Licensing – Attorney Evan Brown

February 18, 2024 Contracts, Licensing

Software reseller not entitled to preliminary injunction to protect customer relationships

Plaintiff CD appointed defendant SST to be the exclusive reseller to certain customers of CD’s software development platform. CD sued SST for breach, and SST likewise filed counterclaims for breach of contract and fraudulent inducement. SST sought a preliminary injunction against CD, asking that the court prohibit CD from unilaterally terminating the reseller agreement.

SST asserted, among other things, that it would suffer irreparable harm from this termination, citing potential loss of solicited clients and reputational damage. CD argued, however, that these asserted harms could be remedied monetarily, and thus did not qualify as irreparable.

The court agreed with CD, finding SST’s arguments regarding reputational damage and loss of client relationships to be speculative and unsupported by concrete evidence. As such, these claims did not meet the stringent criteria for irreparable harm, which requires a clear, immediate threat of injury that monetary compensation could not redress.

Further undermining SST’s claim of irreparable harm was the notion that any potential financial losses due to CD’s actions, including the costs associated with resolving issues with target accounts or transitioning to alternative software solutions, were quantifiable and thus recoverable in monetary terms. The court noted that SST’s reluctance to make additional payments to CD for resolving software access issues did not constitute irreparable harm, as those could be recouped in resolution of the contract dispute. Moreover, the court pointed out that SST’s concerns about CD not restoring access post-payment were speculative and lacked evidentiary support, given the record showing ongoing negotiations and concrete offers from CD.

Citizen Developer, LLC v. System Soft Tech., Inc., 2024 WL 554140 (M.D. Penn. February 12, 2024)

Disclaimer in software license agreement protected vendor from liability

software license disclaimer

A recent federal court case alleging breach of contract over failure of software to perform highlights the importance of careful drafting and review of disclaimer and other language in technology contracts.

Loss of livelihood

In 2021, a federal court entered an order that permanently barred plaintiff from preparing tax returns for other people. The court’s order apparently addressed past deficiencies in plaintiff’s past tax filings. In 2017, when using TaxWise software, plaintiff did not attach certain required forms to the tax returns.

No doubt this caused extreme hardship for plaintiff, so he sought to recover by blaming the software company – the defendant in this case – for a malfunction in the software that caused the required forms to be omitted.

He sued for breach of contract. Defendant moved to dismiss. The court granted the motion.

The lawsuit was too late

It held that plaintiff’s suit was untimely because the software license agreement contained a provision saying that any such claim had to be commenced within one year from the date such claim or cause of action first arose. The court rejected plaintiff’s argument that by bringing suit in January 2023, he was within the one year period because his first payment of a fine to the IRS was due in January 2022. Instead, the court held that the one year period for bringing suit began to run when the alleged breach occurred, i.e., in 2017 when the software allegedly malfunctioned.

Disclaimers knocked out the complaint

The court also held that certain disclaimer language in the software agreement served to defeat plaintiff’s claims as to the software’s performance. The agreement stated that plaintiff “expressly disclaim[ed] any representations or warranties that [his] use of the Products will satisfy any statutory or regulatory obligations, or will assist with, guarantee or otherwise ensure compliance with any applicable laws or regulations.” Moreover, the contract stated that plaintiff bore “THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PRODUCT(S), INCLUDING ELECTRONIC FILING” and so the court found that this eliminated plaintiff’s ability to shift that responsibility to the software provider.

Diedrich v. Wolters Kluwer, 2024 WL 291156 (S.D.N.Y., January 25, 2024)

See also:

January 18, 2023 Contracts, Licensing

Why are limitation of liability provisions important in technology agreements?

liability cap

Limitations of liability are an important aspect of any technology agreement, as they help to define and limit the amount of financial responsibility that each party in the agreement must accept in the event of a dispute or legal action.

Caps

One of the main limitations of liability in a technology agreement is the cap on the amount damages. This means that even if a party is found to be at fault in a dispute, the maximum amount of financial responsibility that it is willing to accept is limited to a specific dollar amount. For example, a technology company may agree to a cap on damages of $1 million in the event of a legal dispute. Or it could agree that the maximum amount it would have to pay would be whatever its insurance will cover. It is important to note that while damages caps can provide predictability and stability in terms of financial exposure, they can also limit the recovery of a party that has suffered significant losses. So they should be negotiated thoughtfully.

Exclusions

Another limitation of liability in a technology agreement is the exclusion of certain types of damages. This means that even if a party is found to be at fault, they are not responsible for certain types of losses or damages. For example, a technology company may exclude consequential damages, such as lost profits or loss of business, in the event of a legal dispute.

