(b) A license that does not specify the number of the permitted users permits a number of users that is reasonable in light of the commercial circumstances existing at the time of agreement.

simultaneous users permitted only authorizes use by one party at any one time. However, if the license authorizes display or performance of the information, it permits viewing by any number of persons but only of a single display or performance at any one time.

(c) Except as otherwise provided under intellectual property law, nNeither party is entitled to any rights in improvements or modifications made by the other party after the license becomes enforceable, or to receive copies of source code, object code, schematics, master copy, or other design material, or other information used by the other party in creating, developing, or implementing the information. A licensor's agreement to provide improvements or modifications requires provision of the agreed information as developed by the licensor from time to time for use by other persons third parties and made generally commercially available.

(d) Terms dealing with the scope of an agreement must be construed under ordinary principles of contract interpretation in light of the commercial context. In addition, the following rules apply:

(1) A grant of "all possible rights and media", "all rights and media now known or later developed", or a grant in similar terms, includes all rights then existing or created by law in the future, and all uses, media, and methods of distribution or exhibition then existing or developed in the future, whether or not anticipated at the time of the grant.

(2) A grant of a "quitclaim", or a grant in similar terms, between merchants grants the information or informational property rights without a representation or implied warrantyies as to infringement or as to the rights actually possessed or transferred by the grantor.

(3) A grant of an "exclusive license", or a grant in similar terms, affirms for the duration of the license, and as to the scope of the exclusive grant that the licensor will not exercise and will not grant to any other party, rights in the same information within the same scope, and that the licensor has not previously done so in a contract in force at the time the licensee's rights begincommence.

"Agreement". Section 1-201. "Contract". Section 2B-102. "Copy". Section 2B-102. "Information". Section 2B-102. "Informational property rights". Section 2B-102. "License". Section 2B-102. "Licensee". Section 2B-102. "Licensor". Section 2B-102. "Merchant". Section 2B-102. "Party". Section 1-201. "Person". Section 1-201. "Receive". Section 2B-102. "Rights". Section 1-201. "Scope". Section 2B-102. "Term". Section 1-201.

Reviewed without substantive change.

1. Implied Licenses and Implied Limitations. The first sentence of subsection (a) deals with a subject that common law courts often address under the general theory of implied licenses. It approaches the question as one of interpreting a contract grant. The issue deals with the appropriate treatment of the case where rights not expressly granted are essential to the licensee's use of the information in a manner consistent with the expressly granted rights. The Section adopts the reasonable interpretation that the affirmative grant includes all necessary rights to use that grant, to the extent that these are within the control of the licensor. For example, a license to use a film clip in a CD ROM product impliedly conveys the right to crop or modify the size of the clip to fit the media unless that right to make a modification is expressly excluded. A grant of a license in software conveys the right to use functions provided in the software in the ordinary course to make modified versions of that software. The implied license relates to rights transferred and to materials provided to the party; it does not require a transfer of additional materials (such as source code), unless that transfer was agreed to by the parties. Contract terms precluding this treatment are effective.

The second and third sentences in subsection (a) deal with an important interpretation issue that is accentuated as more information transactions occur among persons who are not expert in intellectual property law rules. The question involves what interpretation is placed on a grant "to do X." Under current law, it is clear that uses of licensed information outside the express scope of a license are breaches of contract if the scope is defined in terms of "to do only X" or otherwise expressly precludes the use. If the word "only" does not appear, the cases are less clear; some cases suggest that the omission of the word in formal grant language means that there is no contract breach if the licensee exceed the grant. This approach is not universally followed; some cases hold that federal policy requires that the proper interpretation of a copyright license is that any use not expressly granted is withheld. A rule that hinges on the use of the word "only" provides a true trap for unwary drafters and unwary licensees. It is rejected in this section.

Subsection (a) adopts the ordinary commercial understanding that an affirmative grant implicitly excludes uses that exceed the grant and that, as a result, exceeding this type of grant creates a potential breach of contract. The implicit limitation, however, is not as strong as an express limitation. It does not preclude acts necessary to the uses contemplated in the express grant. Also, the implied limitation is not exceeded if the use would have been permitted by law in the absence of the implied limitation. Thus, scholarly use of a direct quotation from a licensed text not covered by confidentiality restrictions if a fair use would not conflict with the implied limitation. Sitting in one's office doing a letter to a family friend using software that is under a commercial use license would likely not conflict with any implied limitation. However, if a grant does not use the magic word "only" and gives a right to use a motion picture in one location, a licensee that makes and distributes multiple copies for sale violates the copyright (as a non-fair use) and breaches the contract. Also, a grant to use software or a motion picture in Peoria implies the lack of a contract right to do so in Detroit.

