Featured Article from Software Licensing

Beware of Implied Licensing Implications

February 21, 2014

When crafting software licenses, companies need to recognize that they can’t easily contract away common sense.

Of course, software firms can write just about whatever they want into their software licensing terms, but they need to be aware of “implied” licensing. Just because something is written into the software license, that doesn’t necessarily mean the courts will respect the agreement.

A case in point is a dispute in the European Union between UsedSoft and Oracle (News - Alert). Oracle had included a relatively standard software licensing clause into its user agreement that granted a non-exclusive, non-transferable right to use the software for an unlimited period of time to the purchaser. Pretty standard stuff.

However, UsedSoft began selling “used” Oracle software licenses, which on the face of it would seem to be a clear violation of the software license’s non-transferable rights clause.

The courts found otherwise, though, and sided with UsedSoft. That’s because the European Court of Justice ruled that this “transfer” amounted to a “sale” under Article 4(2) of Directive 91/250/EEC, meaning the right of ownership in that copy of the software was exchanged. Because this was a sale, Oracle could not prevent the thing that was sold from being re-sold even though it was written into the Oracle license agreement.

There are other scenarios where implied licensing can come into effect.

In VLM Holdings v Ravensworth Digital Services, a parent company granted a software license to its subsidiary, which then granted a sub-license to the end user. When the subsidiary later went into liquidation, its license from the parent company was terminated. The High Court ruled that the end user’s sub-license survived the termination of the head-license, however, causing the parent company to be in breach of a separate license of the same software that it had granted to a third party on an exclusive basis. That’s because the dealings higher in the chain should not affect the contract entered into under good faith by an end user.

This all is common sense when you think about it, but we can lose sight of common sense sometimes when we try to craft license agreements that meet our current needs as software developers. Just because we write a software license does not mean that it will perform exactly as we intend.

What does this mean for companies? It means that software licenses need to be developed more thoughtfully, with an eye toward common sense.

Things in particular to watch out for:

  • Prohibitions on sub-licensing or assignment when the licensor or licensee is part of a group of companies.
  • Careful understanding of who is the underlying copyright owner for each piece of software sold.
  • In places where agreements are varied, strict adherence to contractual procedures to stay in compliance.
  • The licensee should ensure that the licensor warrants that it has authority to grant the license, and also that it provides protection against any third party claims that could impact the licensee’s use of the software.
  • The granting of licenses that don’t amount to a sale, since the “selling” of something introduces a host of implied license features itself.

While cases such as that between UsedSoft and Oracle can be frightening for developers, and implied licenses make situations more complex, a little thoughtfulness can go a long way toward staying on the right side of compliance.

Edited by Blaise McNamee
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