Software licenses have to allocate various risks between licensors and licensees.  In fact, it is essential early on to figure out what will happen should things not go as planned.  Risk allocation is allocated, in part, through the warranty clauses.  A sample provision is as follows:

“WARRANTIES. Licensor represents and warrants that (i) Licensor is the owner of, or has the right to enter into this Agreement on behalf of the owner of, all right, title, and interest, including copyright, in and to any or all of the Licensor Products, (ii) Licensor has the full right and power to enter into this Agreement, (iii) the use of the Licensor Products as authorized herein does not violate the rights of privacy or publicity, constitute the invasion or infringement of any other personal or property right, including without limitation, any intellectual property right, of any third person, firm, corporation or other entity, and (iv) the Licensor Products furnished by Licensor to Company have been tested by Licensor and are free and clear of any and all viruses, bugs, or other errors that cause the Licensor Products to not operate in the manner intended, or which is intended to prevent such operation at any time. Licensor further warrants that during the term of this Agreement the Licensor Product will remain error free in all material respects. Licensor will use its best efforts to correct any errors or problems in the Licensor Product.”

There are many different types of warranty provisions for many different situations.  Some jurisdictions may even require the provision to be conspicuous, or written in all caps or bolded to draw attention to it.  The sample warranty above is a commonly used provision with fairly standard provisions.  Parties are welcome to further allocate risks and modify the provisions as they please.

An important warranty is the warranty of non-infringement (or sub-part iii in the sample).  This provision allocates the risk of potential intellectual property infringement suits onto the licensor.  It is the licensor’s duty and job to warrant that the licensor owns or otherwise has rights to the intellectual property.  Otherwise, the licensee, not the licensor, would accept the risk of potentially expensive lawsuits.

Such a provision is often considered fair because the licensor is in a better position to determine whether he owns the intellectual property rights or whether there may be potential infringers.  For example, if the licensor knows that he copied the software, then he cannot truly warrant against non-infringement.  Licensees may similarly be unwilling to accept software that is open-source or accept software without some assurance from the licensor that they are not infringing.

It is also important to note that many sellers of computer software will use the words “as is” in describing the warranty.  The term essentially means that no matter how bad the software is, how badly it damages your computer, or how badly it works, the licensee accepts that software “as is” without any warranties.  The rationale is that no software is error-free, and that the licensor does not have any control over the hardware or other software used by the end-user.

If a licensor breaches the warranties, various forms of damages may be available.  Lastly, it is important that the warranty clause be coupled with an indemnification clause, if necessary.

Following a boom in franchising in the United States around the 1950s and 1960s, there was a dramatic increase in international franchising activity.  Franchised businesses could be found in many of the major countries, and now franchising exists and is successfully utilized in over 150 countries across multitudes of business sectors.  In fact, many businesses use franchising as a method to expand internationally.

When franchising occurs between international parties, such as when a foreign entity purchases a United States franchise or a foreign entity wants to set up a franchise in the United States, understandings of both countries’ laws may be necessary.  A wide range of laws such as contract, intellectual property, or anti-trust may affect international franchise transactions, and the issues have recently grown to be more complex.

In expanding overseas or in franchising agreements involving international parties, the United States Federal Trade Commission has trade regulation rules on franchising.  These rules, similar to domestic rules, may require the franchisor to provide various documents and disclosures.  While the scope of the rules are fairly broad, at least one court has held that the rule does not apply to a transactions between foreign citizens and United States franchisors.

State franchise laws may also apply to international franchise transactions, especially if the sale, offer, or acceptance of franchise rights occurs in the state.  Some states similarly require the franchisor to provide various disclosures and even register their franchise offerings with the state.

Many countries regulate franchising, and may have additional disclosure requirements.  For example, Block Exemption Regulations (BER) may affect how franchises operate in Europe.  Some commentators have noted that the BER rules on competition for distribution of goods may make it more difficult for franchisors to ascertain whether the franchise agreements fall under safe harbor or block exemptions that affect how goods may be sold.

It is equally important to check the intellectual property laws of all countries involved.  Technology transfer laws that regulate the licensing of foreign technology may lead to possible regulatory barriers.  While some technology transfer laws have been repealed since many years ago, it is important to check with counsel in case there are any laws still in effect.  Regardless, it is essential to protect a franchisor’s trademarks and other intellectual property as the franchisor expands.  This may require the application of foreign and international trademarks, patents, or copyrights.

