Copyright Conundrums and Due Diligence

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As the world of contract law becomes ever more complex, and as app-authors and programmers get ever more callow about the legal realities of licensing, its easy for parties to get caught up in ‘get rich’ enthusiasm. They do so at their peril. Copyright and other IP lawsuits lurk around every corner.

We’ll go over a scenario that’s been playing out more and more recently and some of the steps you, as the in-house lawyer, can do to minimize your client’s headache.

The Copyright License

It’s IP 101 to say that patent, trademarks, and copyrights are rights to the initial owner of exclusive use. As rights to use, they can also be sold and licensed out to other parties. In the world of copyright, for example, those licenses generally tend to fall into one of two camps: the exclusive license and the non-exclusive license.

With the exclusive licenses, the licensee may use, but may not re-issue further use licenses himself. With the non-exclusive license, the licensee may do so. You see where the problems start to begin.

This Could Happen to You

Imagine the following scenario that was first fleshed out by Paul Keller and Stephani Kunz at Texas Lawyer. You want to create an app and solicit the help of a developer-company to start working. The company licenses out to you the right to use its software to develop your app. Now that you’re knee deep in the project, you get slapped with a lawsuit from a third party which has an exclusive right to the developer software you’re using to start up your project. Turns out the developer company you contracted with sold an exclusive right to the third party, and neglected to tell you.

Best Practices and Due Diligence

Unfortunately, this sort of thing happens more often than it should. What’s worse, the mental state of the after-licensee (here, that would be you) is irrelevant. Exclusive use infringement is the IP equivalent of trespass — it doesn’t matter what you were thinking or not-thinking.

So what should you do to protect your client and their interests?

  • Ask Before You Sign: Ask the would-be licensor if they are aware of any potential third-party license holders whose rights could conflict with your company’s.
  • Constructive Notice: Check with the Copyright Office and the USPTO for recorded rights in licenses. Even if you don’t find it, recordations are considered constructively noticed by all the public.
  • Indemnity Clauses: This is the most important of the due diligence steps. Demand that the licensor include an indemnity clause in the license agreement you sign. If third parties start making a legal headache for your company over the exclusive use of the copyrighted material, the licensor is contractually obligated to defend and pay for any associated legal costs.

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