Auto insurer Progressive alleges software license shakedown by Pitney Bowes

A 20-year relationship hits the skids after a contract dispute

A large auto insurance provider has become embroiled in a court battle with Pitney Bowes, alleging that the software vendor claims a 20-year-old license agreement between the companies has been significantly misinterpreted and that a significant additional amount of money is owed.

Progressive Casualty Insurance Co. signed a site license in 1991 for some applications then sold by LPC, which was later acquired by Pitney Bowes, according to the lawsuit filed last week by Progressive in U.S. District Court for the Northern District of Ohio, Eastern Division.

The set of applications "assists in finalizing mailing addresses of existing and potential customers, among other functions," the suit states.

The companies later entered into a pair of supplemental agreements in 1991 and 2001. The first "expressly designated an installation site for the operation of the software," a building in Ohio, according to the suit.

Progressive was running a number of mainframe computers there, with two mainframes generally hosting the software, it adds. The 2001 supplemental agreement added a second installation site. The original site was subsequently retired, according to the suit.

According to the terms of Progressive's license agreement, the company can make copies of Pitney Bowes' software, Finalist and Mailstream, as required to support its use and for archiving and backup, the suit adds.

The companies' 2001 supplemental agreement allowed Internet access to Finalist, according to the suit. Remote access was always a consideration during Pitney Bowes' and Progressive's deliberations, despite the fact that the Internet "was not widespread in 1991," it adds. Instead, Finalist used IBM's CICS (customer information control system) to transmit data remotely, according to the suit.

Today, the Finalist software's CICS functionality uses a TCP/IP protocol with a graphical interface, allowing for data exchange, according to the suit. "Progressive permits remote computers to access a web server at the specific installation site that then communicates with the Finalist software. There is no direct remote access to, or operation of, the Finalist software."

In addition, "Progressive does not use the Internet" in connection with Mailstream, it adds.

Meanwhile, Pitney Bowes put a license key system in place in 2011 on each Progressive mainframe that runs Finalist and Mailstream, according to the suit.

The 1991 pact also set price terms and gave Progressive the option to renew maintenance each year, which would give it access to all updates and bug fixes, according to the suit.

Those terms were tweaked in 2001, enhancing the maintenance service and preserving Progressive's right to renew at agreed price terms, according to the suit.

But in September 2011, Pitney Bowes "suddenly informed" Progressive that "the License Agreement was significantly different than how the parties had been interpreting it for the past 20 years," namely that it only allows use of the software on one computer, rather than a specific site, it adds.

Pitney Bowes also forbade Progressive to access the applications over the Internet, and threatened to stop providing maintenance under the previously agreed terms, it adds.

Pitney Bowes is claiming that Progressive's remote-access methods violate the license agreement because it is "'making productive use' of the software remotely," according to the suit.

The vendor has also said it won't renew Progressive's license keys unless it "agrees to pay substantially more," according to the suit.

Progressive's suit asks for declaratory judgments stating that its use of the software is protected by the contract, and gives it the right to continue receiving maintenance and updates at the current price.

Pitney Bowes had yet to file a response to Progressive's suit on Tuesday. The company does not comment on pending litigation, but will respond in court "in due course," a spokesman said.

The companies' dispute drew a mixed reaction from analyst Ray Wang, CEO of Constellation Research and a veteran software contract negotiator.

"A site license means the whole darn location," Wang said via email. "The challenge is to define the location and what happens if you move. Other than that, you can't be limited to a single CPU. If the contract truly states a site license, then Progressive can add as many machines as they like on site."

This gets a bit trickier when applications are viewed on mobile devices, "as mobile isn't really fixed to a location," Wang said.

"These license disputes typically arise with older on-premises licenses," Wang added. "Why? Vendors can no longer extract additional value from the original sale so they seek opportunities to enforce new provisions as a tactic to drive sales."

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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Chris Kanaracus

IDG News Service
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