Here's the situation: You're a software developer, and you agree to create custom software for your customer, Joe.  Joe agrees to pay you $10,000 for the software. 

You create the software, give it to Joe, and say, "Joe, here's the software.  It's what you wanted—go use it.  Oh, and by the way, here's my invoice."  But Joe doesn't pay.

You say, "Hey Joe, pay me."  Joe pays only half of what's owed, and doesn't give you another dime.

You say, "Hey Joe, stop using the software until you pay me everything."  Joe says, "no."

You should be able to stop Joe from using the software, right? 

Maybe not.

The recent case of Beholder Productions Inc. v. Catona reminds us that under certain circumstances (such as those described above), an implied license may be granted to a software recipient—even though the recipient didn't pay for the software in full.  If that happens, the recipient can continue to use the software, and you're stuck with an unpaid bill !!

Scary stuff.  So how do you avoid this from happening to you?  Read on.....

In the Beholder case, the plaintiff, Beholder, developed custom software for the defendant, Catona.  The parties had an agreement that said, "No copyrights will be transferred until Beholder is paid in full." 

(Hey, wait a minute!  Is that provision—or something like it— in your development contract?  Hmmm...) 

Beholder gave the software to Catona before Catona paid for it in full—a bad move.  Then Beholder allowed Catona to distribute the software to Catona's customers, again, before Catona paid in full for the software—a worse move.

Beholder said, "Hey Catona, we gave you the software, now pay us in full or stop using the software." 

Catona said, "We've paid you alot already—we're not paying you any more money."

Beholder sued—and lost.  Why?

Becuase under copyright law, a software developer can unknowingly grant an implied license to a recipient if (i) the recipient requested the creation of the software, (ii) the developer created the work and delivered it to the recipient, and (iii) the developer intended that the recipient copy and distribute the software. 

That is, of course, unless there is an agreement to the contrary....(hint, hint).

So how do you avoid giving away an implied license in your software?

1.  Make sure you have a written software deveopment agreement with your customers; AND,

2.  Make sure the agreement specifically says that the recipient does not acquire a license, implied or otherwise, in the software until you are paid in full; AND,

3.  If possible, DON'T deliver the software until you're paid in full; AND,

4.  If you must deliver the software before you're paid in full, then make sure that your agreement specifically states that if payment is not timely made, all rights provided to the recipient terminate immediately and unconditionally, including any implied rights of use.

Keep in mind, the above-listed suggestions are ONLY SUGGESTIONS—you may need much more in your agreement to protect your rights.

Think you're at risk of giving away an implied license to your software?  Call your attorney, or contact me.  This is all fact-sensitive stuff, and depending on the facts of your situation, you may be able to prevent a licensing tragedy before it happens.

Disclaimer:  The suggestions described above are not legal advice—-and if you're getting your legal advice from a blog, then you need to call a professional (of the mental health or business coach variety).  Speak to a qualified attorney before engaging in any activity involving contracts.  Speak to a doctor before engaging in any exercise regimen.  Speak to the postman before mailing something.  You get the point.