Technology and Digital Media Lawyer & Attorney : Davis Wright Tremaine Law Firm : Ecommerce, Outsourcing, Web 2.0

Law.com is reporting today that "Wal-Mart's internal meetings are on display in three decades worth of videos made by a Kansas production company scrambling to stay in business after Wal-Mart stopped using the firm. In response to losing its biggest customer, Flagler Productions has opened its archive, for a fee, to those seeking clips of unguarded moments, including a scene of male managers parading in drag at an executive meeting. Much of the interest in the candid videos is coming from plaintiffs lawyers pursuing cases against Wal-Mart." Read the rest. 

What I found most interesting for the purposes of this blog was that the parties never signed an agreement (in 30 years).   I'm sure no one ever thought there would be an aftermarket for these videos, but in today's day and age, there is a market for just about everything.  This is a good example of why it makes sense to use care with respect to owning you intellectual property -- even for things that aren't customer facing.  My experience is that many companies will use less care when they are hiring outside videographers, photographers, free-lance writers, etc. to produce corporate training films, recordings for archives, etc.

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As I recall, when Clint Eastwood's Dirty Harry said "A man's gotta know his limitations" in Magnum Force, he wasn't talking about software licenses. But as a recent Northern District a California case shows, he could have been. Poorly drafted license limitations can be deadly for a licensor.

(Yes, that may be the cheesiest lede ever. But work with me on this.)

Recall the basics. When a software licensee exceeds the scope of his or her license, the licensor generally has a claim of infringement. In many cases, this is quite straightforward. For instance, if the license grant doesn't give the licensee a right to create derivatives of the code, then doing so likely infringes. So far, so simple.

But consider those other provisions of the license agreement that aren't in the license grant. Does violating those provisions give rise to infringement? Common sense (at least my common sense) suggests not. Fortunately, the cases tend to agree, and Netbula, LLC v. Storage Technology Corp., No. 06-07391, 2008 U.S. Dist. LEXIS 4119 (N.D. Cal. Jan. 18, 2008), has a nice discussion of the issues.

Netbula licensed a software development kit (SDK) under what looks like a pretty typical SDK license. However, the drafter forgot to hook the license limitations onto the license grant. Big mistake. Netbula wanted to claim copyright infringement based on the licensee's violating a term of the license. The court didn't buy it.

Why? Basically, the putative "license limitation" was in the wrong place---drafted as a separate promise not a license limitation. (A man--in the gender-neutral sense--has to know his limitations, remember?) The court looked to Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121-22 (9th Cir. 1999), Sun Microsystems v. Microsoft Corporation, No. C 97-20884, 2000 WL 33223397 (N. D. Cal. May 8, 2000), and S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088 (9th Cir. 1989) for guidance.

"Before [Plaintiff] can gain the benefits of copyright enforcement," said the court, "it must definitively establish that the rights it claims were violated are copyright, not contractual, rights." So, the court

must therefore determine if Plaintiff has established that the disputed terms of the license are limitations on the scope of the license, and thus an issue of copyright, or independent contractual covenants and thus contractual rights. If they are the former, then Plaintiff must also show that Defendants have acted outside of the scope of their license....

In Sun Microsystems v. Microsoft Corporation, No. C 97-20884, 2000 WL 33223397 (N. D. Cal. May 8, 2000) ("Sun II"), the district court confronted a similar question of scope with regards to a software license agreement. In Sun II, the contract between the parties required that the commercially distributed software Defendant developed with Plaintiff's copyrighted software had to be compatible with certain other software....

The court found that this "compatibility" provision was a separate contractual covenant and not a limitation on the scope of the license itself because, inter alia, the contract says "nothing about the license grants being subject to, conditional on, or limited by compliance with the compatibility obligations."

This is why these days most carefully drafted licenses have a heading that says something like LICENSE GRANTS; LIMITATIONS after which come both the grant and (wait for it) the limitations. Or you might see a subsection under the main heading LICENSES that lists the limitations on the grant. Another approach is to add a new section below the grant that says, in big, bold, glowing neon letters LICENSE LIMITATIONS.

Different strokes for different folks. But cases like Netbula (and the Sun cases mentioned above) make one thing clear: you should not only know your limitations, but make sure the court knows them as well.

