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Court Orders Software Licensees to Give Up Infringing Software

October 1991

Licensees of computer software programs usually ask that the licensor warrant that the program does not infringe third party rights. They also frequently seek contractual indemnification from the licensor for damages and defense costs, in the event a third party claiming infringement brings suit against the licensee.

A recent case decided by a federal district court in Pennsylvania shows that companies that license infringing software may be subject to even greater risk. In this case a jury found the defendant MacLean Associates, Inc., guilty of copyright infringement and trade secret misappropriation of a computer program owned by William M. Mercer, Inc., and awarded Mercer close to $2 million in damages. In addition, the court ordered the defendant to immediately recall all copies of the illegal program from any customers, licensees or third parties who had received copies of the software.

The expense and inconvenience that may result to innocent customers if a court order forces them to give up software can be enormous, especially in the case of database or similar software where the licensee has a significant investment in data it has created which may not be easily transferred into other commercially available products. To avoid this result we suggest that, in addition to indemnification from third party claims, licensees should require the licensor to agree to indemnify them for the following costs in the event of a court-ordered recall: (1) any additional monies that must be paid to a plaintiff in order to secure the right to continue to use the software; (2) the cost of purchasing replacement software; (3) the cost of converting data to the format of a replacement program; (4) training costs relative to the new software; and (5) miscellaneous costs caused by the recall.