UNITED ASSET COVERAGE, INC., a Delaware Corporation Plaintiff, v. AVAYA INC., a New Jersey Corporation Defendant, 409 F. Supp. 2d 1008

FINDINGS OF FACT AND CONCLUSIONS OF LAW SHADUR, Senior District Judge. During a number of days between October 25 and November 21, 2005 this Court conducted an evidentiary hearing on the motion brought by United Asset Coverage, Inc. (“UAC”), seeking to obtain the issuance of a preliminary injunction against Avaya, Inc. (“Avaya”). After the evidentiary proofs were closed on November 22, each side submitted its proposed Findings of Fact (“Findings”) and Conclusions of Law (“Conclusions”), then filed responses to the other side’s proposals.

This Court has reviewed those submissions in detail, and what follows are its own Findings and Conclusions. To the extent (if any) that the Findings as hereafter stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings. In both of those respects, see Miller v. Fenton, 474 U.S. 104, 113-14, 106 S.Ct. 445, 88 L.Ed.2d 405 (1985). But before the Findings and Conclusions are set out, a brief introduction is in order.

Introduction UAC begins its Response to Avaya’s proposals by stating in its own “Introduction” section: This case presents a carbon-copy reenactment of the antitrust violation described in Eastman Kodak Co. v. Image Tech. Services, Inc., 504 U.S. 451, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (“Kodak ”), in which an equipment manufacturer uses its control over an essential input as a means to monopolize the aftermarket for servicing its equipment and to crush competing service providers. Nothing could be farther from the truth.

Instead there are major nonparallels between the two cases that doom UAC’s effort to portray Kodak as an all-fours precedent that controls the result here. It simply does not. For one thing, it must be remembered that the Kodak opinion was rendered in a totally different context: It reversed a

summary judgment in Kodak’s favor because, as the Supreme Court held, the facts, when taken most favorably to the independent service providers in that case (together with all reasonable inferences in their favor), posed a genuine issue of fact as to the relevant market definition — that is, whether service and parts for Kodak equipment could constitute two separate markets, a determination that could be made “only after a factual inquiry into the ‘commercial realities’ faced by consumers” (504 U.S. at 482, 112 S.Ct. 2072).

By contrast, the very different question here is whether UAC has presented a sufficient showing to justify granting the extraordinary relief of a preliminary injunction under the standards applicable to such relief, a determination that would have to embrace a finding as to the existence of separate markets on a merits-based evaluation of the evidence. What the following Findings and Conclusions amply demonstrate is that UAC has not made its case in that respect.

And for another thing, when the underbrush is cleared away UAC is exposed as seeking to compel Avaya to grant licenses that would give unauthorized party UAC access to Avaya’s wholly proprietary intellectual property embedded in software, a kind of “cooperation” that Avaya has not volunteered in the past.

By contrast, the background situation in Kodak involved the company’s switch to a refusal to sell replacement parts — physical property that it had previously sold and in which it had no such proprietary rights — to the independent service providers with whom the company competed for maintenance of its equipment. It is worth noting that here UAC does not itself engage in service or maintenance — it rather wishes to obtain access to Avaya’s software in violation of the nonassignable licenses, running to others, that grant such access to those licensees alone.

Again the Findings and Conclusions that follow defeat UAC’s effort at this threshold stage of the case. One added point should be made before this Court turns to its Findings and Conclusions. It has long used Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380 (7th Cir.1984) as its model for consideration of preliminary injunctive relief, because that opinion has provided the most detailed and reasoned exposition of the standards for such relief. For the same reason, this Court continues to look to Roland in this case.

But with that said, one caveat should be kept in mind: Roland, id. at 387 regrettably provides some potential for misunderstanding — something that is sought to be seized upon by UAC — when the court quotes earlier caselaw as confirming the potential grant of preliminary relief if “the plaintiffs chances are better than negligible.” That is indeed so, but it is properly understood only in conjunction with the “sliding scale” approach explained in Roland, id. at 387-88: Such a low hurdle for a plaintiffs likelihood of success is proper only if the balance of harms weighs very heavily in plaintiffs favor.

In the Findings and Conclusions that follow, this Court (as it has always done) holds UAC to a substantially more demanding likelihood-of-suecess standard because UAC does not fare at all well in the balancing-of-harms analysis. Findings of Fact United Asset Coverage, Inc. 1. UAC was founded in 1997 and is headquartered in Naperville, Illinois. D-83 at UAC 00008. 2. UAC represents that it provides “maintenance, repair and replacement coverage for virtually every make and model of telecommunications, data networking and office productivity equipment” through master service agreements with its clients.

D-83 at UAC 00007 & 00011; Tr. 10/26/05 a.m. at 56:18-57:9 (Testimony of Patrick Martucci (“Martucci”)). 3. Among the types of telecommunications equipment for which UAC provides coverage are private branch exchanges (“PBXs”). See Verified Compl. ¶ 18. PBXs are the predominant traditional voice switching systems used in mid-to-large-sized enterprises to connect the public voice network with the telephones and other communications stations at enterprise locations.

Remote alarming software, fault resolution software and firmware capabilities used to maintain PBXs are built into the computer-like processors of PBX systems, including PBXs designed and built by Avaya. D-173 at 9-10 and 15-16; Tr. 10/25/05 p.m. at 31:12-33:12 (Martucci testimony). UAC does not design or build any type of telecommunications equipment. Tr. 11/7/05 a.m. 37:15-17 (Testimony of Lauren Stiroh • (“Stiroh”), UAC opinion witness as to economics)^ (COCO) 4.UAC provided no equipment maintenance itself befóte June 13, 2005. Tr. 10/26/05 a.m. at 56:18-57:9 (Martucci testimony); - D-83 at UAC 00020.

Instead, when a PBX required maintenance, UAC or its client selected a vendor to provide the maintenance on a time-and-material (“T & M”) basis. UAC charges its clients a fixed fee under its maintenance contracts, and in return UAC agrees to cover payments made to vendors for maintenance of its clients’ PBXs. D-83 at UAC 00020; Verified Compl. ¶ 36 . (“Avaya would bill the end user who received the maintenance service who, in turn, presented UAC with the bill for payment.”) D-83 at UAC 00007, 00008 & 00020.

UAC claims that its “solution provides clients increased control, choice and savings by combining the benefits of time and materials-based service such as vendor choice, improved response times and quality control, with the fixed cost and security of a maintenance agreement.” D-83 at UAC 00008. 5. Stiroh testified that UAC provides an “insurance service.” Tr. 11/07/05 a.m. at 17:17-20. RR Donnelley, one of the two UAC clients that UAC has deposed, characterized UAC as an “insurance company.” Oct. 7, 2005 deposition of Judy Gorski (“Gorski Dep.”) at 91:7-17.

UAC characterized itself in writing in 1998 to the second client it deposed, Retirement System Group, as “a financial services company,” and that client still considers UAC to be a “financial services company.” D-155; Sept. 26, 2005 deposition of John Kocay (“Koeay Dep.”) at 78:6-79:12. 6. Before the June 13, 2005 closing of its transaction with NextiraOne, UAC did not employ technicians that were dispatched to client locations to perform PBX maintenance. Oct. 13, 2005 deposition of Martucci (“Martucci Dep.”) at 55:22-56:9.

For PBXs manufactured by Avaya and owned by UAC clients, either Avaya or an Avaya authorized dealer (“Business Partner”) provided service on a T & M basis in almost all cases before July 1, 2005. Tr. 10/28/05 a.m. at 28:4-14 (Testimony of Rick Lochner (“Lochner”)). (COCO) 7. UAC operates a client service center that it says “responds to its clients’ service needs 24 hours a day, seven days a week, by helping them find and access maintenance vendors to perform repairs while ensuring the service event is completed in a timely fashion.” D-83 at UAC 00020. 8.

UAC also offers PBX equipment owners a remote monitoring system called “Asset Watch Positive System Monitoring” that it says “screens, on a 24 x 7 basis, for both major and minor alarms.” D-83 at UAC 00008. 9. In September 2003 UAC provided maintenance coverage for approximately 900 clients. D-83 at UAC 00007. As of June 12, 2005 UAC provided maintenance coverage for a little over 900 clients and used 700 to 800 “active” vendors to provide service. Tr. 10/25/05 p.m. at 80:22-81:16 (Martucci testimony). 10.

Martucci, UAC’s Chairman and Chief Executive Officer, testified at the hearing that UAC’s “competency was to be able to deliver an Avaya solution.” Tr. 10/25/05 p.m. at 96:6-23. By early 2005 maintenance of Avaya PBXs represented 80% of UAC’s business. Tr. 10/25/05 p.m. at 82:23-83:1 (Martucci testimony). Martucci also testified that UAC clients who owned Avaya equipment were UAC’s “most profitable customer[s]” until July 1, 2005, with UAC “enjoying 70 percent profit margins” in its business with those customers. Tr. 10/26/05 p.m. at 21:9-23. 11. In May 2002 UAC reorganized and reduced its workforce by one-half.

Approximately 50 sales people were among the personnel that UAC terminated. Oct. 12, 2005 deposition of Mario Christopher (“Christopher Dep.”) at 118:19-120:16. (COCO) 12. In 2003 UAC intentionally decided not to expand its business. Martucci testified that UAC did this to deleverage and “to demonstrate the true [value] of [its] base” in contemplation of a recapitalization in 2004.

