Failure to pay software license fees was breach of contract, not copyright infringement

As part of a larger business dispute that found its way into litigation, counterclaimant DDS sued counterdefendant EGS for copyright infringement after EGS allegedly used DDS’s software without paying required license fees. EGS moved to dismiss the copyright infringement claims, asserting that there was no copyright infringement occurring, only a breach of the license agreement. The court granted the motion to dismiss. 

The court found that the provision of the agreement between the parties, requiring EGS to pay license fees, was a covenant and not a condition that must be met for use of the software to be authorized. The finding was critical because whether the failure of a non-exclusive licensee to pay royalties constitutes copyright infringement turns on the distinction between a promise subject to a condition and a covenant or contractual promise. Broadly speaking, the promise to pay royalties in a license agreement is generally considered a covenant, not a condition. 

In this case, the agreement between the parties provided that:

Upon [EGS’s] payment of [a one-time fee], and subject in each instance to [EGS’s] subsequent timely payment of the applicable [recurring] licensing fee, [DDS] hereby grants to [EGS] a limited, nonexclusive license . . . . 

The court determined this language established that DDS would install its software and then EGS would pay for the right to use the software. Under this line of thinking, the duty to pay fees did not accrue until the software was installed, meaning that payment could not be a condition on the rights to use the software (and that nonpayment would not be a failure of that condition). 

Eclipse Gaming Systems, LLC v. Antonucci, 2019 WL 3988687 (N.D. Ill. Jan. 31, 2019)

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