EarthInfo, Inc. v. Hydrosphere Resource Consultants, Inc.

Hydrosphere Resource Consultants, Inc. (Hydrosphere) (plaintiff) contracted with US West, Inc. to develop software that made water- and weather-related government data available to the public in a product line called Hydrodata. Hydrosphere agreed to provide customer support, and US West agreed to provide manuals, packaging, and marketing. US West paid Hydrosphere hourly development fees plus a percentage of net sales as royalties for “inventive product ideas.” US West assigned its interest in the Hydrodata contracts to EarthInfo, Inc. (defendant) for $60,432. EarthInfo continued paying royalties on products Hydrosphere had already developed for about 18 months. When Hydrosphere claimed EarthInfo owed royalties on sales of a new derivative product, EarthInfo objected and stopped paying royalties altogether but continued paying hourly development fees totaling $19,000. Hydrosphere sued to rescind and for breach of contract. After the trial court found EarthInfo had materially breached the contract, both sides requested rescission and restitution. The trial court found rescission as of when EarthInfo stopped paying royalties the appropriate remedy. The court ordered EarthInfo to return all Hydrodata materials and information and disgorge all net profits realized after rescission, less the $60,342 paid to acquire the contracts and $19,000 paid in development fees—a $185,773 judgment in Hydrosphere’s favor. After the appellate court affirmed, EarthInfo appealed to the Colorado Supreme Court.