Illustration 1: Disney licenses to Acme the right "to show Snow White during a six month period in Kansas." Acme, enamored with the musical score of the movie, digitally separates the music into a separate copy and uses it during that six month period in the Acme lobby. This unauthorized use infringes the copyright. Whether it breaches the contract depends on whether the grant precludes other uses of the work and derivative copies. Under section (b), the limitation exists unless: 1) the use was a fair use without that implied limitation, or 2) the use was necessary to the granted use. Neither condition is met here.

Illustration 2: Licensor grants the "right to use X software in motion pictures." The licensee uses the software to develop an animated movie. Later, it uses the software to develop a television series. Assume that a television program is not a motion picture. Under the implied limitation, the contract breach issue is whether television use "exceeds" the grant.

Illustration 3: Same as illustration 2, except that the license grant states that it grants "the right to use X software only in developing motion pictures." Use in television violates an express limit and is a breach. Whether such difference in result should flow from the addition or omission of the word "solely" is at issue. Requiring that word may be a trap for less well-counseled parties.

Illustration 4: Same as illustration 2, except that the license provides that "all uses not expressly granted are expressly reserved to the licensor." Same result as Illustration 3.

Illustration 5. EXL licenses copyrighted software to Dangerfield. The license is silent on reverse engineering and consumer use, but gives Dangerfield the right to use the software in the 1000 person network for its employees. Dangerfield disassembles or decompiles the software to examine the code and use the results in a new system. Also, an employee uses the software for personal (consumer) purposes. Under subsection (b), the consumer use is authorized if it would be a fair use in the absence of the implied limit. The making of copies for purposes of examining the software involves the same analysis; if a fair use in the absence of the implied limit, it would not breach the term.

2. Number of Users. Subsection (b) uses a commercial reasonableness test to deal with cases where a license fails to specify the number of simultaneous users that are permitted for the particular information. In some cases, especially in the mass market, a single simultaneous user limitation would be appropriately assumed for a computer program. In other contexts, multi-use or network use concepts would be more appropriate. The ideas of the section is to guide a court, and the parties, by making reference to commercially reasonable assumptions about this important variable.

3. Modifications. As a basic principle a party receives no right in contract to subsequent modifications made by the other party, nor is access to typically confidential material. Arrangements for improvements and source code or designs constitute separate valuable relationships handled by express contract terms, rather than presumed away from their owner by the simple fact of forming a general contract.

Illustration 6: Word Company licenses B to use Word's robotics software. The license is a four-year contract. Three months after the license is granted, Word develops an improved version of the software. Party B has no right to receive rights in this improved version unless the agreement expressly so provides.

Illustration 7: In the Word license, two years after the license is established, Party B's software engineers discover several modifications that greatly enhance its performance. Word is not entitled to rights in these modifications unless the license expressly so provides. However, the modifications may create a derivative work under copyright law and a question also exists about whether the license granted the right to make such a derivative work.

4. Grant Clauses. Subsection (d) (1) provides guidance for whether (when) a license grants rights only in existing media or methods of use of information or whether it extends to future uses. The draft adopts the majority approach in a number of recent cases. Ultimately, interpretation of a grant in reference to whether it covers future technologies is a fact sensitive interpretation issue. But the intent of the parties may not be ascertainable. In such cases, use of language that implies a broad scope for the grant without qualification should be sufficient to cover any and all future uses. This is subject to the other default rules in this chapter, including for example, the premise that the licensee does not receive any rights in enhancements made by the licensor unless the contract expressly so provides.

Subsection (d)(2) deals with how, in a commercial context, parties can transfer information without giving assurances about rights. The concept of a quitclaim of rights is most common in entertainment contexts, but like the idea of a quitclaim in real estate, it is essentially a grant only of whatever rights the grantor holds.

Subsection (d)(3) deals with the effect of language of exclusivity in a grant. The case law and treatises are in conflict. The issue focuses on two distinct elements: a looking forward and looking backward issue about exclusivity as to other persons, and the issue of whether the exclusivity also applies to actions of the licensor.