Saturday, November 01, 2008

Copyright, Software Programmers and The Implied Unlimited License to Use and Modify

In Asset Marketing Systems, Inc. v. Gagnon, 542 F.3d 748 (9th Cir. Sept. 9, 2008), the Ninth Circuit found that a computer programmer granted AMS an "unlimited, nonexclusive license to retain, use, and modify" custom software that the programmer Gagnon dba "Mister Computer" had designed. AMS is a company located in San Diego engaged in, inter alia, "information technology consulting". When AMS employees booted up, they saw a copyrighted "Mister Computer" notice. During the course of dealing between the parties, the issue of AMS using the software after the ongoing consulting relationship was not expressly addressed. At a late point in the relationship, the parties exchanged proposed contracts and written statements reflecting their respective understandings (which differed). AMS eventually terminated the contract, hired most of Mister Computer's employees, and moved happily ahead. During the course of negotiations, Mister Computer variously made exorbitant demands for the continued use of his copyrighted software programs, asserted that the source code was a trade secret, and belatedly registered his copyrights. The legal action started when AMS sued in state court on employment claims, Gagnon removed and counterclaimed for copyright. I am not sure how, but the state claims to have gotten remanded (leaving only federal counterclaims), and then AMS appears to have dropped the now remanded claims in state court and then asserted its state law claims as "counter-counterclaims" to Mister Computer's federal counterclaims in the federal action. Whew!
The court's decison turns around the mysterious language of 17 U.S.C. Section 204(a). Section 204(a) requires that a transfer of copyright be in writing, signed by the owner. The case law has not required a writing for a transfer of a non-exclusive license. I discuss non-exclusive licenses as a litigation defense at Section 13:12 of Copyright Litigation Handbook (3d Ed. West 2008).
The 9th Circuit had previously considered implied licenses in the context of movie special effects and architectural drawings. To illustrate: someone is paid $56,000 for special effects film footage, delivers it, then claims the film company can't use it. Effects Assocs. Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990) (link courtesy This is the "Moviemakers do lunch, not contracts" case.
But in this very hot area of work-for-hire disputes - the implied license doctrine has now been applied to software, substantially reducing the leverage that outside consultants may wield over clients who have not protected themselves in acquiring custom software.
An implied license may be found where (1) licensee requests creation of a work; (2) the creator makes the work and delivers it to the licensee who requested it; (3) the licensor intends that the licensee-requestor copy and distribute his work.
The AMS court found that Mister Computer intended, through "objective manifestations" that AMS "use, retain and modify" the software programs as well. Mister Computer should have put a better warning on his material. Now large and sophisticated software users, too, can do lunch, not contracts.


Wes Schadenfreud said...

fascinating ... I really wish there was more objective competence in these cases as they impact small business hardest ... Now about the lack of clarity in patents ... All bad for US industry and standard of life

Anonymous said...

Despite the Effects Associate case, the 9th circuit said in another case within the last 2 years that if the right isn't spelled out in the copyright code, it didn't exist (that involved assignment of a chose in action for infringement). The implied license destroys the copyright code, essentially, because it says that if you don't follow the code you can still get a license through ineptitude. This was a problem for a case I handled called Kolton vs. Lo Duca et al, in Central Dist., CA. -Briazn Lee Corber, attorney at law,