CALDERWOOD & HARKNESS LLP
Attorneys at Law
600 Renaissance Center, Suite 3200
October 17, 2023
VIA EMAIL AND DocuSign
Alan M. Briscoe, Esq. Lead Partner, Technology Transactions Redstone Whitaker LLP 555 Mission Street, Suite 2800 San Francisco, California 94105
Re: Derivative Works Ownership — Master Embedded Software License and Services Agreement, dated June 21, 2022, between Vantage Mobility Systems Corp. and Meridian Code Technologies, Inc.
C&H Matter No. 1007-00008
Dear Mr. Briscoe:
CONFIDENTIALITY NOTICE — SETTLEMENT COMMUNICATION: This letter and all attachments hereto constitute a communication made in the course of compromise negotiations within the meaning of Federal Rule of Evidence 408 and its Michigan equivalent, Michigan Rule of Evidence 408 (MCR 2.412). This letter and its contents are not admissible in any subsequent proceeding to prove the validity or invalidity of any claim, the amount of any claim, or as an impeachment by prior inconsistent statement or contradiction. All rights, claims, and defenses are expressly reserved.
I. INTRODUCTION AND PURPOSE
I write in my capacity as the responsible partner at Calderwood & Harkness LLP, outside counsel to Vantage Mobility Systems Corp. ("VMS" or "Vantage"), a Delaware corporation headquartered at 4100 Industrial Parkway, Sterling Heights, Michigan 48312. It is my understanding that your firm, Redstone Whitaker LLP, continues to serve as outside counsel to Meridian Code Technologies, Inc. ("MeridianCode" or "MCT"), a California corporation headquartered at 2750 Orchard Blvd., Suite 400, Santa Clara, California 95054, with respect to the agreement referenced above.
This letter is written in connection with the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA" or the "Agreement"), entered into between VMS, as licensee, and MeridianCode, as licensor. The purpose of this letter is to formally set forth VMS's position regarding the ownership of certain derivative works created by VMS personnel during the integration of MeridianCode's ATLAS-RT™ embedded real-time operating system, Version 4.2 (subsequently updated to Version 4.2.3) (collectively, "ATLAS-RT"), into VMS's Project Argonaut vehicle platforms.
You will recall that the parties have exchanged prior correspondence regarding the dormancy status invoked by VMS under Section 9.4 of the MESLSA, as well as certain fee disputes arising under the Agreement, including VMS's position regarding the Year 2 Maintenance & Support Fee invoiced on July 1, 2023. This letter addresses a separate but related issue — namely, the ownership and proprietary rights pertaining to three independently originated software modules developed by VMS engineering personnel during the integration period. VMS considers the proper resolution of derivative works ownership to be of significant importance to the overall relationship between the parties, and we are writing now so that MeridianCode may give the matter its full consideration.
II. BACKGROUND AND CONTEXT
A. The MESLSA and Project Argonaut
On June 21, 2022, VMS and MeridianCode entered into the MESLSA, a twenty-million-dollar ($20,000,000) embedded-software license agreement pursuant to which MeridianCode granted to VMS a license to MeridianCode's proprietary ATLAS-RT™ real-time operating system for use in automotive and adaptive mobility applications. The ATLAS-RT platform was selected by VMS's engineering leadership, following a competitive evaluation process, as the foundational embedded operating system for VMS's next-generation adaptive vehicle platform program, internally designated "Project Argonaut."
Project Argonaut, as originally conceived and approved by VMS's Board of Directors, encompassed five distinct vehicle platform configurations, designated Argonaut-A through Argonaut-E. Each platform configuration was designed to address a specific segment of the adaptive mobility vehicle market, including wheelchair-accessible passenger vehicles, commercial fleet vehicles equipped with adaptive technology, and specialized transport solutions for mobility-impaired individuals.
Integration services between VMS and MeridianCode were governed by Statement of Work No. 1 ("SOW-1"), executed concurrently with the MESLSA, which established five integration milestones for each vehicle platform configuration. The total integration services fees under SOW-1 were three million two hundred thousand dollars ($3,200,000), payable upon the achievement and acceptance of specified milestones.
