Sunday, September 27, 2009

Statutory Mergers Trigger Copyright Infringement: M&A Lawyers Beware!

In Cincom Systems, Inc. v. Novelis Corp., --F.3d ---, 2009 WL 3048436 (6th Cir. Sept. 25, 2009), the Sixth Circuit found that a statutory merger not approved by a software licensor triggered a copyright infringement against the remaining entity, a subsidiary of Novelis (formerly Alcan Aluminum).

State law encourages statutory mergers, which are often viewed by M&A lawyers as little more than internal housekeeping or tax planning. Statutory mergers are used for a variety of reasons and often do not require advance notice to shareholders or permission of regulators.

Ohio law deems all property of the merged entity transferred. The Sixth Circuit found that the federal common law governing intellectual property licenses trumped state law. So where a non-exclusive license requires the permission of a copyright owner for any merger or transfer, this language means what it says, giving owners of software a major seat at the table where corporations wish to engage in any mergers or transfers.

The opinion is a good discussion of the tension between state law (facilitating mergers) and federal law (protecting IP owners) - and concludes squarely that federal policy and law trumps state policy on this point. The court notes that it is extending case law from patent cases into the copyright arena.
The Sixth Circuit affirmed the district court's grant of summary judgment and damages of $459,530 (equal to the amount of the initial licensing fee).

Once again, M&A lawyers have to start reading these software license agreements.

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