Mergers and Acquisitions: Lack of Clarity in Copyright Assignments and Licenses Can Blow A Deal

In The SCO Group Inc. v. Novell Inc., --- F.3d ---, 2009 WL 2581735 (10th Cir. August 24, 2009) the Tenth Circuit Court of Appeals revisited a ten-year old transaction. In a transaction characterized as the sale of a "businesss", one party claimed that no copyrights were transferred. The other party claimed that copyrights were transferred. The $300 million 1995 involved the sale of a business.

This case ought to be made part of any curriculum for attorneys involved in mergers and acquisitions. A list of lessons to be derived from the case:

1. in corporate transactions, specify what copyrights are being transferred, if any - be as specific as possible;

2. if you don't understand what is being sold or transferred, no one else will;

3. where licenses are being transferred and one party retains certain powers, clearly define the powers in the transaction documents;

4. following the deal, amend any copyright notices and copyright registrations to conform to your understanding of the transaction;

5. if you are left in doubt (some quick deals necessitate this), insert a few hypotheticals to show how the contract is supposed to work ("for the elimination of doubt").

Much of the opinion deals with the court struggling with the meaning of the contract language, what rights are involved, what copyrights are involved, and how licenses work. The Copyright Act piece is a discussion of 17 U.S.C. Section 204(a) which requires a "note or memorandum" in writing and signed by the owner.

Where there is no question that a transfer of copyright was intended, but the scope of the transfer is ambiguous, the ambiguity will not invalidate the transfer, but opens the door for parol evidence.

The 10th Circuit reversed the lower court's grant of summary judgment and remanded on a number of issues. Where really smart lawyers and really smart federal judges can't figure out what a transaction means, it is a sure sign that the transactional lawyers dropped the ball.