Fifth Circuit Prohibits Software Licensee's Attorney From Using Licensed Software

26 October 2010 Publication
Authors: Andrew Baum

Legal News Alert: Trademark, Copyright & Advertising

Can a software licensee allow its attorney to use the software for business purposes for the benefit of the licensee? A recent decision by the Court of Appeals for the Fifth Circuit says no. Compliance Source Inc. v. GreenPoint Mortgage Funding Inc., No. 09-10726 (5th Cir. October 18, 2010) holds that a court cannot look past the actual language of a licensing agreement and absolve a licensee who grants third-party access to use the licensed software merely because that use is on behalf of, or inures to the benefit of, the licensee. The case serves as a cautionary reminder that software licenses may be read strictly to protect against any unauthorized use.

As is common in many software licensing agreements, the agreement at issue here provided that the licensee did not have the right to “copy, make, use, have made, sell, support, or sub-license” the licensed technology except as specifically provided therein. The licensee granted its attorney access to the licensed software, used to streamline licensee’s mortgage loan-packaging process, so that the attorney could prepare loan documents on the licensee's behalf. The licensee argued that nothing in the agreement explicitly prohibited such use of the licensed software when it was done exclusively for the benefit of the licensee. The licensor contended that the licensing agreement expressly prohibited any use that was not explicitly authorized by the agreement itself. The court, following Texas law, looked to the plain language of the license agreement to support its finding that the licensee's attorney's use of the software was a non-permissible use because it was not specifically provided for in the agreement.

The Fifth Circuit’s decision serves as a reminder to licensees to look to the plain language in a licensing agreement before providing any third party, including attorneys, access to use licensed software.

Furthermore, based on the court’s reasoning in this case, the decision leaves open the possibility that a breach of contract claim could extend beyond those situations in which a third party uses the licensed software to where a third party merely accesses the software. Here, the dispute allegedly arose out of the licensor’s discovery that the technology was being accessed by a third party. When the licensor objected, the licensee assured the licensor that the third party had view-only access, which the licensor found acceptable under the agreement (the license agreement granted limited access to certain closing documents and disclosures through a customized link on GreenPoint’s Web site). The complaint was filed when it was later determined that the third party (the licensee’s attorney) was doing more than merely accessing the program. Given that “access” was not at issue here, the holding is restricted to third-party “use” of licensed software. However, based on the reasoning in the decision, the court has left open the possibility that, unless permission is specifically provided in the agreement, simply granting third party access to licensed software could be viewed as a breach of a license agreement.

A company whose software license agreements include similar restrictive language should first seek permission from the licensor before granting access to its ordinary service providers. When negotiating license agreements, licensees may wish to include language permitting access and/or use by attorneys or other service providers for the purpose of assisting the licensee in the ordinary course of the licensee’s business. 


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Andrew Baum
Partner
New York, New York
212.338.3527
abaum@foley.com

Kelly Weiner
Associate
New York, New York
212.338.3522
kweiner@foley.com

Authors

Andrew Baum

Retired Partner