Asset Marketing Sys., Inc. v. Gagnon
542 F.3d 748 (2008)
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Rule of Law:
A non-exclusive copyright license is impliedly granted when a creator makes a work at a client's request and delivers it, and the creator's objective conduct indicates an intent for the client to use, retain, and modify the work. If the client provides consideration for the work, the implied license is irrevocable.
Facts:
- From May 1999 to September 2003, Kevin Gagnon, an independent contractor, provided IT services and custom software development for Asset Marketing Systems, Inc. (AMS).
- At AMS's request, Gagnon developed six custom computer programs, for which AMS paid him approximately $250,000 as part of over $2 million in total payments.
- In May 2000, the parties signed a one-year Technical Services Agreement (TSA) which specified hourly rates for "Custom Application Programming" but contained no terms regarding licensing or ownership of the resulting software.
- Gagnon installed the programs on AMS's computers and stored the source code on-site in a development room that key AMS personnel could access.
- In June 2003, as their relationship soured, Gagnon proposed an Outside Vendor Agreement (OVA) which stated he would own the intellectual property but grant AMS a "non-exclusive, unlimited" license; AMS rejected this and proposed its own version giving AMS ownership, but no agreement was ever signed.
- A week before his termination in September 2003, Gagnon registered the copyrights for the six programs.
- After AMS decided to terminate their relationship, Gagnon demanded $1.75 million for AMS to retain the right to use the programs.
- Following his termination, seven of Gagnon's employees, who had signed non-compete agreements with him, were hired by AMS.
Procedural Posture:
- Asset Marketing Systems, Inc. (AMS) initially filed a complaint against Kevin Gagnon in California Superior Court, a state trial court.
- Gagnon removed the case to the U.S. District Court for the Southern District of California, a federal trial court.
- Gagnon filed counterclaims against AMS, alleging copyright infringement and misappropriation of trade secrets, among other claims.
- The district court remanded AMS's original claims back to state court, and AMS then re-filed them as counter-counterclaims in the federal action.
- AMS moved for summary judgment on Gagnon's counterclaims.
- The district court granted AMS's motion for summary judgment, finding that AMS possessed an implied license to the software.
- Gagnon, as the appellant, appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Ninth Circuit, with AMS as the appellee.
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Issue:
Does a software developer grant an client an unlimited, irrevocable, implied non-exclusive license to use, modify, and retain custom software when the developer creates the programs at the client's request, installs them on the client's computers, is paid for the work, and fails to express any licensing limitations until after the business relationship has been terminated?
Opinions:
Majority - Milan D. Smith, Jr.
Yes, Gagnon granted AMS an unlimited, irrevocable, implied non-exclusive license to the software. An implied license is created when (1) the licensee requests the creation of a work, (2) the creator makes and delivers that work, and (3) the creator's objective conduct indicates an intent that the licensee use the work. Here, AMS requested the programs, and Gagnon created and 'delivered' them by installing them on AMS's computers and storing the source code on-site. Gagnon's objective intent, manifested through his conduct over several years, was to grant an unlimited license. It defies logic that AMS would pay a substantial sum for custom software it could not use or modify, especially under a short-term agreement like the TSA that contained no use restrictions. Gagnon's own proposed OVA, though unexecuted, confirmed this intent by explicitly offering an 'unlimited' license. His belated attempt to demand payment and restrict use after learning of his termination was insufficient to negate his prior objective manifestations of intent. Because AMS paid consideration for the software, this implied license is irrevocable, and AMS's continued use and modification does not constitute copyright infringement. Consequently, AMS did not misappropriate trade secrets, as the license granted it the right to access and use the source code.
Analysis:
This decision solidifies the application of the implied copyright license doctrine to custom software development, emphasizing that the creator's objective conduct is paramount in determining intent. It serves as a critical warning to independent contractors and freelance developers that failing to secure an explicit, written license agreement at the outset of a project can result in the client obtaining broad, permanent rights to the software. The court's focus on the entire course of dealing, including payment and the logic of the business relationship, demonstrates that a creator cannot unilaterally impose restrictions retroactively once a relationship sours. This precedent reinforces the necessity for clear contractual language defining intellectual property rights and licensing scope in all service agreements involving the creation of copyrighted works.