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A new Facebook application, ArtShare, allows Facebook users to play curator and select artworks for rotating display on their profile page.  Once displayed, a visitor who clicks an image will be directed to the website of the originating museum.  Participating institutions include Walker Art Center, Metropolitan Museum of Art, and Brooklyn Art Museum. 

Unfortunately, and perhaps predictably, there's only a handful of contemporary images available.  Presumably, this is due to the costs of copyright administration.  As many of you know, copyright doesn't transfer with the sale or gift of an artwork absent an express agreement to the contrary.  So a museum's rights to reproduce even works in its own collection may be limited.  This is especially probable where works were donated by a third-party donor, who never sought copyright from the artist.  Getting all those permissions can be a daunting task for any institution, and especially for a non-profit.  Practice pointer for would-be collectors: negotiate any copyrights or licenses  you may need at the time of purchase, where  your negotiating leverage is at its height, and when so doing, think about possible future needs.  And get an express license (or assignment) in writing. 

Happily for Facebook users, however, some institutions, such as Walker Art Center, have bucked the trend and included some great contemporary images including gorgeous pieces by Ellsworth Kelly and Mario Merz.  Very cool.  To check out ArtShare go here.

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Molly Shaffer Van Houweling has an interesting paper on EULAs and servitudes (think: real property). According to the abstract:

In the age of electronic commerce, consumers routinely acquire intangible products without engaging in any direct human interaction. These products - computer programs, digital music, etc. - often arrive bearing terms that purport to limit the sticks in the consumers' bundles of rights in ways that depart from the background limitations imposed by intellectual property law.

For example, a consumer who has downloaded a computer program from the Internet might be presented with a screen of text imposing myriad restrictions on how the program may be used; installation commences only when the consumer clicks 'I agree.' Courts in the United States have increasingly enforced such restrictions - labeling them 'click-wrap licenses' and applying to them the same contractual concepts that govern face-to-face exchanges of promises...

In this article I develop a comprehensive account of the evolving jurisprudence of servitudes as applied to both land and personal property, identifying the sources of traditional servitude skepticism in order better to evaluate the new generation of running restrictions on intangible informational goods.

I apply the lessons I draw from the old servitudes to paradigmatic examples of contemporary licensing practices - including Microsoft end-user license agreements, the Free Software Foundation's General Public License, and Creative Commons licenses.

A non-gated version of the paper is here and the author is discussing these issues at the University of Chicago Law School Faculty Blog this week.

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This article by William Denny is a few years old, but it gives a nice summary the ways parties to a license agreement shift risk:

A. Express and Implied Warranties The extent of warranty protection in a software license is usually a matter of business leverage. Basic warranties usually included in a license agreement are that the software materially conforms to the specifications and documentation, that the vendor has good title to the software and has the right to license it free of any encumbrances, and that the software is virus-free and does not contain worms, trojan horses or other harmful code. Often there is a time duration associated with express warranties.

B. Indemnification Against Third Party Claims Indemnification clauses deal with third-party claims or suits against one of the contracting parties. A common indemnity clause in a software license agreement is for the vendor to defend and indemnify the customer and hold the customer harmless from and against third party claims for infringement of intellectual property rights, for claims of injury, death or property damage brought by the vendor's employees, agents or contractors resulting from services at the customer site. Because third party claims are not within the contracting parties' control, the damages resulting from such claims should be addressed separately from other provisions allocating risks between the parties.

C. Limitations of Liability The limitation of liability section typically relates to the liability of the parties to each other, as opposed to third party actions covered by the indemnification section. These provisions normally include a mutual waiver of incidental, consequential, indirect and punitive or special damages, and an overall cap on the vendor's liability to the customer for direct damages. A larger or more influential customer may negotiate certain exceptions to the mutual waiver of incidental or consequential damages or to the cap on direct damages. For example, a vendor may agree to carve out an exception to the waiver of incidental or consequential damages in the event of breach of the confidentiality provision, or it may agree to exclude from the cap on direct damages any liability resulting from its gross negligence.

D. Insurance An insurance provision is important where the software is part of a business critical application in the customer's business, and there is no commercially reasonable alternative in the market. It is also important in cases where the vendor will have its personnel performing services at the customer's site. The customer should ask the vendor to provide complete commercial general liability coverage, workers' compensation coverage, automobile liability coverage and employee fidelity coverage. If the vendor is going to customize software to meet the customer's unique requirements, the customer should request data processing errors and omissions insurance.

The rest is here.

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