Licensed to Pay, But Cancelled One Day.

Licensing disputes so often involve termination provisions.  Someone wants out, but has to manufacture a way out – and, the other party sues for wrongful termination.  Many of the decisions are fairly pedestrian contract interpretation ruling, but then there’s Brunskill Associates, Inc. v. Rapid Payroll, Inc., 2010 WL 779688 (Cal.App. 2nd Dist. March 09, 2010).

A software developer named Olsen licensed his payroll processing package to Mr. & Mrs. Brunskill, who grew from one-client to a @2M/yr business.  As business grew, they relied on the Olsen software, and paid the license fee.  The license (possibly not authored by counsel) did not allow either party to cancel.  It too assured support to the licensees, and if that was not provided, the source code would be delivered to them.

Along comes Paychex, another one-client outfit that grew into a really huge firm.  At the behest of its founder, Thomas Golisano, a subidiary Rapid Payroll was set up, which acquired the software and licensing clients of Olsen.  Internal memos indicated a plan to expand in a market not served by Paychex.  After providing substantial assurances to the licensees, including the Brunskills, all of the software licenses were cancelled by Rapid.

The Brunskills’ business was ‘hard-wired’ to use of the Olsen software, and the loss of its use caused significant lost business and revenue.  A jury determined that the cancellation was wrongful, and that pretextual reasons were given for it.  Possibly as a tactic to limit liability, Rapid declared bankruptcy, ostensibly because cancelling the licenses ended its receipt of licensing revenues.  The automatic stay was lifted.

A substantial judgment was assessed against defendants, and too, punitive damages of $10Mil were awarded to the Brunskills against Paychex founder Golisano (reportedly, a billionaire).  These judgments were affirmed.  This was not your average disagreement between geekhead software types and payroll clerks, for as the court stated: “Golisano followed a strategy of falsely and publicly assuaging licensees’ fears while secretly planning to take over their businesses by vaporizing the software that was their economic lifeline.”  That’s not contract interpretation.