Unintentional Infringement

In the January 2010 issue of Inside Counsel, Jonathan Handel, of counsel to the Firm's Entertainment and Corporate departments,  discusses an unusual copyright decision involving expensive custom software. As the article recounts, "The defendant—Novelis Corp.—made no infringing copies, nor did it help anyone else make infringing copies. Instead, the company's liability sprang from an internal corporate reorganization." The consequence of that reorganization: the software vendor, Cincom Systems Inc., sued for infringement based on an anti-assignment clause in the software license.

Strangely enough, the federal district and appellate courts agreed, yielding a result that Handel remarked "will shock a lot of people." Adding to the confusion is another federal decision, in a different district court, that was issued at almost exactly the same time as the Novelis appellate ruling. That case, Vernor v. Autodesk Inc., involved different facts and off-the-shelf software, but nonetheless creates a conflict with the Novelis case, since the court in Vernor allowed the outright resale of shrink-wrap software notwithstanding an anti-assignment clause.

Concluded Handel, "It is very difficult to reconcile Cincom and Vernor. The rulings are almost diametrically opposed." The best way to avoid problems, in Handel's experience, is sophisticated legal review of software licenses whenever a client contemplates an M&A transaction—or even an internal reorganization.