Carveouts

Though a limitation of liability provision may call for a damages cap or an exclusion of the types of damages available, parties recognize that in certain situations, damages should not be limited. For example, a breach of confidentiality by one party may be particularly harmful to the other party, and thus it would be unfair to cap the amount of damages. Another example arises in the context of indemnification. If one party is obligated to pick up the tab because the other party got sued for what the indemnifying party did, then the indemnified party will want to make sure it is made whole, regardless of what the damages are. In situations such as these, the parties may negotiate a “carveout” from the damages cap or exclusion, and agree that if something occurs within a defined set of circumstances, the liability caps or exclusions will not apply.

Limitations on limitations

It is important to keep in mind that limitations of liability are subject to legal interpretation and may not be enforceable in all jurisdictions. They can be evaluated and interpreted by courts in different ways. Additionally, some courts may hold that a limitation of liability clause is unenforceable if it is found to be unconscionable or against public policy.

Tough negotiation

In many technology transactions, the limitation of liability provision is among the last remaining issues to negotiate. This fact underscores how important such provisions are in making a particular transaction palatable to a party. A particular vendor may not be willing to “bet the company” on a particular deal (i.e., would not want to risk everything if something goes wrong). So these sorts of provisions are useful in giving parties comfort to enter into a deal.

Evan Brown is a technology attorney in Chicago. Follow him on Twitter: @internetcases

January 11, 2023 Contracts, Licensing

Why are indemnification provisions important in technology contracts?

vicarious liability copyright

Indemnification provisions in technology agreements play a crucial role in protecting the parties involved in a technology transaction. These provisions are often included in agreements among technology vendors, customers, software developers, and other related parties to shift the risk of losses and legal liabilities from one party to another.

Picking up the tab

Indemnification is a legal concept that involves one party (the indemnitor) agreeing to compensate the other party (the indemnitee) for any losses or damages that may occur as a result of a specific event or occurrence. Similarly, a provision of this sort may provide that one party will “defend” the other party by retaining counsel and paying the costs of defense in court, as those costs are incurred. In technology agreements, indemnification provisions are often used to shift the risk of losses or damages that may result from a party’s breach of contract or negligence. Customers will often seek to insist that the vendor indemnify the customer in the event a third party files a lawsuit against the customer because the technology infringes that third party’s intellectual property rights.

The main purpose of indemnification provisions in technology agreements is to protect the parties involved from potential financial losses, legal liabilities, and other costs associated with legal disputes. For example, a contract may provide that if a software developer breaches a contract and causes a loss to the client, the indemnification provision would require the developer to compensate the client for any damages.

Key elements

Indemnification provisions in technology agreements typically contain several key elements, including the types of losses or damages that will be covered, the parties that are responsible for indemnifying the other party, and the time frame for indemnification to take place. It also often covers the notification requirements, the documentation and information that should be provided in case of losses or damages, and the limitation of liability.

Another key aspect of indemnification provisions is that they are often mutual, meaning that both parties are responsible for indemnifying each other in certain situations. This can help to ensure that both parties are protected in the event of a legal dispute, and it also helps to create a balance of risk between the parties.

Why bother?

Indemnification provisions in technology agreements play a vital role in protecting the parties involved from financial losses, legal liabilities, and other costs associated with legal disputes. It’s important for both parties to understand the concept of indemnification, the purpose of these provisions, and how they are typically used in technology agreements.

Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter at @internetcases.

June 24, 2020 Licensing, Trademarks

Trademark license: 3 key ideas

A trademark license is important. Let’s say that your company is going to enter into an arrangement whereby it is going to manufacture and sell another company’s products, or your company is going to integrate another company’s services into its own offering. These could take the form of reseller agreements or distribution agreements.

A critical piece of that arrangement is a trademark license. Here are three key things to keep in mind when entering into a trademark license.

What trademarks are being licensed?

The first thing to keep in mind is that you will need to actually specify which marks are being licensed. Are they word marks? Logos? You will want to be precise about that, and the agreement should specify clearly which marks are the subject of the agreement. The parties should also define standards for how the marks should appear. And the agreement should contain minimum standards for the quality or performance of the goods or services that will be provided.

How will the marks be used under the trademark license?

The second thing to keep in mind when entering a trademark license is to determine how the marks are actually going to be used. Will they be affixed to the products? Are they going to be in product literature and marketing collateral? One must define the scope of the permitted use so that the parties have an understanding of the arrangement.

Quality assurance provisions

The third thing to keep in mind when negotiating a trademark license is the quality assurance provisions. A party granting rights may lose those rights if it does not have a meaningful remedy to stop wrong use. This may occur if the trademarks under the license agreement do appear as they should, or if the quality of the goods and services being provided does not meet certain standards.

Evan Brown is a technology and intellectual property attorney in Chicago. Need help? Call Evan at (630) 362-7237 or set up a time to talk by emailing him at ebrown@internetcases.com.