Martucci also testified that UAC demonstrated “stand-still, no-top-line growth ... for 18 consecutive months, allowing the company to maximize cash flows, demonstrate that the margins in [UAC’s] business were strong .... ” Martucci Dep. at 97:24-100:13. (COCO) 13. During 2004 UAC increased its sales force by about 50 people, and it had 125 total employees at the end of the year. UAC’s revenues in 2004 were approximately $28.7 million, about $3 million less than UAC had planned and $4 million less than UAC’s 2003 revenues. D-99; Tr. 10/26/05 p.m. at 3:5-5:16 (Martucci testimony). 14.

In 2004 UAC used its “attrition rate” as one metric to measure its performance. Attrition rate is the inverse of the rate of renewal of UAC’s maintenance contracts calculated on the basis of contract value. UAC’s attrition rate in 2004 was 33%, or more than double UAC’s planned attrition rate of 15%. Christopher Dep. at 138:12-139:8; D-99. (COCO) 15. Christopher, UAC’s Chief Financial Officer, attributed UAC’s revenue shortfall in 2004 to its higher-than-planned attrition rate. To address its high attrition rate, UAC took steps at the end of 2004 to improve the delivery of maintenance service to its clients.

Christopher Dep. at 151:21-155:13, 155:20-156:7, 156:13-157:8, 157:19-158:23; D-98; D-99. (COCO) 16. At the hearing Martucci conceded that UAC responded to its high attrition rate in 2004 by hiring a new Vice President of Customer Care and reorganizing its customer care operations. Tr. 10/26/05 p.m. at 7:21-8:8. As another stated reason for the decline in UAC’s revenues in 2004, Martucci testified that UAC was “more concerned with and more focused on [its] earnings” than it was on its revenues.

He further testified that UAC would abandon relations with customers that had not proved to be sufficiently profitable, suggesting that this contributed to UAC’s revenue shortfall in 2004: So for a customer, for example, that doing the final analysis we look and we say we have worked very hard and done a lot of work and at the end of that term you realize while that customer provides a lot of revenue, it doesn’t provide a lot of profit, then we would choose not to renew that customer and only focus on our most profitable customers that hit the EBIDTA target, which we did. Tr. 10/26/05 p.m. at 22:20-23:25.

Avaya Inc. 17. Avaya describes itself as “a leading provider of communications systems, applications and services .... ” Among its products are Internet Protocol telephony systems and traditional voice communications systems, including PBXs. P-337 at 1. Ava-ya’s predecessor companies were AT & T until 1996 and Lucent Technologies from 1996 to September 2000, when Lucent spun off Avaya. D-173 at 6 & 8. 18. Avaya regards its service business, including its ability to gain and retain customers for its products, as integral to its success.

It also specifically identifies maintenance .contracts as a primary revenue source. In that respect Avaya stated this in its FY 2004 Form 10-K: We' support our broad customer base with comprehensive global service offerings that enable our customers to plan, design, implement, maintain and manage their communications networks. We believe our global service organization is an important consideration for customers purchasing our products and applications and is a source of significant revenue for us, primarily from maintenance contracts.

The skilled professionals of our services organization, together with our networks of business partners and our ability to diagnose customer network faults remotely, can provide 24 hours a day, seven days a week service to our customers around the world. P-337 at 1 (emphasis added). 19. In FY 2004 Avaya’s total revenues were $4,069 billion. Fifty percent of Ava-ya’s revenues were attributable to services, and 34% (approximately $1,383 billion) to maintenance contracts. P-337 at 2 & 5. 20.

Avaya’s service revenues in North America in the last three years have averaged approximately $1.3 billion, and 95% of those revenues were attributable to maintenance contracts. Tr. 11/08/05 p.m. at 15:2-8 (Testimony of Linda Schumacher (“Schumacher”)). 21. Avaya characterizes “[t]he market for communications systems, applications and services ... [as] quickly evolving, highly competitive and subject to rapid technological change.” It identifies among its competitors in the sale of equipment Nortel Networks Corporation, Cisco Systems, Inc., Siemens, Alcatel S.A. and NEC Corporation.

It identifies as its primary service competitors NextiraOne, LLC, Norstan, Inc., Siemens and Verizon Communications. P-337 at 12. 22. In Martucci’s view Avaya PBX equipment is “the most expensive, typically,” and that is so because of the “reliability,” “useful product life cycle” and “great reputation” of Avaya PBXs. Tr. 10/25/05 p.m. at 38:9-17. In 2004 Avaya had an estimated 17% share of the sales of traditional PBXs, known as time division multiplex (“TDM”) PBXs. Its estimated share of the sales of IP-PBXs was 23% in 2004.

D-174 at 17-19. “IP Telephony solutions represent a completely new, and disruptive, class of Enterprise Communications systems that have already significantly begun, and are forecasted to eventually completely displace, traditional TDM-based systems.” D-173 at 11. Martucci testified that “Avaya is a technology company first and foremost that manufactures voice products and other things. But specifically the voice products and [Avaya’s] need to sell and support Voice Over IP general products are very important to [it].” Tr. 10/25/05 p.m. at 40:6-14. 23.

Avaya’s share of the maintenance and service revenues for Avaya PBXs was estimated in 2003 to have been approximately 50 to 65%. P-14 ¶ 5. Avaya’s Business Partners also provide maintenance and service for Avaya’s PBXs. Tr. 11/08/05 p.m. at 13:15-14:11 (Schumacher testimony). 24. Avaya invested $348 million, or approximately 8.6 percent of its total revenue, in R & D in FY 2004. P-337 at 11. Avaya’s annual R & D budget for its maintenance service business is $50 million. Tr. 11/08/05 a.m. at 41:22-42:9 (Schumacher testimony). Purchase of PBX Equipment and Maintenance of PBX Equipment 25.

Purchasers of PBX equipment are knowledgeable and sophisticated buyers. They generally are “appropriately educated, trained, and experienced in the exacting operations and requirements of the management of voice communications systems and networks .... [T]hese individuals have typically been continuously involved in the on-going process of replacing, upgrading, and maintaining such systems.” Many organizations own multiple PBXs that have been provided by more than one manufacturer either directly or through the distribution channels for the manufacturers’ products.

D-173 at 12; Tr. 10/25/05 p.m. at 46:6^47:19 (Martucci testimony); Tr. 11/09/05 p.m. at 148:8-149:24 (Testimony of Eric Schmiedeke (“Schmiedeke”)). 26. Purchasers often acquire PBX equipment through competitive Requests for Proposals (“RFPs”), use consultants to assist in their purchasing decisions and participate in User Groups for owners of a particular manufacturer’s PBX equipment. D-173 at 12-13. 27.

Only a small percentage of PBX sales based on the number of line shipments “resulted from new site installations, while the overwhelming majority of CPE (PBX, KTS, IP Telephony) station line shipments stem from either switch replacements or upgrades to the existing installed base of such systems.” D-173 at 13. Thus almost all new sales of PBX equipment are made to present owners of PBX equipment. 28. “Pricing and ‘total cost of ownership’, which includes maintenance, training, and many other operations costs, have almost always been a major factor in deciding vendor and system selection.” D-173 at 12. 29.

PBX prices range from $480 to $600 per station line presently, and PBXs can vary in size from 20 to more than 10,000 station lines. Prices for PBXs also depend on the application features and other attributes of particular systems. D-173 at 9-10. 30. On average PBX systems are replaced by some form of new system in l}h to years. Approximately 82% of the PBX system lines in place have been installed since 1995. D-173 at 13. Equipment owners can defer replacing PBXs by upgrading existing PBXs, including adding IP capabilities to traditional TDM PBXs. D-173 at 11.

In that regard Martucci testified that Avaya has “gone to great lengths to provide a system that does not have to be forklift upgraded when [owners] want to participate in advance technology.” Tr. 10/25/05 p.m. at 36:10-37:15. 31. At the point of sale of PBX equipment, Avaya attempts to sell “a complete solution both product and service .... ” Avaya sets a quota for its direct sales forces of an 80% “attach fate”: an objective that 80% of the purchasers of Avaya equipment also enter into post-warranty maintenance contracts with Avaya.

Avaya maintenance contracts have an average term of 33 months, and Avaya’s sales force’s quota is based on a 33-month contract term. Tr. 11/08/05 a.m. at 43:13-46:21 (Schumacher testimony). Avaya always tries to sell PBX owners the highest level of maintenance service. Tr. 11/09/05 a.m. at 4:8M7 (Schumacher testimony). Martucci admitted at the hearing that most purchasers of Avaya PBX equipment enter into post-warranty maintenance contracts with Avaya. Tr. 10/26/05 a.m. at 55:13-16.

More generally, “[m]ost customers make decisions regarding their post-warranty maintenance intentions at the time such systems are purchased (at ‘point-of-sale’).” D-173 at 14. 32. Stephen Silberman (“Silberman”), Avaya’s opinion witness as to economics, stated that the available data does not support a claim that Avaya has monopoly power in the sale of PBX equipment. D-174 at 17-18; see Finding 22. Nor does UAC’s economics opinion witness Stiroh contend that Avaya has monopoly power in the sale of PBX equipment.