Finally, one should be aware of other barriers or laws that may affect the transaction.  Currency control restrictions may be a problem in some countries.  There may also be tax issues.  Another problem is figuring out dispute resolution, such as what method and where the dispute will be addressed.  Laws in other fields, such as anti-terrorism laws, corrupt practice acts, import/export laws, or anti-boycott regulations may come into play.  Regardless, numerous legal and business issues will present themselves when international franchises are involved, and it is important to conduct proper due diligence in complying with the laws and regulations.

Software licensing is big business, especially when software happens to be the principal asset of many emerging technology businesses.  A license is necessary if one desires to use another’s product, process, or service in a way that, without the license, would violate the other’s patent, copyright, trademark, or other intellectual property/proprietary right.

Businesses will often be both licensors and licensees; in other words, they will license their own technology to others and obtain licenses to use others’ technologies. As such, it is important to first develop and plan an appropriate licensing strategy.  The business should define its objectives, whether it is to fund research and development, meet customer demands, enhance its own products, avoid potential litigation, or explore market opportunities.  In addition, the business should consider the selection of markets, screen potential licensees, and research potential licensors.

A common problem arises in determining exactly what the intellectual property at issue is.  Licensors often think their technology is broader or has more intangible rights than they realize, and licensees may only seek to use a certain part of the technology.  In addition, software programs may consisted of several types of intellectual property, such as copyrights, trade secrets, or patents, and it is important to determine what rights one needs.

In addition, in licensing software, it is important to determine what does not need to be licensed.  Certain parts of the code may be open source or subject to fair uses.  Other parts of the code may be built from third-party libraries that are considered to be in the public domain.  Certain technologies also involve patents that may have expired.

To deal with the myriad of issues, software licensing is allowed to be fairly flexible.  The licensor is free to parcel out the rights that it wishes, whether exclusively or nonexclusively, perpetually or for a period of time, worldwide or in a certain region, revocable or not.  The licensor can limit the use of the software, such as the ability to create derivative works, make modifications, re-sell, or distribute copies. The licensor can adjust the royalty rate or other licensing fees as it wishes based on the type of license desired by the licensee.  Of course, everything needs to be put in writing and signed by the parties to be bound.

This article is the first in a series of articles regarding software licensing.

According to a recent study by UC Hastings’ Professor Robin Feldman, non-practicing entities (or patent trolls or NPEs) file 40% of all patent infringement cases, a number that increased from 22% in 2007 to 40% in 2011.  This statistic does not even tell the whole story and may even understate the effect of non-practicing entities.  For example, the number does not account for the percentage of non-practicing entities threats that lead to settlements outside of court. In addition, patent litigation has increased overall, which means the number of non-practicing entities may have increased much more than the numbers suggest.  While non-practicing entities usually focus on bigger corporations due to deep pockets, these numbers suggest that non-practicing entities may now have an eye on start-ups and smaller businesses that are not as established but have raised substantial revenue.

There are many common techniques used by companies to protect themselves from competitors which are not effective against non-practicing entities.  After all, many non-practicing entities sue on bogus claims and fail to do pre-filing investigations.  They may file suit merely because your business uses a single term in advertising your product, which happens to be mentioned on a patent owned by the non-practicing entities.

Nevertheless, some companies may minimize and limit their exposure to non-practicing entities.  For example, businesses can routinely monitor new patents and published patent applications.  Some businesses do a clearance search for patents or pending patent applications that may cover important features of a product.  These searches would usually occur prior to initial development or commercial introduction.  In addition, it may possible to design a product around the claims of past patents.  If there is a pending application that may be problematic, one can file a protest to alert the United States Patent and Trademark Office of any prior art.

If there are any patents that arguably overlaps with the proposed product, businesses can attempt to buy those patents before they are sold to non-practicing entities.  Sometimes the patents are held by individual inventors who may be willing to sell the patent at a low price.  This strategy, called defensive patent aggregation, is a practice used by some companies that purchase patents or patent rights from patent owners so that the patents do not end up in the hands of non-practicing entities or other entities that can assert those rights.

If a new product involves areas where patents rights may be unclear (i.e. Software or business methods), patent infringement insurance may be possible to help reduce the risk.  Conversely, some businesses merely take the risk and opt for early settlement once sued.

This article is the second part of a continuing series.  The first part can be found here.

End-user licensing agreements (also called EULAs) are a type of software licensing contract between the owner of the software and the purchaser or user of the software.  Under the first sale doctrine, owners of software must “license” as opposed to “sell” software in order for them to maintain their ownership rights over the software.  As a result, these EULAs define ways in which the copy of the software may be used.

