Software Licenses

With License Ambiguous, Patent Exhaustion Heads to Jury

In Audio MPEG, Inc. v. Dell Inc., the Eastern District of Virginia denied summary judgment of patent exhaustion because it was ambiguous whether a license between Audio MPEG and Dell’s supplier Microsoft covered the allegedly infringing software, leaving the issue to the jury. Audio MPEG asserted that Dell’s sales of computers infringed three of its patents on encoding and decoding digital audio signals. Dell sold computers with both Microsoft Windows and third-party audio software preinstalled. The parties primarily disagreed on two factual questions: (1) Did Audio MPEG’s license agreement with Microsoft cover Windows codecs called by the third-party software? (2) Did the preinstalled third-party software only call the codecs or does it contain infringing programming? (According to the expert witness quoted by the court, “A codec is a piece of software that encodes and/or decodes a digital data stream. Codecs typically exist as a part of a shared library, such as a DLL, so they can be utilized by more than one software program.”) In denying summary judgment of patent exhaustion, the court noted the stakes based on the resolution of these two questions: “if the Windows codecs are included under the License Agreement and the third party software calls… Read More »With License Ambiguous, Patent Exhaustion Heads to Jury

A Reminder That Website Agreements Are Usually Enforceable

Long before the Internet, courts were not reluctant to enforce adhesion contracts. This willingness is one thing the Internet age has not changed.  A good reminder – and lessons for parties seeking to enforce, as well as users wary of, website agreements – comes in a recent case in which a U.S. district court enforced a rather draconian transfer of copyright in a browsewrap agreement. Small Justice LLC v. Xcentric Ventures LLC, No. 13-cv-11701, (D. Mass March 27, 2015). The court here granted summary judgment for the defendant, enforcing its browsewrap agreement that gave the defendant an exclusive license to the copyright in material that a user posted to its site. Christian DuPont posted negative comments about attorney Richard Goren on (“ROR”), a website operated by Xcentric. The website included terms and conditions including the following, which would only have been seen by a user who scrolled through a text box: “[b]y posting information or content to any public area of [the ROR], you automatically grant and you represent and warrant that you have the right to grant to Xcentric an irrevocable, perpetual, fullypaid, worldwide exclusive license to use, copy, perform, display and distribute such information and content .… Read More »A Reminder That Website Agreements Are Usually Enforceable

Online Terms and Conditions Are Usually Enforceable

Many commercial transactions are governed by online terms and conditions provided by one party, to which another party may be bound even if provided only with a reference or link to the online terms and conditions. This truth is illustrated by the recent case of Tuscany S. Am. v. Pentagon Freight Sys., No. 4:12-CV-1309 (S.D. Tex. Sept. 24, 2014). In fact, an affirmative assent to or acceptance of terms and conditions is not even required. Tuscany, the plaintiff, had contracted with Pentagon, the defendant, “to provide freight forwarding services for . . . cargo, including customs clearance in Brazil.” After the cargo was seized in Brazil, and some sold at auction (the rest was released), Tuscany sued for damages. Pentagon argued that its damages were limited by a provision in “the Terms and Conditions of Service promulgated by the National Customs Brokers and Forwarders Association of America, Inc. [NCBFAA],” which the court referred to simply as “the Terms.” Pentagon had sent Tuscany an email confirming the parties’ oral agreement. That email included “[a] sentence referring to the Terms . . . the signature block.” Further, numerous agreements before the agreement, and after the agreement but before the cargo was shipped,… Read More »Online Terms and Conditions Are Usually Enforceable

