Tag Archives: license

Contracts

What Does “Affiliates” Really Mean?

It is common for many licensing agreements to grant a license to a particular entity and its “affiliates.” The contact may even define what the term “affiliates” means, but this doesn’t always mean that the definition includes all of the parties that were intended to be included.

For example, does a license that is granted to an entity and its affiliates include only those affiliates that existed on the effective date of the license agreement? Does it include affiliates that are established after the contract was formed? According to the Court of Appeals of the State of New York, the license is limited to affiliates that were in existence on the contract effective date, unless the agreement expressly states otherwise.

It is typically beneficial for the licensee if the contract broadly defines affiliates, but the New York case demonstrates that it may also be beneficial to the licensor under some circumstances. In the case of Ellington v. EMI Music, Inc., the parties’ dispute centered on the terms of a royalty provision of a 1961 copyright renewal agreement. The parties to the contract were the legendary musician Duke Ellington and a group of music publishers, including the predecessor to EMI Music. Ellington and his heirs were entitled to 50% of the net revenues resulting from the sales by EMI and its affiliates.

Subsequent to the 1961 agreement, EMI created new affiliated foreign entities that were granted sublicenses. EMI paid the heirs of Ellington half of the net revenue that EMI received from the new, affiliated foreign sub-licensees. However, Ellington’s heirs argued that because the foreign entities were affiliates of EMI, they were also entitled to 50% of the foreign affialites net revenues as sub-licensees as well.

The court rejected the heirs’ argument because the contract did not contain forward-looking language. Thus, without the written agreement showing the parties’ intent to bind newly created affiliates, the term affiliates only included those affiliates existing at the time the agreement was executed.

As the Ellington case demonstrates, it is possible that having a broad definition of “affiliates” could benefit the licensor, especially if it could bring more entities into a more lucrative royalty structure.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

Business, Intellectual Property

The Scope of the License in Software Licensing Agreements

Licensor’s Perspective

If you are the owner of software and you want to allow other parties the right to use the software while maintaining ownership and control over it, you need a software licensing agreement. As a licensor, you can limit the scope of the license by defining how and for what purpose the licensee is allowed to use the software. A restricted license only allows the licensee to use the object code of the software, not the software’s source code. A licensor may also want to further restrict the license by limiting:

  • Fields of use (for example, for use only at the licensee’s internal business purposes)
  • Geographic use restrictions
  • The number of concurrent users allowed
  • The hardware upon which the licensed software may be used
  • The ability to transfer the software license

A licensor is more likely to seek additional revenue by enforcing the scope restrictions in an economic downturn. Thus, restrictions on the ability to transfer the license can allow the licensor the ability to extract additional fees if the licensee wants to assign the license.

Licensee’s Perspective

A licensee typically seeks to negotiate a broader license to help ensure it has adequate rights to use the software as needed. If a licensee does not sufficiently negotiate the ‘terms of use’ and later discovers it must exceed the restrictions, the licensee will have to renegotiate and likely pay additional fees. Thus, it is important for the licensee to carefully consider what its future needs of the software will be. If this is not a known factor, the licensee may consider including a means for increasing the limits imposed by the licensor in the contract, and specifying the amount to be paid for the changes. Finally, and particularly if the licensee is paying for development of all or a portion of the software, a licensee may wish to negotiate to have the exclusive right to use the licensed software in order to prevent other parties or competitors from being able to use the software.

When parties are negotiating a software licensing agreement, it is imperative that both the licensor and the licensee pay close attention to the provision regarding the scope of the license.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.