licensing – Attorney Evan Brown

January 31, 2024 Contracts, Trade Secrets

Unauthorized press release caused drone software deal to crash

drone software

Usually back in the boilerplate section, technology contracts often contain a provision saying the parties will not issue press releases without the prior written consent of the other party. Here is a recent case where failure to strictly abide by such a requirement resulted in the breakdown of an important licensing arrangement, followed by expensive and difficult litigation.

An exciting drone software collaboration

Plaintiff entered into a software licensing agreement with defendant whereby plaintiff could use defendant’s avionics software for drones. The agreement gave plaintiff a limited exclusive license to certain functionality in the software.

The licensing agreement defined confidential information to include the terms of the agreement. The parties could not use any confidential information other than as required to exercise a right or perform an obligation under the agreement. The agreement also restricted the parties from issuing press releases without the other party’s prior written approval.

Fateful quick email exchange right before vacation

On a Sunday in August 2022, an employee of defendant wrote to defendant’s CEO, letting defendant know that plaintiff was developing a press release. The message concluded with, “Let me know if you have any objections, or if you want to send us a quote or have our PR team make a quote[.]”

Three minutes later the CEO wrote back with the following: “That sounds great. I’m on vacay all week up in the Adirondacks. You guys can make up some quote – I’m sure it will be fine or at least a great start.”

Going public with what should have stayed private

On Wednesday of that week – without further contact with defendant – plaintiff issued a press release discussing the parties’ relationship. The press release stated, in part, that under the terms of the software licensing agreement between the parties, the “software will only be made available to [plaintiff],” and that “[c]ompetitors will have to develop their own software or secure licenses from others with inferior test performance.”

On Friday (probably the last day of the CEO’s “vacay . . . up in the Adirondacks”), defendant sent a letter to plaintiff terminating the agreement. Defendant cited to a provision of the agreement enabling it to terminate immediately upon breach of the agreement’s confidentiality provision. The letter explained that plaintiff had issued the press release without defendant’s consent and that the press release included confidential information.

And then the lawsuit

Plaintiff sued, asserting breach of contract, namely, that defendant improperly declared the agreement terminated, and improperly ceased fulfilling its obligations under the agreement. Defendant moved to dismiss the claims. The court granted the motion.

Court: defendant had the right to terminate

The court found that it was “express and plain” that the definition of confidential information included the terms of the agreement. And when plaintiffs disclosed language from the agreement discussing the exclusive license, plaintiffs breached the agreement, giving defendant a right to terminate, which it exercised.

The court also rejected plaintiff’s argument that defendant’s CEO’s Sunday pre-vacation quick response email gave consent for the press release. The court found that rather than serving as approval of the press release that was issued, the consent the CEO provided was for the continued development of a press release and qualified permission to make up a quote for him as part of the development process. Moreover, the harms to defendant arising from plaintiff’s mischaracterization of the parties’ relationship were “precisely the effects that are avoided by requiring ‘prior written consent’ before publication of Confidential Information in a press release.”

Red Cat Holdings, Inc. v. Autonodyne LLC, 2024 WL 342515 (Del. Ch., January 30, 2024)

What is a copyright license and why do you need one?

A copyright license is a formal agreement that allows another party to exercise rights in a copyright-protected work legally, which would otherwise infringe on the copyright owner’s exclusive rights. This agreement can be limited or extensive, temporary or perpetual, depending on the terms upon which the parties agree. A license does not transfer the copyright ownership; it simply grants specific permissions to the licensee. Features of a copyright license often include:

The scope of use: This sets forth which rights the licensee may exercise. It could specify whether the licensee can reproduce, distribute, publicly perform, display, or create derivative works from the copyrighted material.
Geographic location: The license might provide where the copyrighted material can be used.
Duration: This sets forth how long the licensee can exercise rights in the copyrighted material.
Exclusivity: It indicates whether the copyright owner can grant similar licenses to others.

Absent certain limited situations such as fair use, need a copyright license to legally exercise rights in someone else’s copyrighted work. Infringing on a copyright – using it without permission – can lead to legal consequences, including liability in court and the obligation to pay the other side’s attorney’s fees. For businesses, obtaining a copyright license can help them use, incorporate, and benefit from a copyrighted work, such as software, a piece of music, or a photograph, while respecting the legal rights of the copyright owner.

The licensing process also facilitates economic growth and cultural exchange by providing a legal framework for creators to monetize their work and for users to access and incorporate it into their own creations. For the creator, licensing can provide a source of income and allows it to control how and where its work is used. For the user, the license offers a way to legally and ethically utilize a work that adds value to its own product, service, or project.

See also:

Intellectual property issues in a speaker’s agreement

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.

January 23, 2014 Contracts

“Right to audit” provisions in technology services agreements can benefit both parties

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Need help? Call Evan at (630) 362-7237, send email to ebrown@internetcases.com, or follow him on Twitter @internetcases.

“Right to audit” provisions in technology services agreements are common. You’ve seen them. A typical section will read something like this:

Vendor will keep accurate and complete records and accounts pertaining to the performance of the Services. Upon no less than seven (7) days’ written notice, and no more than once per calendar year, Customer may audit, or nominate a reputable accounting firm to audit, Vendor’s records relating to its performance under this Agreement, including amounts claimed, during the term of the Agreement and for a period of three months thereafter.

These provisions often benefit the customer, to give it some transparency and assurance that the vendor is performing the services according to the agreement and that vendor is charging customer for the services appropriately.