September 26, 2019 Contracts, Copyright, Licensing

Web design feature killed express license argument in copyright case

Plaintiff sued defendant for copyright infringement over unlicensed use of plaintiff’s musical works in advertisements that defendant created and uploaded to YouTube. Defendant argued that the language and structure of plaintiff’s website – from which the works were downloaded – resulted in an express license or at least an implied license to use the musical works for commercial purposes. The court rejected these arguments and awarded summary judgment to plaintiff.

No express license

The basis for defendant’s argument that plaintiff’s website gave rise to an express license is not clear. In any event, plaintiff argued that a browsewrap agreement in place on the website established that the works could not be used for commercial purposes without the payment of a license fee. Citing to the well-known browsewrap case of Specht v. Netscape, 306 F.3d 17 (2d Cir. 2002), defendant argued that it did not have notice of the terms and conditions of the browsewrap agreement.

The court distinguished this case from Specht. In this case, plaintiff’s home page contained – similar to the case of Major v. McCallister, 302 S.W.3d 227 (Mo. Ct. App. 2009) – “immediately visible” hyperlinks that referenced terms of use and licensing information. A user did not have to scroll to find these links. So the terms and conditions of the browsewrap agreement were enforceable. Since the browsewrap agreement contained provisions requiring a license for commercial use, no reasonable jury could find that plaintiff had granted defendant an express license to use the musical works for commercial purposes free of charge.

No implied license

Defendant argued in the alternative that plaintiff had granted defendant an implied license to use the musical works, based on (1) plaintiff’s company name “Freeplay,” and (2) the absence of any conspicuous warning that the works were not available for commercial use.

The court found these arguments to be “easily disposed of.” Citing to I.A.E., Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996), the court noted that an implied license exists only when:

a person (the licensee) requests the creation of a work,
the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and
the licensor intends that the licensee-requestor copy and distribute his work.

The court found that defendant failed to prove any of these elements. Defendant never asked plaintiff to create any works. Nor did plaintiff make any works at defendant’s request to be used in defendant’s YouTube videos. Moreover, given plaintiff’s paid license requirements for business use of the copyrighted works available on its website, it could not be said that plaintiff intended that defendant download and distribute those works free of charge. Accordingly, the court found that no implied license existed.

Freeplay Music, LLC v. Dave Arbogast Buick-GMC, Inc., No. 17-42, 2019 WL 4647305 (S.D. Ohio, September 24, 2019)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

October 24, 2017 Contracts, Licensing

Reverse engineering of competitor’s software cost company big

Companies developing software to mimic the functionality of competitors’ products should beware the broad scope of what may constitute reverse engineering. A recent federal case from the Fourth Circuit underscores this idea.

Background – the Development Process

Plaintiff SAS and defendant WPL are competitors in the market for software used to manage and analyze large and complex sets of data. Plaintiff for many years has distributed its proprietary software applications (the SAS System) that run programs written in the eponymous language SAS. WPL sought to create an application to compete with the SAS System, namely, an application it could take to market that would run programs written in SAS. It successfully developed such an application (called the WPS), and customers began dropping the SAS System in favor of the WPS.

As part of its efforts to develop the WPS, defendant obtained a license to use the “Learning Edition” provided by plaintiff – an environment designed for programmers to learn how to code in SAS. Among the provisions in the software license agreement for the Learning Edition was a restriction against reverse engineering the software.

In developing the WPS, defendant did not try to decompile the Learning Edition, or otherwise “tear it down” or “look under the hood.” Instead, it would run SAS code through both the Learning Edition and the WPS, evaluate the outputs from both systems, and tweak the C++ code comprising the WPS to get the outputs to match.

Trial Court Litigation

Plaintiff sued defendant in both U.S. federal court and the U.K. alleging a number of claims, including copyright infringement, breach of contract, deceptive trade practices, and fraud. Of particular importance was the breach of contract claim – plaintiff claimed that defendant’s method of developing the WPS, through adjusting the WPS code based on output compared with Learning Edition output – was reverse engineering prohibited under the terms of the Learning Edition license agreement.

The lower court agreed with plaintiff, and found defendant liable for breach of contract due to reverse engineering, at the summary judgment stage. The case proceeded to trial on other issues where, along with the damages for breach of contract and for deceptive trade practices, the court awarded almost $80 million in damages to plaintiff. Defendant sought review with the Fourth Circuit. On appeal, the court affirmed the lower court’s decision on the reverse engineering issue.

