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A software company’s Lanham Act case against the U.S. Department of Justice in federal district court doesn’t bar it from maintaining a separate case against DOJ in the U.S. Court of Federal Claims for breach of license, the U.S. Court of Appeals for the Federal Circuit has ruled. On Oct. 14, a unanimous panel of the Federal Circuit, in Trusted Integration Inc. v. U.S., reversed the Federal Claims Court’s dismissal of the company’s breach of license agreement claim against DOJ and remanded that part of the case. But the court affirmed the claims court’s dismissal of two other allegations — breach of an oral or implied-in-fact contract and breach of the duty of good faith and fair dealing — against DOJ. Trusted Integration supplies software that supports government compliance with the Federal Information Security Management Act. The act requires federal agencies to take certain steps to improve computer and network security. Following a pilot program, DOJ bought a license for Trusted Integration’s TrustedAgent program in June 2004. Trusted Integration and DOJ later signed a separate agreement to participate in an Office of Management and Budget (OMB) program to identify top compliance software pursuant to the Federal Information Security Management Act that other government agencies would be required to purchase. Trusted Integration and DOJ submitted a joint OMB proposal in September 2006. According to the Federal Circuit ruling, DOJ began developing its own alternative to the TrustedAgent component of the joint program near the end of 2006 and began accessing the TrustedAgent database to learn about the system’s architecture. OMB tapped DOJ as one of two government compliance providers under the Federal Information Security Management Act in February 2007. Agencies were required to implement one of the two programs by fiscal year 2009. DOJ then began offering a modified version of the security software that included its own alternative for the TrustedAgent software. According to the Federal Circuit ruling, DOJ “made disparaging comments about the quality of TrustedAgent” in presentations to other agencies. The court stated that, on the other hand, DOJ also told its potential customers as late as March 2007 that TrustedAgent was an integral component of the compliance software it would provide. In April 2007, DOJ informed Trusted Integration that it would no longer offer TrustedAgent as part of its security software. In May 2009, Trusted Integration filed a three-count complaint against the United States in the U.S. District Court for the District of Columbia. The company alleged breach of fiduciary duty, common law unfair competition and a Lanham Act violation for false designation of origin. The company sought $15 million in damages. In November 2009, Trusted Integration sued the United States in the Federal Claims Court for breach of an oral or implied-in-fact contract, breach of the TrustedAgent license agreement and breach of the duty of good faith and fair dealing. The company also sought $15 million in damages in that case. In January 2010, the district court dismissed Trusted Integration’s common law unfair competition and breach of fiduciary duty claims for lack of jurisdiction. The court held that the breach of fiduciary duty claim was based on an agreement between the parties and came under the Federal Claims Court’s jurisdiction because Trusted Integration sought more than $10,000 in damages. The district court also held it lacked jurisdiction to hear the unfair competition claim because that claim was based upon an alleged misrepresentation, which is outside of the Federal Tort Claims Act’s waiver of sovereign immunity. The company’s district court Lanham Act claim is ongoing. In June 2010, the Federal Claims Court dismissed all the claims in Trusted Integration’s case for lack of subject matter jurisdiction. The court ruled that the company’s case against DOJ in the U.S. District Court for the District of Columbia barred the lawsuit in the Federal Claims Court. The Federal Claims court found that both suits were “based upon the same dispute between the same parties” and sought the same relief. Judge Kathleen O’Malley wrote the Federal Circuit opinion, joined by judges William Bryson and Kimberly Moore. The Federal Circuit ruled that the Federal Claims Court has jurisdiction over Trusted Integration’s breach of license claim because it does not arise from substantially the same operative facts as the claims in the district court suit. The court agreed with the company that its breach of license claim in the Federal Claims Court should survive because its complaint in district court includes no licensing agreement claims. O’Malley concluded that to succeed in its surviving case in Federal Claims Court, Trusted Integration must show that DOJ exceeded the scope of the license agreement. But to prevail on the district court claims, Trusted Integration would have to show that it had a joint venture with DOJ and that DOJ promoted and sold a product in violation of the fiduciary duty arising from the joint venture. “This is not a case where Trusted Integration is simply repackaging the same conduct into two distinct legal theories,” O’Malley wrote. “Instead, Trusted Integration has asserted two distinct claims, that involve distinct agreements, whose breaches give rise to distinct damages, and which require distinct proofs.” The Federal Circuit, however, held that the company’s breach of an oral or implied-in-fact contract claim at the Federal Claims Court and its district court breach of fiduciary duty claim are both based on the underlying agreement between the parties. It therefore affirmed the dismissal of the company’s claim for breach of oral or implied-in-fact contract. Moreover, O’Malley wrote that the only difference between the company’s claim of breach of the duty of good faith and fair dealing in the Federal Claims Court complaint and its breach of fiduciary duty claim in the district court is that the district court claim arose from the parties’ relationship in a joint venture and the Federal Claims count sprung from an oral or implied contract. “This characterization, however, is not relevant to whether the claims arose from the same operative facts,” she wrote. Finding that the same operative facts gave rise to both claims, the court affirmed the dismissal of the claim for breach of the duty of good faith and fair dealing. John Bonello, a partner at David, Brody & Dondershine Reston, Va., who argued for Trusted Integration, said, “We are pleased that the Federal Circuit agreed that Trusted Integration’s breach of software license agreement claim against the Department of Justice was not barred.” The Department of Justice declined to comment, according to spokesman Charles Miller. Sheri Qualters can be contacted at [email protected].

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