Licensing unrelated to any intellectual property right has been a common practice for generations - since at least the time of the civil war. But there are some who think of licensing as only appropriate if there are rights to license and that, if the rights do not exist, the contractual license terms must be abrogated. This is wrong, but a recent case indicates that drafting agreements in this context must be done with care.
A “license” is a contract. It sets conditions on use of informational assets. When intellectual property rights are involved, part of the action of the license consists of a covenant not to sue for conduct that would be infringement if not within the license. But that is not an essential feature of an agreement that constitutes a license. The contractual agreement is the essential factor.
The lower court in C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, L.P., 2007 WL 2990366 (8th Cir. 2007) got the analysis terribly wrong, but luckily was abrogated by the Court of Appeals. The lower court argued that contract restraints on use of non-secret data without underlying IP rights violated fundamental public policy. What policy? Why would that policy over-ride contract law? The opinion gave little insight into this.
The case involved a license from Major League Baseball to C.B.C. of the right to use player names and statistics in interactive media fantasy baseball systems. The contract broke down, but CBC continued to use the data in violation of the license which specifically prohibited such use. The District Court held that enforcement of this clause was precluded because a “strong federal policy favoring the full and free use of ideas in the public domain … prevails over [those] contractual provisions.” The District Court was apparently referring to a general First Amendment right, but that right can be and frequently is contractually waived. It also referred to the ancient Supreme Court decision in Lear v. Adkins, but that case dealt with patent law and has not been expansively applied by courts since originally announced during an era of judicial hostility to intellectual property rights.
The appellate court in a 2-1 decision avoided the lower court’s error by reading the license to create a warranty of title in a way that will give drafters of such licenses pause. The “warranty” was breached, thus precluding enforcement of the non-use clause because the subject matter of the license was not covered by intellectual property rights. The warranty language? “[The] Players Association “is the sole and exclusive holder of all right, title and interest” in and to the names and playing statistics of … major league baseball players.” But the interpretation of all right and title is, at best uncertain in a setting where both parties must have understood that the data (as compared to the names) involved was not covered by intellectual property rights.
The dissent came closer to getting it right. It concluded that there was no warranty. Instead, the contract said “that the parties “agree” that MLPBA is the sole and exclusive holder of all right, title and interest in and to the Rights. CBC surely can “agree,” as a matter of good business judgment, to bargain away any uncertain First Amendment rights that it may have in exchange for the certainty of what it considers to be an advantageous contractual arrangement.” As to the public policy issue, the dissent observed that there was no federal statute that addresses state-law contract obligations on this issue and, thus, “no indication that Congress sought to abrogate contracts in this area that are otherwise enforceable under state law.”
So, the lower court’s wrong analysis is gone as a matter of precedent, but we have a precedent that reads a common contract clause in a way that makes severe trouble for any license drafting regarding data.
The far better result would have been to have both courts recognize that nothing is strange about contractually licensing information that is not within the scope of intellectual property law. That is and has long been the law. See Ross, Brovins & Oehmke, P.C. v. Lexis Nexis Group, a Div. of Reed Elsevier Group, PLC, 463 F.3d 478, 80 U.S.P.Q.2d 1518 (6th Cir. 2006).
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