Tag: breach of contract

March 21, 2024 Blockchain, Contracts, Cryptocurrency

Bitcoin miner denied injunction against colocation service provider accused of removing rigs

Plaintiff Bitcoin miner sued defendant colocation hosting provider for  breach of contract, conversion, and trespass to chattels under Washington law. After filing suit, plaintiff filed a motion for temporary restraining order against defendant, seeking to require defendant to restore plaintiff’s access to the more than 1,000 mining rigs that defendant allegedly removed from its hosting facility. The court denied the motion, finding that plaintiff had established only possible economic injury, not the kind of irreparable harm required for the issuance of a temporary restraining order.

The underlying agreement

In July 2021, the parties entered into an agreement whereby plaintiff would collocate 1,610 cryptocurrency mining rigs at defendant’s facility. Plaintiff had obtained a loan to purchase the rigs for over $6 million. Defendant was to operate the rigs at a high hash rate to efficiently mine Bitcoin, with defendant earning a portion of the mined BTC.

After plaintiff defaulted on its loan, however, in early 2023, defendant allegedly reduced the available power to the rigs, despite plaintiff having cured the delinquency. Plaintiff claimed this reduced power likewise reduced the amount of Bitcoin that imined, and claims that defendant reallocated resources to other miners in its facility from whom it could earn more money.

The discord between the parties continued through late 2023 and early 2024, with 402 rigs being removed, and then defendant’s eventual termination of the agreement. The parties then began disputing over the removal of the remaining rigs and alleged unpaid fees by plaintiff. In early March 2024, plaintiff attempted to retake possession of its rigs, only to allegedly find defendant’s facility empty and abandoned. This lawsuit followed.

No irreparable harm

The court observed that under applicable law, a party seeking injunctive relief must proffer evidence sufficient to establish a likelihood of irreparable harm and mere speculation of irreparable harm does not suffice. Moreover, the court noted, irreparable harm is traditionally defined as harm for which there is no adequate legal remedy, such as an award of damages. Further, the court stated that it is well established that economic injury alone does not support a finding of irreparable harm, because such injury can be remedied by a damage award.

In this situation, the court found there to be no problem of irreparable harm to plaintiff. The court distinguished this case from the case of EZ Blockchain LLC v. Blaise Energy Power, Inc., 589 F. Supp. 3d 1102 (D.N.D. 2022), in which a court granted a temporary restraining order against a datacenter provider who had threatened to sell its customer’s rigs. In that case, the court found irreparable harm based on the fact that the miners were sophisticated technology and could not be easily replaced.

The court in this case found there was no evidence defendant was going to sell off plaintiff’s equipment. It was similarly unpersuaded that the upcoming Bitcoin halving (anticipated in April 2024) created extra urgency for plaintiffs to have access to their rigs prior to such time, after which mining Bitcoin will be less profitable. Instead, the court found that any losses could be compensated via money damages. And since plaintiff had not provided any evidence to support the idea it would be forced out of business in these circumstances, the court found it appropriate to deny plaintiff’s motion for a temporary restraining order.

Block Mining, Inc. v. Hosting Source, LLC, 2024 WL 1156479 (W.D. Washington, March 18, 2024)

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January 26, 2024 Contracts, Licensing

Disclaimer in software license agreement protected vendor from liability

software license disclaimer

A recent federal court case alleging breach of contract over failure of software to perform highlights the importance of careful drafting and review of disclaimer and other language in technology contracts.

Loss of livelihood

In 2021, a federal court entered an order that permanently barred plaintiff from preparing tax returns for other people. The court’s order apparently addressed past deficiencies in plaintiff’s past tax filings. In 2017, when using TaxWise software, plaintiff did not attach certain required forms to the tax returns.

No doubt this caused extreme hardship for plaintiff, so he sought to recover by blaming the software company – the defendant in this case – for a malfunction in the software that caused the required forms to be omitted.

He sued for breach of contract. Defendant moved to dismiss. The court granted the motion.

The lawsuit was too late

It held that plaintiff’s suit was untimely because the software license agreement contained a provision saying that any such claim had to be commenced within one year from the date such claim or cause of action first arose. The court rejected plaintiff’s argument that by bringing suit in January 2023, he was within the one year period because his first payment of a fine to the IRS was due in January 2022. Instead, the court held that the one year period for bringing suit began to run when the alleged breach occurred, i.e., in 2017 when the software allegedly malfunctioned.