Appellate Court: This Was Reverse Engineering

More specifically, defendant had argued on appeal that the lower court’s summary judgment on the breach of contract/reverse engineering claim was improper because the term “reverse engineering” in the license agreement was ambiguous. Plaintiff and defendant offered competing definitions for what they thought reverse engineering ought to mean. Defendant proposed a narrow definition – essentially, that reverse engineering must have as its objective the re-creation of source code. Plaintiff, however, offered a broader definition, encompassing other efforts to “analyze a product to learn the details of its design, construction, or production in order to produce a copy or improved version.”

The differences in definitions were important – defendant had not sought to, nor did, access or copy the source code of the Learning Edition. If the definition of reverse engineering were limited to the re-creating of source code, then the development of the WPS should be okay.

But the court did not agree with defendant. Finding the language in the software license agreement to be unambiguous, the court observed that “nontechnical words are to be given a meaning consistent with the sense in which they are used in ordinary speech, unless the context clearly requires otherwise.” The court then consulted dictionary definitions for the term “reverse engineer” and also evaluated the broad vs. narrow definitions proposed by the parties in light of other prohibitions (e.g., against “reverse assembly” and “decompilation”) in the same provision of the license agreement. Simply stated, the court found that the agreement was clear on what conduct constitutes reverse engineering, and defendant’s actions fit within that scope.

SAS Institute, Inc. v. World Programming Ltd., — F.3d —, 2017 WL 4781380 (4th Cir. October 24, 2017)

On avoiding anxiety-inducing words in online terms of service

Are “worldwide” “perpetual” rights really necessary?

Designer/developer Robert Nealan wrote a post questioning whether self-hosted blogging is dead. The piece is interesting as a commentary on the current state of blogging in general — a state that has changed a lot in the past decade or more, primarily due to the influences of outside social platforms, namely, Twitter, and more recently, as Robert notes and critiques, Medium.

The piece is a refreshing singing of praise for self-hosted blogs (like the one you’re reading). But another, no less important element of the post is an undercurrent shaped by a not-unjustified freak out of sorts over what third party platforms’ online terms of service say about their claim of rights in the users’ intellectual property. When we look to the terms of service for some of these platforms (and even more so if we actually think about what those terms say), we recognize that platforms quite often over-aggressively grab onto rights to do things with the content the user posts. So much depends on how these terms of service are written.

Lawyers can learn a lot from the commentary like that Robert Nealan has posted. As an object lesson and example, he takes issue with Svbtle’s terms, particularly the following:

Marketing. As a paid customer, you give Svbtle a perpetual world-wide license to use your company’s assets and logos, unless Svbtle agrees in writing otherwise. These assets and logos will be used purely for marketing and sales efforts, such as being displayed on the home page.

Good practice here would might consider adopting the ethos of certain “by design” concepts we see in the privacy and data security world. Think of “privacy by design” or “security by design” — the idea that a technology developer (e.g., someone building an app) should build the system in a way that it does not keep data around for longer than what is needed, and certainly for no longer than what the developer promises its users it will.

The same could be applied here — and it seems even simpler — for platforms to adopt principles establishing they will only exercise rights in relation to users’ intellectual property for only as long as they meaningfully need to do so. Let’s call it “Appropriate Rights by Design“. Words like “perpetual” and “world-wide” can be frightening. A platform hosting users’ content probably doesn’t need such extensive rights. If that’s the case, then the platform shouldn’t grab those rights. Those terms can be a red-herring. Robert Nealan took comfort in his piece in Medium’s terms which say that users of Medium “own the rights to the content [they] post on Medium,” and that Medium “[doesn’t claim ownership over any of it.” Funny thing is, a platform that grabs a world-wide, perpetual license could truthfully say the very same thing. So by not grabbing more rights than necessary, i.e., applying principles of Appropriate Rights by Design, platforms will avoid having users latch on to scary words unnecessarily. For as long as this happens, it’s likely users will continue to have anxiety about moving to a third-party hosted platform, and in the same way, keep a light shining on what’s good about self-hosted blogs and other platforms.

Evan Brown is a Chicago attorney advising enterprises on important aspects of technology law, including software development, technology and content licensing, and general privacy issues.

Photo courtesy Flickr user fady habib under this Creative Commons license.

When the “entire agreement” isn’t the entire agreement

EULA Software licenses are often complex documents comprised of multiple exhibits, schedules, and terms and conditions, co-authored by lawyers, sales people and engineers. And when disputes over the use of software arise, it is, accordingly, often not simple to sort out what the agreement says. I have written a post over at my law firm’s blog about a recent software copyright infringement case where although software’s end user license agreement (“EULA”) said it was the entire agreement, the court held that it could consider evidence outside the agreement about the term of the license (how long it was for). It’s a noteworthy read to remind us that clear drafting in software and technology agreements (and any kind of agreement for that matter) is crucial.

Read the post here.

And while you’re at it, follow me on Twitter, and follow my law firm InfoLawGroup as well.