Did You Just Give Amazon Your Intellectual Property by Using Amazon Web Services (AWS)?

Risk-of-Business-262x300The “fabric” computing technology developer Appistry sued Amazon for patent infringement, and lost last month in the Western District of Washington.

While Appistry lost because the Court invalidated its patents-in-suit, Amazon might have still successfully defended itself against claims of infringement of valid patents. This is because Appistry waived its right to assert patent infringement claims against Amazon and it appears that all end-users of AWS, past and present, may be waiving their right to assert patent infringement claims against Amazon’s cloud service—forever.

To use AWS one needs to simply click “I Accept” on the click-wrap agreement, and in doing so, appears to be agreeing to not assert any patent or other IP infringement claim regarding any AWS services both during and after the term of the agreement.

According to Appistry, it contacted Amazon in 2004 in order to sell a license to its patents. Over the course of prolonged negotiations, and after signing a mutual non-disclosure agreement, Amazon convinced Appistry to give its engineers detailed explanations and answers about the IP it offered to license. In the end Amazon declined to purchase a license, and was able to reverse-engineer the technology, which it incorporated into its Elastic Compute Cloud (EC2) service.

Amazon, which claimed that an Appistry employee agreed to the AWS terms as early as 2011, used the non-assert provision in its defense against Appistry. Appistry’s arguments in turn, that it was forced into a “take it or leave it” agreement with no ability to negotiate, were unconvincing, in part because of its continued use of AWS after being made aware of the clauses that it tried to invalidate. Appistry further claimed that there was no evidence that the employee that clicked through to use AWS was authorized to enter agreements on its behalf, to which Amazon responded that Appistry continued to pay for and use AWS even after it was “reminded that the Customer Agreement governs” its use.

Given that the patents-in-suit were invalidated, it is unclear whether the non-assert provision would have held up as a defense against a claim of infringement of ‘valid’ patents.

On the one hand, AWS’s largest competitors do not include non-assert provisions in their cloud agreements and even agreements in which a non-assert provision is included do not extend its scope indefinitely, beyond the termination of the agreement. All this may lead the courts to invalidate the provision as being against public policy.

On the other hand, the argument that a user of AWS is forced to accept the terms of the contract by an overpowering corporation, may not convince the court, as Appistry was unable to when it raised similar arguments against other provisions of the agreement. Given that prospective users of AWS do in fact have choices, and can, at least for now, choose to use the service of a competitor that includes a more limited non-assert provision, or none at all, deciding to use AWS will likely be seen as a willful acceptance of Amazon’s terms, even if they were non-negotiable to begin with.

Businesses are reminded—and advised to remind their employees—of the importance of accepting or using click-wrap software only after they have thoroughly reviewed the agreement and understanding its legal implications. In many cases important provisions can be negotiated, and non-negotiable contracts might be avoided, or at least entered into with full knowledge of the risks involved.

-Asaf Naymark. Associate
Shaked & Co. Law Offices


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