License scope (and Trulia Direct Reference)

The following is not intended to be legal advice and describes legal concepts in generalized terms. If you have specific questions regarding your organization or a specific agreement, please contact an attorney.

MLSs are the hubs and warehouses of valuable data. They receive data for which they want to limit their liability and which they want to try to protect from pirates; and they distribute data that is valuable to the MLS, its members, and companies that seek to use it for profit-making businesses. MLSs that want to make sure they are striking fair bargains for the data they license will want to pay close attention to the scope of license clauses in contracts.

In this post, I will discuss why the scope of a license matters, explain why the use of precise language in a license is important, and examine an industry example of incongruence of license scope and the expectations some MLSs might have.

Why does scope matter?  

The license scope creates the boundaries for what the licensee can do with the licensed materials. Describing the scope of a license precisely is important because it allows the licensee to use the licensed material as the parties intend and sets the boundaries for prohibited uses of the licensed material. Creating a license scope that is consistent with the parties’ verbal agreement ensures that both parties are getting and giving what they expect. If an MLS is contemplating sending its data to a third party, presumably the MLS has concluded that the payments or services the third party offers in return are worth some value back to the MLS. If the scope of the license does not accurately reflect the bargain, the value might not be adequate for the MLS. MLS should therefore make sure the scope of the license is broad enough so the third party can do only what it needs to with the data, but no more.

License language matters.

MLSs and brokerages should closely examine license language in agreements. Terms that may appear to a non-lawyer as layperson descriptions could have legal significance. Simple examples include “distribution,” “reproduction,” and “derivative works.” These terms describe the exclusive rights of a copyright holder. They are the sticks in the bundle of rights granted under federal copyright law (17 U.S.C. 106). By including these terms in the scope of a license, an MLS is granting a licensee specific legal rights. In a lay sense the terms may seem innocuous, but an MLS may be granting rights it never intended to license. A major part of contract negotiation is making sure the contract properly embodies the agreement between the parties. Without a careful analysis of the whole written agreement (especially the license scope), what may seem like a fair bargain at the time of handshake might not be fair once it’s embodied in writing. (A discussion of making sure an MLS is getting what it expects will be reserved for another blog post.)

What precipitated this post. 

I recently reviewed a few Trulia Direct Reference (TDR) agreements for clients. Trulia provided us this description of the TDR service:

Trulia Direct Reference is a cooperative effort between Trulia and MLSs to identify, correct and eliminate inaccurate listing data distributed by third party syndication companies. MLSs provide Trulia a data feed, which Trulia uses solely as a benchmark for accuracy against listings they receive from third party syndicators.

When Trulia identifies information in data received from third party syndicators that is different than data in the MLS version of a listing, they correct the errant data before it appears on Trulia.com, and then send an email to the listing broker and agent indicating the source of the errant data and the information that is different. Trulia also sends a weekly summary report as well as a daily detail report to the participating MLS. This program is free to MLS organizations and their members.

Several of our clients have identified this as a valuable service and are entering or have entered agreements with Trulia for it. I noted, however, that the TDR agreement appears to have changed within the last year. The new document is much shorter, has less legalese (not the scary looking two columns of narrow font), and frankly appears friendlier. But I also noticed changes that appeared to expand the scope of the license to Trulia. Trulia may not have intended to expand the scope of its agreement, but the scope of the new license did not match the expectations of some of our clients’ about the TDR service. It appeared to me to authorize a much broader set of uses.

Even if my reading was correct, if MLSs know Trulia can do more with their data than operate the TDR service, and if the MLSs believe that it is part of the bargain they agreed to – great! If they want Trulia to be able to do different things with the data, it might end up in some really cool products (I think the commute map is a great idea – kudos, T). But if the MLS did not intend to allow uses beyond accuracy checking of listings, the written agreement does not capture the bargain the MLS thought it struck.

I assumed there was no nefarious intent. Trulia was probably trying to simplify its contracting process. It’s entirely likely that Trulia developed a base + exhibit agreement system that would work for various products as its services evolve. Sometimes companies will have a generic “master” base agreement and then attach exhibits to better define the subject matter of the agreement. I’ve seen this contract management method before with other MLS and non-MLS clients. Trulia might have introduced this to avoid complexity and attorneys’ fees and just hadn’t properly dialed in the agreement yet.

That turned out to be correct. Brian and I arranged a telephone call with Trulia representatives and in-house legal counsel. First, they confirmed that Trulia will use the TDR data only to correct listings received from third parties (brokers, agents, syndication channels) for posting on Trulia products. Second, they disagreed with our interpretation of their license’s scope; in other words, they believe that the language we reviewed permitted only the uses we described above. Well, we agreed to disagree on the interpretation of their contract language, but they also agreed to revise it to clear up the disagreement. Trulia’s counsel revised the scope of the license to be consistent with our and their understanding of what they actually do with the data received for the TDR service. That seems like a win-win for Trulia and the industry.

The bottom line?  

Closely review data license language granting rights to other parties, even if they are trustworthy partners. If necessary, engage an attorney so you don’t accidentally read over any terms of art. And more broadly, make sure your verbal bargain is properly embodied in your written agreement – it can save a lot of headaches (and legal fees) down the road.

-Mitch

BTW: We don’t do any legal work for Trulia. In fact, Brian was a little disappointed that he couldn’t figure out who to bill for the talk we had with them.