question is not the existence but the scope of the license.
The license must be construed in accordance with the purposes underlying federal copyright law. Cohen v. Paramount Pictures Corp., 845 F.2d 851, 854 (9th Cir.1988); Harris, 734 F.2d at 1334. Chief among these purposes is the protection of the author’s rights. Cohen, 845 F.2d at 854. We rely on state law to provide the canons of contractual construction, but only to the extent such rules do not interfere with federal copyright law or policy. See Fantastic Fakes, Inc. v. Pickwick Int’l, Inc., 661 F.2d 479, 482–83 (5th Cir.1981) (state law rules of contract construction not preempted by federal law; however, application of state law to supply implied terms in copyright license would raise preemption question).
The district court applied the California rule that the contract should be interpreted against the drafter, see Hestan v. Farmers Ins. Group, 160 Cal.App.3d 402, 415, 206 Cal.Rptr. 585, 593 (1984), thereby deeming S.O.S. to have granted to Payday any right which it did not expressly retain. This result is contrary to federal copyright policy: copyright licenses are assumed to prohibit any use not authorized. Cf. Cohen, 845 F.2d at 853 (license analyzed to determine what uses it affirmatively permits); 17 U.S.C. § 204(a) (transfer of copyright ownership must be in writing).
The contract between S.O.S. and Payday states, “This series of programs is the property of SOS, and PAYDAY is acquiring the right of use, SOS retains all rights of ownership.” This language is unambiguous. Payday acquired the right to use the software, but S.O.S. retained all ownership rights. In the context of the parties’ entire agreement, it is clear that the “right of use” was not intended to refer to copyright use. The contract does not refer explicitly to copyright or to any of the copyright owner’s exclusive rights. Payday clearly was concerned solely with obtaining output in the form of processing payroll information for its customers.[1] The provisions stating that Payday would lease the disk drive and other hardware necessary to run the program, and that the equipment would be kept in the office of a third party (and later at S.O.S.’s office), demonstrate that neither party expected Payday to be able to gain access to the source cade itself, as opposed to putting in its customers’ data and receiving output.
S.O.S. concedes that Payday had a right to use the software on its own machines, but insists S.O.S. retained title to any copies. We agree. The literal language of the parties’ contract provides that S.O.S. retains “all rights of ownership.” (Emphasis added.) This language plainly encompasses not only copyright ownership, but also ownership of any copies of the software. Payday has not demonstrated that it acquired any more than the right to possess a copy of the software for the purpose of producing “product” for its customers.[2]
- ↑ Were this a license between S.O.S. and another software writer, “right of use” might be more properly construed to include uses, such as modification of the software, otherwise reserved to the copyright holder. It is instructive to compare the language of the S.O.S./Payday contract with the language of the S.O.S./Hagen Systems contract, which was specifically drafted to allow S.O.S. to modify Hagen Systems’ programs:
Hagen hereby grants S.O.S. the right to incorporate portions of payroll programs … referred to as “Brown Tank”, into an application software package for the movie industry …, and agree[s] that S.O.S.’s right to use said software in such an application shall not be an infringement on any copyright that Hagen may now have or shalt in the future procure.
C.R. 90, page 20.
- ↑ The contract as originally drafted anticipated that Payday would not possess a copy of the program itself. Rather, the program was to run on Waldrip’s computer, which Payday would lease. The parties probably did not consider whether Payday could have its own copy of the program if it bought its own computer. S.O.S. stood to make its largest financial return from the software on the rental of computer time, which could continue into perpetuity, and on expected later modifications of the software. S.O.S. also had an interest in protecting the software as a trade secret. Thus, in the event Payday decided to purchase its own computer, S.O.S. presumably assumed that Payday’s right of use would be contingent on possessing only a “protected” copy of the software. This is precisely what S.O.S. offered, but with a large additional expense to Payday for protective modifications.