B. Integration Work Performed and VMS Engineering Investment
Over the course of the integration period, spanning from June 2022 through March 2023, VMS committed approximately 14,200 engineering hours through its internal software integration teams to the ATLAS-RT integration effort. This integration work was led by Lena Petrova, Director of Software Integration Engineering at VMS, and involved teams of embedded software engineers, quality assurance specialists, and systems architects employed by VMS and working at VMS facilities in Sterling Heights, Michigan.
As of the date integration work was suspended, the following milestones had been achieved under SOW-1:
• Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was passed on February 28, 2023, confirming functional interoperability between the ATLAS-RT platform and VMS's proprietary adaptive control systems within the Argonaut-A vehicle configuration.
• Argonaut-C: Milestone 2 of 5 completed. Source-code customization deliverables were provided and accepted by VMS on January 15, 2023, covering core scheduling and driver interface layers for the Argonaut-C fleet vehicle platform.
• Argonaut-B: Milestone 1 only. The requirements specification for the Argonaut-B platform was approved; however, no code integration work had commenced prior to the suspension of integration activities.
• Argonaut-D and Argonaut-E: Not commenced. No integration work of any kind had been initiated for these two platform configurations.
Total integration services fees paid by VMS for Milestones 1 through 3, as described above, were one million nine hundred twenty thousand dollars ($1,920,000). In addition, VMS had paid the eight-million-dollar ($8,000,000) upfront license fee required under Section 4.1(a) of the MESLSA and the Year 1 Maintenance & Support Fee of two million four hundred thousand dollars ($2,400,000) pursuant to Section 4.2(a). Accordingly, VMS's total fees paid to MeridianCode under the MESLSA and SOW-1, as of the date of this letter, are twelve million three hundred twenty thousand dollars ($12,320,000).
C. Rescoping and Dormancy
On March 14, 2023, the VMS Board of Directors resolved to rescope Project Argonaut from five vehicle platform configurations to two — Argonaut-A and Argonaut-C only — and to defer the electrification integration component of the program to a subsequent Phase II effort. This business decision was driven by market conditions and strategic considerations internal to VMS. As a consequence of the Board's decision, all integration work under SOW-1 was suspended as of March 22, 2023.
Thereafter, VMS timely invoked the dormancy provisions of the MESLSA. Specifically, on July 14, 2023, VMS transmitted a dormancy notice pursuant to Section 9.4 of the Agreement, notifying MeridianCode that VMS was placing the MESLSA into Dormancy Status. This notice was transmitted six (6) days before the 120-day trigger date of July 20, 2023, which, under Section 9.4, would have required automatic mutual consent procedures. The dormancy notice was therefore timely and effective in accordance with its terms.
MeridianCode, through your firm, acknowledged VMS's invocation of Dormancy Status by letter dated August 3, 2023. The MESLSA remains in Dormancy Status as of the date of this letter.
III. IDENTIFICATION OF THE DERIVATIVE WORKS AT ISSUE
During the integration period described above, VMS engineers — working under the direction of Lena Petrova and utilizing VMS computing resources, development environments, and proprietary engineering methodologies — created three distinct software modules. These modules have been designated by VMS as DW-001, DW-002, and DW-003 (collectively, the "VMS Derivative Works" or the "Modules"). In the aggregate, the three Modules comprise approximately 47,000 lines of original source code.
VMS has retained Hargrove Technical Consulting, LLC ("Hargrove"), an independent technical consulting firm headquartered in McLean, Virginia, to assess the VMS Derivative Works. The assessment was led by Dr. Samuel Beecroft, Ph.D. (Embedded Systems), a recognized expert in embedded software architecture and real-time operating system design. Based on Hargrove's preliminary assessment, the estimated commercial value of the VMS Derivative Works, taken together, falls within a range of one million eight hundred thousand dollars ($1,800,000) to two million five hundred thousand dollars ($2,500,000).
