If your company buys a license to use software, then your company should be able to use the software for its own benefit, whether that use is by your employees or by an “outside,” third-party working on behalf of your company, right? Not necessarily. While that’s a reasonable assumption, court decisions suggest that a licensed user of software does NOT have a general right to allow others to access the software even on the user’s behalf, unless the license agreement specifically provides for that use. Therefore, when purchasing software, be sure that your licensing agreement specifically addresses any anticipated outside uses of the software by third parties working for you or on your behalf. This is especially of concern to businesses that use outside, independent contractors to perform their work.
This issue recently arose in a case before the U.S. Court of Appeals for the Fifth Circuit that involved GreenPoint, a mortgage-financing company, and Compliance Source, Inc. (CSI), which developed mortgage software that GreenPoint used pursuant to a license agreement. (A link to the court’s opinion follows this post.) GreenPoint assumed that outside attorneys working on GreenPoint’s behalf could use the software purchased by GreenPoint simply because they were agents of GreenPoint who used the software for and on behalf of GreenPoint. The court disagreed, however, and GreenPoint is now stuck in litigation with CSI. The court decided this issue based on the license agreement, as interpreted under state law. The court looked for the true intent of the license agreement on this point and found that the agreement was not meant “to allow general third-party access on behalf of or for the benefit of GreenPoint.”
Specifically, the court considered all of the language in the license agreement and found that the agreement contained two limited provisions that granted GreenPoint the right to allow third-party use of the software: it allowed lenders to access reports through a link on GreenPoint’s website, and it permitted a specific law firm (which GreenPoint apparently never used) to view documents created by the software. Based largely on these two limited uses, the court rejected GreenPoint’s argument, finding that “to read into the agreement a general right to grant third-party access when such access would be on behalf of or for the benefit of GreenPoint would be to render these specific and limited grants of access superfluous.” Put another way, since GreenPoint and CSI had negotiated specific, limited grants of third-party access, they could not have also intended the agreement to include a general right of third-party access to the software.
Although we cannot know how the court would have ruled if the license agreement had not expressly granted limited third-party access, the court’s decision suggests that the license agreement still would have prevented the “general third-party access” argued by GreenPoint. For example, the court stressed that the agreement prohibited GreenPoint from sublicensing or assigning rights to use the software beyond any rights conferred by the agreement. The court also distinguished other cases where courts had allowed third-party access, because those cases involved licensing agreements that expressly permitted some third-party use on behalf of the licensee/software buyer.
The bottom line is that companies purchasing software should specifically address any contemplated third-party use of the software so that everyone’s understanding is clear on that point. Otherwise, third-party use may raise a question that can only be answered by a judge after an expensive lawsuit.
(For those interested, a copy of the decision is linked here: Download 09-10726-CV0.)
