Law School Case Brief
Asset Mktg. Sys. v. Gagnon - 542 F.3d 748 (9th Cir. 2008)
The United States Court of Appeals for the Ninth Circuit holds that an implied license is granted when (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.
From May 1999 to September 2003, Kevin Gagnon was an at-will, independent contractor for Asset Marketing Systems, Inc. (AMS), hired to assist with its information technology needs. Subsequently, Gagnon was asked to develop custom software for AMS. Over the course of their four-year relationship, AMS paid Gagnon over $2 million, $250,000 of which was for custom software development and computer classes. Gagnon developed six computer programs for AMS. Subsequently, AMS and Gagnon entered into a Technical Service Agreement (TSA). The parties’ relationship ended in 2003, whereupon Gagnon asserted that AMS’ continued use of the software he developed without further payment was unauthorized. On the other hand, AMS contended that Gagnon could not unilaterally stop AMS from continuing to use and update the programs because it had an irrevocable license to use, copy, and modify the programs based on the course of conduct of the parties over the past two-and-a-half years. AMS sued Gagnon in state court alleging misappropriation of trade secrets and conversion. Gagnon removed to federal court and filed counterclaims of copyright infringement, misappropriation of trade secrets and other tort claims. The United States District Court for the Southern District of California granted summary judgment in favor of AMS with regard to the counterclaims. Gagnon appealed.
Did AMS have an irrevocable license to use, copy, and modify the software programs created by Gagnon?
The appellate court found that Gagnon did not create the programs on his own initiative and market them to AMS; rather, he created them in response to AMS’s requests. Gagnon delivered them when he installed them onto AMS’s computers and stored the source code on-site. According to the Court, Gagnon’s conduct manifested an objective intent to give AMS an unlimited license at the time of creation and when he stored the source code at AMS the code was delivered. Nothing in the technical service agreement (TSA) indicated Gagnon’s understanding or intent that continued use of the custom application programming undertaken by Gagnon would be prohibited after the TSA terminated. The Court held that because AMS paid consideration the unlimited nonexclusive license was irrevocable. Moreover, because Gagnon granted AMS an implied, unlimited license to the programs software, AMS could not have misappropriated Gagnon’s trade secret.
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