On Monday, the Second Circuit Court of Appeals affirmed a final judgment in favor of International Business Machines Corporation (IBM) in a suit brought by Nuance Communications, a provider of voice recognition technology and artificial intelligence solutions. The appellate panel said that Nuance’s breach of contract claim was barred by the two-year limitations period specified in the parties’ Software License Agreement (SLA).
According to the June 2021 Southern District of New York opinion from which Nuance appealed, the case was more than just a New York law contract case; it was also “a contemporary window into the brave new world of artificial intelligence [] commercial applications.” The case concerns IBM’s famous “Watson,” a computer system embedding IBM-designed software technology DeepQA, which in 2011, defeated two human former champions in a real-time competition on the popular and nationally televised game show Jeopardy!
Prior to that, in 2010, Nuance and IBM entered into a $25 million contract for ten years, entitling Nuance to one copy of IBM Research Group’s “Automatic Open-Domain Question Answering” software system to help Nuance create commercial applications.
The dispute arose over entitlements to updates. Nuance alleged that IBM withheld updates to DeepQA “anywhere in IBM,” including as relevant here, updates developed by IBM subdivision the IBM Software Group. IBM countered that Nuance was only entitled to updates developed by another subdivision, the IBM Research Group.
The district court, after a bench trial, found in IBM’s favor on statute of limitations grounds and this week, the Second Circuit affirmed. The panel said that the parties’ agreement permissibly shortened the six-year statute of limitations period to two years.
Further, the opinion said that the district court did not clearly err in finding that, based on circumstantial evidence, Nuance had actual knowledge of IBM’s breach yet failed to timely act. In so concluding, the court reviewed testimony of both parties’ senior executives as well as internal Nuance communications that demonstrated Nuance knew that IBM was withholding DeepQA code developed by IBM Software, but let the two year limitations period slip away.
Nuance is represented by Weil, Gotshal & Manges LLP and IBM by Quinn Emmanuel Urquhart & Sullivan LLP.
