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Unintended Consequences: What happens to software licenses upon a merger or reorganization?
The United States Court of Appeals for the Sixth Circuit, in Cincom Systems, Inc. v. Novelis Corp. (published September 25, 2009 pursuant to Sixth Circuit Rule 206: File Name: 09a0346p.06), has provided more ammunition for ensuring that software license agreements specifically address the transfer of licenses to surviving entities of reorganizations. Cincom Systems and a predecessor of Novelis Corp. were parties to a
license agreement. A fter an otherwise routine series of transactions
resulted in internal restructuring among affiliates, Novelis Corp. (the
surviving entity) continued to use Cincom's software without obtaining
its written consent. Cincom subsequently filed a lawsuit, alleging that
the continued use of such software by Novelis constituted infringement
and violated the original license agreement. The Cincom case stands for
the proposition that, in the absence of written consent, software
licenses do not vest with the surviving entity formed as part of a
corporate restructuring, despite statutory language suggesting otherwise.
The court in Cincom ruled that federal law prohibited the
transfer of the software licenses, even though, before and after the
merger, the software may have sat on the same computer, doing the same
thing, and at the same location. The surviving entity was found to be
in violation of the software license as a result of the merger, and
damages of nearly $500,000 were awarded to Cincom.
LESSON LEARNED: The Cincom case gives software vendors significant leverage in demanding additional license fees or other concessions when their customers transfer licenses pursuant to mergers, sales, or reorganizations without the vendors' consent. As a licensee of software, you should take great care in ensuring you have all necessary consents and approvals from your software vendor prior to any transfers. If you would like to learn more about how this decision may affect your business, contact us to discuss your situation.
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 The Legal Considerations of Starting an Online Business- Now on DVD
In today's economy, more and more people are considering launching their own Internet businesses. But a good business idea is not enough - understanding the legal issues involved in operating a business online is crucial. In this instructional DVD, attorney Dan Pepper walks you through, step by step, practical, easy to understand tips you can use IMMEDIATELY to get your Internet business off the ground. For more information and to see a preview, visit informationlaw.com or visit Amazon.com to order your copy!
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Pepper Law Group, LLC, provides strategic
advice and sophisticated legal services to businesses, entrepreneurs, and
entertainers in the areas of technology law, intellectual property, Internet law, entertainment law, general corporate counsel, and privacy and security law.
Pepper Law Group, LLC
72 West End Avenue
Somerville, NJ 08876
informationlaw.com
908.698.0330
(voice)908.248.9220
(fax)info@informationlaw.com |
| Disclaimer: The
advice given in this newsletter should not be considered legal advice. This
newsletter only provides general educational information. You must never rely
upon the advice given here. Your individual situation may not fit the
generalizations discussed. Only your attorney can evaluate your individual
situation and give you advice. Except as provided below, you may feel free to
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