We have all seen these.  EULAs pop up as dense portions of legalese prior to the installation of any software.  Users have to scroll through the agreement and finally click on an “I Agree” button.  By now, such agreements are ubiquitous in the software and consumer electronics industry.  Millions of users are clicking buttons that purportedly bind them to agreements that they have likely never read.

EULAS come in various types, the most common being either a shrink-wrap or click-wrap agreement.  Shrink-wrap licenses refer to software agreements enclosed within a tangible software package or box that is inaccessible to the customer until after purchase.  Click-wrap licenses refer to contracts that are presented to the user during the installation procedure.  The user has the choice to accept or reject the agreement in order to install it.

EULAs often contain similar terms, such as ownership rights over the intellectual property, license grants, warranties, indemnities, term and termination, and various miscellaneous clauses.  The EULA may also contain extensive liability limitations to protect the owner and hold them harmless to the extent that the software causes any damage to user’s computer or from improper use.  The miscellaneous provisions often include clauses relating to applicable law, venue restrictions, arbitration, or successors.  Many key phrases in the agreements are often bolded, underlined, or in all caps.

Whether these licenses are legally binding differs between jurisdictions, though many courts have held such licenses to be enforceable.  The enforceability depends on several factors, such as the terms of the contract, the laws of the state, fairness, or whether the contract is considered unconscionable as an adhesion contract.  While there certainly is controversy over the use of EULAs, courts have not made generalized decisions regarding the enforceability of such contracts.

Are you one of those people who become extremely irritated when you receive marketing calls for different products?  Well, in our world of smartphones, alongside your home phone, you may have received, or will soon receive, texts soliciting your personal information.

SFGate recently covered a story where people such as Lesley-Ann Thompson received a text from Best Buy, stating that “she had won a $1,000 gift card!”  In reality, Best Buy had nothing to do with this text.  It was simply a part of some major fraud scheme where people would receive such a text, open the attached link and/or call the number included in the message, and hopefully divulge their pertinent financial information.  Scammers would then be able to access these individuals’ bank accounts, and steal their money.  Scammers often use computers to generate cell phone numbers, and then send out these texts by thousands, hoping that at least a few people will respond.  Sadly, many do respond and fall prey to these scammers.

Unfortunately, scamming via texts has become a huge industry.  Ferris Research has reported that in 2011, there were approximately 4.5 billion texts sent out with the intent to scam!  This figure is not only large, but extremely disappointing.  What is not surprising though is the fact that sending texts to scam, or “text spamming,” as it is nicknamed, is illegal.

Although mobile phone companies are trying to prevent these scam texts via internal security measures and asking customers to report scam texts, such preventative measures are not proving to be effective.  What is needed is the cooperation and awareness of consumers.

What may also prove to be effective is to bring these matters to the attention of the law.  Under the 2003 Can Spam Act and the Telephone Consumer Protection Act, mobile spamming is illegal.

The 2003 Can Spam Act (CSA)
The CSA coverall all electronic messages sent for the purpose of commercial advertisement or promotion of a commercial product or service.  Naturally, texts and e-mails are included.  The CSA establishes requirements for such electronic messages and gives recipients the right to stop the sender from sending them the messages.  Further, harsh penalties for violations are established.  Some of the requirements for electronic messages include not using false or misleading header information, not using deceptive subject lines, identifying a message as an ad if it is so, providing relevant contact information and providing recipients with the option of “opting out” of receiving further electronic messages.  Violators have been penalized up to the amount of $16,000, making non-compliance extremely costly!

The Telephone Consumer Protection Act (TCPA)
Congress passed the TCPA in 1991 due to consumers becoming agitated over unsolicited telephone marketing calls.  In June of 2003, the TCPA was amended to include the “National Do-Not-Call List.”  On this list, both an individual’s home and cell phone number can be entered, in order to prohibit solicitors from calling them on their home or cell phones.in, ensuring that solicitors will be prohibited from calling.  Violators are to encounter severe monetary penalties.

What Can You Do?
Both the CSA and TCPA allow for mobile phone users to report any spammers, who due to their spam-disseminating actions are violating the law.  Any individual who is frustrated with such spammers can file a complaint with the Federal Communications Commission (FCC).  The FCC requires a vast array of specific information in order to file a complaint.  Further, the process requires many steps, time, and a lot of patient.  Therefore, individuals are now seeking the aid of attorneys in order to file such complaints with the FCC.  Filing complaints raises awareness, which in turn brings about regulatory action.
Overall, it is best to educate yourself about the law, be astute about the texts you are receiving, and report any improper actions so that text spamming can one day be put to an end.