Avaya’s main competitors at point of PBX equipment sale in the view of Schumacher, Avaya’s Vice President of Services Research and Development and Business Development Organization, are

(1) Cisco,

(2) Cisco through Business Partners,

(3) Nortel through Business Partners, including Nextira One,

(4) Siemens and

(5) Alcatel. Tr. 11/08/05 p.m. at 2:9-14 (Schumacher testimony); see Tr. 10/25/05 p.m. at 33:13-20 (Martucci testimony). 33. Approximately 76% of PBX lines are covered by maintenance contracts, and most such contracts are between the PBX equipment owner and the seller of the PBX equipment to the owner. As for the remaining 24% of PBX lines, they are serviced through T & M by authorized service providers, by self-maintenance or by unauthorized third-party providers. P-173 at 15. Avaya has estimated that 75% of its Definity PBX owners have maintenance agreements with it, with the remaining 25% of owners choosing “third-party support, time-and-materials (T &

M) support from Avaya or another vendor, self-maintenance, or a combination of these.” D-75; P-13. “Since most customers have had little tolerance for risk concerning downtime of their business telephone systems, the principal] attraction of having maintenance contract coverage on PBX systems is that most vendors are able to provide customers some form of sophisticated proactive remote system alarm monitoring and/or fault resolution capability under stringent response time and performance objectives for both remote as well as onsite services.” D-173 at 15-16. 34.

Martucci testified at the hearing that equipment providers “[s]ell the PBX at any price including at cost just to get the Maintenance Agreement.... Maintenance was just a market-driven number that provided profits to manufacturers or people who were selling PBXs, frankly, to try to recapture the margin they didn’t get on the equipment sale.” Tr. 10/25/05 p.m. at 35:6-25.

Silberman states in his report that competition in sale of PBXs such as that suggested by Martucci’s testimony “can protect customers by driving equipment prices down to a level where vertically integrated firms [like Avaya] earn only competitive profits from supplying both equipment and service” when competing sellers or equipment purchasers are knowledgeable. Silberman points out that in such circumstances competition in the sale of equipment assures “competitive life-cycle prices for equipment plus maintenance service” at the point of equipment sale. D-174 at 5.

For that and other reasons, maintenance for Avaya PBXs alone is not properly regarded as a relevant product market for antitrust purposes. See D-175 at 2-3. 35. Stiroh concedes that changes in the terms and conditions of PBX maintenance offered by PBX sellers affect competition in the sale of equipment. In particular she testified that a consultant who “speaks highly of the Avaya equipment is then less favorable to Avaya as a[n] overall product to purchase because of its MSP policies post-purchase.” Tr. 11/07/05 a.m. at 56:12-58:8.

Silberman further points out that because Avaya faced substantial competition in the sale of PBX equipment (a business that it has demonstrated no interest in leaving), it has little incentive to exploit present Avaya PBX owners by arbitrarily increasing their maintenance costs (information that would quickly be learned by prospective PBX purchasers). Accordingly, even if maintenance for Ava-ya were deemed a distinct antitrust market, in which Avaya had market power, Avaya’s conduct in that market remains constrained by the competition it faces in the sale of PBX equipment. D-174 at 17-19. 36.

UAC does not compete with Avaya for maintenance contracts at the point of Avaya PBX equipment sale. Tr. 11/08/05 a.m. at 49:8-10 (Schumacher testimony). There is no evidence in the record that UAC ever entered into a maintenance contract with an Avaya PBX equipment owner at the point of the equipment sale. All of UAC’s clients that own Avaya PBX equipment previously had an Avaya maintenance contract. Tr. 10/25/05 p.m. at 16:15— 18:15 (Martucci testimony). Avaya’s Maintenance Contracts and T & M Service 37. Avaya offers a number of maintenance options.

Its Full Coverage 8x5 maintenance contract includes 24-hour remote maintenance that features fault/ alarm monitoring and resolution using Avaya’s EXPERT Systems. According to Avaya, EXPERT Systems “provide[s] quick response time, proactive remote diagnostics and resolution and lessens the need to dispatch a technician.” Costs for technician services, either remote or on-site, are covered by the 8x5 contract during the business day, and Avaya agrees to a 2-hour response time in major metropolitan areas and a 4-hour response time elsewhere.

Avaya’s Full Coverage 24x7 maintenance contract is essentially the same as the 8x5 coverage, except that it also covers the costs of technicians’ services for major outages on a 24-hour-per-day, 7-days-per-week basis. Avaya also offers contracts that provide only remote support for monitoring, diagnostics and resolution. P-206; Tr. 11/08/05 a.m. at 51:17-52:10 (Schumacher testimony). 38. Avaya provides remote and on-site technician services that would otherwise be covered by its Full Coverage maintenance contracts on a T & M basis to owners of its PBX equipment who do not have Full Coverage contracts with Avaya.

Equipment owners who choose to rely on T & M services do not receive Avaya’s 24-hour-per-day, 7-days-per-week remote monitoring, diagnostics or resolution support. They are charged for all calls for support and all on-site technician services. Avaya’s objective has been to provide support to equipment owners choosing T & M by 5 p.m. of the next business day, based on technician availability after giving priority to Avaya equipment owners who have Avaya maintenance contracts or have equipment under warranty. P-206. 39. Avaya believes that its maintenance contracts are important to its sales of PBX equipment.

It has “found that the customers that have a better service experience actually are more likely to buy again the product, upgrade, add new sites on with that manufacturer.” Avaya invests heavily in its services infrastructure and R & D “because of that combination ... of the product and the services.” T & M service, even if provided directly by Avaya, is only “best efforts,” and does not include remote monitoring, diagnostics and resolution, and thus is inherently slower.

Avaya therefore believes it is at greater risk to lose the next PBX equipment sale made to an owner using T & M than it is to lose the next PBX sale made to an owner with a maintenance contract. Tr. 11/08/05 a.m. at 65:19-66:16 (Schumacher testimony); Tr. 11/07/05 p.m. at 152:8-22 (Testimony of Jerry Peel (“Peel”)).

Avaya’s beliefs in this regard have been borne out by “[c]ustomer research and ‘win-loss studies’ conducted on behalf of vendors [that] have consistently indicated that customers consider maintenance service performance and reputation as the most important criteria in determining supplier selection with respect to future equipment purchases and continuation of existing maintenance contracts.” D-173 at 16-17. 40. Avaya has approximately 20,000 maintenance contracts and agreements with owners of its PBXs. Its current renewal rate for maintenance contracts is 85%.

Tr. 11/08/05 a.m. at 49:13-50:8 (Schumacher testimony). Approximately 95% of Avaya’s maintenance revenue is attributable to maintenance contracts. Tr. 11/08/05 p.m. at 15:6-8 (Schumacher testimony). Maintenance Code and Maintenance Software Permissions 41. PBXs are essentially special purpose computers that manage phone lines. Sept. 26, 2005 deposition of Leo Malone (“Malone Dep.”) at 43:20-44:1. PBXs contain hardware, firmware and a variety of software.

Software contained in Avaya’s and its predecessors’ PBXs includes “call processing code” that processes and gathers information, routes calls and creates the features of PBXs. Tr. 11/21/05 p.m. at 95:17-22 (Testimony of David Scoville (“Scoville”)). That software also includes “administration code,” which can be used to configure PBX systems and set up attributes for the telephones on the systems. Tr. 11/21/05 p.m. at 96:8-13 (Scoville testimony). Finally, the software and firmware include “maintenance code,” which helps to check the health of the system and to diagnose and troubleshoot problems.

Tr. 11/21/05 p.m. at 96:14-19; 98:7-24 (Scoville testimony). 42. Maintenance software code on AT & T, Lucent and Avaya PBXs was first written by AT & T Bell Labs around 1980. Tr. 11/21/05 p.m. at 125:2-7 (Scoville testimony). Thereafter maintenance code was written by employees and contractors of AT & T Bell Labs, Lucent and Avaya, with all the later changes and development being based upon the original Bell Labs code. Tr. 11/21/05 p.m. at 125:2-126:15 (Scoville testimony). 43. Avaya regards and treats the software code for its PBXs as confidential. Tr. 11/21/05 p.m. at 133:18-20 (Scoville testimony). 44.

Contractors who have done software development work have signed agreements (such as D-230) under which, among other things, they assigned their rights to the computer programs and other works of authorship that they developed and agreed to keep confidential proprietary and private information (D-230 ¶¶ A, C). Tr. 11/21/05 p.m. at 129:17-21; 130:15-131:23 (Scoville testimony).

Similarly, all new Avaya Research and Development employees have been required to sign agreements in the form of D-231, which Avaya has used since it became Avaya, under which, among other things, the employees assigned their rights to the computer programs and other works of authorship that they developed and agreed to keep confidential proprietary and private information (D-231 1IIA, C). Tr. 11/21/05 p.m. at 131:24-132:1; 132:11-133:10 (Scoville testimony). Similar employee agreements have been used since at least 1977. Tr. 11/21/05 p.m. at 133:7-10 (Scoville testimony).

