What happens when we find it difficult to fit standard licensing law principles into a common form of commercial relationship? This question arises in the context of a provision that I encounter from time to time, especially in the context of software licensing, namely, the reference to a “pass through” licence.
While there is no single circumstance in which a so-called “pass through” licence is granted, the typical situation in my experience involves a software product, the right of use of which goes from software developer to middleman/OEM/distributor to end user. In such a situation, we sometimes find that the developer grants to the middleman a “pass through” licence, the ultimate recipient of which is the end user.
So what is the problem? From the pure licensing vantage, the issue is clear—there is no such legal relationship as a “pass through” licence. Legally speaking, the party granting the licence can either do so directly to the licensee, or indirectly via a right of sublicense to the middleman. The “pass through” licence does not fit well within either possibility. It is not a direct licence from the manufacturer to the end user; rather it is the authorization of the manufacturer to the middleman to “pass” the licence right on to the end user (whatever that means). There is no privity between the manufacturer and the end user. Further, it does not appear to be a proper sublicence. This is because the “pass through” licence usually lacks the back-to-back grant of rights, first from manufacturer to middleman, and then from middleman to end user, as required under the basic principles of sublicensing law.
“Wait a minute”, you may ask. The grant of rights embodied in the licence, and the sublicence respectively, do not need to be identical. All that is required is that the licensee/sublicensor be authorized by virtue of the main licence to grant the rights that the sublicensor then grants to the end user.
True enough but, even under that test, the “pass through” would seem to fail to satisfy the requirements for a valid sublicence. That is because (again, based on my experience), the grant of rights from the manufacturer to the middleman are different than those that the middle purports to pass on to the end user. Stated otherwise, the grant of the “pass through” licence runs afoul of the principle that one cannot grant to a third party a right that it has not previously been granted by the original grantor. As such, it cannot be viewed as a proper sublicence.
But Is There a Valid Licence?
If the foregoing is correct, the following points then come to mind:
1. Is the “pass through” a valid licence?
2. If so, who can enforce it, and under what grounds?
3.Even if it is not a valid licence ab initio, does the conduct of the parties create a valid licence de facto, or the least provide a valid defence, in equity or otherwise, against a claim of infringement?
Dear readers—the floor is now yours. All comments are welcome.