software development contract

Second Circuit Holds that Statutory Right to Adapt Software Preempts Contractual Terms

A recent Second Circuit decision, Universal Instruments Corp. v. Microsystems Engineering Inc. (2d Cir. 2019) provides important lessons for parties involved in negotiating software and other technology development contracts.

One key holding is that where the copyrighted software was licensed to the customer pursuant to terms of a development contract, then the customer had a statutory right, under Section 117(a) of the Copyright Act, to have a different developer modify and adapt the software for the customer’s use.  And, that statutory right pre-empted any claim that the contract limited such adaptation rights. 

The Second Circuit also construed license terms to allow both MSEI and the second developer to use the software anywhere in the world to service MSEI’s system.  

Together, these rulings meant that once the developer had created and licensed the software, it was powerless to stop the customer from employing other companies to use, adapt, and modify the software, at least for the customer’s own business. 

Parties involved in negotiating development licenses should be aware that the Copyright Act may vest additional rights in a customer beyond that provided in the contract – and that contrary contracts terms will be preempted by the law.