Disclaimers knocked out the complaint

The court also held that certain disclaimer language in the software agreement served to defeat plaintiff’s claims as to the software’s performance. The agreement stated that plaintiff “expressly disclaim[ed] any representations or warranties that [his] use of the Products will satisfy any statutory or regulatory obligations, or will assist with, guarantee or otherwise ensure compliance with any applicable laws or regulations.” Moreover, the contract stated that plaintiff bore “THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PRODUCT(S), INCLUDING ELECTRONIC FILING” and so the court found that this eliminated plaintiff’s ability to shift that responsibility to the software provider.

Diedrich v. Wolters Kluwer, 2024 WL 291156 (S.D.N.Y., January 25, 2024)

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January 6, 2024 Contracts, Copyright

Shake Shack shakes off typeface breach of contract claim

In an ongoing federal case in New York, the well-loved restaurant Shake Shack finds itself embroiled in a copyright and contract dispute with House Industries, a typeface foundry known for developing the Neutraface font. House Industries accused Shake Shack of using the Neutraface font in Shake Shack’s logos and signage without the necessary licensing, claiming that Shake Shack breached Hose Industries’ End User License Agreement (EULA).

The Core of the Dispute

House Industries’ argument centered around its claim that Shake Shack used the proprietary Neutraface font software for commercial purposes, specifically in logos and signage, without obtaining the appropriate permissions. House Industries asserted – in a counterclaim brought against Shake Shack, who had filed a declaratory judgment action against House Industries – that this breached the EULA, which explicitly prohibits use of the Neutraface font software in logos or for the sale of products (unless the user pays an additional license fee).

Shake Shack moved to dismiss the counterclaim. It argued that House Industries failed to provide plausible, non-speculative allegations sufficient to substantiate a breach of contract claim. Moreover, Shake Shack contended that the contract claim was preempted by the Copyright Act. The court agreed with Shake Shack and dismissed House Industries’ claims.

The Court’s Analysis and Ruling

In assessing the breach of contract claim, the court found significant deficiencies in House Industries’ allegations. To establish a breach of contract, House Industries had to demonstrate the existence of an agreement, performance by House Industries, breach by Shake Shack, and resultant damages. House Industries, however, could not substantiate the existence of a contract between itself and Shake Shack. The details of Shake Shack’s assent to the EULA, including who agreed to it and when, were notably absent in House Industries’ claim. The court noted that mere speculation and the inability to identify a specific agreement or its terms were insufficient to sustain a breach of contract claim.

The court also delved into the issue of preemption under the Copyright Act. The central question was whether House Industries’ claim attempted to enforce rights equivalent to those protected under copyright law. The court determined that the Neutraface glyphs, being graphic or pictorial works, fell within the subject matter of copyright. (It is interesting to note that House Industries did not assert that Shake Shack violated the EULA by using the font software without authorization. “House Industries has pleaded no details whatsoever concerning Shake Shack’s alleged use of the proprietary software.”)

Despite House Industries’ assertions to the contrary, the court concluded that the claims were qualitatively similar to a copyright infringement claim. This portion of the analysis was particularly interesting. Copyright law covers pictorial or graphic works – the category in which the glyphs would fall. But type faces are specifically excluded from copyright protection (37 C.F.R. § 202.1(e)). That exclusion did not matter. Even though the glyphs were not subject to copyright protection, they were the type of works copyright protects. Since House Industries’ claim was equivalent to a claim under the Copyright Act concerning these types of works, the court found the breach of contract claim preempted by the Copyright Act.

Implications and Conclusion

This ruling highlights the complexities of intellectual property rights concerning the use of digital assets like fonts in commercial endeavors. It underscores the importance for companies to clearly understand and comply with licensing agreements when using digital creations. This case serves as a reminder of the nuanced legal landscape governing the intersection of technology, art, and commerce.

Shake Shack Enterprises v. Brand Design Company, Inc., 2023 WL 9003713 (S.D.N.Y. December 28, 2023)

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September 27, 2022 Contracts, Copyright

Company successfully defends against trade dress and copyright infringement claims over online software tool

trade dress

A federal court in Delaware dismissed most of the intellectual property infringement claims concerning a competing online room-planning software tool. The court held that plaintiff’s trade dress infringement and breach of contract claims failed, and that its copyright infringement claims failed, except for those allegations relating to the copying of computer code.

