by Susan P. Altman (Pittsburgh) and Todd A. Fisher (Dallas).
If your client or customer asks you to input data into its database, do you readily agree, or do you first ask if you have the right to do the inputting?
Most service providers are more than happy to show their responsiveness and helpfulness and sometimes forget to check whether they have the right to use the technology licensed by their client.
The Fifth Circuit in Compliance Source Inc. v. GreenPoint MortgageFunding Inc. reminded us recently that use of someone else’s technology, even if it is only on behalf of and for the benefit of a licensee, may require explicit permission of the owner (not just the licensee) and failure to obtain that explicit permission may result in a lawsuit.
The Compliance case involved the question of whether a licensee who had the right to input data into a technology solution that coupled proprietary mortgage forms with software also had the right to allow a third-party service provider (in this case a law firm) to use the technology solution on the licensee’s behalf. The Fifth Circuit, based on an examination of the restrictive language in the license agreement, held that it did not. The court reversed the district court’s grant of summary judgment in favor of the licensee. The district court had accepted the argument that Texas law permitted the court to “look past the actual language of a licensing agreement and absolve a licensee who grants third-party access merely because that access is on behalf of, or inures to the benefit of, the licensee.” The Fifth Circuit rejected this expansive interpretation of its previous cases, and instead looked carefully at the language of the license grant and restrictions on use to determine whether third parties actually were granted the right to use the licensed technology for the benefit of the licensee.
In Compliance, the license grant contained restrictions on third parties’ use of the technology. In contrast, the cases relied on by the district court involved license agreements that explicitly granted limited rights to licensees to provide general third-party access. The Fifth Circuit found that the license agreement in the Compliance case meant exactly what it said it meant and that there were no implied use rights for third parties. If the licensee wanted the right to allow its service providers to access the technology solution, then it needed to negotiate the explicit right into its underlying license agreement.
The decision makes clear that licensees need to anticipate which parties outside their organization (including outsourced information technology consultants and law firms) will need access to licensed technology in order for the licensee itself to obtain the full expected benefit of the licensed property. As we all know, it is usually much easier to negotiate use rights before the contract is signed than afterwards. Furthermore, if your company is asked to provide services using technology licensed to your client or customer, make sure you have explicit use rights in the underlying license.