Affirming dismissal of a copyright infringement suit brought by one licensee against another, the U.S. Court of Appeals for the Seventh Circuit held that a plaintiff must show that it is the exclusive license of at least one of the divisible rights recognized under the Copyright Act to possess sufficient standing to sue for infringement. Hyperquest, Inc. v. N’Site Solutions, Inc., Case Nos. 08-2257, -3979, -4176 (7th Cir., Jan. 19, 2011) (Wood, J.)

eDoc is insurance software. In 2001, Quivox Systems granted N’Site a nonexclusive license to use and develop the eDoc software. The license agreement only permitted N’Site to use the software in-house. N’Site was not allowed to modify the software or to sell it. Quivox later sold its assets to Safelite Group, Inc. In 2004, Safelite entered into an “exclusive license” for the eDoc software with Hyperquest. The agreement included an acknowledgement of the N’Site license and stated that Safelite and N’Site would negotiate a revised license and that Hyperquest was to be included in the determination of the final terms. However, the negotiations were unsuccessful and Safelite and N’Site never entered into a new license agreement.

In 2008, Hyperquest sued N’Site claiming that it infringed upon Hyperquest’s exclusive rights in the eDoc software. The district court dismissed the case, finding that Hyperquest held only a non-exclusive license and thus lacked standing.

Under the Copyright Act, persons eligible to bring a civil action for infringement are limited to the “legal or beneficial owner of an exclusive right.” On appeal, the 7th Circuit focused on whether the language in the license agreement between Safelite and Hyperquest conveyed sufficient rights to Hyperquest such that is was an owner of one of the exclusive rights to the work. Hyperquest argued that it was the exclusive owner of the right to reproduce, distribute and prepare derivative works based upon the eDoc software.

Agreeing with the district court, the 7th Circuit found that none of the exclusive rights had been conveyed fully to Hyperquest. Despite the fact that the license agreement contained the term “exclusive,” Hyperquest’s rights could not be viewed as exclusive because Safelite had explicitly reserved a limited right to use the eDoc software and to distribute it to third parties for development. Recognizing that an exclusive right may be subdivided into narrower rights that still count as exclusive rights for purposes of standing, such as by geography or production form, the court noted that such subdivisions must be outlined clearly to qualify. The court did not find any clearly delineated exclusivity granted to Hyperquest in the license agreement. The fact that Hyperquest accepted the license knowing about N’Site’s current license and Safelite’s right to renegotiate the license also weighed toward finding that Hyperquest was not granted any exclusive rights.