The nature and function of each Module are briefly described as follows:
DW-001 — Adaptive Control Interface Module. DW-001 is a VMS-designed software module that provides an architectural framework for integrating wheelchair-accessible vehicle platform control systems with the embedded RTOS environment. This module was conceived, designed, and coded entirely by VMS engineers to address the unique requirements of adaptive mobility vehicles — requirements that are specific to VMS's business and product line, and that have no analogue in MeridianCode's ATLAS-RT core product or any other MeridianCode offering. DW-001 comprises approximately 18,000 lines of original source code and implements proprietary algorithms for real-time adaptive input processing, seat positioning control, and ramp deployment sequencing.
DW-002 — Sensor Abstraction Layer. DW-002 is a VMS-originated software module that provides a sensor abstraction layer for VMS's proprietary sensor arrays, which are unique to adaptive mobility applications. The sensor abstraction layer enables standardized communication between VMS's custom sensor hardware — including occupant presence detection sensors, wheelchair securement verification sensors, and environmental safety sensors — and the underlying RTOS environment. DW-002 comprises approximately 16,500 lines of original source code and was developed using VMS-proprietary sensor interface specifications that are not disclosed to MeridianCode or any third party.
DW-003 — Fleet Management Communications Module. DW-003 is a VMS-developed telematics integration layer that enables real-time communication between adaptive mobility vehicles deployed in commercial fleet configurations and VMS's proprietary fleet management platform. This module supports remote diagnostics, usage tracking, predictive maintenance notifications, and accessibility compliance reporting for commercial fleet operators. DW-003 comprises approximately 12,500 lines of original source code and was developed entirely by VMS engineering personnel to address the commercial fleet deployment requirements identified by VMS's fleet services business unit.
VMS wishes to emphasize that each of the three Modules was conceived, designed, coded, tested, and validated entirely by VMS engineering personnel, using VMS computing resources, VMS development tools, and VMS proprietary methodologies. The Modules were created to address VMS-specific adaptive mobility vehicle requirements that are unique to VMS's business and product offerings, and that have no analogue in MeridianCode's ATLAS-RT core product. The Modules interact with ATLAS-RT through standard, documented application programming interfaces ("APIs") and RTOS interface protocols; at no point did VMS engineers modify, adapt, or extend the ATLAS-RT source code itself in creating DW-001, DW-002, or DW-003.
IV. VMS'S LEGAL POSITION ON OWNERSHIP
A. Section 7.2 Does Not Apply to Independently Originated VMS Code
VMS acknowledges that Section 7.2 of the MESLSA contains provisions addressing intellectual property created during the integration process. Specifically, Section 7.2 provides, in pertinent part:
"Any and all modifications, adaptations, or extensions to ATLAS-RT source code created by [VMS] engineers during the integration of ATLAS-RT into [VMS] vehicle platforms shall become jointly owned by [VMS] and [MeridianCode], with [MeridianCode] retaining a perpetual, royalty-free license to use, reproduce, modify, and distribute such derivative works in connection with [MeridianCode's] products and services."
VMS does not dispute the existence of this provision, nor does VMS challenge its enforceability with respect to code that genuinely constitutes a "modification, adaptation, or extension to ATLAS-RT source code." However, it is VMS's firmly held position that Section 7.2 does not apply to DW-001, DW-002, or DW-003, because none of these Modules constitutes a "modification, adaptation, or extension to ATLAS-RT source code" within the plain meaning of that phrase.
The distinction is critical and must be clearly drawn. A "modification" to source code involves the alteration, revision, or amendment of existing code. An "adaptation" involves the reconfiguration of existing code for a new purpose or environment. An "extension" involves the expansion of existing code's functionality by building upon and incorporating that code. None of these descriptions applies to the VMS Derivative Works. DW-001, DW-002, and DW-003 are independently originated works of authorship, created from scratch by VMS engineers, that interface with ATLAS-RT through standard, documented APIs. They do not modify any ATLAS-RT source code. They do not adapt any ATLAS-RT source code. They do not extend any ATLAS-RT source code. They are, in every meaningful sense, original works that communicate with ATLAS-RT in the same manner that any third-party application communicates with an operating system — through published interfaces and standardized protocols.
