Asset Marketing Systems, Inc. v. Gagnon
United States Court of Appeals for the Ninth Circuit
9 September 2008
No. 07-55217 D.C. No. CV-03-02234-B

Implied license can defeat copyright infringement action

This case arose from the alleged copyright infringement involving computer programs.

The antecedent facts of the case were as follows:

Asset Marketing Systems, Inc (AMS), the petitioner herein, is a field marketing organization offering sales and marketing support to insurance marketing entities. Between and during 1999-2003, Kevin Gagnon was an at-will, independent contractor for AMS hired to assist with its information technology needs.

When the relationship was severed and eventually terminated, the AMS continued to use the programs made by Gagnon. In his action before the court, Gagnon contended that AMS infringed his copyright in six computer programs that he wrote by the following acts, to wit:

1. AMS continued to use and modify the programs without his consent


2. AMS misappropriated trade secrets contained in the programs’ source code

The district court granted the motion for summary judgment filed by AMS in its favor. The court found that Gagnon had granted AMS an implied, nonexclusive license to use, modify and retain the source code of the programs. Consequently, Gagnon’s trade secrets misappropriation claim was also defeated, and because no trade secret existed between Gagnon and AMS with respect to the source code, Gagnon’s non-competition agreements were deemed invalid under the California Law.

Kevin Gagnon now goes to the United States Court of Appeals asking it to resolve the issues.

The US Court of Appeals for the Ninth Circuit did resolve the same but against Gagnon. The Court, in affirming the district court’s grant of summary judgment in favor of AMS, held that indeed AMS has an implied unlimited license for the programs. Citing pertinent laws, the Court said that though exclusive licenses must be in writing, grants of nonexclusive licenses need not be in writing and may be granted orally or by implication.

The Court held that an implied license is granted when:

1. A person (the licensee) requests the creation of a work


2. The creator (the licensor) makes that particular work and delivers it to the licensee who requested it


3. The licensor intends that the licensee-requestor copy and distribute his work.

The Court concluded that an implied license was granted to AMS as shown by the fact that Gagnon did not create the programs on his own initiative and market them to AMS. Rather, he created them in response to AMS’ requests. Moreover, after prototype software was developed, Gagnon made changes to the programs in response to AMS employees’ requests.

Also, the Court agreed with the district court when it concluded that Gagnon delivered the programs to the AMS. The delivery consists of Gagnon’s act of installing the programs onto the AMS computers and stored the source code on-site at AMS. This conduct, says the Court, manifests an objective intent to give AMS an unlimited license at the time of the creation, thus, when Gagnon stored the source code at AMS, the code was delivered.

As to the issue of misappropriation of trade secrets, the Court, having concluded that AMS had implied, unlimited license to the programs software, resolved the same by holding that AMS couldn’t have misappropriated Gagnon’s trade secret because it was entitled to use and modify the source code and such entitlement includes access to any trade secret embodied therein.

For the same reason, the Court resolved the final issue of non-competition agreement as invalid. Under California Law, a non-competition agreements are unenforceable unless necessary to protect an employer’s trade secret. Because the non-competition agreements were no longer necessary to protect Gagnon’s trade secrets against AMS, they were no longer enforceable in this case.