Case Name: Yahoo! Inc., et al. v. Tibco Software Inc.
Case No.: 2017-1-CV-311646

According to the allegations of the cross-complaint, for almost two decades, cross-defendant Yahoo! Inc. (“Yahoo”) has used cross-complainant TIBCO Software Inc.’s (“TIBCO”) proprietary software in operating its online business. (See cross-complaint (“XC”), ¶ 1.) The use of the software is pursuant to a license agreement, attached to Yahoo’s first amended complaint (“FAC”), which grants to Yahoo “a nonexclusive, perpetual, world-wide license to use the number of Permitted Instances of TIBCO Software….” (See XC, ¶¶ 1-2; see also FAC, exh. A.) According to the contract, “Permitted Instances” is defined as “the number of copies of Software running on a Server Instance, Workstation, User or Development basis, on a designated Platform, as set forth on the Cover Page or in an Ordering Document.” (FAC, exh. A, § 13 (“Definitions”).) “Server Instance” is defined as “a computer performing common services for multiple other machines.” (Id.) “Workstation” is defined as “a single end-user computer that is generally intended to be accessed by one person at a time.” (Id.) “Platform” is defined as “the operating system or environment set forth in an Ordering Document.” (Id.) “Cover Page” is defined as “everything prior to the party’s signatures.” (Id.) According to the contract, “[n]either party may assign this Agreement and/or any of its rights and/or obligations hereunder without the prior written consent of the other party (not to be unreasonably withheld) and any such attempted assignment shall be void.” (FAC, Exh. A, § 12; see also XC, ¶ 9.)

TIBCO contends that Yahoo breached the license agreement in two ways. First, TIBCO alleges that Yahoo breached the agreement by transferring the software to Yahoo Holdings, Inc. (“Yahoo Holdings”) on June 13, 2017, without TIBCO’s consent. (See XC, ¶¶ 13-15, 23-27.) On October 26, 2016, and again on April 13, 2017, Yahoo had requested consent to the assignment prior to the ultimate assignment; however, TIBCO withheld its consent. (See XC, ¶¶ 16, 19-20.) On June 12, 2017, Yahoo sent TIBCO a letter stating that Yahoo was deeming the agreement assigned to Yahoo Holdings, effective June 13, 2017. (See XC, ¶ 21.) Second, in early 2016, TIBCO exercised its right to audit Yahoo’s compliance with the license, and after a delay, KPMG reviewed Yahoo’s software license use and determined that it was “exceeding its use rights… by migrating copies of the software to servers with substantially more processing cores than the number deployed as of February 27, 2010.” (XC, ¶¶ 17-18.) TIBCO asserts that “migrating the software to machines with substantially more processing cores” is a breach of the implied covenant of good faith and fair dealing. (See XC, ¶¶ 29-33.) On October 24, 2017, TIBCO filed the XC against Yahoo and Yahoo Holdings (collectively, “cross-defendants”), asserting causes of action for:

1) Breach of contract (against Yahoo);
2) Breach of the implied covenant of good faith and fair dealing (against Yahoo);
3) Intentional interference with contract (against Yahoo Holdings); and,
4) Declaratory relief (against Yahoo and Yahoo Holdings).
The first, third and fourth causes of action concern the assignment. The second cause of action concerns the issue relating to processing cores. Cross-defendants Yahoo and Yahoo Holdings demur to the first through third causes of action of the XC.

Cross-defendants’ request for judicial notice

In support of its demurrer to the XC, Yahoo and Yahoo Holdings request the Court to take judicial notice of the reorganization agreement by and between Yahoo and Yahoo Holdings. The reorganization agreement is referred to directly by the XC, as it is the basis for TIBCO’s belief that Yahoo breached the license agreement by assignment. TIBCO does not dispute the provided agreement’s authenticity or completeness, refers to the agreement in its opposition, and disputes only “the interpretation of the Reorganization Agreement. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 753; see also StorMedia Inc. v. Super. Ct. (Werczberger) (1999) 20 Cal. 4th 449, 456, fn.9 (granting request for judicial notice where “both sides refer to the documents in their briefs and plaintiff implicitly requests judicial notice of one of the documents”; also stating that “[w]hen judicial notice is taken of a document, however, the truthfulness and proper interpretation of the document are disputable”).) Cross-defendants’ request for judicial notice is GRANTED. (Evid. Code § 452, subd. (h).)

