Finally, other than various state law trespass and common law claims, the most common form of protection for software is a simple contract. Unlike free and open source software, most commercial software products are distributed under license solely in object code form and can be subject to shrinkwrap or clickwrap agreements. Notwithstanding legitimate concerns about whether such agreements are enforceable or an abuse of dominant position, they generally:
(1) Grant narrowly drawn licenses;
(2) Include confidentiality obligations and restrictions against copying, modifying, redistributing, and, in certain instances, accessing the licensed software; and
(3) Prohibit reverse engineering and other means of uncovering or reconstructing the software’s source code. This allows software rights owners to contract around the statutory first sale, fair use (including reverse engineering), and essential use rights by licensing, rather than selling, physical copies of the owner’s software subject to use restrictions and licensee waivers of these rights.
Another strategy with software as a trade secret is to withhold the distribution of tangible copies of the software by adopting a SaaS or other remote service model. This strategy is based on the reasoning that, under the terms of a software license agreement, the licensee typically licenses rather than owns a copy of the software, and that the statutory limitations on copyright protection, therefore, do not apply. The software rights owner is then free to impose additional contractual restrictions on the transfer and use of copies of its software.
Breach of contract, therefore, is not equivalent to or preempted by copyright infringement claims and can be a valuable additional tool to traditional IP rights.
Accordingly, a software licensor may attempt to preserve both contract and statutory IP rights (for example, copyrights and patents) by framing license agreement restrictions as:
(1) Covenants that, if breached, give rise to an action for breach of contract. These covenants are typically set out in the license agreement’s restrictions provision;
(2) Conditions to the license grant that, if breached, suspend or terminate the license and give rise to an action for copyright or patent infringement. These license conditions are commonly set out at the beginning of the license grant; and
(3) Limitations to the scope of the license grant that also give rise to a claim of infringement if exceeded. These limitations are typically set out in the license grant and may include, for example, territorial, term, permitted use, authorized user, the volume of usage, and field of use limitations and restrictions.
David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025