The definition of "Derivative Work" set forth in Exhibit C to the MESLSA — which the parties negotiated and agreed upon at the time of contracting — does not alter this analysis. Properly construed, the Exhibit C definition encompasses works that are based upon, incorporate, or are derived from the underlying licensed source code. It does not, and cannot reasonably be read to, encompass independently authored code that merely communicates with ATLAS-RT through published APIs and standard RTOS interface protocols. To construe the Exhibit C definition so broadly would be to render the specific limiting language of Section 7.2 — "modifications, adaptations, or extensions to ATLAS-RT source code" — meaningless surplusage, a result that is disfavored under well-settled principles of contract interpretation.
B. Michigan intellectual Property Law Supports VMS's Position
The MESLSA is governed by Michigan law (Section 14.3). Under Michigan law, as under general principles of copyright law applicable throughout the United States, ownership of a copyrightable work vests initially in the author of that work. See 17 U.S.C. § 201(a). Where, as here, a work is created by an employee within the scope of his or her employment, the employer is considered the author for copyright purposes, and the work is a "work made for hire." See 17 U.S.C. § 201(b). The approximately 47,000 lines of code comprising DW-001, DW-002, and DW-003 were created by VMS employees within the scope of their employment by VMS. Accordingly, VMS is the author and initial copyright owner of each of the three Modules.
A contractual provision purporting to transfer or co-own independently created intellectual property must be narrowly construed, particularly where the provision relates to "derivative works" as that term is understood under federal copyright law. Under 17 U.S.C. § 101, a "derivative work" is "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." The statutory definition requires that the allegedly derivative work be "based upon" the preexisting work — not merely that it communicate with or operate alongside the preexisting work.
VMS's Modules are not "based upon" ATLAS-RT source code. They were not created by recasting, transforming, or adapting ATLAS-RT source code. They were built independently by VMS engineers to solve VMS-specific engineering problems in the adaptive mobility vehicle space. The fact that these Modules are designed to operate within an ATLAS-RT environment does not render them derivative works any more than a word processing application is a derivative work of the operating system on which it runs.
Furthermore, Michigan courts apply well-established principles of contract construction that require ambiguous terms to be construed against the drafter of the agreement. See Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459, 470 (2003). The MESLSA was drafted principally by MeridianCode and its counsel at Redstone Whitaker LLP; VMS negotiated certain modifications, but the Agreement's core structure, including Section 7.2 and the Exhibit C definitions, originated with MeridianCode's drafting team. To the extent that any ambiguity exists regarding the scope of Section 7.2's joint-ownership provision — and VMS contends that the provision is clear on its face and does not apply to the VMS Derivative Works — any such ambiguity must be resolved in VMS's favor under the contra proferentem doctrine.
C. MeridianCode's Perpetual Royalty-Free License-Back Is Unenforceable as Applied
Even assuming, arguendo, that Section 7.2's joint-ownership provision could be read to apply to the VMS Derivative Works — a position VMS does not concede — the perpetual, royalty-free license-back right that Section 7.2 purports to grant to MeridianCode should not extend to independently developed VMS code.
The license-back provision, if applied to code that is wholly VMS-originated, would constitute an unconscionable windfall to MeridianCode. It would grant MeridianCode a perpetual, royalty-free right to use, reproduce, modify, and distribute software modules valued at between $1,800,000 and $2,500,000 — modules conceived, designed, coded, and tested entirely by VMS personnel, using VMS resources, to address VMS's unique adaptive mobility requirements — without any consideration whatsoever flowing to VMS in exchange. The MESLSA provides no compensation, royalty, or other form of consideration to VMS for the license-back right; the license-back is characterized as an incident of the joint-ownership structure established by Section 7.2.