Scoville, an AT & T/Luceni/Avaya software developer and Technical Manager since 1977, is not aware of any employee or contractor who has had access to the code for PBXs that has not signed such an agreement. Tr. 11/21/05 p.m. at 93:11-95:16; 133:11-17. 45. In addition to signing agreements, employees or contractors are routinely advised of the confidential nature of the software in annual formal meetings and in regular informal discussions. Tr. 11/21/05 p.m. at 135:12-17 (Scoville testimony). 46.

AT & T, Lucent and Avaya have placed confidentiality notices or other kinds of proprietary notices on hard copy or electronic documents that contain the code or materials referring to the code since at least 1977. Tr. 11/21/05 p.m. at 136:7-1 (Scoville testimony). 47. Avaya and its predecessors have restricted access to the software code in several ways. To obtain access to the code, employees and contractors first need the approval to become members of a user group from a Technical Manager, who gives that approval on a “need to know” basis. Tr. 11/21/05 p.m. at 133:21-134:14; 135:18-136:1 (Scoville testimony).

Next they must use logins and passwords that have to be of a specified length and contain capital letters, lower case letters, numbers and non alphanumerics. Tr. 11/21/05 p.m. at 134:15-135:2 (Scoville testimony). Passwords must be changed every 90 days. Tr. 11/21/05 p.m. at 135:3-6 (Scoville testimony). Such use of user groups, logins and passwords dates back to at least 1977. Tr. 11/21/05 p.m. at 135:7-11 (Scoville testimony). 48. In addition, personnel need badges to get access to the building in which the software is housed, and a more restricted badge is required to gain access to the computer center.

Tr. 11/21/05 p.m. at 136:2-6 (Scoville testimony). Access to the computers from the outside is further limited, requiring supervisory permission to have a virtual private network software installed on PCs and further requiring the use of special keys and IP addresses. Tr. 11/21/05 p.m. at 136:14-137:1 (Scoville testimony). 49. Software code for the PBXs was written in a programming language and is called the “source code.” Tr. 11/21/05 p.m. at 137:20-138:1 (Scoville testimony).

It resides on computers that are behind a “firewall,” which is a software protection mechanism that “blocks access from all but those who have a need to know.” Tr. 11/21/05 p.m. at 138:6-13 (Scoville testimony). To Scoville’s knowledge, neither Ava-ya nor Lucent nor AT & T has ever provided the source code to anyone other than its employees and contractors. Tr. 11/21/05 p.m. at 138:2-5.

Software code that AT & T, Lucent and Avaya have distributed to customers is called “executable code,” which is obtained by technologically translating (“compiling”) the source code through the use of a software program called a “compiler.” Tr. 11/21/05 p.m. at 138:14-139:19 (Scoville testimony). That executable code distributed to customers can be “reverse compiled” or “disassembled” to an intermediate computer language called “assembly language,” but the reverse compiled code would not be very useful. Tr. 11/21/05 p.m. at 139:20-141:4 (Scoville testimony).

It would take “many, many people many, many years” to make any good use of the reverse compiled code and translate it back to something that was actually useful. Tr. 11/21/05 p.m. at 141:5-17 (Scoville testimony). 50. Various forms of customer agreements used by Lucent and Avaya contain several provisions protecting the companies’ ownership of, and the confidentiality of, the software and documentation that they grant customers a right to use. Thus the form master agreement, entitled “Purchase/Service Agreement,” used from June 1996 through August 1998, provided: 14. SOFTWARE LICENSE — A.

Lu-cent grants you a personal, non-transferable and non-exclusive right to use, in object code form, all software and related documentation furnished under this Agreement. Title to and ownership of all software shall remain with Lucent or its suppliers. This grant shall be limited to use with the equipment for which the software was obtained or, on a temporary basis, on back-up equipment when the original equipment is inoperable. Use of software on multiple processors is prohibited unless otherwise agreed to in writing by Lucent.

You will refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of the software or to develop other software. You will use your best efforts to ensure that your employees and users of all software licensed under this Agreement comply with these terms and conditions. B. You may make a single archive copy of software. Any such copy must contain the same copyright notice and proprietary markings that the original software contains. * ❖ * * * * D.

If the equipment purchased hereunder is sold or assigned to another party, Lucent requires that the new owner or assignee execute a new software license and pay the then current software license fee, if any. Upon written request, Lucent will grant the new owner or assignee of the equipment the right to use any related software, provided the new owner or assignee agrees, in writing, to Lucent’s terms and conditions and pays Lucent’s then current software license fee.

If the new owner or assignee of the equipment refuses to execute a new software license agreement or pay the applicable software license fee, or if the equipment is no longer to be used by you, you shall either return the software, together with any copies, or destroy the software and all copies, and provide Lucent with prompt written notice of such destruction. D-212, ¶ 3; D-63. Those restrictions were also contained in two subsequent master “Purchase/Service Agreements” used between May 1999 and June 2003. Id.) D-64, 65.

In addition, those restrictions were contained in substance in certain of the MSP Addenda that Lucent and Avaya used to grant customers maintenance software permissions. D-228, ¶ 6; D-52, 54, 56, 60. 51. In March 2003 Avaya began to use a form of master agreement that also contained provisions relating to the ownership and confidentiality of the software. Attachment A to that form provided in relevant part: 5. CONFIDENTIALITY 5.1. Confidential Information.

The term “Confidential Information” means Software (in object and source code form), Documentation, any technical information related to Products or Services, any work product and deliverables of Services, the terms (but not the existence) of the Agreement, and, if marked or otherwise expressly identified as confidential in writing, any other information or data, regardless of whether in tangible, electronic or other form.

Information communicated verbally will qualify as Confidential Information if designated as confidential or proprietary at the time of disclosure and summarized in writing within thirty (30) days after verbal disclosure. Confidential Information does not include materials or information that: (

i) is generally known by third parties as a result of no act or omission of the receiving party; (ii) subsequent to its disclosure was lawfully received from a third party having the right to disseminate the information and without restriction on disclosure; (iii) was already known by the receiving party prior to receiving it from the other party and was not received from a third party in breach of that third party’s obligations of confidentiality; or (iv) was independently developed by the receiving party without use of Confidential Information of the disclosing party. 5.2.

Protection of Confidential Information. Each party will protect the secrecy of all Confidential Information received from the other party with the same degree of care as it uses to protect its own Confidential Information, but in no event with less than a reasonable degree of care. Neither party will use or disclose the other party’s Confidential Information, except as permitted in this

Section or for the purpose of performing obligations under the Agreement. The confidentiality obligations of each party under the Agreement will survive any expiration or termination of the Agreement or of any order.

Upon termination of the Agreement, each party will cease all use of the other party’s Confidential Information (except for Software and Documentation in accordance with the applicable license granted under the Agreement) and will promptly return, or at the other party’s request destroy, all Confidential Information in tangible form and all copies of Confidential Information in that party’s possession or under its control, and will destroy all copies of Confidential Information on its computers, disks and other digital storage devices.

Upon request, a party will certify in writing its compliance with this Section. 6. SOFTWARE LICENSE TERMS 6.1. License Grant 6.1.3. All Rights Reserved. Except for the limited license rights expressly granted in these Software License Terms, Avaya reserves all rights in and to the Software and Documentation and any modifications thereto, including title, ownership, intellectual property rights, and any other rights and interests. Customer will own only the Hardware or physical media on which the Software and Documentation are stored, if any. 6.2. License Restrictions 6.2.1. General Restrictions.

To the extent permissible under applicable law, Customer agrees not to: (

i) decompile, disassemble, or reverse engineer the Software; (ii) modify or create any derivative works (including, without limitation, translations, transformations, adaptations or other recast or altered versions) based on the Software or Documentation, or alter the Software; ... (vii) violate any obligations with regard to Avaya’s Confidential Information; or (viii) permit or encourage any third party to do any of the foregoing.

To the extent that Customer is expressly permitted by applicable mandatory law to undertake any of the activities listed in the preceding sentence, Customer will not exercise those rights until Customer has given Avaya twenty (20) days written notice of Customer’s intent to exercise any such rights. 6.2.2. Backup Copies. Customer may create a reasonable number of archival backup copies of the Software and Documentation on the condition that and as long as Customer: (

i) stores backup copies separately from any actively used computer programs; (ii) keeps a written record of all backup copies indicating the location of their storage; and (iii) provides such record to Avaya upon request. Customer will not remove any product identification, trademark, copyright or other proprietary rights notices from the Software or Documentation and will duplicate and display all names, logos and notices of Avaya and its licensors on each copy of the Software and Documentation made by Customer. D-212, ¶ 3; D-34.

Later versions of that form agreement made minor changes and additions to the language and paragraph numbering, but they retained the substance of the just-quoted provisions. D-212, ¶ 3; D-228, ¶¶ 6-7; D-35, 36, 38, 39. 52. Avaya’s maintenance code runs tests on the PBX system, including periodic background tests that run at all times without human intervention and check the health of the hardware of the system. Tr. 11/21/05 p.m. at 98:7-21; 99:21-100:18 (Seoville testimony). It also allows users to run “demand tests” by typing and entering certain “commands” into the PBX system.

