In a California intellectual property lawsuit that could have sweeping implications over the way insurers and vendors approach software licensing agreements, a federal judge in late August granted a preliminary injunction barring San Diego-based Arrowhead General Insurance Agency from using insurance pricing software developed by a La Jolla, Calif.-based software solutions provider.In ruling against Arrowhead, a privately-held managing general agency, Chief Judge Marilyn Huff of the U.S. District Court for the Southern District of California prohibited Arrowhead's unlicensed use of the software in online insurance applications, including its Web-based distribution platforms, Arrowhead Exchange and YouZoom.com.

Arrowhead launched YouZoom.com, an online insurance portal, and licensed the technology to multiple companies, including Bank of America and e-Trade.

The software solution--PrimeRater--was developed by Westbourne International Inc., which was granted the injunction after a federal jury in early August awarded it $5.8 million. The six-member jury unanimously found Arrowhead liable for using Westbourne's PrimeRater software without permission and creating illegal derivative works based on the software, and ordered Arrowhead to pay damages. Westbourne has filed a request for a permanent injunction, and a hearing has been scheduled for mid-October.

Judge upheld award

In upholding the jury's monetary judgment, Judge Huff stated that "based on the jury verdict, the court finds the plaintiff Westbourne International has established liability on its claim for copyright infringement against Arrowhead General Insurance Agency and YouZoom.

The plaintiff shall recover from defendants Arrowhead and YouZoom the sum of $5,823,000 and its costs, together with interest thereon at the percentage rates as provided by law."

Huff's ruling could have possible implications on the approach that insurers and vendors take when negotiating software licensing agreements.

But for now, the most significant effects of the ruling will be felt by Arrowhead. The injunction is expected to cause "at least a temporary shutdown of all the electronic business for each division.The Arrowhead Online (YouZoom) division will be completely shut down," according to a sworn court statement by Steve Boyd, Arrowhead's vice president of information systems.

In a prepared statement, Francis Ruyak, Arrowhead president and CEO, comments that Arrowhead has "put contingencies in place to implement the necessary software revisions to minimize the impact on our business partners and normalize operations. We have already identified alternative processes, and we are working to put them into operation."

During the proceedings, attorneys for Arrowhead argued that Westbourne was a subcontractor to one of the software firms engaged by Arrowhead to develop software for the company.

"We are certain that Arrowhead will ultimately be found to have lawfully used the software in question, and we believe that the injunction will be vacated," Ruyak said.

But for now, Westbourne executives feel vindicated by the ruling against Arrowhead, which was established in 1983, and is a member of the San Diego-based Arrowhead Group.

The Westbourne-Arrowhead case traces back to May 2001, when Westbourne filed suit in federal court against Arrowhead and YouZoom Inc., charging copyright infringement of its PrimeRater software.

During an eight-day trial in August, Westbourne presented evidence that Arrowhead executives consciously ignored Westbourne's copyright notices, and alleged that Arrowhead employees destroyed and altered documents in an attempt to cover up the infringement.

"This is an example of a large company who thought they could rip off a small start-up firm and get away with it," states Gregory Dovel, a Los Angeles-based attorney representing Westbourne.

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