Short answer: three lessons from the HyperQuest case for an exclusive software license: use copyright language in the grant, do not retain so many rights that the “exclusive” license is not actually exclusive, and scope exclusivity to a territory, field of use, or medium.
It is not often that a reported case addresses exclusive software licensing directly, so here are three takeaways from the 2011 decision HyperQuest v. N’Site Solutions.
1. Use Copyright Language in the Grant.
If you want copyright law to protect the licensee, use copyright wording in the exclusive grant. A copyright owner has a defined set of exclusive rights under 17 U.S.C. section 106 (reproduce, distribute, prepare derivative works, publicly display, publicly perform). Those rights need to be named or referred to in the grant to invoke protection, and standing to sue, under the Copyright Act.
2. Retain Too Much and You Have Not Granted Exclusivity.
The court decided that the grantor retained too many rights for an exclusive license to actually exist. “Exclusive” is not a magic word; if the rights you keep are inconsistent with exclusivity, the exclusive license does not work. A party can say “I grant you an exclusive license” and still fail to create one if the retained rights swallow the grant.
3. Scope Exclusivity to a Territory, Field, or Medium.
Exclusive licenses are typically granted for a defined scope: the US only, the insurance industry only, print only. Draft them that way, with the boundary stated explicitly, rather than granting an open-ended “exclusive” right and hoping it holds.
Why This Matters When You Draft.
The practical takeaway for a vendor is that a court reads the whole grant. If the rights you kept swallow the rights you gave, the licensee may not have the standing it thought it had, and you may not have the deal you thought you struck. Name the specific copyright rights you are granting, define the scope (territory, field, medium, term), and be explicit about what you retain. This is the same precision behind what a software license actually grants and measures and the restrictions you write around it. We draft and review exclusive and non-exclusive grants as part of our software licensing work.
Frequently Asked Questions.
Is saying “exclusive license” enough to create one? No. A court looks at the whole grant. If you retain rights inconsistent with exclusivity, you have not granted an exclusive license no matter what you called it.
Why use copyright wording in the grant? Because protection and standing under the Copyright Act track the section 106 exclusive rights. Naming those rights in the grant is what lets the licensee rely on copyright law.
How should exclusivity be limited? By territory, field of use, medium, and term. A scoped exclusive grant (“US, insurance industry, print, three years”) is far cleaner than an open-ended one.
Next time you work on an exclusive software license, review this case, because how the grant is drafted really matters. I hope this helps.
For the foundational decision between an EULA structure and a SaaS subscription structure, see SaaS Agreement vs. Software EULA: Which Template Do You Need?
Reference:
HyperQuest v. N’Site Solutions (Google Scholar)
Disclaimer:
This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.
Discover more from Aber Law Firm
Subscribe to get the latest posts sent to your email.