Tr. 11/21/05 p.m. at 98:7-21; 124:20-125:1; D-169 (Seoville testimony); Oct. 12, 2005 deposition of Wayne Dudones (“Dudones Dep.”) at 53:7-54:24. 53. Maintenance Software Permissions (“MSPs”) are permission codes that give access to, and allow the use of, portions of Avaya’s maintenance software that facilitate the performance of many maintenance functions, but not all of the functions that can be performed using the full array of Avaya’s maintenance software. P-149 ¶ 9; Tr. 11/8/05 a.m. at 63:3-7 (Schumacher testimony).

Among other things, they enable an Avaya PBX owner to run a set of commands “on demand” to troubleshoot problems affecting a PBX’s performance. D-169 at 2. 54. There are three types of MSPs: Processor and System MSPs, Station and Trunk MSPs and DS1 MSPs. Processor and System MSPs allow equipment owners to run demand tests on processor and system circuit packs. Station and Trunk MSPs allow equipment owners to run demand tests on station and trunk circuit packs.

DS1 MSPs allow equipment owners to administer parameters on DS1 (Tl) circuit packs, but they do not allow them to run tests. 11/21/05 p.m. at 100:22-101:9 (Seoville testimony); D-169 at 3. 55. Avaya PBXs are delivered to purchasers with MSPs “turned off.” Malone Dep. at 154:18-25. MSPs have to be turned on or “activated” by Avaya to allow an equipment owner to run the set of maintenance commands permitted by MSPs. Malone Dep. at 26:25-28:3, 155:17-157:14; Dudones Dep. at 48:20-49:7, 56:15-57-7, 61:15-19. If MSPs are turned on equipment owners have permission, at least technologically, to run those commands.

Dudones Dep. at 52:18-23. Conversely, if MSPs are not turned on an equipment owner is unable to execute those commands. Dudones Dep. at 56:15-18. Equipment owners may still ran commands using the PBX’s administration code that do not require MSPs to be turned on. P-234; Malone Dep. at 71 ¡ISIS. 56. To use MSPs an equipment owner selects a command to run, types the command into the PBX terminal and hits the “Enter” key on the terminal. That causes the maintenance software on the PBX to run the test specified by the command. Dudones Dep. at 53:7-54:24, 57:8-14, 61:20-62:1. 57.

Avaya personnel and Avaya’s Business Partners can access and use software on Avaya PBXs, including the maintenance software, through other “logins.” Each of those logins requires a user name and a password, and each grants rights to execute various commands. Malone Dep. at 68:24-69:3, 69:25-70:9. 58. Avaya personnel can log into Avaya PBXs using logins known as CRAFT, IN-ADS and INIT, which give them access to the maintenance software commands, including those commands that MSPs allow. Tr. 11/21/05 p.m. at 173:6-174:5 (Scoville testimony); Malone Dep. at 67:4-16.

Those CRAFT, INADS and INIT logins are reserved for Avaya personnel only. Tr. 11/21/05 p.m. at 173:6-20 (Scoville testimony). Business Partners can log into Avaya PBXs using a login known as DAD-MIN, which allows them to access and execute maintenance commands. Tr. 11/21/05 p.m. at 174:15-20 (Scoville testimony). DADMIN logins are “PBX specific” in that a Business Partner needs a specific DADMIN login for each PBX. Tr. 11/21/05 p.m. at 175:13-20 (Scoville testimony). AT & T’s Decision To Make Maintenance Software Permissions Available to Self-Maintainers 59.

With the introduction of AT & T’s first fully digital PBX system (System 75) in 1984, AT & T’s on-site (Tier

I) technicians used the CRAFT logins to access software in the equipment that could be used to perform maintenance functions. Certain equipment owners, principally universities and government entities, had technicians on their staff and wanted to take advantage of their embedded staffs to perforaa the maintenance that AT & T’s Tier I technicians could perform with CRAFT logins. Tr. 11/07/05 p.m. at 160:7-163:25 (Peel testimony). 60. In response AT & T offered a license to those self-maintainers, giving them the right to use MSPs. MSPs gave those self-maintainers’ technicians access to .

Avaya software that allowed them to perform virtually the same maintenance functions as an AT & T technician could perform with AT & T’s CRAFT logins and that Avaya Business Partners could later perform with DADMINs. At the time MSPs were first made available, self-maintainers paid a one-time charge of $2,500 to $3,500 to license the MSPs for an individual PBX system at a particular site. In the early 1990s the self-maintainers’ payments for MSP licenses were reset at a level representing an annual cost of approximately 30% of the cost of a standard maintenance agreement.

Tr. 11/07/05 p.m. at 164:1-165:4 (Peel testimony). Maintenance Assist 61. Many managers responsible for the telecommunications operations of PBX equipment owners “have sought to complement their skills, information resources, and ‘clout’ through active participation in manufacturer User Groups.” D-173 at 12. Prompted by the Self-Maintenance Committee of Lucent’s PBX User Group, in 1996 Lucent developed an offering called “Maintenance Assist” for self-maintainers.

That responded to the belief on the part of the self-maintainers in the Lucent User Group that the charge for MSPs — 30% of the cost of a standard maintenance agreement — was excessive. Because the MSPs gave access to Lucent proprietary software that resulted from the company’s investment in R & D, however, Lucent resisted lowering that charge. Instead Lucent introduced the Maintenance Assist offering, which made features available to self-maintainers in addition to MSPs, including direct access to Tier III technicians and discounted T & M visit charges.

Tr. 11/07/05 p.m. at 158:24-160:4 & 165:23-168:20 (Peel testimony). 62. During the period from 1996 to 2000 Lucent representatives had monthly meetings with the Self-Maintenance Committee of the Users Group and met with self-maintainers at four regional and one national meeting each year. During those meetings the self-maintainers complained that the Maintenance Assist offering was too complex, including its pricing elements, and could not be adequately explained by Avaya representatives. By the end of 1999 a revamped Maintenance Assist offering was made available.

Tr. 11/07/05 p.m. at 168:24-172:23 (Peel testimony). 63. That revised Maintenance Assist offering, made available in December 1999, included a single $.60 per port per month cost for MSPs, unlimited access to Lu-cent’s customer support website, direct access to Tier III support and discounted T & M on-site visits. It also had optional features that were available to the self-maintainers. That $.60 per port per month cost was comparable to the cost of Maintenance Assist before December 1999. Tr. 11/07/05 p.m. at 169:25-173:13 (Peel testimony); D-75. 64.

Lucent issued an offer announcement dated December 6, 1999, describing the revamped Maintenance Assist offering. Its announcement went to Lucent sales people and others. Lucent did not promote the Maintenance Assist offer, but Lucent sales people were made aware of the offer in the event that an equipment purchaser or owner was a self-maintainer or expressed interest in self-maintenance. Tr. 11/07/05 p.m. at 177:22-179:19 (Peel testimony); D-75. 65.

After the formation of Avaya, Lu-cent’s Maintenance Assist announcement was revised to reflect the name of the new company, but it did not change materially and continued to be used. Avaya’s revised announcement made clear that the offering was for equipment owners that used their own personnel to maintain their Avaya PBXs: Maintenance ASSIST addresses the needs of self-maintenance customers who choose to take total responsibility for their networks. The primary motivators for these customers are fast response times, increased control of assets, and better utilization of their embedded staffs.

It also contained a recommendation “that customers who are not experienced in maintaining their switch initially purchase training options” made available by the offering. Through the “Self-Maintenance Cost-Justification Model Basic Factors” included with the announcement, Avaya expressly advised an equipment owner to account for the cost of an in-house technician’s salary and benefits when making the decision whether or not self-maintenance was cost-effective. D-75 at AVAUC 00053323, 53325, 53329; Tr. 11/07/05 p.m. at 174:16-183:1 (Peel testimony); Tr. 11/08/05 a.m. at 66:17-67:22 (Schumacher testimony). 66.

In addition, the Maintenance Assist announcement expressly stated that the “offer can be sold to Avaya Communication end-user customers only and is not available to third-party maintainers.” D-75 at AVAUAC 00053327. Peel, the Lucent manager responsible for maintenance offers including Maintenance Assist from 1996 through September 2000, was not aware that any Maintenance Assist customers had made MSPs available to third-party maintenance providers during that time period. Tr. 11/07/05 p.m. at 183:2-11. 67.

In addition to the information already described, the Maintenance Assist announcement contained “Competitive Information” detailing and discussing the self-maintenance programs offered by Avaya’s competitors Nortel, Norstan and Rolm. Avaya concluded that its Maintenance Assist offering aligned with its competitors’ offerings tb self-maintainers. D-75 at AVAUAC 00053333-35. 68. In February 2003 the Maintenance Assist offering announcement was revised but its elements appeared to be unchanged.

That announcement reiterated that the “offer can be sold to Avaya end-user customers only and is not available to third-party maintainers.” Specifically with respect to MSPs, the February 2003 announcement stated that these logins “are offered as a ‘right to use’ (RTU) feature only and are Avaya’s intellectual property. Customers are entitled to use them only as long as they maintain an Avaya Service Agreement.” P-13 at 7. 69. Because the February 2003 Maintenance Assist announcement made no material change in the offering, the offering remained essentially unchanged until around April 2005.

