Licensee Breaches License Agreement by Allowing Its Law Firm Access to the Licensed Technology

Authored by D. Brian Kacedon, John C. Paul, and Larry M. Sandell

In some states, absent express limitations, a licensee is considered authorized to permit third parties to utilize the licensed technology on their behalf. The Fifth Circuit Court of Appeals recently addressed the interpretation of provisions with such limitations in Compliance Source, Inc. v. GreenPoint Mortgage Funding, Inc.,¹ No. 09-10726 (Oct. 18, 2010).

The Compliance Source Decision

Compliance Source and Data Docs developed mortgage financing forms and computer software that allow mortgagees to merge their own transaction-specific information with the proprietary forms and prepare customized loan documents. GreenPoint Mortgage Funding became a licensee of this technology, entering into a license agreement that expressly limited uses of the licensed software technology to those explicitly permitted by the agreement and expressly granted rights to provide access to third parties in several specific situations.

GreenPoint provided its attorneys access to the licensed software in order to prepare loan packages. When accused of breaching the license agreement, GreenPoint argued that such access should be permissible because its attorneys' use of the software was on its behalf and for its benefit as the licensee of that technology. The lower court agreed and held that GreenPoint's allowing its attorneys access to the licensed technology did not breach the license agreement.

On appeal, the Fifth Circuit reversed the lower court's decision, finding that the access and use of the licensed technology by GreenPoint's attorneys was prohibited by the license agreement. The court noted that such third-party access was effectively barred by the express prohibition of activities not otherwise expressly permitted in the licensing agreement combined with provisions expressly permitting other specific third party technology uses and thereby implying other third-party access was not permitted.

In conclusion, the court found that to read into the license agreement a general right to grant third-party access when such access would be on behalf of or for the benefit of the licensee, would be to render the license agreement's specific and limited grants of access superfluous. Therefore, even if licensees can generally allow third parties to use licensed software on their behalf, this general rule should not be permitted to outweigh the express and implicit terms of a license agreement.

Strategy and Conclusion

This case serves as a guide for licensees that use or anticipate using the assistance of their attorneys or other service providers in practicing the licensed technology.

(1) Licensors and licensees should understand whether and to what extent the licensee needs to and expects to involve third parties when utilizing the licensed technology, and should draft license agreements that clearly and explicitly express the metes and bounds of permissible third party access to the licensed technology.

(2) Prior to providing access to licensed technology to a third party working on its behalf, a licensee should see whether the license agreement permits such access—even if the third party consists of attorneys working on its behalf.

(3) Contract interpretation—even for patent licensing agreements—is governed by state law, which can vary from state to state. Therefore, when drafting and negotiating licensing agreements, determine which state's contract law governs and consult that law.

Endnotes

¹ The Compliance decision: http://www.ca5.uscourts.gov/opinions%5Cpub%5C09/09-10726-CV0.wpd.pdf.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.