Contractual right to a perpetual license not limited by copyright law

7th Circuit decision emphasizes that companies must make restrictions on IP use very clear in all agreements

It’s a basic principle known to any law student: The courts prefer to stay within the four corners of an agreement when resolving a dispute between parties in a contractual relationship. In Edgenet Inc. v. The Home Depot USA Inc., the 7th Circuit applied that principle in a case in which a vendor tried to use federal copyright law to retain rights to its intellectual property that it failed to protect in a contract.

In order to sell its products online, home-improvement retailer Home Depot contracted with Edgenet, a vendor that collects and organizes data. Edgenet created a taxonomy for Home Depot’s product offerings (that is, a database that organized the products into categories). According to the terms of a 2004 contract, Edgenet owned the intellectual property rights in the taxonomy and licensed Home Depot to use it. In 2006, the parties executed a supplemental agreement that granted Home Depot a no-cost license to use “the product collection taxonomy” as long as the contract remained in effect. If the parties ended their relationship, Home Depot would be required to stop using the taxonomy at once. However, the contract gave Home Depot the option to purchase a perpetual license in the taxonomy for $100,000, due immediately if the contractual relationship between the parties ended.

Taxonomy Troubles

A district court ruled in Home Depot’s favor, and Edgenet appealed. Edgenet argued that by beginning work on the derivative database before paying the $100,000, Home Depot infringed on the copyright and invalidated its option to buy a perpetual license. However, the 7th Circuit held that because the contracts gave Home Depot the right to use the taxonomy in any way it wished, it had the right to prepare a derivative database.

Beverly Caley

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