The Software IP Report

Defining the Scope of a Perpetual Software License

By Charles Bieneman

Categories: Software Licenses, The Software IP Report

A perpetual software license entitled a licensee only to use versions of the software created before the license agreement terminated, despite the existence of an escrow agreement requiring the deposit in escrow of “all updates” and “all revisions” of the software’s source code.  Gene Codes Forensics Inc. v. The City of New York, No. 10 Civ. 1641 (S.D.N.Y. April 26, 2012).

The plaintiff software vendor sued the defendant, the City of New York, for allegedly breaching confidentiality provisions in a License Agreement.  The defendant counterclaimed, alleging that the plaintiff was obligated to supply software upgrades “since the expiration of the term of the License Agreement and on into perpetuity,” and to deposit all upgrades into escrow.  The plaintiff then moved to dismiss the defendant’s counterclaim.

The plaintiff noted that the grant of the perpetual license referred only to software created under the agreement.  The defendant countered that the plaintiff had ignored language in the Escrow Agreement requiring the plaintiff “to deposit in escrow ‘all updates’ and ‘all revisions’ of the source code.”

However, the court thought that a plain reading of the license grant “indicates that only software created during the term of the contract was contemplated as part of the grant.”  Neither the section of the license agreement detailing the vendor’s obligations, nor any other provision in the agreement, “referred to any obligations that temporally extend beyond the term provided in the contract.”  To read the license grant as referring to software “which is not the subject of the License Agreement is indefensible and would render the limitation in” another portion of the agreement “purposeless.”

The parties clearly intended that the vendor had no obligation to update the software after the license agreement expired.  The defendant had the right to use the version of the software that was the subject of the agreement in perpetuity without paying licensing fees.  The defendant did not, “however, have the right to further updates for which it has not paid.”  Therefore, the defendant’s counterclaim was dismissed.