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The Intellectual Property StrategistKickerSectionsNewsLJN Newsletters

Corporate Mergers and the Transferability of Software Licenses

By Edward A. Pisacreta and Marc S. Reisler
November 30, 2009

Anti-assignment clauses are typically inserted into license agreements to preclude the introduction of an unwanted third party into the parties' relationship, giving the licensor more control over its valuable property and with whom it ultimately does business. In certain instances, courts do not look favorably upon restraints to alienation of property, but in the intellectual property context, federal common law generally precludes the free assignability of intellectual property licenses without the permission of the licensor. Without such a policy, any license granted by a patent or copyright holder could potentially be assigned to the licensor's competitor or another party to whom the copyright or patent owner might be unwilling to license. In the context of software licenses, ordinarily a court will apply state law to contractual disputes, but federal law pre-empts state law concerning questions of copyright law or policy, which include the assignability of non-exclusive agreements.

An interesting question arises when a licensee's corporate status changes due to a merger, such that the assets of the former company automatically transfer to the new, surviving entity. How does a corporate merger and legal transfer of assets affect a license agreement's anti-assignment clause? Recently, the Sixth Circuit held that a software licensee's merger, which, by law, transferred its license rights to the surviving entity, violated the license's express anti-assignment clause, resulting in liability for copyright infringement.

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