Tr. 11/08/05 p.m. at 78:18-24 (Schumacher testimony); P-49 at ROI 000023. 70. Avaya’s Maintenance Assist agreements have 12-month terms. Tr. 11/08/05 a.m. at 55:4-7 (Schumacher testimony). They renew automatically unless either party provides notice of its intent to terminate the agreement at least 30 days before the end of the term. Sept. 27, 2005 deposition of Jerry Peel (“Peel Dep.”) at 144:20-145:25; P-198 at UAC 90732. 71. Fewer than 100 Lucent PBX owners had Maintenance Assist agreements at the time Lucent spun off Avaya. Tr. 11/07/05 p.m. at 180:2-6 (Peel testimony).

Presently approximately 270 Avaya PBX owners (out of some 20,000 owners — see Finding 40) have Maintenance Assist agreements. Tr. 11/08/05 a.m. at 50:9-18 (Schumacher testimony). 72. In FY 2003 Avaya’s revenues from Maintenance , Assist agreements were approximately $3 million.. In FY 2005 the revenues from Maintenance Assist agreements had risen to $6.3 million. Tr. 11/08/05 p.m. at 15:9-21 (Schumacher testimony). Access to Avaya Maintenance Software 73.

As reflected in the preceding Findings, Avaya PBX equipment owners can obtain licenses to use MSPs to gain access to certain Avaya maintenance software if they enter into a Maintenance Assist agreement. Avaya will also license the right to use MSPs to PBX owners that have standard maintenance contracts with Avaya or that have PBXs under warranty and a pending maintenance contract with Avaya. D-78 at AVAUAC 56277-78; Tr. 11/08/05 a.m. at 53:18-56:4 (Schumacher testimony). Some PBX owners with Ava-ya maintenance contracts license the right to use MSPs, while others do not.

For example, most of UAC’s clients that own Avaya PBXs appear not to have licensed the right to use MSPs when they had maintenance contracts with Avaya. Martucci Dep. at 44:6-45:23, 125:10-12 (as of June 1, 2005 80% of UAC clients were Avaya equipment owners); Finding 9 (as of June 2005 UAC provided maintenance coverage for approximately 900 clients); Finding 98 (as of July 1, 2005 only about 65 UAC clients had Maintenance Assist agreements and, therefore, MSP licenses); Finding 146 (UAC sent its August 30, 2005 letter to approximately 380 “non-MSP clients”). (COCO) 74.

Owners of Avaya PBXs can also obtain the right to use MSPs from Avaya through Avaya Business Partners in two ways. First, a Business Partner can sell an Avaya Maintenance Assist agreement to a PBX owner for a commission. Second, a Business Partner can purchase a level of Avaya support for its own maintenance contract with an equipment owner that allows the owner to license MSPs directly from Avaya. Tr. 11/09/05 a.m. at 22:22-23:9; 67:23-68:5 (Schumacher testimony).

Like equipment owners that deal directly with Avaya, Avaya PBX owners that deal with Business Partners must therefore have a maintenance contract or a Maintenance Assist agreement to have the right to use MSPs. 75. Business Partners obtain access to Avaya’s maintenance software through log-ins called DADMINs. DADMINs are available only to authorized Avaya Business Partners. To obtain a DADMIN from Avaya, a Business Partner must submit a request form for the equipment owner and PBX location. D-78; Tr. 11/08/05 a.m. at 58:20-59:10 (Schumacher testimony). 76.

MSPs, DADMIN logins and CRAFT logins all give access to software that allows the technician to execute similar maintenance commands. D-78 at AVAUAC 00056279; Tr. 11/09/05 a.m. at 24:17-25:11 (Schumacher testimony); Tr. 11/08/05 p.m. at 53:25-54:11 (Schumacher testimony); Tr. 10/26/05 p.m. at 61:11-62:6 (Dudones testimony). Licensing Avaya Maintenance Software 77. Lucent and Avaya have used a variety of form agreements that govern the licensing and use of software embedded in their PBX equipment, including the software that MSPs permit a customer to use.

Those documents generally included certain “basic” or “master” agreements, attachments, supplements and addenda. D-212 ¶¶ 3, 8; D-228 ¶¶ 6-7. Among the addenda were certain “MSP Addenda” that specifically addressed the terms under which MSPs were provided to PBX owners. Id.; D-51 to 57, 59, 60, 72 to 74; P-221. Finally, they included documents known as Service Offerings and Support Plans (“SOSP”) and Service’ Agreement Supplements (“SAS”). D-228 ¶¶ 3-5; D-229 ¶¶2^; P-211, 212; D-61, 62, 66, 213 to 218, 220 to 227. 78.

All the forms of agreement that Lucent and Avaya used, including the “general” master agreements and those specific to MSPs, contained limitations and restrictions on an equipment owner’s right to use the companies’ software. From June 1996 through June 2003, the form master agreement (“Purchase/Service Agreement”) that Lucent and Avaya customarily used with their equipment owners granted “a personal, non-transferable and non-exclusive right to use, in object code form, all software and related documentation furnished under this Agreement.” D-212 ¶8^); D-63, 64, 65.

Beginning in March 2003 Avaya used a new form master agreement that granted “[cjustomer a non-sublicenseable, non-exclusive, nontransferable license to use Software and Documentation provided under the Agreement.” D-212 ¶ 3; D-228 ¶ 6; D-34 to 36, 38, 39. 79.

In addition, a variety of addenda that specifically addressed MSPs and that Lucent and Avaya grouped with the master agreements to form completed agreements with equipment owners all granted the owners “a personal, non-transferable and non-exclusive right to use ... the Lucent [or Avaya] Software Permissions to Maintain [Stations and Trunks and/or Processor and System].” D-212 ¶¶ 3, 8(b); D-228 ¶¶ 6-7; D-61 to 57, 59, 60.

Another set of form MSP Addenda that Avaya grouped with the master agreements granted Avaya owners “a personal, nontransferable and non-exclusive license to use the following end user Maintenance Software Permission tools to maintain:

(1) Stations and Trunks, and

(2) Processor and System (collectively known as Maintenance Software Permissions or “MSPs”).” D-212 ¶ 3, 8(b); P-221, D-72, 73, 74. 80. In addition to granting limited personal and/or non-transferable rights to use software and MSPs, the various forms of agreement that equipment owners entered into with Lucent and Avaya imposed further restrictions upon those rights. Among other things, those forms provided (

a) that an owner was required to execute an Avaya software permissions addendum in order to establish MSPs (D-228 ¶ 3; D-229 ¶ 3; D-61, 62, 66; 214, 215, 216, 218, 220, 222, 223, 224), (

b) that an owner could not access and take control of logins that were reserved for Avaya personnel MSPs, (id), and (

c) that an owner was required to “return” or to allow Avaya to “deactivate” MSPs immediately upon the termination of the owner’s Avaya Service Agreement CD-212 ¶ 3; D-229 ¶ 3; P-211, 212, 221, D-28, 57, 59, 60, 61, 62, 66, 74, 214, 215, 216, 218, 220, 221, 224). 81. Moreover, SOSP and SAS documents released by Lucent and Avaya specifically provided that MSPs are not transferable or assignable to a service provider or any third party. D-228 ¶¶ 3-5; D-229 ¶¶ 2-4; P-211, 212; D-61, 62, 66, 214, 215, 216, 218, 220, 221, 223 and 224. 82.

Avaya’s policy was to include a copy of the applicable SOSP in an agreement package that was provided to an equipment owner. End user customers were generally, but not always, provided with copies of the SOSP documents applicable to their contracts at various points in the relationship with Avaya. D-228 ¶ 4. SOSP documents (D-66, 213, 217, 222, 225, 226, 227) are incorporated by reference into each of the three form Purchase/Service Agreements used by Lucent and Ava-ya. D-63 ¶ 2(C); D-64 111(

C) and D-65 ¶ 2(C). 83. Avaya made the SAS documents available to PBX owners upon request and sometimes used them as sales tools. D-229 ¶ 4. Avaya’s “master” agreement forms that it began using in March 2003 (“Master Purchase/Service Agreement (United States)” and “Customer Agreement (United States)”) contained language that referred to the terms of the SAS documents (P-211, 212; D61, 62, 214, 215, 216, 218, 220, 221, 224) that Avaya issued. See, e.g., D-36 Attachment D “MAINTENANCE SERVICES TERMS” ¶¶ 1, 2 and 4; see also D-34, 35, 38, 39. 84.

In sum, only Avaya licenses the right to use MSPs, and it only licenses that to an owner of an Avaya PBX. Tr. 11/08/05 a.m. at 57:24-58:6 (Schumacher testimony); Tr. 11/08/05 p.m. at 45:23^8:10 (Schumacher testimony). Avaya deems MSPs to be its intellectual property and “RTU [right-to-use] software and as such are licensed to the customers to use as such.” D-78 at AVAUAC 00056278, 00056280. 85. At least since 1996 the MSP licenses have expressly provided that the right to use is “personal” to the equipment owner and “non-transferable” by the equipment owner.

Each equipment owner’s right to use the MSPs expires at the end of the owner’s maintenance contract or Maintenance Assist agreement. D-228 ¶ 6, D-212 ¶ 3, D-51, D-52, D-53, D-54, D-55, D-56, D-57, D-60, D-59, D-74, P-221 (exhibits listed chronologically by document date). 86. Avaya limits the right to use MSPs to PBX equipment owners that self-maintain because the login allows access to Avaya maintenance software assets that Avaya believes give itself and Business Partners, who use CRAFT and DADMIN logins to gain similar access, competitive advantages in the sale of equipment and maintenance.