No trade dress protection where look and feel was functional

On the trade dress claim, plaintiff had identified fifteen elements that formed a cohesive “look and feel” of its software. And the court found – based on extensive use, wide advertisement and appearance in industry publications – that the trade dress had acquired secondary meaning. But the court found that the look and feel was merely functional and not subject to trade dress protection.

Copyright infringement – mixed bag

Similarly, the court dismissed the copyright infringement claim regarding the selection, arrangement and coordination of visual elements of the program. In the court’s view, these elements were merely functional and thus not subject to copyright protection. The court dismissed the copyright infringement claim as well concerning the tool’s graphics. On this point the court was even more bold – it found after a visual comparison of the works that they simply were not similar.

The court allowed the copyright infringement claim concerning the program’s code to move forward. It found that plaintiff had alleged both access and similarity. Plaintiff had also alleged that defendant repeatedly accessed the program to stress test the design, and that there were extensive similarities in the tools’ mechanics. These allegations were enough to survive a motion to dismiss.

Browsewrap not enough

Finally, the breach of contract claim failed, not on the basis of preemption as one might expect, but because the court found plaintiff had not sufficiently alleged that a contract had been formed. Plaintiff asserted that its website’s terms of service prohibited copying of the software, and that defendant’s employees should have been aware of those terms on a browsewrap theory – there was a link to the terms at the bottom of the page. But the court would not find that plaintiff alleged enough facts to plausibly allege that  defendant’s employees manifested assent to those browsewrap terms.

Design With Friends, Inc. v. Target Corporation, 2022 WL 4448197 (D. Delaware, September 23, 2022)

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April 25, 2022 Contracts, Cybersquatting

Restraining order issued against domain name seller who refused to transfer

restraining order domain name

Defendant listed a domain name for sale using DomainAgents. After a couple rounds of negotiation, plaintiff accepted defendant’s counteroffer to sell the domain name. But when the time came to put the domain name in escrow to enable transfer, defendant backed out of the deal, saying he had changed his mind. Plaintiff sued for breach of contract and sought a temporary restraining order that would prohibit defendant from transferring the domain name.

The court granted the motion. It agreed with plaintiff that it was appropriate to determine the motion ex parte (that is, without giving notice to the defendant) because the defendant could transfer the domain name in the meantime, thereby depriving plaintiff of the ability to procure an irreplaceable asset.

It found plaintiff would likely succeed on the merits of the breach of contract claim, because plaintiff had shown that a valid contract likely existed, that plaintiff was willing to perform its end of the bargain, that defendant had breached by refusing to go through with the transaction, and that plaintiff had been damaged due to the loss of the ability to procure the domain name from defendant.

The court further found a likelihood of irreparable harm to plaintiff, in that defendant’s communicated belief that he was not bound by the purchase agreement indicated he would sell the domain name to another interested party. If that were to happen, plaintiff would have no recourse against that purchaser, who was not in privity of contract with plaintiff.

Moreover, the court found the balance of equities favored plaintiff. The temporary restraining order would only be in place until a further hearing on injunctive relief could be had, and defendant would not otherwise be restricted from using the domain name in the meantime.

Finally, the court held that the public interest favored granting injunctive relief. The public interest strongly favors enforcing contracts.

Jump Operations, LLC v. Merryman, 2022 WL 1082641 (D. Nev., April 8, 2022)

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January 26, 2021 Computer Crime

Former employee committed vandalism by deleting company’s YouTube videos

deleting YouTube videos vandalism

Of all the things that can go wrong when deleting your former employer’s YouTube videos, being liable for vandalism may not be the first thing that comes to mind. But it happened to the former employee of an Ohio company.

Defendant worked for plaintiff as vice president of sales and left the company in 2017. During that time plaintiff authorized defendant to access the company’s two YouTube channels and to upload content. Two years after defendant left, however, all the videos on both channels disappeared. Through detailed forensic work, plaintiff showed that defendant deleted the videos using his iPhone.

So plaintiff sued defendant for violating the Computer Fraud and Abuse Act, “vandalism” under Ohio law, and breach of a confidentiality provision in defendant’s employment contract. Plaintiff sought summary judgment on these claims, and the court granted plaintiff’s motion, finding there was no reasonable dispute the defendant deleted the YouTube videos.

The vandalism claim is particularly interesting. Under the applicable Ohio law, one is liable if he or she knowingly causes physical harm to the property of another. The decision does not indicate that defendant argued the deletion of YouTube videos would not meet this criterion. Instead, the decision indicates that defendant essentially stipulated he would be liable if plaintiff proved he deleted the videos. The court believed the so-called “mountain” of evidence plaintiff produced showing that defendant was the one who did the deletion.

