Often times, software developers and coders provide unrestricted licenses to their clients with an option to make a lump sum payment to buy a license. This practice creates significant risk for software developers, because it permits their clients to use derivative versions of the software and acquire a perpetual license.
In a recent case, Edgenet v. Home Depot, Home Depot was able to use derivative versions of Edgenet’s taxonomy and classification system for a database that Edgenet developed and buy a perpetual license to current versions. Edgenet had not placed any restrictions into a 2006 license that it provided to Home Depot. This license came with an option to purchase the taxonomy Edgenet developed for a $100,000.
Thus, Home Depot was able to produce derivative works and buy a perpetual license and terminate its relationship with Edgenet Home Depot was able to move development and maintenance of this database in house and terminate its business relationship with Edgenet. Edgenet did not place any restrictions on Home Depot’s ability to use the taxonomy it developed. Also, Edgenet used definite instead of indefinite articles, and provided an option to purchase a perpetual license to Home Depot. This allowed Home Depot to use the contract to avoid Edgenet’s claims to copyright infringement.
As a software developer, it is crucial for you to have service agreements or licenses that include restrictions relating to development of derivative works, additional payments for updated versions, and restricted options to purchase. Otherwise, a software developer may lose a vital or valuable revenue stream to in house developers. If you have any concerns or questions relating to your software development agreements, then please contact us.
Otherwise, like Edgenet you could lose millions of dollars for drafting a poor licensing agreement.