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9th Cir. License Primer

From: RJack
Subject: 9th Cir. License Primer
Date: Wed, 23 Mar 2011 20:20:58 -0400
User-agent: Mozilla/5.0 (Windows; U; Windows NT 6.1; en-US; rv: Gecko/20110303 Thunderbird/3.1.9

The Ninth Circuit Court of Appeals published a decision on Dec. 10th,
2010, MDY INDUSTRIES v. BLIZZARD ENTERTAINMENT that could serve as an
excellent primer for open source license drafters.

This decision is *REQUIRED READING* for the Free Software Foundation!

"... [7] “A copyright owner who grants a nonexclusive, limited
license ordinarily waives the right to sue licensees for copyright
infringement, and it may sue only for breach of contract.” Sun I, 188
F.3d at 1121 (internal quotations omitted). However, if the licensee
acts outside the scope of the license, the licensor may sue for
copyright infringement. Id. (citing S.O.S., Inc. v. Payday, Inc., 886
F.2d 1081, 1087 (9th Cir. 1989)). Enforcing a copyright license “raises
issues that lie at the intersection of copyright and contract law.” Id.
at 1122.

[8] We refer to contractual terms that limit a license’s scope as
“conditions,” the breach of which constitute copyright infringement. Id.
at 1120. We refer to all other license terms as “covenants,” the breach
of which is actionable only under contract law. Id. We distinguish
between conditions and covenants according to state contract law, to the
extent consistent with federal copyright law and policy. Foad Consulting
Group v. Musil Govan Azzalino, 270 F.3d 821, 827 (9th Cir. 2001)..."

[9] A Glider user commits copyright infringement by playing WoW while
violating a ToU term that is a license condition. To establish copyright
infringement, then, Blizzard must demonstrate that the violated term —
ToU § 4(B) — is a condition rather than a covenant. Sun I, 188 F.3d at
1122. Blizzard’s EULAs and ToUs provide that they are to be interpreted
according to Delaware law. Accordingly, we first construe them under
Delaware law, and then evaluate whether that construction is consistent
with federal copyright law and
policy. A covenant is a contractual promise, i.e., a manifestation of
intention to act or refrain from acting in a particular way, such
that the promisee is justified in understanding that the promisor
has made a commitment. See Travel Centers of Am. LLC v. Brog, No.
3751-CC, 2008 Del. Ch. LEXIS 183, *9 (Del. Ch. Dec. 5, 2008); see also
Restatement (Second) of Contracts § 2 (1981). A condition precedent is
an act or event that must occur before a duty to perform a promise
arises. AES P.R., L.P. v. Alstom Power, Inc., 429 F. Supp. 2d 713, 717
(D. Del. 2006) (citing Delaware state law); see also Restatement
(Second) of Contracts § 224. Conditions precedent are disfavored
because they tend to work forfeitures. AES, 429 F. Supp. 2d at 717
(internal citations omitted). Wherever possible, equity construes
ambiguous contract provisions as covenants rather than conditions. See
Wilmington Tr. Co. v. Clark, 325 A.2d 383, 386 (Del. Ch. 1974). However,
if the contract is unambiguous, the court construes it according to its
terms. AES, 429 F. Supp. 2d at 717 (citing 17 Am. Jur. 2d Contracts §
460 (2006)).

[10] Applying these principles, ToU § 4(B)(ii) and (iii)’s prohibitions
against bots and unauthorized third-party software are covenants rather
than copyright-enforceable conditions. See Greenwood v. CompuCredit
Corp., 615 F.3d 1204, 1212, (9th Cir. 2010) (“[H]eadings and titles are
not meant to take the place of the detailed provisions of the text,” and
. . . “the heading of a section cannot limit the plain meaning of the
text.” (quoting Bhd. of R.R. Trainmen v. Balt. & Ohio R.R.,
331 U.S. 519, 528—29 (1947))). Although ToU § 4 is titled, “Limitations
on Your Use of the Service,” nothing in that section conditions
Blizzard’s grant of a limited license on players’ compliance with ToU §
4’s restrictions. To the extent that the title introduces any ambiguity,
under Delaware law, ToU § 4(B) is not a condition, but is a contractual
covenant. Cf. Sun Microsystems, Inc. v. Microsoft Corp., 81 F. Supp. 2d
1026, 1031-32 (N.D. Cal. 2000) (“Sun II”) (where Sun
licensed Microsoft to create only derivative works compatible with other
Sun software, Microsoft’s “compatibility obligations”
were covenants because the license was not specifically conditioned on
their fulfillment).

To recover for copyright infringement based on breach of a license
agreement, (1) the copying must exceed the scope of
the defendant’s license and (2) the copyright owner’s complaint
must be grounded in an exclusive right of copyright (e.g., unlawful
reproduction or distribution). See Storage Tech. Corp. v. Custom
Hardware Eng’g & Consulting, Inc., 421 F.3d 1307, 1315-16 (Fed. Cir.
2005). Contractual rights, however, can be much broader..."

RJack :)

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