Tr. 11/08/05 a.m. at 63:8-19 (Schumacher testimony); Tr. 11/08/05 p.m. at 62:22-63:4 (Schumacher testimony). 87. Avaya has never granted the right to use MSPs to unauthorized third-parties. Tr. 11/08/05 p.m. at 77:18-22 (Schumacher testimony). Martucci himself acknowledged that he doesn’t “think that Avaya ever supported UAC using a client’s MSPs” or that it is in Avaya’s interest to do so. Tr. 10/25/05 p.m. at 11:10-16.

In addition he testified that “UAC did not buy Maintenance Assist contracts [,] ... never asked Avaya to buy a Maintenance [Assist] contracts a]nd ... suspect[ed Avaya] wouldn’t sell one to [UAC].” Tr. 10/25/05 p.m. at 54:2-10. Avaya Business Partners 88. Avaya has approximately 300 Business Partners who are authorized to sell PBXs and maintenance services for PBXs. Tr. 11/9/05 p.m. at 110:21-112:12 (Schumacher testimony). Approximately three-fourths of those Business Partners provide maintenance services for Avaya PBXs. Sept. 28, 2005 deposition of Linda Schumacher (“Schumacher Dep.”) at 307:13-20. 89.

Avaya and its Business Partners compete for the provision of maintenance to some Avaya PBX owners and jointly provide maintenance to other owners. Avaya also supports Business Partners in providing maintenance to some owners that have contracts with Business Partners. Tr. 11/08/05 p.m. at 13:15-14:21 (Schumacher testimony). 90. Avaya and its Business Partners agree not to solicit each other’s existing maintenance customers. If an owner issues an RFP for the maintenance of Avaya PBX equipment, however, Avaya and Business Partners may offer competing maintenance proposals to the owner.

Tr. 11/09/05 p.m. at 95:12-103:8 (Schumacher testimony); P-7; P-11; P-228; D-69. 91. Business Partners also agree not to interfere with, or assist a third-party that interferes with, an Avaya maintenance contract. P-7 at DAYCOM 00024. 92.

Avaya’s “Multi-Channel Policy on Access to Maintenance Capabilities (including MSPs and Avaya Logins),” issued October 7, 2002 and distributed to Avaya’s sales force and Business Partners, provides that “[n]o Business Partner will be allowed access to DADMIN if the Business Partner supports a third party that is known to interfere with Avaya Service Agreement contracts.” That document also notified Business Partners that Avaya would not provide logins to any Business Partner that “unhooks” an Avaya maintenance contract or “is involved as a conduit for service delivery for any third party that unhooks” an Avaya maintenance contract.

Thus Business Partners agree not to interfere with Avaya’s relationships with equipment owners that have Avaya maintenance contracts and not to assist a third-party, such as UAC, that interferes with Avaya’s maintenance relationships. D-78 at AVAUAC 00056279; Tr. 11/08/05 a.m. at 56:5-61:9 (Schumacher testimony); Tr. 11/09/05 p.m. at 105:11-108:7 (Schumacher testimony). 93. Avaya Business Partners compete to provide their own maintenance contracts to owners of Avaya equipment. Business Partners can and do compete successfully against Avaya and other third party maintenance vendors.

For example Daycom, an authorized Avaya Business Partner, repeatedly beat Avaya and other competing maintenance vendors to win first a one-year and then a two-year maintenance contract with Wal-Mart. Daycom also competed successfully against “as many as five or six different companies,” including Avaya, to win a two-year maintenance contract with Mutual of Omaha. Sept. 29, 2005 deposition of Richard Day (“Day Dep.”) at 94:19-96:22. UAC’s Strategy To Obtain Owners of Avaya PBX Equipment As Clients 94.

Until July 1, 2005 UAC’s business strategy was to solicit PBX equipment owners, principally those with maintenance contracts with Avaya, to convert to contracts with UAC to provide T & M service, provided not by UAC itself (it had no personnel capable of providing maintenance) but by Avaya or an Avaya Business Partner. D-83 at UAC 00008.

Martucci testified that “100 percent of [UAC’s] clients ... once had an Avaya Maintenance agreement,” (Tr. 10/25/05 p.m. at 16:4-18:15) and that each UAC client who owns Avaya PBX equipment “chose to terminate its agreement with Avaya (in accordance with its termination provisions) in order to enter into its current maintenance agreement with UAC instead.” D-162; Martucci Dep. at 111:4-114:8. UAC paid termination charges for some equipment owners that terminated Avaya maintenance contracts early. Tr. 10/25/05 p.m. at 59:12-25 (Martucci testimony). (COCO) 95.

UAC told prospective clients that they could terminate their Avaya maintenance contracts and still gét Avaya maintenance service for their PBXs. Tr. 10/26/05 a.m. at 55:20-24 (Martucci testimony); Martucci Dep. at 87:15-20. (COCO) 96. Maintenance contracts that UAC offered to Avaya PBX owners cost less than those equipment owners’ maintenance contracts with Avaya. UAC represents that it offers a maintenance contract “that typically reduces [an owner’s] current maintenance costs by as much as 15% to 20%.” D-83 at UAC 00008; Tr. 10/25/05 p.m. at 29:2-30:1 (Martucci testimony).

But UAC’s maintenance contract does not of course provide Avaya’s remote monitoring and resolution service, including EXPERT Systems or guaranteed response times among other things (see Finding 37). UAC’s Methods for Providing Maintenance to Clients with Avaya PBX Equipment 97. Before July 1, 2005 95% of the service visits relating to Avaya PBXs made to UAC clients were made by Avaya or Avaya Business Partners. Tr. 10/28/05 a.m. at 28:4-14 (Lochner testimony).

Martucci testified that “in every case when UAC has a contract, the people who are doing the work at the end-user level are in fact those same authorized dealers or Ava-ya” (Tr. 10/25/05 p.m. at 44:13-20) and that UAC’s. “competency was to be able to deliver an Avaya solution” (Tr. 10/25/05 p.m. at 96:6-23). In short, Avaya or Avaya Business Partners provided most, if not all, of the maintenance service for UAC clients until July 1, 2005. 98. As of July 1, 2005 approximately 65 UAC clients had Maintenance Assist agreements with Avaya. Tr. 10/26/05 a.m. at 46:10-49:5 (Martucci testimony); D-170; D-171.

But most UAC clients with Avaya PBXs did not have such Maintenance Assist agreements with Avaya. Tr. 10/26/05 a.m. at 49:18-25 (Martucci testimony). UAC paid the costs of the Maintenance Assist agreements for many, if not all, of its clients that had such agreements. Tr. 10/26/05 a.m. at 50:1-8 (Martucci testimony). 99. UAC has no license from Avaya to use MSPs. Tr. 10/26/05 a.m. at 50:12-14 (Martucci testimony). Martucci testified, though, that it was “[p]artially correct” that UAC remotely performed PBX maintenance using Avaya MSPs.

He stated that “over the last couple of years from time [to time] our own technicians will dial in and perform some remote diagnostics with MSPs.” Tr. 10/26/05 a.m. at 44:1-13. 100. Paul Ambre (“Ambre”), a technical service specialist at UAC, has testified that he first started remotely troubleshooting Avaya PBXs owned by UAC clients in “late 2002, early 2003” and that no one at UAC did such remote troubleshooting before he did. Oct. 14, 2005 deposition of Ambre (“Ambre Dep.”) at 7:1-12 & 27:24-29:10.

Gorski, an RR Donnelley representative who worked for Moore North America before its acquisition by RR Donnelley, stated that UAC first asked for Moore’s MSPs apparently no earlier than 2003 when UAC started to hire some technicians. Gorski Dep. at 79:4-80:13; 97:7-98:1. In January 2004 UAC hired Dudones as senior telecommunications engineer because of his experience in accessing and using Avaya’s PBX maintenance software remotely. Tr. 10/26/05 p.m. at 32:10-13 & 73:1-23 (Dudones testimony).

Most of Dudones’ work for UAC has been to repair PBXs remotely, a process that includes the use of the software to which MSPs give access. Tr. 10/26/05 p.m. at 72:6-25 (Dudones testimony). UAC’s Lack of Relationship with Avaya 101. UAC has never had any contractual relationship with Avaya that permitted UAC to use MSPs to access Avaya’s maintenance software (see Finding 87). Nor has UAC ever had any agreement with Avaya that obligated Avaya to provide T & M service to UAC clients. Tr. 10/26/05 a.m. at 55:25-56:2 (Martucci testimony). 102.

Until July 1, 2005 UAC’s business strategy to shift Avaya equipment owners from Avaya maintenance contracts to contracts with UAC, which would result in the owners receiving Avaya or Avaya Business Partners’ T & M service instead, included “unhooking” Avaya maintenance contracts before the end of their terms (Findings 94 and 95). 103. As a result of concerns raised by Avaya in 2000, UAC specifically did not use the name “Avaya” to advertise or to promote UAC. Tr. 10/26/05 p.m. at 26:1-27:8 (Martucci testimony); see Finding 106. 104.