Such an outcome would be contrary to the reasonable expectations of the parties at the time of contracting. The license-back provision was negotiated in the context of modifications to ATLAS-RT source code — that is, situations in which a VMS engineer might, in the course of integration work, modify a portion of the ATLAS-RT codebase to improve its functionality or adapt it to the automotive environment. In that context, MeridianCode has a legitimate interest in receiving a license-back to such modifications, because those modifications are based upon and derived from MeridianCode's core intellectual property, and MeridianCode's ability to maintain, update, and evolve ATLAS-RT may depend upon access to such modifications. That rationale has no application to independently authored VMS application-layer code that was built from scratch, does not incorporate any ATLAS-RT source code, and addresses engineering challenges unique to VMS's adaptive mobility product line.
Under Michigan law, courts possess the equitable authority to decline to enforce contractual provisions that produce unjust or unconscionable results, particularly where the provision as applied goes beyond what was reasonably contemplated by the parties at the time of formation. See Rory v. Continental Ins. Co., 473 Mich. 457 (2005); Clark v. DaimlerChrysler Corp., 268 Mich. App. 138, 143–44 (2005). The application of Section 7.2's license-back provision to the VMS Derivative Works would be precisely such a case: a contractual provision, designed and negotiated to address one category of intellectual property (modifications to licensed source code), being extended to cover an entirely different category of intellectual property (independently originated application-layer code) in a manner that was never contemplated by the parties and that would result in a significant and unjustified windfall to MeridianCode at VMS's expense.
D. Independent Technical Assessment Supports VMS's Characterization
As noted above, VMS has retained Hargrove Technical Consulting, LLC to conduct an independent technical assessment of the VMS Derivative Works. The assessment was led by Dr. Samuel Beecroft, Ph.D. (Embedded Systems), who has more than twenty-five years of experience in embedded software architecture and real-time operating system design, and who has served as an expert consultant in numerous software intellectual property disputes.
Hargrove's preliminary findings, which will be formalized in a written report upon completion of its review, confirm the following:
1. Architectural Independence. The three Modules — DW-001, DW-002, and DW-003 — are architecturally independent of the ATLAS-RT source code. Each Module possesses its own self-contained software architecture, including its own internal data structures, algorithms, and processing logic, none of which are derived from or based upon ATLAS-RT's internal architecture.
2. Standard API Interaction. The Modules interact with ATLAS-RT exclusively through documented, publicly available API calls and standard RTOS interface protocols. The interfaces used by the Modules are the same standard interfaces that any third-party software developer could use to build applications compatible with ATLAS-RT. No proprietary, undocumented, or internal ATLAS-RT interfaces were utilized by VMS engineers in the development of the Modules.
3. No Source Code Copying or Incorporation. No ATLAS-RT source code was copied, modified, incorporated, or otherwise reproduced in any of the three Modules. A line-by-line comparison of the Module source code against the ATLAS-RT codebase reveals no instances of code copying, derivation, or substantial similarity at the source code level.
4. VMS-Proprietary Methodologies and Design. The design, architecture, and implementation of each Module reflect VMS-proprietary engineering methodologies and adaptive-vehicle-specific requirements that are unique to VMS's business and product offerings. The functional requirements addressed by the Modules — wheelchair-accessible vehicle platform control, proprietary sensor array abstraction, and commercial fleet telematics integration — are specific to VMS's adaptive mobility business and have no counterpart in MeridianCode's product line or technology roadmap.
Hargrove's assessment powerfully supports the conclusion that DW-001, DW-002, and DW-003 are not "modifications, adaptations, or extensions to ATLAS-RT source code" within the meaning of Section 7.2 of the MESLSA. They are, instead, independently originated works of authorship belonging exclusively to VMS.
V. VMS'S DEMAND
In light of the foregoing, VMS demands that MeridianCode:
1. Acknowledge VMS's Sole Ownership. Acknowledge in writing that DW-001, DW-002, and DW-003 are the sole and exclusive property of Vantage Mobility Systems Corp., and that VMS possesses all right, title, and interest — including all intellectual property rights — in and to the three Modules.
2. Disclaim Any Ownership Interest. Disclaim, in writing, any and all ownership interest, joint or otherwise, in DW-001, DW-002, and DW-003, and confirm that MeridianCode does not and has never possessed any ownership interest in the VMS Derivative Works.
