Misuse of Software License: Understanding Your Cause of Action

In the event of a breach of your software licensing agreement, you want to understand all of your options for legal recourse as a licensor. Before you can start to determine your possible remedies, however, you’ll need to pin down the cause of action at hand.

Is the Matter a Breach of Contract or Infringement?

In the world of software licensing, situations of breach and misuse can become complex quite quickly. The characterization of a licensee’s wrongful conduct will have a direct bearing on your potential damages, but situations of breach are not always cut-and-dry. If a licensee copies your software, for example, is the act of copying a breach of your licensing agreement or an infringement on your intellectual property rights?

The question might be answered by examining the type of licensing agreement at issue. If the licensing agreement is exclusive, a licensor is highly unlikely to convince a judge that infringement has occurred. An exclusive license transfers ownership of property rights, so an exclusive licensee cannot infringe upon his own property. Any act that steps outside the scope of the licensing agreement would, therefore, simply be a breach of contract.

When it comes to breach versus infringement, some federal courts have drawn a distinction between conditions to a licensing agreement and covenants to a licensing agreement. A condition is a term without which the contract would not exist (e.g., a licensor allows a licensee to use software only on the condition the licensee will never download the software on more than one machine). A covenant, however, tends to define the scope of the contract and place limitations on the parties to the contract (e.g., a licensor allows a licensee to use software, and the licensee promises not to download the software on more than one machine).

Where courts have drawn this condition-covenant distinction, they have typically ruled that a breach of conditions constitutes infringement, and a breach of covenants constitutes breach of contract. Both entitle the licensor to damages, but infringement allows the licensor to seek statutory damages, which can often be higher than those available under contract law. These types of contracting nuances demonstrate the paramountcy of careful licensing negotiation.

Protecting Your Property Before a Problem Arises

You, unfortunately, cannot control all of the actions of your licensees, but you can take meaningful steps during your software licensing process to protect your property and your business. Clear, concise drafting and thorough review of your licensing agreements can easily become the difference between having few options in the event of misuse and having significant legal remedies.

Larsen Law Offices, LLC, can provide the guidance and oversight you need to ensure your licensing agreements protect your software and your options for recourse. By calling Larsen Law at (303) 520-6030, you can schedule a consultation to begin your software licensing process or review your current licensing structure.