Kaivac, Inc. v. Stillwagon, 2021 WL 184593 (S.D. Ohio, January 19, 2021)

About the author: Evan Brown is a technology and intellectual property attorney in Chicago. This post originally appeared on http://evan.law.

May 17, 2020 Contracts

Working without a signed contract – a good idea for vendors?

As a technology vendor, you may be eager to get that new customer relationship started. Don’t let that tempt you to get underway without taking care of the details first. Technology vendors should avoid working without a signed contract. Here are three reasons why.

Working without a signed contract makes it harder to deal with overly-needy customers.

Working without a signed contract makes it hard to deal with overly-needy customers. Say you have entered into an arrangement where you are going to provide support and maintenance services. You get into the relationship on a handshake basis, and after a few months, the continues making requests, never satisfied, and always wanting services performed “on the cheap”.  You finally recognize  this business relationship is not bearing fruit and that you need to walk away. If there is no written contract in place making clear the conditions under which you as the vendor can terminate the relationship, when you try to disengage from this customer, you might run into trouble. 

A situation like this happened recently in a case that came from Kansas (Straightline HDD Inc. v. Smart E-Solutions, Inc., 2020 WL 2296941 (Ct. App. Kansas, May 8, 2020). In that situation, the parties litigated for several years over the question of whether there was an implied contract for the defendant software reseller to continue to provide support to its customer (with whom it did not have a signed contract). 

The trial court found that defendant had to provide some value for the software customer. Fortunately, the appellate court overturned that on appeal, finding that there really was no implied contract, so the reseller was able to separate from that needy customer. In that situation, the reseller ultimately avoided liability. But it is unfortunate that the parties spent all those years and all those resources litigating the issue. If there had been a written contract in place from the beginning of the relationship, there would have been more clarity and there wouldn’t have been those issues to litigate. The parties could have handled the situation much more quickly and efficiently. 

Having no signed contract means missing out on protective contract provisions. 

A technology vendor should not want to start work before it has a signed written contract because that written contract that was not signed should protect the vendor. For example, you want to make sure that the agreement has the appropriate disclaimers of warranty. A vendor does not want to promise that the technology solution is going to solve all the world’s problems. There should be  certain express warranties, and that is all.

Another kind of provision that you  want to make sure is in the agreement is a limitation of liability. Let’s say you as the vendor are only getting a small amount of revenue from this engagement with the customer.  If the technology solution fails for some reason – maybe even through no fault of yours – and the customer suffers millions of dollars worth of damage or business loss or some other form of consequential damage, you want to  make sure that you are not on the hook for that just. It does not make sense for a vendor to enter into an arrangement where it is only going to get a little bit of revenue while at the same time putting the company on the line with the exposure to potentially large damages.

Going without a signed contract makes it more difficult to get paid.

A third reason for having that written contract in place before you start doing the work is so that you will get paid.  The contract should be clear on how much customer will pay, what the payment is for, and when the payment is due. If it does not, do not be surprised if your customer remembers differently about cost, deadlines and specifications. 

Working without a signed contract is not good for technology vendors.

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Software development breach of contract lawsuit moves forward

About the author: Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter and Instagram, connect on LinkedIn and subscribe to his YouTube channel for videos on interesting topics about law and technology. 

October 29, 2019 Contracts

Software development breach of contract lawsuit moves forward

Plaintiff sued defendant software developer for breach of contract and other claims, asserting that defendant failed to develop and deliver a video editing application on time and within budget. Defendant moved to dismiss the case, arguing that plaintiff had failed to state a claim upon which relief may be granted. The court denied the motion to dismiss the breach of contract claim, allowing that claim to move forward.

The court found that plaintiff had successfully pled a breach of contract claim under Texas law. Defendant had argued that the parties agreed to benchmark the developed software’s performance in comparison to “recreational” software, but that plaintiff later demanded the software be benchmarked against professional grade software. Plaintiff responded that it had asked defendant to benchmark the program’s speed to iMovie, which it characterized as recreational and not professional.

The court looked past this benchmarking aspect and found that even in light of the apparent disagreement on the standard, the allegations in the complaint – that defendant had not provided a viable product under the agreement – were sufficient to support a breach of contract claim.

Polar Pro Filters, Inc. v Frogslayer LLC, 2019 WL 5400934 (S.D. Texas, October 22, 2019)

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