Contract analysis

I. Executive Summary You have asked us to analyze whether data outputs, models, scores, indices, and analytics created by Quorum Insurance Holdings Corp. (“Quorum”) using licensed data from Meridian Credit intelligence, Inc. (“Meridian”) as an input constitute “derivative works” under the Copyright Act, 17 U.S.C. § 101 et seq., and to evaluate the parties’ competing intellectual-property positions in the ongoing nego

1. Quorum should maintain its position that Quorum owns all IP in Derived Data created by or on behalf of Quorum.

2. Quorum should reject Meridian’s proposed perpetual, royalty-free license-back.

3. Quorum should reject Meridian’s proposed “sufficient transformation” standard if Meridian retains sole discretion over the determination.

4. Quorum should reject Meridian’s proposed 15% revenue share.

5. The MDLA should expressly carve out QuorumScore™ and similar Quorum proprietary models, model weights, parameters, inference outputs, scores, indices, and analytics as Quorum-owned IP not subject to any license-back, revenue share, or approval requirement.

6. If a compromise is necessary, Quorum should consider a narrow covenant not to redistribute Meridian raw data or Derived Data in a form from which Meridian raw data can be extracted, rather than accepting Meridian ownership or approval rights over Quorum’s analytical outputs.

II. Background and Scope A. The Transaction Quorum is negotiating a five-year enterprise data-licensing arrangement with Meridian. The proposed arrangement is valued at $60,000,000 over the term, consisting of $10,800,000 in Year 1 and $12,300,000 per year in Years 2 through 5. We understand there is also a separate $1,500,000 implementation and onboarding fee under discussion, although that amount has not been the f

1. Perpetual royalty-free license-back. Meridian would receive a perpetual, irrevocable, worldwide, royalty-free license-back to all Derived Data for Meridian’s own use.

2. External commercialization restriction. Quorum would be prohibited from selling, sublicensing, distributing, or otherwise commercializing Derived Data to any third party unless the Derived Data has been “sufficiently transformed” such that no Meridian raw data can be reverse-engineered from it.

3. Meridian sole discretion. Meridian would have sole discretion to determine whether Derived Data has been “sufficiently transformed.”

4. Revenue share. If Quorum commercializes approved Derived Data externally, Meridian would receive 15% of net revenues attributable to such Derived Data. The MDLA form delivered by KP&A on November 4, 2022 reflected Meridian’s position. Quorum’s comprehensive redline delivered by C&H on December 2, 2022 rewrote Article VII to vest all IP in Derived Data in Quorum and to remove Meridian’s proposed license-back, sole-

1. The copyright-law treatment of factual data compilations, including the effect of Feist and the “thin copyright” doctrine.

2. The likely copyrightability of Meridian’s data products, including MCI Consumer Credit File™, MCI CommercialView™, and MCI AltSignal™.

3. Whether Quorum’s Derived Data constitutes “derivative works” of Meridian’s data products under 17 U.S.C. § 101.

4. The distinction between machine-learning model weights and parameters, on the one hand, and inference or prediction outputs, on the other.

5. Trade secret considerations under the Georgia Trade Secrets Act, O.C.G.A. § 10-1-760 et seq., and the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq.

6. The role of contractual IP allocation as the controlling framework in the MDLA.

7. The legal and commercial weaknesses of Meridian’s proposed license-back, “sufficient transformation,” and revenue-share demands.

8. Recommendations for Quorum’s negotiating position and for revised Article VII drafting.

III. Copyright Analysis: Factual Data Compilations A. Copyrightability of Factual Data Under *Feist* The starting point is Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991). In Feist, the Supreme Court rejected the “sweat of the brow” theory of copyright protection for factual compilations. The Court held that facts are not copyrightable, regardless of the labor, expense, or diligence requi

IV. “Derivative Works” Analysis Under 17 U.S.C. § 101 A. Statutory Definition The Copyright Act defines a “derivative work” as: “a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.” 17 U.