But a right to audit provision can benefit the vendor (and go against the customer) as well. As a recent court decision shows (Carlson, Inc. v. IBM, 2013 WL 6007508 (D. Minn. November 13, 2013)), a customer’s comprehensive audit rights can preclude it from claiming that vendor owes it a fiduciary duty.

In the case, the customer sued its software vendor alleging, among other things, that the vendor breached its fiduciary duty. The customer argued that it had to essentially “hand over the keys” of its operations to the vendor. But the court ruled that vendor did not owe customer a fiduciary duty because the customer had several important rights to know about and control the vendor’s performance.

The master services agreement between the parties reserved for the customer the right to audit the vendor’s performance and challenge its pricing and delivery of services. Under the agreement, customer had:

regular and recurring access to vendor personnel;
access to complete records and supporting documentation underlying vendor’s services;
the right to conduct operational audits to examine vendor’s performance of the services;
the right to audit performance for comparison to standards in the service level agreement;
the right to financial audits to verify the accuracy and completeness of invoiced charges.

The court found that “[t]hese audit and oversight provisions [were] meaningless if [customer] was as helpless as it [claimed].”

So while vendors may find right to audit clauses to be a nuisance, they should remember that the presence of such a clause could provide an important defense in litigation over the technology agreement.

Evan Brown is a Chicago attorney helping businesses negotiate and draft technology services and development contracts. He also handles many other issues involving the internet, copyright and trademarks, and new media. Call him at (630) 362-7237 or email ebrown@internetcases.com.

How Twitter’s grant to the Library of Congress could be copyright-okay

Twitter is giving a copy of the archive of all tweets from the beginning of time to the Library of Congress. The inevitable outrage has ensued. One big concern is privacy. You gotta admit it’s creepy (and evokes Big Brother) to know that all your tweets will belong to the feds.

The other outrage-catalyst is copyright, and the possible violation of the license that one grants to Twitter via the terms of service.

Venkat and I exchanged some email earlier today on this topic. What if you delete your tweets? Doesn’t that terminate the license you gave to Twitter to store and share your content? How can the Library of Congress still keep its copy if the original license has ended? Fred Stutzman has also asked these kinds of questions.

These objections seem to presume that if one were to remove his or her tweets from Twitter, the license would be revoked, and any subsequent display by Twitter would be an infringement. I imagine that’s true in relation to Twitter, but I’m not so convinced when it comes to the Library of Congress. They’d likely fall under Section 108 of the Copyright Act.

Section 108 (17 USC 108) says that it’s not an infringement for a library to make a copy or distribute a work if (1) it’s not for commercial advantage, (2) the collections of the library are open to the public or available to all researchers in a particular field, and (3) the notice of copyright in the original work remains intact or if no notice can be found, there’s a legend stating that it may be protected under copyright.

You see what I’m saying? The Library of Congress would appear to have the right to archive one’s Twitter stream regardless of any assitance on Twitter’s part. In other words, by providing the archive, Twitter is just helping the LOC do something it’s entitled to do anyway.

What do you think?

Retrospective: Graham v. James

I’m speaking about open source at John Marshall Law School’s 53rd Annual Intellectual Property Law Conference on February 27. More info here (warning – PDF!).

To prepare, I’m going over some important cases dealing with copyright licensing in general, that is, cases that deal with copyright licensing but not open source. In case you’re interested, here’s a writeup I just did of the classic case of Graham v. James, 144 F.3d 229 (2d Cir. 1998):

Graham contracted with James for James to develop a custom file retrieval program for use in connection with a CD-ROM compilation that Graham published. The two had an oral agreement whereby Graham would pay $1,000 to James for each new version of the CD-ROM, plus $1 for each disc sold.

After Graham and James had a falling out, Graham continued to use the program James wrote in subsequent versions of the CD-ROM. Graham had removed a copyright notice from the program’s source code, and did not pay the promised royalties. The two ended up in litigation against each other with James accusing Graham of infringing the copyright in the program.

After a bench trial, the lower court found in favor of James on the copyright infringement claim. Graham sought review with the Second Circuit. On appeal, the court vacated the judgment and remanded.

There was no dispute that a license agreement had been formed. Graham argued that at best, James could recover for breach of contract for the removal of the copyright notice and the failure to pay royalties, but not copyright infringement. James presented a number of arguments in an attempt to show there was no license that authorized the use.

One argument that James made was that Graham breached the conditions of the license agreement (and thereby used the program outside the scope of the license) by removing the copyright notice and failing to pay royalties. The court rejected this argument, holding that such activities were mere breaches of contractual covenants between the parties and not a failure to satisfy conditions of the license agreement.

Citing to Nimmer, the court easily held that one does not have a cause of action for infringement when one fails to attribute the author. So there was no infringement resulting from that.

Under the circumstances, the nonpayment of royalties was not the failure of a condition for authorized use. Under New York law, there is a presumption that terms of a contract are covenants and not conditions. In this case, James turned over the program for use before any royalties were paid. Contract obligations that are to be performed after partial performance are not treated as conditions, but as promises (i.e., covenants).

Another argument James made (which the court also rejected) was that assuming, arguendo, the nonpayment of royalties and the failure to attribute were breaches of covenants and not failures to satisfy a condition of the license, the breach of the covenant was so material that the contract was terminated by rescission.

But rescission does not happen automatically upon a substantial breach. The nonbreaching party must “manifest his intention to rescind within a reasonable time.” In this case, the record did not show that James rescinded the license to Graham.

Since James failed to show the absence of a licensing agreement or a failure to satisfy a condition of the agreement, the court vacated the copyright infringement judgment.