Are Software License Restrictions Enforceable?
June 27, 2011
As you know, software license agreements contain restrictions (i.e. things you cannot do with the software). While some of them are pretty common (don’t reverse engineer or decompile the software or don’t let a third-party use the software), others are pretty unique.
But two very recent big name court cases demonstrate that even the unique restrictions are usually enforceable. Every company looking for growth capital or growth equity should have a read.
Case #1:
In this case, the Blizzard Entertainment (the folks that make World of Worldcraft) license agreement has a very unique restriction (see below).
Without taking you through the whole boring details of the case, the court essentially said that this restriction was enforceable and MDY (the company that made a ‘bot’ that allowed users to advance without actually playing the game) breached the license agreement. Oh yea, MDY also made around $3.5 million from selling the software that performed this task. So not only did MDY make software that violated this restriction, they also profited from it in a pretty big way. Courts really don’t like this.
Case #2:
NEON Enterprises sued IBM regarding certain restrictions in the IBM license agreement (actually NEON was alleging that these restrictions did not exist). NEON made software that allowed IBM customers to move their workloads around more freely, and was making money this way. IBM disagreed and said that their customers are restricted from doing this. It seems pretty clear to me that IBM stated in its license agreement that the IBM customer can only use certain workloads on certain processors. It appears that this was enforceable, as at the end of the lawsuit NEON agreed to a permanent injunction withdrawing its software from the market and actually giving the source code to IBM.
Here is some wording from the court order in the case.
License Restriction Takeaways
- If you are licensing your software and need unique restrictions to protect it, then think about adding those restrictions to your software license agreement. This is probably part of your competitive positioning.
- Be careful with restrictions or capacity limitations in the software you license, as courts sure seem to be enforcing them.
Q: Are software license restrictions always enforceable?
A: Actually, no. For example, clauses that prohibit customers from publishing benchmark tests may not be enforceable. Here is an article about it: N.Y Case Calls Software License Speech Restrictions into Question
RESOURCES:
Disclaimer: This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.