1. Blended risk scores that combine Meridian credit attributes with Quorum’s first-party claims, policy, telematics, actuarial, and underwriting data.

2. Propensity models predicting likelihood of purchase, renewal, lapse, cross-sell conversion, claims frequency, claims severity, or channel preference.

3. Enriched datasets in which Quorum appends internally generated attributes, risk flags, model scores, segmentation categories, or inferred characteristics to Quorum customer, prospect, or policy records.

4. Fraud-detection indicators generated by Quorum’s claims analytics models.

5. QuorumScore™ outputs, including predictive underwriting scores, model-generated classifications, and related confidence or explanation attributes. In each case, the strongest view is that these outputs are not derivative works of Meridian’s databases. They may be derived from Meridian data in a colloquial or business sense, but they are not “derivative works” in the Copyright Act sense. The reason is straightforwa

1. Meridian’s ownership or control of its raw data feeds under contract.

2. Meridian’s possible thin copyright in the selection, coordination, and arrangement of its data compilations.

3. Quorum’s independent ownership of analytical outputs generated using facts from those feeds. Meridian’s proposed standard — that any output “based on” or “traceable to” Meridian raw data is a derivative work — is not the statutory test. “Traceability” in a causal or technical sense is not a copyright-law standard. Copyright’s derivative-work right requires incorporation of protected expression, not mere use of fac

V. Machine-Learning Model Outputs: A Special Case A. The Technical Dispute The parties also disagree on how to treat outputs of Quorum’s machine-learning models. The issue has two related but distinct parts:

1. Whether trained model weights and parameters created using training datasets that include Meridian data are “derived data” or “derivative works.”

2. Whether live inference outputs generated by those trained models are “derived data” or “derivative works,” particularly where the live input data may or may not include Meridian data. At a high level, a machine-learning training process involves exposing a model architecture to a training dataset and iteratively adjusting numerical parameters to minimize prediction error or optimize a defined objective function. M

VI. Trade Secret Considerations A. Meridian’s Potential Trade Secret Arguments Even if copyright law does not support Meridian’s position, Meridian may argue that its data feeds contain trade secrets. Potential theories include that Meridian’s feeds reflect proprietary data-collection methodologies, confidential source relationships, non-public commercial information, proprietary data-cleaning processes, scoring logi

VII. Contractual IP Allocation: The Controlling Framework A. Primacy of Contract Over Copyright in Data Licensing Because copyright protection for factual compilations is thin, and because the treatment of machine-learning weights and outputs remains developing, Article VII of the MDLA will likely be the decisive source of rights between Quorum and Meridian. Under New York law, sophisticated commercial parties genera

VIII. Evaluation of Meridian’s Likely Counter-Arguments A. Investment-Based Arguments Meridian is likely to argue that it has invested heavily in assembling approximately 310 million consumer records, 42 million business records, and 85 million alternative-data records, and that this investment justifies downstream control over Derived Data. That argument has commercial force but limited copyright significance. Under

IX. Recommendations A. Negotiating Position on Derived Data IP Ownership We recommend that Quorum take the following positions in the MDLA negotiations.

1. Maintain Quorum’s position that Quorum owns all IP in Derived Data. The copyright analysis strongly supports Quorum’s position. Quorum should not concede ownership of Derived Data, model outputs, model weights, scores, indices, enriched attributes, or analytics created by Quorum or on Quorum’s behalf.

2. Reject the perpetual royalty-free license-back. Meridian’s license-back demand has no meaningful copyright-law basis and would compromise Quorum’s trade secrets and competitive position. If a business compromise becomes necessary, Quorum could consider a narrow, limited-purpose license-back solely for Meridian’s internal data-quality improvement purposes, subject to strict confidentiality, no external use, no prod

3. Reject Meridian’s “sufficient transformation” standard with sole discretion. Quorum should not accept a standard under which Meridian alone decides whether Quorum may commercialize Quorum-created IP. If any transformation standard is included, it should be objective, measurable, and subject to joint determination or neutral third-party resolution. The relevant question should be whether Meridian raw data is disclo

4. Reject the 15% revenue share. There is no copyright-law basis for Meridian’s proposed 15% revenue share. Based on Quorum’s projected 2027 B2B revenue of $40–50 million, the revenue share would transfer $6–7.5 million annually to Meridian, on top of the $12.3 million annual license fee. This would materially impair the economics of QuorumScore™ commercialization and should be rejected.

