Property, intangible

Sometimes you just have to remind yourself that the facts are the facts, and no amount of sharp lawyering is going to change them.

That was the situation for defendant ABN AMRO Bank N.V. (“ABN”). It had hastily negotiated a sale of certain assets to Bank of America (“BAC”) in an unsuccessful attempt to avoid a hostile takeover by the Royal Bank of Scotland. One of the assets sold was a subsidiary, ABN AMRO Information Technology Services Company, Inc. (“IT”), the company that was the licensee of plaintiff Complex Systems, Inc.’s (“CSI”) “BankTrade” software.

IT had licensed the BankTrade software for use by the ABN enterprise as a whole. The license agreement allowed assignment of the license to IT’s subsidiaries, affiliates and any direct or indirect parent or any subsidiary or affiliate of the parent; however, the license was not formally assigned to a family member before ownership of IT was turned over to Bank of America. ABN continued to use the BankTrade software pursuant to a transition services agreement (“TSA”) after the transaction and tried, unsuccessfully, to negotiate a new license with CSI. CSI eventually sued ABN for copyright infringement; ABN’s defense was that the TSA had actually assigned the license to ABN. These are the facts that ABN had to deal with:

• The TSA said that Annex 1(a)(vii) of the TSA was a list of applications where the “Book Owner” column stated the owner of the application. There was no column for “Book Owner” on the Annex, but a column called “Application Owner” listed ABN for the BookTrade application. A witness testified that the Annex did not address legal ownership.

• A pre-closing letter from ABN to CSI said that the license would remain with IT. ABN said that the “letter reflects the misunderstanding that software licenses nominally held by [IT] would automatically transfer to BAC” in the transaction.

• A post-closing progress chart listed ABN as “Application Owner” and the “Contract Owner” was “TBD.” The rest of the document indicated that ABN would use the BankTrade application until its subsequent “exit,” at which point ABN would negotiate with CSI to have the license assigned back to it. This post-closing progress chart also had two other applications where ABN was listed as the “Application Owner” but where ABN nevertheless negotiated with the licensor for the assignment of the license to it.

• A post-closing email mentioned a number of software applications where ABN was listed as the “Application Owner,” including BankTrade, that needed to be assigned from BAC back to ABN. ABN said the document was “generated during a period of confusion.”

• A post-closing email from BAC to CSI stated that it was the owner of the BankTrade license. ABN said this email also was a “misunderstanding.”

• A post-closing internal email written by ABN stated “As you all know, BAC still owns the BankTrade software” and that ABN should not be manipulating the source code. ABN says this email reflects the author’s “incorrect and uninformed assessment of how software applications were allocated in the transaction.”

• After the Royal Bank of Scotland acquired IT, the Royal Bank of Scotland and CSI agreed that IT was the owner of the license and would like it transferred to ABN. ABN claims that this also reflects a “misunderstanding.”

• The last document in time was an email from ABN stating that it was trying to convince BAC that there had been an implicit assignment of the license to ABN, and, once BAC was onboard, BAC would approach CSI.

There’s more, but you see where this is going. The court charitably refers to the theory that the TSA assigned the license to ABN as “counterfactual.” So you don’t need to read the discussion portion of the opinion to know where this comes out for ABN, instead the court’s introduction will do:

ABN continued to need BankTrade post-closing, and it was too late to take advantage of what pre-closing had been a clear ability to assign without cost or penalty. Post-closing the world changed in that regard—what was not done could not be retroactively accomplished without the involvement and agreement of BankTrade’s owner, plaintiff Complex Systems, Inc. And, as it happened, CSI exercised its right to simply say “no”—or, more correctly, “no, without significant additional payment.” Such payment was not forthcoming. Instead, ABN, which acknowledges that it has continued to use BankTrade without interruption since the 2008 sale transaction, tried to reinterpret pre-closing events to include an assignment of the BankTrade license. Such an assignment would indeed have been easy to effect pre-closing. But it was not effected—and the law does not credit revisionist history with the weight of truth.

Instead, ABN must live with the events that, in fact, occurred—not what could have occurred, or should have occurred. That such failure to assign was perhaps an oversight, or that such a failure to assign has resulted in significant economic exposure, is not the issue. The issue is whether there was a pre-closing assignment. There was not.

One wonders how much the license cost, making the litigation seem like a more economically rational choice.

And M&A lawyers: was this lawsuit just incidental fallout from trying to create a very complex transaction quickly, or was getting ownership of the (apparently, very cheap) BankTrade license part of the value of the deal to Bank of America?

Complex Sys., Inc. v. ABN AMRO Bank N.V., No. 08 Civ. 7497(RBK) (S.D.N.Y. June 21, 2013).

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