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© 2009-2019 Dana H. Shultz, Attorney at Law

Autodesk Wins: Software License Restrictions Trump “First Sale” Doctrine

AutoCAD logo on software packaging

Update: On September 10, 2010, the Court of Appeals for the Ninth Circuit (in Vernor v. Autodesk) reversed the District Count decision discussed below. Supporting software licensors’ reasonable business expectations, the Court held “that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” [Emphasis added.] Accordingly, Vernor, as a licensee, was not protected by the first sale doctrine when he sold copies of Autodesk’s software.

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In Vernor v. Autodesk, the U.S. District Court for the Western District of Washington told Autodesk that despite the restrictions in its license agreement, Autodesk could not preclude its customer from selling AutoCAD software to a third party.

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You May Be a Content Pirate and Not Even Know It

Last month I posted You May Be a Software Pirate and Not Even Know It. The issues raised there now apply to equally content.

The Software & Information Industry Association is pursuing unlicensed use of content as aggressively as unlicensed use of software. For example, as recently reported in InfoWorld and elsewhere, Knowledge Networks agreed to pay SIIA $300,000 to settle a complaint that it distributed news articles to its employees without permission of the copyright owners. Similarly, in a media release earlier this year, SIIA announced that it was aggressively fighting graphics content piracy by filing lawsuits against individuals and companies that copied and distributed clip art without appropriate licenses. In another media release, SIIA touted the use of paid whistleblowers to help SIIA find infringers.

The implications are clear: Whether the subject is software, content or any other works of authorship, use and distribute the products only to the extent that you are authorized to do so by the terms of the applicable licenses.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Eminent Domain: The U.S. Giveth, the U.S. Taketh

Photo of a hand grabbing money, symbolizing the US government's eminent domain powersA fundamental tenet of patent law is that the owner of a patent can preclude others from using or manufacturing inventions that the patent covers. Because of eminent domain, however, that there is a major loophole regarding the U.S. government.

Section 1498(a) of Title 28 of the U.S. Code says, in part:

“Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be action against the United States in the United States Court of Federal Claims for recovery of his reasonable and entire compensation for such use and manufacture.”

(Section 1498(b) provides similarly with respect to copyright infringement by the United States.) (more…)

Third-party Patent Infringement: Let the Licensee Beware

After months of effort, you have successfully negotiated a nonexclusive license under an important patent. The license agreement allows you to make, use, sell, offer for sale, and import products that are covered by the patent. Much to your horror, your arch-competitor starts making and selling competing products that use the licensed technology, pricing its products substantially below your planned price. When you inquire, the licensor says that the competitor does not have a license. What can you do to stop this “third-party” infringement of the patent?

You examine the license agreement but see nothing about third-party infringement of the licensed technology. Can you stop your competitor from using the technology? Can you force your licensor to stop the competitor? The short answer is “no”.

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Recognizing the Right Royalty Rate

One of the challenges my clients often face is how to determine a royalty rate for licensing an invention or other intellectual property. I start by offering the following fundamental observation:

The licensor needs to know the licensee’s business model and profit margin, because the royalty must be less than the licensee’s profit.

An article in the September 2006 issues of les Nouvelles, a quarterly publication of the Licensing Executives Society International, agrees with and expands upon this observation. “Fair And Reasonable Royalty Rate Determination – When Is The 25% Rule Applicable?” was written by Ove Granstrand, Professor of Industrial Management and Economics at Chalmers University of Technology (Goteborg, Sweden). (more…)

Patent Licensing for Licensors: Know Your Industry

Photo of a stack of 100 Euro notes, symbolizing revenue from patent licensingOver the past few years, several of my clients who had obtained patents wanted to license their rights to third parties. Only one client achieved patent licensing success.

The reason: The successful client was intimately familiar with the industry where his technology had its greatest value. He had worked in that industry for many years. He knew highly-placed executives in the most important companies. He was familiar with the companies’ product development plans.

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IP Warranties and Indemnification: How Much is Reasonable?

Knowledgeable licensees of intellectual property (IP) seek indemnification protection to ensure that the licensed IP legitimately belongs to the licensor and not to a third party. This post explores the interplay between indemnification provisions and IP warranties.

While indemnification provisions vary from contract to contract, the following is illustrative:

Licensor will defend, indemnify and hold Licensee harmless from all costs, expenses, and damages arising from any third-party claim alleging that the Licensed IP infringes any patent or copyright or misappropriates any trade secret (a “Claim”), provided that Licensee has given Licensor prompt notice of the Claim, allows Licensor sole control of the defense of the Claim and of all negotiations for its settlement or compromise, and cooperates in all reasonable ways with Licensor’s defense or settlement of the Claim. If a Claim results in an injunction precluding Licensee’s use of the Licensed IP, Licensor will, at its option and expense, either (a) procure for Licensee the right to continue the enjoined use, or (b) replace or modify the Licensed IP so it is no longer subject to the injunction. If Licensor, after all commercially reasonable efforts, is unable to perform under either option (a) or (b) above, then Licensor will refund to Licensee an amount equal to the remaining undepreciated/unamortized value of the Licensed IP carried on Licensee’s books for U. S. federal income tax purposes as of the date that use of the Licensed IP was enjoined.

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Licensing 101

I am pleased to make available as a Free Download on the Downloads page “Licensing 101,” an article that provides information about licensing in FAQ format. Here are some of the questions that are answered:

  • What is a license?
  • How much does a license cost?
  • Can license terms be negotiated?
  • Are some provisions unique to patent licenses?
  • Are there special rules where the U.S. government is the licensee?
  • What should I look out for in international license agreements?

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

A Practical Guide to GPL Compliance

I am pleased to make available on this blog’s Downloads page “A Practical Guide to GPL Compliance”, published by the Software Freedom Law Center.

In my opinion, this is a must read for anyone who is preparing or distributing software that is governed by the GPL.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

You May Be a Software Pirate and Not Even Know It

I was retained by a small company that had received a letter from one of its most important software vendors. The letter said the company “may have installed on its computers more copies of… software than it is licensed to use.” It then pointed out that unauthorized duplication of proprietary software violates federal copyright law and the applicable license agreement and that “potential remedies… are significant.” [emphasis added] The letter ended by requesting that my client:

  • Audit all of its computers for copies of the vendor’s software and provide the audit results within three weeks
  • Not destroy any installed software
  • Not purchase any more of the vendor’s software until the matter is resolved

The client’s owner was concerned. She did not know of any illegally installed software; even worse, she was suspicious and uneasy about how the vendor could have such information.

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