The Compliance Source, Inc. v. GreenPoint Mortgage Funding, Inc. is a 2010 decision of the United States Court of Appeals for the Fifth Circuit about the limits of a licensee’s right to let a contractor use licensed software. The licensors, The Compliance Source and Digital Docs, had licensed form-database technology to a mortgage lender, and the lender let its outside law firms use it to prepare loan packages. The court held that the licence did not allow that access, even though the use was for the lender’s benefit.[1]
Background
Compliance Source developed and licensed mortgage-financing forms, and Digital Docs developed software that prepares residential-mortgage loan documents. In 2002 GreenPoint signed a licence to use the combined technology and agreed to pay a transaction-based fee for each mortgage it financed with it. The licence granted a non-exclusive, annually renewable licence to use the forms and a non-transferable, non-exclusive software licence, stated that GreenPoint could “only use the Software Products for itself”, and said that GreenPoint had received no right to “copy, make, use, have made, sell, support, or sub-license” the technology except as specifically provided. It also barred sublicensing, assignment without consent and conferring rights on third parties, and required GreenPoint to take all steps necessary to prevent third parties it dealt with from acting inconsistently with the agreement.[1]
The agreement named only two kinds of third-party access: lenders originating loans, who could use certain closing documents through a link on GreenPoint’s website, and the licensors’ own general counsel, who would review documents where state law required a lawyer.[1]
The dispute
GreenPoint installed the technology in July 2003 and immediately let an outside law firm, formed by former lawyers of another firm, produce loan packages with it. The licensors raised concerns, and at a meeting on 2003-08-20 GreenPoint said the firm had view-only access, which the licensors accepted. The licensors sued in 2006, and in depositions in 2007 GreenPoint’s and the law firm’s witnesses said the firm had input access, so the licensors amended their complaint to allege unauthorised sublicensing and access. After a partial settlement that left that claim open, the district court granted summary judgment to GreenPoint on the licence claim, reasoning that use by a third party solely on behalf of the licensee is not a transfer or sublicense.[1]
Decision or outcome
On 2010-10-18 the Fifth Circuit reversed. Applying Texas contract law, it read the licence as a whole and held that two earlier Fifth Circuit decisions did not say that access on behalf of the licensee is always permitted; those licences had expressly allowed limited third-party access. This licence, by contrast, “withholds rights not expressly given”, so the court declined to read in a general right of third-party access. The two named exceptions implied that, as a rule, third-party access was not allowed, and neither covered input access. The court remanded for the district court to consider GreenPoint’s waiver and limitation defences, and it affirmed summary judgment for the licensors on GreenPoint’s counterclaim that they had breached the settlement.[1]
Significance for software licensing and SAM practice
The case is a reminder that a contractor, outsourcer or law firm is not automatically covered by the licensee’s own rights. Whether contractor use is permitted depends on the words of the licence, and a licence that lists specific permitted third parties can be read to exclude the others. The decision should be read together with Geoscan v. Geotrace and Hogan Systems v. Cybresource, where the licences expressly allowed use “on behalf of” the licensee or by people on its premises.[1]
Lessons learned
- Access that benefits the licensee is not automatically permitted. The court rejected the idea that use “on behalf of or for the benefit of” the licensee is allowed where the licence grants only the rights it names.[1]
- Check whether the licence names the third parties who may access the software. The court treated two named exceptions as implying that other third-party access was not permitted.[1]
- Map contractor and outsourcer access against the licence before onboarding them. The decisive fact was that the law firm had input access, not just view-only access.[1]
- Keep what you tell the vendor consistent with what actually happens. The licensors accepted view-only access in 2003 and learned of input access only through depositions years later.[1]