Software Licensee’s Creation of Derivative Work Results in an Injunction

In case you doubted it, seemingly boilerplate provisions in software license agreements that prohibit the creation of derivative works do mean something, as exemplified in EyePartner, Inc. v. Kor Media Group LLC, No. 4:13-10072 (S.D. Fla. July 15, 2013). The court in this case granted a preliminary injunction based on such an anti-modification provision, as well as on the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA), 17 U.S.C. § 1201, and Florida trade secret law. The court’s analysis followed the standard four-prong preliminary injunction analysis, which under eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) “applies equally to intellectual property cases,” and under which the court must find: (1) the plaintiff’s substantial likelihood of success on the merits, (2) irreparable harm to the plaintiff, (3) that the balance of hardships favors the movant, and (4) that an injunction would not hurt the public interest. Here, the court devoted most of its attention to the first prong, finding that the plaintiff was likely to prevail on its copyright and trade secret claims. The plaintiff had licensed its software to the defendants. The applicable license agreement may have “given Defendants the right to copy the encrypted source code,” but… Read More »Software Licensee’s Creation of Derivative Work Results in an Injunction

Use of Software After Expiration of License Is Copyright Infringement

A software owner was granted summary judgment of copyright infringement where its licensee had breached the applicable software license agreement, and continued to use the software after the agreement expired. Clinical Insight v. Louisville Cardiology Med. Group, No. 11-CV-6019T (W.D.N.Y. July 12, 2013). The licensee could not be saved by its allegation that it had stopped paying license fees because the software did not function properly. The plaintiff provided medical records software for cardiologists. In the midst of the plaintiff’s alleged inability to provide a working billing module, the licensee had, pursuant to the license agreement’s notice provision, stated that it would terminate the license agreement. However, the license agreement specified that return of the software and its documentation was a prerequisite to the termination becoming effective. The licensee continued using the software. Moreover, in an attempt to avoid breaching the license agreement by permitting third party use, after the licensee had been sold, the defendant had retained certain of the licensee’s employees solely for the purpose of using the software. The court first considered whether the plaintiff had breached the license agreement, and found that it had not. The license agreement was a valid contract, and the disputed billing module… Read More »Use of Software After Expiration of License Is Copyright Infringement

Enforcement of a Click-wrap License Agreement

Consumers who casually, even blindly, accept “click-wrap” or “browse-wrap” license agreements will be bound by those agreements so long as the user had a reasonable opportunity to accept or reject the proffered license. A recent case provides a blueprint for how to offer, and then how to enforce, a click-wrap agreement. In Zaltz v. JDate, No. 12-CV-3475 (JFB) (ARL) (E.D.N.Y. July 8, 2013), the court held that the plaintiff was bound by the defendant’s click-wrap license agreement, and then enforced that agreement’s forum selection clause against the plaintiff, transferring the case to California. The plaintiff, Zaltz, sued the matchmaking website JDate, alleging that JDate had improperly billed and harassed her. JDate, citing the forum selection clause in its license agreement, moved to dismiss for improper venue, or alternatively to transfer the case to California. The plaintiff alleged “in a conclusory fashion that she does not believe that she agreed to such a forum selection clause,” but “the evidence suggests that she, in fact, did.” The plaintiff submitted no evidence to controvert the defendant’s proof, via an employee declaration, website screenshots, and its current website, “that plaintiff could not have signed up to participate on the site without agreeing to its… Read More »Enforcement of a Click-wrap License Agreement

Software Copyright Infringement Defenses: Ownership of a Copy and Implied License

A defendant accused of infringing a software copyright was, according to facts plead in the plaintiff’s complaint, an owner of a copy of the software under 17 U.S.C. § 117(a)(1). Further, the facts established that the defendant had an implied license. Therefore, the court in Zilyen, Inc. v. Rubber Mfrs. Ass’n, No. 12-0433 (RBW) (D.D.C April 2, 2013), granted the defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). As plead in the plaintiff’s complaint, the parties had entered into a contract for the plaintiff to deliver to the defendant CDs that included content specified by the defendant. The defendant paid half of the agreed-upon price to the plaintiff upon execution of the contract. When the CDs were delivered, the defendant’s employees ran the CD software on their computers, and alleged that there was an error.  The defendant never paid the balance of the contract price. The plaintiff sued, alleging breach of contract and copyright infringement. The defendant moved to dismiss (and also brought counterclaims, which the plaintiff moved to dismiss). The plaintiff alleged that, when the defendant’s employees used the CD software, they made unauthorized, unlicensed copies. The defendant raised affirmative defenses of implied license and that its actions… Read More »Software Copyright Infringement Defenses: Ownership of a Copy and Implied License

