Cincom Systems, Inc. v. Novelis Corp.

Sixth Circuit holds that an internal corporate restructuring, that resulted in a software licensee becoming a newly formed entity, constituted an unauthorized transfer of the license, which had required that the licensee obtain prior written approval from the licensor before transferring any right or obligation under the license

In 1989, Cincom Systems, Inc., a software developer, licensed two computer programs to Alcan Rolled Products Division for use in its Oswego, New York, facility. The licensing agreement expressly required Alcan Ohio to obtain prior written approval from Cincom before transferring any rights or obligations under the license.

In 2003, Alcan Ohio’s parent company, Alcan, Inc., began to undergo an internal reorganization that resulted in the creation of several new subsidiaries, one of which merged with Alcan Ohio. Alcan Ohio’s surviving entity, which continued to operate out of the Oswego, New York, facility, was eventually renamed Novelis Corporation. Alcan Ohio never sought prior written approval prior to its corporate restructuring.

In 2005, Cincom filed suit against Novelis, alleging that the series of mergers violated the license agreement and infringed Cincom’s copyright. On summary judgment, the district court concluded that the merger operated as an unauthorized transfer of the copyright license under Ohio law.

On appeal to the Sixth Circuit, Novelis asserted that the district court erred for two reasons. First, Novelis argued that the district court failed to properly consider the intent of the licensing agreement. Second, Novelis proffered that subsequent changes in Ohio corporate law established that the mergers did not result in a transfer of the license.

The Sixth Circuit rejected both of Novelis’s arguments and affirmed summary judgment in favor of Cincom. As an initial matter, it emphasized the unique licensing concerns of intellectual property. Specifically, the Sixth Circuit held that although state law typically governs the interpretation of intellectual property licensing agreements, federal common law prohibits state law from authorizing the transfer of an intellectual property license absent express authorization.

Addressing Cincom’s argument regarding intent of the contracting parties, the Sixth Circuit concluded that the plain text of the license clearly showed an intent to prohibit transfers as a result of a merger if not approved in writing prior to the restructuring. The Sixth Circuit further found it immaterial that the license ultimately was not transferred to a competitor of Cincom.

The Sixth Circuit also held that changes in Ohio’s statutory merger law did not support Novelis’s position that no transfer occurred. Although the relevant statutory language no longer referred to “transferred” property, the Sixth Circuit found that such a transfer was implicit as the property automatically vested in the surviving entity. The Sixth Circuit concluded that in the context of a patent or copyright license, a transfer occurs any time an entity other than the one to which the license was expressly granted gains possession of the license.