Publishers beware!
"Simply put, 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" (emphasis in original).
This federal common law was recently enforced by the US Court of Appeals for the Sixth Circuit in Cincom Systems, Inc. v. Novelis Corp., No. 07-4142 (September 25, 2009), and what it means is that before you buy a company, or even absorb your own subsidiary (i.e., child company) into your parent company, make sure you do your homework on what licenses that company has. Here's why:
Alcan had a license to use two copyrighted software programs owned by Cincom. The license prohibited Alcan from transferring the license to anyone else without the express, written consent of Cincom. After a series of corporate mergers and name changes, Alcan essentially disappeared, and Novelis became owners of the licenses by operation of Ohio state law (i.e., automatically). Because Cincom didn't consent in writing to the transfer -- actually, they weren't even notified -- the use of the software by Novelis was copyright infringement, and Cincom was awarded almost $460,000.00 in damages.
So, let's say you own ABC Publishing Corporation. You want to buy XYZ Publishing Corporation. XYZ Publishing Company has a license to use the images and storylines of my sci-fi novels. If, under the law of the state governing the license, the license will automatically transfer from XYZ to ABC, and if ABC continues to use my images and storylines, I'm going to sue ABC for copyright infringement, and I'm going to win. The same result occurs even if ABC Publishing Corporation owns XYZ Publishing Corporation and is simply merging XYZ into ABC. Also note that under federal law it is always assumed that the license may not be transferred without permission.
The lesson: If you seek to purchase or absorb a company that works with copyrighted or patented material that's owned by another party, get a hold of and read the licenses! Unless they actually say that the license can be transferred (or assigned) without permission, pick up the phone and start negotiating a new license -- or just don't use that material. Otherwise, you're in trouble, especially if the owner is an attorney. :^)
