Unintended Consequences: What happens to software licenses upon a merger or reorganization?
. The curious result within the Cincom case was an award of just about $500,000 to a software vendor as damages for reproductionright infringement, despite a state merger statute that every oneowed assets held by a celebration to automatically vest in a hitor company. the seller succeeded in being paid twice for a similar software, at the similar machine, within the similar building, necessarilysince the name over the buyer's door had changed. a whole copy of the Court's decision could also be found at http://www.ca6.uscourts.gov/opinions.pdf/09a0346p-06.pdf.
the realitys in Cincom involve Alcan Rolled Products Division (Alcan Ohio), an Ohio corporation wholly owned by Alcan, Inc., that licensed suresoftware from Cincom Systems, Inc. pursuant to the terms of a license agreement. The agreement as long because the license was “non-exclusive and non[-] transferable” and didn't permit Alcan Ohio to “transfer its rights or responsibilitiesunder [the license agreement] without the prior written approval of Cincom.” The license agreement also required thon the software be used only on a chosepcin Alcan Ohio’s Oswego,Osi Umenyiora Jersey, ny, facility. The license agreement granted Alcan Ohio "a non-exclusive and non-transferable license" to make use of the software and that included a schedule that specified a single computer, located in an Alcan Ohio facility in ny, on which the software may well be installed. It also indentified Ohio law as controlling and stated lcan Ohio may"not transfer its rights or responsibilitiesunder this Agreement without the prior written approval of Cincom."
After finishing touchof the interior reorganization, the software remained at the similar pcin ny, but in a plant now owned by the successor company, Novelis. Alcan Ohio/Novelis radependattempted to procure Cincom's written approval to continue to make use of the software before or after the remainingructuring, presumably assuming that this type ofpproval was unnecessary within the context of an internal reshuffling that did not amendmentthe physical location or expand the U.S.e of the software.
Ohio's merger statute as long as "[t]he surviving or new entity possesses all assets and correctty of each description, and each interest within the assets and correctty....all of that are vested within the surviving new corporation without extraact or deed." Notably,Joe Thomas Jersey, the merger law were changed before creation of the license agreement to examendmentlanguage that every one property will be deemed "[t]ransferred to" the surviving corporation without extraact or deed.
Cincom sued Novelis, alleging lcan Ohio had violated the Cincom license by transferring the license to Novelis without consent, making Novelis an infringer whose use of the copyrighted software was unauthorized by Cincom because the copyright owner. Novelis countered thon the license contained no indication of intent to ban the license from moving between related parties as a part of an internal corporate reorganization, and that Ohio's removal of the words "transferred to" from the merger statute required a finding thon there were no "transfer" of the license. The District Court disagreed, and determined thon the series of mergers effected a professionalhibited transfer of the license. Novelis appealed.
The Court of Appeals characterized the zcertainly one of conflict between federal intellectual property law and state corporation law as one of the maximumlimited situations requiring "judicial creation of a few federal rule of common law." It extraobserved that courts had previously articulated the will for a unishaperule that patent licenses are "personal" and "non-transferable" within the absence of agreement expressly authorizing the assignment, and extended that patent principle to Cincom's copyrights within the software. briefly, even althoughOhio state law would permita hitor to imagine the license,Kevin Smith Jersey, like other assets of the predecessor company, without explicitauthorization, the court determined that Ohio need toyield to the "federal common law" that it found to ban such transfers.
After determining transfer without explicitauthorization from Cincom can be impermissible, the court then determined lcan Ohio did make this type of transfer when Novelis sustained employingthe software — at the similar pcwithin the similar location — without first obtaining Cincom's permissidirectly to take action, and awarded damages for reproductionright infringement in an quantitystipulated by the parties (according to plain fees for a brand new license).
This decision is pudependcontrolling inside the Sixth Circuit (comprising Ohio, Kentucky, Michigan, and Tennessee), but tlisted here are just a few judicial opinions in this topic and other courts couldlocatethe Cincom holding persuasive. wrong or right,Deion Sanders Jersey, however, it givestwo cautionary lessons:
?Assignment and allowted-user clauses in license agreements for thereforeftware and other intellectual property need to be drafted with particular care, because courts are more likely to regard intellectual property as a singular asset category entitended in vitalfederal protection.
?Intellectual property due diligence, including a review of key software license and assignment provisions, is very vitaldespitein the context of a restructuring that can impactthe company identity of the unique licensee.
should your organization is thinking a few merger, whether with a 3rd party or for internal reorganization purposes, it is necessary that you simplyr intellectual property contracts watch outly reviewed and analyzed to figure out if the merger couldimpactthe surviving entity’s skillto make use of the intellectual property at issue. and not using a transpahireunderstanding of that matter,Matt Ryan Jersey, you can also locatethat you've got inadvertently lost one of the maximumbenefits the merger was intended to offer.