On at least three occasions UAC discussed possible business relationships with Lucent and Avaya. On each occasion Lucent or Avaya declined to enter any business relationship with UAC. Findings 105 to 107. 105. In 1997 or 1998 Martucci called Peel to discuss a partnering relationship between UAC and Lucent. Martucci testified that he initially called Peel to discuss “establishing a volume rate for time-and-material service or examining other ways [UAC and Avaya] can work together cooperatively.” Avaya had no interest. Tr. 11/07/05 p.m. at 183:24-184:23 (Peel testimony); Martucci Dep. at 32:21-35:1. (COCO) 106.

Martucci also testified that in 2000 Lucent expressed concern that UAC “was misrepresenting that [it had] a relationship with Avaya.” He said that he “assured [Avaya] that [UAC did not have any relationship with Avaya], and communicated to [Avaya’s] satisfaction ... that [UAC made] clear to prospects that [it did not].” Martucci stated that “Avaya did not like being on the list of vendors someone may choose” and further testified that letters back and forth between UAC and Avaya at that time did not result in an agreement. Martucci Dep. at 146:21-150:21. (COCO) 107.

Martucci testified that Avaya inquired about acquiring maintenance contracts from UAC in March 2005 and that he then discussed with Avaya the purchase by UAC “in big bulks, large blocks of service time or have some other positive effect of formally working together with Avaya and trying to work cooperatively.” But he confirmed that his entreaty “just was met with no acceptance.” Martucci said he also inquired to no avail about “some ways of UAC ... having a product offering from Avaya” relating to MSPs.

Martucci Dep. at 150:22-153:16; Tr. 10/25/05 p.m. at 67:21-69:15; Tr. 10/26/05 a.m. at 44:25-45:17 & 46:6-9. (COCO) Maintenance Considerations of PBX Purchasers at Point of Equipment Sale 108. UAC does not dispute that most purchasers of Avaya PBX equipment enter into their first post-warranty maintenance contract with Avaya. Finding 31; D-173 at 14-15; D-75 at AVAUAC 00053323. Based on UAC’s allegations in this case, most Avaya PBX purchasers first select options for maintaining their equipment that are at higher cost than the maintenance contracts offered by UAC at some time after the equipment purchases.

Finding 96. 109. As stated in Finding 33, approximately 24% of PBX equipment purchasers do not have maintenance contracts with Avaya. Those purchasers select among several of what they appear to believe are lower cost options including T & M services solely, self-maintenance, or maintenance contracts with authorized or unauthorized service providers. Id.; D-173 at 14-15. There is no record evidence that UAC’s subsequently offered maintenance contracts are lower cost than any of these options. 110.

There is also no record evidence that any PBX purchaser considered entering its initial post-warranty maintenance agreement with UAC at the point of equipment sale. Nor is there any record evidence that any PBX purchaser considered at the point of equipment sale the possibility that it would enter into a maintenance contract with UAC at some future date after termination of its initial post-warranty maintenance contract with Avaya or any other maintenance provider.

There is no support for Stiroh’s assertion that PBX purchasers regard UAC as a maintenance option at the time they make their equipment purchases — the point of time that Stiroh concedes is at issue in this case. Tr. 10/28/05 p.m. at 167:7-14. 111. There is no record evidence that the maintenance offerings of UAC or any unauthorized service provider affected the prices that Avaya or any other equipment provider charged for PBXs or the prices that Avaya or any other service provider offered for maintenance contracts at the point of equipment sale. 112.

Martucci testified that he did not know what PBX equipment purchasers learned at the time of their purchases about equipment and maintenance options and the costs of these options from the variety of available sources, including the competing PBX equipment providers. Tr. 10/26/05 a.m. at 52:25-54:18. 113. Kocay of Retirement System Group (“RSG”), one of two Avaya PBX owners and UAC clients that UAC has deposed, testified that RSG purchased its PBX in 1988 and had maintenance contracts first with AT & T and Lucent until 1998, when it entered into a maintenance contract with UAC.

Kocay Dep. at 28:2-16, 33:6-11 & 37:10-15. RSG upgraded its PBX in 2004 at a cost of approximately $23,000, acquiring the upgrade from an Avaya Business Partner. Kocay Dep. at 42:23-43:5, 45:19-22 & 89:8-90:12. At the time of its PBX upgrade, RSG’s maintenance contract with UAC cost approximately $9,800 annually.

On September 16, 2005 RSG received four alternative proposals from an Avaya Business Partner for one-year maintenance agreements at yearly costs of $7,712, $8,760, $9,132, and $10,241 (Kocay Dep. at 91:17-93:11; D-146), so that three of the four maintenance contract options offered to RSG by an Avaya Business Partner were lower cost than RSG’s maintenance contract with UAC, and the fourth was higher by a little more than $400. Maintenance Considerations of PBX Equipment Owners After Point of Sale 114.

From the evidence, a relatively small number of PBX owners abandoned maintenance contracts with equipment sellers or other authorized service providers for maintenance contracts with unauthorized service providers. For example, UAC’s clients numbered approximately 900 prior to June 13, 2005 and remained the same from 2003 to 2005. Finding 9. UAC’s revenues declined approximately 12% from 2003 to 2004. Finding 13. 115. All UAC clients with Avaya PBXs knew that their maintenance contracts with UAC replaced their maintenance contracts with Avaya. Findings 94-95.

Those PBX owners also plainly knew that maintenance contracts were an important part of Avaya’s business. Findings 18, 25, 31, 39. Martucci testified that equipment providers “[s]ell the PBX at any price including at cost just to get the Maintenance Agreement ... to try to recapture the margin they didn’t get on the equipment sale.” Finding 34. 116. There is no record evidence that UAC informs prospective clients that own Avaya PBXs that it requires, or even uses, MSPs to provide remote maintenance to its customers.

In that respect the evidence establishes that UAC did not begin using MSPs to provide remote maintenance to any client before late 2002 at the earliest. Findings 99-100. Because approximately 65 UAC clients owning Avaya PBXs had Maintenance Assist agreements (Finding 98), it appears that UAC did not use MSPs to provide remote maintenance to many of its clients. 117.

In response to the RFP for maintenance of Avaya PBXs issued by the second UAC client deposed by UAC, RR Donnelley, Avaya expressly informed RR Donnelley in 2004: MSPs are intellectual property of Avaya, and you are entitled to use them only as long as you are under warranty and have purchased a Service Agreement at point-of-sale, or maintain an Avaya Global Services Maintenance Agreement. Avaya will require the return of all Right-to-Use MSPs prior to termination of your maintenance agreement. MSPs are not transferable or assignable to a service provider or any third party.

All access to proprietary software, activation of features without approval from Avaya and not accompanied by appropriate charges and/or Right-to-Use (RTU) fees is unauthorized and prohibited. Avaya requires that you agree to immediately return all MSPs upon warranty expiration or prior termination of your Service Agreement. Avaya also informed RR Donnelley that no service provider other than Avaya could offer MSPs. D-178 at RRD 000662-63; D-179 at page 2 of attachment. (COCO) 118.

Although UAC represented to prospective clients such as RR Donnelley that it could comply with their requirements that any maintenance provider for Avaya PBX equipment be able to supply MSPs, Avaya never gave UAC or any other unauthorized service provider access to Avaya’s maintenance software through MSPs or any other login. Finding 87; D-178 at RRD000662-63. (COCO) 119. Martucci testified that all UAC clients that owned Avaya PBXs were told that UAC had no agreement with Avaya to provide service to them. Tr. 10/26/05 a.m. at 55:25-56:10.

Hence the evidence shows that UAC clients, all of whom had abandoned Avaya maintenance contracts for UAC maintenance contracts, knew that Avaya had no duty to provide MSPs or T & M service to them after they entered into contracts with UAC. Accordingly they must have reasonably anticipated that Avaya might at some point take steps to prevent the use of MSPs by unauthorized service providers and decline to continue to provide T & M service that supported ÚAC maintenance contracts. 120.

In that respect Martucei made clear that UAC believed it was under no obligation to renew UAC maintenance contracts with any clients if it deemed the contracts to be insufficiently profitable. Finding 16. By the same token, UAC clients also should have reasonably anticipated that UAC’s commitment to its maintenance contracts with them extended no longer than the end of the terms of those agreements. TJAC’s Transaction with NextiraOne 121. On.

June 14, 2005 UAC “announced a major expansion as a result of a multi-year joint services agreement with NextiraOne which includes the acquisition of a portion of NextiraOne’s enterprise voice maintenance business.” UAC stated that the acquisition of that maintenance business made UAC “the largest third-party [provider] of its kind” and that the agreement itself was “a milestone because it is the first time that a major national communications service provider is providing services under the UAC umbrella as its core break/fix service strategy.” P-260. 122.

UAC added approximately 8,000 new maintenance customers as a result of its acquisition of the NextiraOne maintenance business. Tr. 10/26/05 p.m. at 15:2-5 (Martucei testimony). It said it also intended to add 300 employees, including 200 technicians, as well as 100 vans. P-260. 123. At the hearing Martucei described NextiraOne as “a distributor primarily for Nortel, selling and installing Nortel brand

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