One Important Step in Valuing Software Companies

On December 14, in MDY V. Blizzard, the Ninth Circuit deftly tap danced through a thorny copyright issue in deciding not only that an End User License Agreement (EULA) on a piece of software, no matter how convoluted the language, can turn a suspected buyer of the software into a mere licensee …  but that an apparent violation of the EULA results in a breach of contract, not a copyright violation.  This decision kept the severe statutory penalties for copyright infringement out of the picture.

The Ninth Circuit in September already held that buyers of software might really be licensees back in September, and that decision (if the relevant EULA is worded so) pretty much rendered moot the Copyright Law’s provision that “owners” of software need not seek permission to use it the way they see fit (short of otherwise infringing).

In the performing due diligence, analysts should review End User License Agreements for the software companies they value to determine if purchasers are licensees or owners and what the valuation ramifications might be.