2. Ownership

2. Ownership

Section 2.5 of the vendor form agreement is a very common provision found in most vendor agreements. It is so common that it is frequently glossed over without serious review. Among other things, the licensee should consider the following points in reviewing these types of provisions.

The licensee should not agree or acknowledge that the vendor owns anything. Rather, the licensee should take the position that the vendor has whatever rights it may have under existing intellectual property law, but agree to nothing further. The licensee should certainly not agree to any language along the lines that the licensee will never "context" or take any action "contrary" to the vendor's intellectual property rights. There are two reasons for taking this position. First, in the event the vendor ever alleges that the licensee's use of the software infringes its intellectual property rights, the licensee will likely defend the suit, in part, by arguing the vendor has no enforceable intellectual property rights. The language in Section 2.5 of the vendor agreement would undermine the licensee's ability to take that position (i.e., the licensee has already agreed in writing that it will never contest the vendor's intellectual property rights).

The second reason for objecting to this type of language is the possibility that the licensee could hold the intellectual property rights in certain patents, trade secrets, or copyrights that could be embodied in the current or some future version of the software. Consider the following example: the licensee holds a patent in a particular form of technology used to search large volumes of text. The licensee purchases a piece of software that provides general office productivity applications. A subsequent release includes the ability to search all text on the licensee's hard disk. The new search capability directly infringes the licensee's patent. Can the licensee enforce its patent against the licensor? In the absence of the license agreement, the answer would be an emphatic yes. With the license agreement, the answer is unclear or, worse yet, no. If the licensee has stipulated that the licensor owns all the intellectual property rights in the software and has further agreed never to contest those rights or do anything contrary to them, the licensee may find itself in breach of contract if it sues the licensor for infringing its patent.

Another important point to look for and avoid in ownership provisions is a broad statement that the vendor owns all derivative works based on the licensed software. The problem with such a provision is that almost anything that interacts with the software could arguably be a derivative work. That said, consider the case where a licensee interfaces one of its proprietary applications with the licensed software. Has the licensee created a derivative work? Possibly. If a derivative work has been created, the licensee may have just assigned the rights in its own proprietary application to the vendor.

Finally, to avoid any possibility that the vendor may claim ownership of all or any portion of the licensee's intellectual property, a clear and unequivocal statement to that effect should be included in every license agreement.

The foregoing issues are addressed in the example revision below:

Example Revision:

• 2.5 Ownership. This Agreement does not grant to Customer any ownership interest in the Licensed Software. Rather, Customer has a license to use the Licensed Software as provided in this Agreement. Customer hereby agrees and acknowledges that Vendor owns all right, title, and interest in the Licensed Software and Customer will not contest those rights or engage in any conduct contrary to those rights. Any copy, modification, revision, enhancement, adaptation, translation, or derivative work of or created from the Software by Vendor made by or at the direction of Customer shall be owned solely and exclusively by Vendor, as shall all patent rights, copyrights, trade secret rights, trademark rights, and all other proprietary rights, worldwide (all of the foregoing rights taken together being referred to collectively herein as "Intellectual Property Rights") therein and thereto. Notwithstanding the foregoing or any other provision of this Agreement, nothing contained herein shall be construed as granting Vendor any right, title, or interest in or to any of Customer's intellectual property or Confidential Information.