"A Man's Gotta Know His Limitations"
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.
If you're curious about "cloud computing," Nick Carr's 