First and third causes of action

Cross-defendants argue that TIBCO’s first cause of action cannot state facts sufficient to constitute a cause of action for breach of contract because the agreement provides that TIBCO cannot unreasonably withhold its consent to assign, and TIBCO’s refusal to consent to the assignment was unreasonable. However, the XC alleges that “TIBCO reasonably withheld its consent to the assignment” (XC, ¶ 2) and the allegations do not demonstrate as a matter of law the contrary. Whether TIBCO’s withholding of consent was reasonable is for a trier of fact to determine. (See Collenburg v. Los Angeles County (1957) 150 Cal.App.2d 795, 806 (stating that “[w]hat constitutes a reasonable degree of care under the facts alleged is a question for the trier of fact”); see also CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 644 (stating that reasonableness of person’s acts “rarely if ever susceptible to determination on demurrer”); see also Sade Shoe Co. v. Oschin & Snyder (1984) 162 Cal.App.3d 1174, 1180 (stating that “whether the actor’s conduct was fair and reasonable under the circumstances… is a question for determination by the trier of fact”).)

Cross-defendants also argue that the reorganization agreement does not require Yahoo to transfer the rights under the licensing agreement to Yahoo Holdings, and in fact, according to the reorganization agreement relied on by TIBCO, if the transfer of those rights required consent, there would be no transfer, and thus no breach. section 1.7, subdivision (a) explicitly states that “if any Transferred Asset is not assignable or transferable without a Consent (each, a ‘Non-Transferable Asset’), then to the extent that such Consent is not obtained, submitted or filed on or prior to the Closing Date, this Agreement and the related instruments of transfer will not constitute an assignment or transfer of such Non-Transferable Asset.” (Reorganization agreement, p.5, § 1.7, subd. (a).) The XC explicitly alleges that the transfer of the rights under the licensing agreement occurred through the reorganization agreement, and alleges that based on the language of the reorganization agreement, “Yahoo Holdings intended to require to effectively transfer the assets even absent a required consent.” (See XC, ¶¶ 14-15.) Cross-defendants are correct that the reorganization agreement itself does not provide a basis for TIBCO to assert that there was any breach, as it specifically provides that any asset that is not transferable without consent “will not constitute an assignment or transfer of such Non-Transferable Asset.” However, the XC then alleges that “Yahoo sent TIBCO a letter stating that ‘Yahoo was deeming the Agreement assigned to Yahoo Holdings.” (XC, ¶ 21.) As this alleges an assignment despite the reorganization agreement’ express provision that consent for such an assignment was required, and as the Court does not find that TIBCO unreasonably withheld its consent as a matter of law, the demurrer to the first and third causes of action on the basis that the XC fails to allege facts supporting breach is OVERRULED.

Second cause of action

As to the second cause of action, cross-defendants argue that TIBCO does not state facts sufficient to constitute a cause of action for breach of the implied covenant of good faith and fair dealing because the licensing agreement does not provide a per processing core basis to measure Yahoo’s use of the software. Indeed, the licensing agreement does not mention “processing cores” at all, and the second cause of action specifically alleges that Yahoo breached the implied covenant of good faith and fair dealing to exploit a loophole in the contract that does not expressly prohibit the migration of the TIBCO software from a machine with a certain number of processing cores to another machine with far more processing cores. (See XC, ¶¶ 32-33.)

In opposition, TIBCO argues that although the licensing agreement purportedly “does not place a limit on the number of allowed processing cores, it cannot point to any provision that allows Yahoo’s conduct either… [and a]t best, Yahoo’s argument is that the contract is silent… which it should not given the limit on the number of CPUs on the first page of the Agreement.” (See TIBCO’s opposition to demurrer, p.9:20-26.) However, there is no indication that “CPUs” as listed on the first page of the agreement is synonymous with “processing cores,” and the Court has not been provided with any judicially noticeable facts that this is so. TIBCO seems to acknowledge this disparity, and thus then asserts that “the contract is silent because the parties had no reason to address multi-core processors which were not available in June 2000.” (Opposition, p.9:24-26.) Although that may be so, the XC explicitly alleges that the license agreement was “later amended” (XC, ¶ 2) and that an addendum was executed on February 27, 2005 (see XC, ¶ 10), which specifically referenced CPUs, as “central processing units,” not “processing cores” (see FAC, exh. D, § 1.3.). TIBCO fails to demonstrate facts that support a breach of the implied covenant of good faith and fair dealing; however, it will be given leave to allege facts to support such a cause of action. The demurrer to the second cause of action is SUSTAINED with 10 days leave to amend.