On December 14, 2010, in the case of MDY Industries v. Blizzard Entertainment, the Ninth Circuit emphasized an important point for online service providers and legal practitioners to keep in mind when drafting software end user license agreements.  MDY Industries, maker of software program – “Glider” – that automatically plays Blizzard Entertainment’s popular World of Warcraft game, filed a declaratory judgment action against Blizzard to determine whether MDY’s program infringes any of Blizzard’s rights.  The Ninth Circuit addressed, among other issues, whether Glider violates Blizzard’s copyrights. 

The Court began its analysis by identifying the two types of provisions in licenses:

We refer to contractual terms that limit a license’s scope as “conditions,” the breach of which constitute copyright infringement. We refer to all other license terms as “covenants,” the breach of which is actionable only under contract law. To establish copyright infringement, then, Blizzard must demonstrate that the violated term... is a condition rather than a covenant.

The Court then determined that nothing in the license agreement conditioned Blizzard’s limited license grant on a player’s compliance with the terms that were breached. 

The point is an important one. Without that standard, a software copyright holder could identify any disfavored conduct associated with the use of its software as copyright infringement by purporting to condition the license on the player’s abstention from the disfavored conduct. The Copyright Act does not contemplate such wide protection.  Only when a license term is grounded in one of the exclusive rights protected by the Copyright Act may breach of a term lead to copyright infringement liability.

Software developers should carefully craft their license agreements to leverage all of their rights under the Copyright Act and should expect that only certain license terms, if violated, could lead to copyright infringement liability.