Software Licenses and Allocating Risk of Data Loss

The Utah Supreme Court has held that a software vendor is not liable for any damages after its software caused a dentist to lose all of his patient data.  In Blaisdell v. Dentrix Dental Systems, Inc., No. 20100392 (Utah S. Ct. June 26, 2012), the court held that a limitation of liabilities provision was enforceable in the face of (1) the Utah Products Liability Act, (2) a strict products liability claim, and (3) a gross negligence claim.  Accordingly, the court did not reach the question of whether tort claims were barred by the economic loss rule (which holds that recovery for purely economic losses may be had only in contract, not tort). The plaintiff had brought this suit after attempting to perform a software upgrade which resulted in the loss of the patient data.  The defendant vendor subsequently acknowledged that the upgrade caused the data loss.  However, there were also bad facts for the dentist.  His employee had apparently represented to the vendor that the patient data was backed up; it is unclear whether the dentist’s employee knew that the backup system had stopped working.  Further, everyone agreed that the vendor had made clear that the data should be backed… Read More »Software Licenses and Allocating Risk of Data Loss

That Forum Selection Clause in Your Software License Matters

Here is a story to tell clients wondering why you are negotiating so hard over a seemingly mundane forum selection clause.  An Illinois court, swayed in part by the fact that a paper software license had also been presented in a click-wrap agreement, enforced a forum selection clause in the license agreement that the plaintiff-licensee had contended was unenforceable and unreasonable.  Advance Steel Erection, Inc. v. Design Data Corporation, No. 1-11-1977, 2012 Ill. App. Unpub. LEXIS 1257 (App. Ct. Ill. May 30, 2012) (non-precedential).  Clients are often skeptical that forum selection clauses matter.  This case illustrates that they do. After receiving the licensed software, and paying for it, the licensee received, from the licensor, a paper copy of the license agreement containing the forum selection clause.  The licensee signed and returned the license agreement.  Subsequently, claiming that the software did not work, the licensee stopped using it and returned it to the licensor.  The licensee contended that the parties negotiated, albeit unsuccessfully, for a return of the purchase price.  The licensee later brought suit in an Illinois Circuit Court, which granted the licensor’s motion to transfer venue to a Nebraska court, as specified in the forum selection clause. Noting that… Read More »That Forum Selection Clause in Your Software License Matters

Defining the Scope of a Perpetual Software License

A perpetual software license entitled a licensee only to use versions of the software created before the license agreement terminated, despite the existence of an escrow agreement requiring the deposit in escrow of “all updates” and “all revisions” of the software’s source code.  Gene Codes Forensics Inc. v. The City of New York, No. 10 Civ. 1641 (S.D.N.Y. April 26, 2012). The plaintiff software vendor sued the defendant, the City of New York, for allegedly breaching confidentiality provisions in a License Agreement.  The defendant counterclaimed, alleging that the plaintiff was obligated to supply software upgrades “since the expiration of the term of the License Agreement and on into perpetuity,” and to deposit all upgrades into escrow.  The plaintiff then moved to dismiss the defendant’s counterclaim. The plaintiff noted that the grant of the perpetual license referred only to software created under the agreement.  The defendant countered that the plaintiff had ignored language in the Escrow Agreement requiring the plaintiff “to deposit in escrow ‘all updates’ and ‘all revisions’ of the source code.” However, the court thought that a plain reading of the license grant “indicates that only software created during the term of the contract was contemplated as part of… Read More »Defining the Scope of a Perpetual Software License