(a) A transferee of a licensee acquires no interest in information, copies, or contractual rights of the licensee under a license unless the conditions for transfer under this article and the license are met. If a transfer is effective, the transferee takes subject to the terms of the license.

(b) Except for rights under [the Uniform Trade Secrets Act] and other trade secret law, a person that acquires information that is subject to the informational property rights of a third party acquires only the contractual rights that its transferor was authorized by the third party to transfer., and those rights may be further limited by the agreement under which the person acquires the information.

Committee Action: This section was considered in November, 1996, without substantial comment.

1. Transferee Interests: General. A license governs rights in the information and copies of the information. Subsection (a) provides that a transferee of the licensee acquires only the rights that the license and the provisions of this Article on transferability allow. As a general principle, a license does not create vested rights and is not generally susceptible to free transfer in the stream of commerce. Subsection (a) is consistent with Article 2A.

2. Transfers and Underlying Property Rights. Subsection (b) states the rule that a transferee of a licensee acquires only those rights that the licensee was authorized to transfer. This reflect an important principle under current intellectual property law which differs from that applicable in transactions involving the sale of goods. A transferee who takes a transfer of a license or copy that was not authorized by the underlying rights holder does not acquire greater rights than its transferee was authorized to transfer, even if the acquisition was in good faith and without knowledge. Compare

The idea of entrustment and bona fide purchase, which play a role in dealing with title to goods, has no similar role in information covered by patent or copyright law. In part, this comes from the rights-protective nature of these bodies of law. Also, the bona fide purchase concept tends to revolve around the appearance of a rightful transfer captured by the concept of possession being given over (entrusted) in a manner that creates the appearance of being able to convey the valuable property. With respect to information assets, possession focuses on the tangible material (if any), while the value resides in the intangibles.

Neither copyright nor patent recognize ideas of protecting a buyer in the ordinary course (or other good faith purchaser) by giving that person greater rights than were authorized to be transferred. Copyright law allows for a concept of "first sale" which gives the owner of a copy various rights to use that copy, but the first sale must be authorized.

Transfers in a chain of distribution that exceed a license or that otherwise are unlicensed and unauthorized by a patent or copyright owner create no rights of use in the transferee. A transferee that takes outside the chain of authorized distribution does not benefit from ideas of good faith purchase, but its use is likely to constitute infringement. See Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (ED NY 1994) (distribution that violated license by separating software from hardware did not create a first sale and lack of knowledge did not insulate the purchaser from infringement claim. "Moreover, the only chain of distribution that Microsoft authorizes is one in which all possessors of Microsoft Products have only a license to use, rather than actual ownership of the Products."). See also Major League Baseball Promotion v. Colour-Tex, 729 F. Supp. 1035 (D. N.J. 1990); Microsoft Corp. v. Grey Computer, 910 F. Supp. 1077 (D. Md. 1995); Marshall v. New Kids on the Block, 780 F. Supp. 1005 (S.D.N.Y. 1991).

Illustration 1: Core delivers copies of software to DAC a distributor. DAC is licensed to transfer the software for educational uses only. Instead, DAC transfers a copy to Mobil business use. Mobil has no knowledge of the Core license. DAC breached its contract and its distribution constitutes copyright infringement. DAC also breached its warranty of non-infringement to Mobil. Mobil's copying (use) of the software is not authorized and is an infringement. A good faith acquisition does not cut off the underlying property right. Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (E.D.N.Y. 1994).

As this illustration indicates, the transfer is, itself, an infringement of the copyright owner's exclusive right to distribute works in copies to the public. The transferee's protection lies in a right of action under implied or express warranties against the transferor.

3. Trade Secret and Unprotected Information. The rule stated in subsection (b) contains two important limitations. The rule allows for a bona fide purchaser in reference to trade secret claims. These are state law created property rights. The essence of a trade secret lies in enforcing confidentiality. If a party takes without notice of such restrictions, it is not bound by them; it is in effect a good faith purchaser, free of any obligations regarding infringement except as such exist under copyright, patent and similar law.

Additionally, the subsection applies only to information that is subject to informational property rights of a person other than the transferor.