployment and use of Toad Software;

g) deny any relief sought by HealthEquity;

and

h) award Quest such other relief as the Court may deem just and equitable.

Contact a California Software Litigation Firm

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