Microsoft sues CHS, alleging copyright infringement, breach of contract: 8 takeaways

Tech giant Microsoft filed a lawsuit against Franklin, Tenn.-based Community Health Systems March 15, alleging CHS engaged in "willful copyright infringement and willful breach of [the health system's] contractual obligations and implied covenant of good faith and fair dealing," according to a copy of the complaint, obtained by Becker's Hospital Review.

Here are eight things to know about the lawsuit.

1. Companies such as Microsoft rely on licensing agreements, which legally bar clients from unlawfully using or distributing software. Once such agreement Microsoft offers is a Volume Licensing agreement, meant for organizations with 500 or more users or devices that want to buy various Microsoft services and software licenses under one agreement.

2. According to the lawsuit, filed in the U.S District Court for the Middle Tennessee District, Microsoft and CHS have entered into a number of licensing agreements for various software products through the company's volume licensing program during the past 17 years. Under those agreements, the 126-hospital system cannot "distribute, sublicense, rent, lease, lend, or host any Microsoft software."

3. Under a specific section of the agreement, Microsoft maintains the contractual right to have an independent auditor verify CHS is complying with the licensing agreements. The independent verification process helps IT managers understand their software inventory and streamline operations, the lawsuit states. The process is also meant to protect Microsoft's intellectual property and ensure CHS is complying fully with the agreement.

4. The lawsuit states CHS has divested several entities during the past three years and "intentionally facilitated the continued use of Microsoft software by these divested entities" despite "having no right to do so," thereby "willfully infringing Microsoft's copyrights through direct or indirect extensive, unlicensed use of Microsoft's software."

5. In October 2016, Microsoft notified CHS it planned to exercise its contractual rights to verify CHS' compliance with the agreements through the use of an independent auditor.

6. According to the lawsuit, the independent auditor and Microsoft repeatedly asked CHS, which had "produced only a small fraction of the data required for the independent verification process," to comply with the verification terms of the agreement for 16 months after the initial notification.

"CHS has been largely not responsive to, if not obstructionist of, Microsoft's contractual right to an independent verification. CHS has been given every opportunity to comply with the independent verification process, and Microsoft has exhausted its best efforts to resolve this matter without judicial intervention. CHS's pattern of conduct, including missing numerous mutually agreed upon deadlines and providing incomplete data, demonstrates its unwillingness to comply with its contractual obligation and/or with the independent verification process," the lawsuit reads.

7. The lawsuit requests the judge issue an order permanently enjoining CHS, "and those in active concert or participation with CHS," from continuing to use and host Microsoft's copyrighted software; an order requiring CHS to comply with the independent auditor and provide the necessary data; and an order to pay damages "in the amount to be proven at trial," among other orders.

8. CHS declined to comment to Becker's Hospital Review regarding the pending litigation.

Editor's note: Becker's Hospital Review reached out to Microsoft for comment and will update the article as more information becomes available.

To access the lawsuit, click here.

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