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Hewlett-Packard Development Co L.P. v. Midwest Information Technology Group Inc.

April 11, 2006

HEWLETT-PACKARD DEVELOPMENT COMPANY, L.P., ET AL., PLAINTIFFS COUNTER-DEFENDANTS,
v.
MIDWEST INFORMATION TECHNOLOGY GROUP, INC., DEFENDANT COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This matter comes before the Court on the Plaintiff/Counter-Defendants Hewlett-Packard Development Company, L.P., Hewlett-Packard Company, and Compaq Trademark B.V.'s (collectively HP) Motion for Summary Judgment as to the Counterclaims Asserted by Midwest Information Technology Group, Inc. (d/e 68) (Summary Judgment Motion). On February 7 and 8, 2002, Midwest Information Technology Group, Inc. (Midwest) entered into two contracts with Compaq Direct, Inc. (Direct), then a subsidiary of Compaq Computer Company (Compaq). The contracts were called the Standard Service Agreement (SSA) and the Middleware Agreement (MA) (collectively the Agreements). The two-year terms of the Agreements ended on February 6 and 7, 2004, respectively. In 2003, Compaq merged into HP. Direct did not renew the Agreements after the original terms expired on February 6 and 7, 2004.

HP subsequently brought this action against Midwest for trademark infringement and unfair trade practices. Midwest has counterclaimed alleging that HP breached the Agreements and tortiously interfered with Midwest's business relationships. Amended Counterclaim (d/e 42). Midwest seeks actual and punitive damages for all of its claims. HP asks for summary judgment on the counterclaims. For the reasons set forth below, HP's Motion is allowed in part and denied in part. Issues of fact exist regarding whether Direct breached the SSA. Summary judgment is denied with respect to this claim. Midwest, however, has failed to establish that issues of fact exist with respect to any other claim, including its claim for punitive damages for breach of the SSA. HP is entitled to summary judgment on the rest of the Amended Counterclaim.

STATEMENT OF FACTS In 2001, Compaq merged with Digital Equipment Corporation (Digital). At that time Digital operated a call center in Andover, Massachusetts. Summary Judgment Motion, Exhibit 10, Diane Pound Deposition (Pound Deposition) at 7-8. This call center handled telephone orders for Digital parts. The Andover center maintained toll-free 800 telephone numbers for receiving calls. After the merger, the Andover call center became part of Compaq and started selling Compaq and Digital parts. Id. At the time of the Digital merger, Compaq also had its subsidiary, Direct. Direct was located in Omaha, Nebraska. Direct sold Compaq parts through separate toll-free 800 telephone numbers.

On February 7, 2002, Direct and Midwest executed the SSA. Summary Judgment Motion, Exhibit 1, SSA. Under the terms of the SSA, Direct agreed to refer to Midwest all of its customers seeking computer parts and service.*fn1 Midwest agreed to provide maintenance and repair services and to operate a call center to handle parts sales and calls seeking technical advice. Direct agreed to maintain the 800 telephone numbers for the call center. Midwest also operated a web site on behalf of Direct through which customers could order parts.

The SSA stated that Midwest would receive 75 percent of the gross profits from the sale of parts and Direct would receive the remaining 25 percent. SSA, ¶ 10. In practice, this split of profits only applied to parts that: (1) were not stocked in the current inventory of Compaq, or (2) were in the current inventory of Compaq, but were available elsewhere for a price that was at least $175.00 below the price charged by Compaq ($100.00 for memory). Summary Judgment Motion, Exhibit 5, Declaration of Troy Bloomquist, ¶¶ 3-5, and Exhibit 6, Deposition of Ronald Haught at 204. Parts not in Compaq's current inventory consisted of parts manufactured by other companies ("multi-vendor parts") or obsolete parts ("legacy parts"). Id.

Direct also agreed to pay Midwest for providing "technical advice, assistance and support to Customers via telephone through its technicians. . . ." SSA, ¶ 11.A. For these technical support services, Direct agreed to pay Midwest the greater of: (1) a monthly minimum charge of $41,000.00, and (2) (a) $5.25 per call for the first 40,000 calls per month, (b) $5.00 per call for the next 40,000 calls per month, and (c) $4.75 per call for all calls in excess of 80,000 calls per month. Id. During the two-year term of the SSA, Direct only paid Midwest the $41,000.00 monthly minimum charge for these technical support services. Response in Opposition to Counter-Defendants' Motion for Summary Judgment (d/e 69)(Response), Exhibit 3, Deposition of Troy Bloomquist at 88-89.

The SSA stated, in part:

22. Exclusive Agreement. This Agreement is exclusive. Everything herein contained shall be deemed to provide [Midwest] with an exclusive right to provide parts and services to the Customers. . . . .

24. Amount of Work. ALL applicable parts and service orders of the Customers will be referred by [Direct] to [Midwest] pursuant to the terms outlined in Paragraph 1 of this Agreement.

SSA, ¶¶ 22, 24. The SSA defined "Customers" as Direct's, "end users, customers, companies or commercial entities (collectively, "Customers") directed or referred by [Direct] to [Midwest]." SSA, ¶ 1. The SSA stated that it was governed by Missouri law.

On February 8, 2002, Direct and Midwest entered into the MA. Summary Judgment Motion, Exhibit 14, MA. Under the MA, Midwest agreed to develop software called middleware. The middleware was an interface between Midwest's computers and Direct's computerized order entry system, called VISTA. Without this middleware, Midwest had to send orders to Direct, and Direct employees had to input the orders manually into the VISTA system. After the middleware was developed and implemented, the orders were automatically placed into the VISTA system through the middleware interface.

Under the terms of the MA, Midwest owned the middleware and Direct could not use the middleware for any purpose other than its dealings with Midwest. Upon termination of the MA, Direct was obligated to cease using the middleware immediately. The MA stated that it was governed by Illinois law.

In May 2002, Compaq merged into HP. Direct's name was changed from Compaq Direct to HP Direct.*fn2 Before this merger, HP had its own call center in Roseville, California. After the merger, HP had several call centers, including Roseville, Andover, and Direct's call center operated by Midwest. Each operated separate toll-free 800 numbers, and Midwest and Andover, at least, also received orders from web sites over the Internet.

During this period, Sheri Ellis worked for Direct. Initially, she was a claim administrator, and later, in October 2003, she became responsible for the day-to-day operations of Direct. Response, Exhibit 4, Deposition of Sheri Ellis at 13, 21. She testified in her deposition that the Andover call center was also an HP Direct call center for customers seeking new products, such as computer systems and monitors. Id. at 53. She also stated that the Andover center, "took spare parts orders if their customers had a need." Id. at 53-54.

HP decided to consolidate all call centers into a single call center in Roseville, California. In early 2003, HP started transferring calls from the Andover call center to the Roseville call center. This transfer was completed in April 2003, and the Andover call center was closed in July 2003. Pound Deposition at 9. HP then decided to have Direct end its call center relationship with Midwest on February 6, 2004, when the two-year term of the SSA expired. Direct's parts customers would be referred to the Roseville, California call center, and Direct's 800 telephone numbers would be turned off and its web site would be ...


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