3. Waive License-Back Rights. Waive, in writing, any purported perpetual, royalty-free license-back rights under Section 7.2 of the MESLSA as applied to DW-001, DW-002, and DW-003, and confirm that MeridianCode does not and has never possessed any license rights in or to the VMS Derivative Works.
4. Confirm Non-Use. Confirm in writing that MeridianCode has not, and will not, use, reproduce, distribute, sublicense, or create derivative works based on any portion of DW-001, DW-002, or DW-003, and that MeridianCode has not provided access to or copies of any portion of the VMS Derivative Works to any third party.
VMS recognizes that the parties have a number of outstanding issues under the MESLSA, and VMS remains committed to addressing those issues in a constructive and commercially reasonable manner. In that spirit, and as a gesture of goodwill intended to facilitate the broader resolution of all outstanding matters between the parties, VMS is willing to discuss a narrowly tailored, non-exclusive license to MeridianCode for non-automotive applications only, on commercially reasonable terms to be negotiated in good faith. Such a license, if agreed upon, would be memorialized in a separate written agreement between the parties and would supersede Section 7.2's joint-ownership and license-back provisions as applied to DW-001, DW-002, and DW-003. VMS views this proposed limited license as a reasonable accommodation that balances VMS's proprietary rights in the Modules with any legitimate interest MeridianCode may have in the technology for non-competitive applications outside the automotive sector.
VI. RESERVATION OF RIGHTS
VMS expressly reserves all rights, remedies, claims, and defenses available to it under the MESLSA, at law, and in equity. Without limiting the generality of the foregoing, VMS reserves the right to initiate binding arbitration under the rules of the Midwest Arbitration Institute, seated in Detroit, Michigan, as provided in Section 14.5 of the MESLSA. As Mr. Briscoe is aware, Section 14.5 provides for a three-arbitrator panel for disputes in which the amount in controversy exceeds one million dollars ($1,000,000). VMS considers the derivative works ownership dispute to be well within that threshold.
VMS's willingness to engage in discussions regarding the matters addressed in this letter should not be construed as a waiver of any contractual or legal right, including, without limitation, VMS's right to seek injunctive or declaratory relief in a court of competent jurisdiction or before an arbitral panel, as appropriate.
This letter is without prejudice to VMS's separate positions regarding the Year 2 Maintenance & Support Fee dispute — specifically, the $2,400,000 invoice transmitted by MeridianCode on July 1, 2023, which VMS has disputed in prior correspondence — and VMS's contractual rights during Dormancy Status under Section 9.4 of the MESLSA. VMS's positions on those matters are set forth in our prior correspondence and remain unchanged.
VII. REQUEST FOR RESPONSE
VMS respectfully requests that MeridianCode, through Redstone Whitaker LLP, provide a substantive written response to this letter within thirty (30) calendar days of the date hereof — that is, no later than November 16, 2023.
It is VMS's strong preference to resolve the derivative works ownership issue addressed in this letter as part of a comprehensive resolution of all outstanding matters arising under or in connection with the MESLSA, including the fee disputes and dormancy-related issues previously identified. VMS remains willing to discuss all such issues in a constructive and commercially reasonable manner, and VMS is open to scheduling an in-person or virtual meeting of counsel at a mutually convenient time to facilitate productive dialogue.
All future communications regarding this matter should be directed to the undersigned at Calderwood & Harkness LLP, at the address set forth above or by email at bcrawford@calderwoodharkness.com. Please do not contact VMS's business personnel directly regarding the matters discussed in this letter.
VIII. CLOSING
We appreciate your attention to this matter and look forward to receiving MeridianCode's response within the time frame specified above.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner Calderwood & Harkness LLP 600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 555-7400
Email: bcrawford@calderwoodharkness.com
cc: Martin G. Cross, General Counsel, Vantage Mobility Systems Corp. (via email)
cc: Conrad Ashby, Calderwood & Harkness LLP (via email)
cc: Gabrielle Moss, Calderwood & Harkness LLP (via email)