5. Protect QuorumScore™ explicitly. The MDLA should include an express carve-out recognizing QuorumScore™ and similar proprietary models as Quorum’s exclusive IP. The carve-out should cover model architecture, source code, object code, algorithms, features, feature weights, parameters, trained models, model documentation, validation materials, inference outputs, risk scores, classifications, explanations, and related

1. Clear definition of “Licensed Data.” The agreement should define Meridian’s “Licensed Data” as the raw data feeds, files, records, attributes, documentation, and related materials provided by Meridian under the MDLA, including MCI Consumer Credit File™, MCI CommercialView™, and MCI AltSignal™.

2. Clear definition of “Derived Data.” “Derived Data” should be defined to include all data, outputs, scores, indices, models, analyses, insights, predictions, classifications, enriched attributes, aggregated data, de-identified data, statistical results, model weights, parameters, and other materials created by or on behalf of Quorum using Licensed Data as one input, excluding Meridian raw data in the form provided

3. Affirmative Quorum ownership clause. Article VII should state that, as between the parties, Quorum exclusively owns all right, title, and interest in and to Derived Data and all IP rights therein.

4. Meridian acknowledgment. Meridian should acknowledge that it has no ownership interest in Derived Data and no right to use, access, license, sublicense, distribute, commercialize, or exploit Derived Data except as expressly provided in the MDLA.

5. No reverse-engineering covenant as compromise. If compromise language is needed, Quorum could agree not to distribute externally Meridian raw data or Derived Data in a form from which Meridian raw data can reasonably be extracted or reconstructed. That covenant should be objective and should not give Meridian sole discretion.

6. Post-termination treatment. Quorum should be permitted to retain and continue using all Derived Data indefinitely after termination or expiration of the MDLA. The current MDLA draft requires Quorum to return or destroy Meridian raw data within 90 days after termination. That obligation should not apply to Derived Data, QuorumScore™, model weights, parameters, scores, outputs, or analytics.

7. Express treatment of ML assets. The definitions should expressly address trained model weights, parameters, embeddings, feature transformations, inference outputs, prediction scores, classifications, confidence scores, and related analytic outputs to avoid later ambiguity.

8. No implied license-back. The agreement should state that no license to Derived Data is granted to Meridian by implication, estoppel, or otherwise.

9. Confidentiality alignment. The confidentiality provisions should separately protect both parties’ confidential information: Meridian’s raw licensed data and Quorum’s models, Derived Data, QuorumScore™ materials, and analytics. C. Coordination with Related Workstreams Several related workstreams should be coordinated with the Article VII negotiation. First, Quorum should coordinate with Caldwell & Strauss LLP, part

X. Conclusion Meridian’s Derived Data demands are not supported by copyright law. Factual data is not copyrightable. Meridian’s databases may receive thin copyright protection only in their original selection, coordination, or arrangement, and that protection does not extend to the underlying facts. Quorum’s analytical outputs, including blended risk scores, propensity models, enriched datasets, fraud indicators, Quo

Section 102(a) provides copyright protection for “original works of authorship fixed in any tangible medium of expression,” including literary works, musical works, dramatic works, pictorial works, motion pictures, sound recordings, and architectural works.

Section 102(b) provides the key limitation: “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” This limitation is relevant because Quorum’s models and analytics may use facts, processes, systems,

Section 103(a) provides that the subject matter of copyright includes compilations and derivative works, subject to the limitations in the Act.

Section 103(b) provides: “The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material.” This provision reinforces the central point: even if Meridian has a compilation copyright, that copyright does not create ownership right