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Spoilers for Silicon Valley's first 4 seasons (read at your own risk)

In Silicon Valley, season 4 episode 2, Terms of Service, Dinesh as CEO of Piper Chat ends up giving away his company to Hooli and Gavin Belson. In the previous episode, Richard had quit Piper Chat to work on his thing but not before he gave Dinesh and the team a license to use his algorithm in perpetuity while he (Richard) remained sole proprietor of the algorithm's IP.

My questions are: what happens to this license when Hooli acquired Piper Chat? Is it transferred to Hooli with the chat app? Most of the Hooli drama in the show up to now has been to prevent them from acquiring Richard's algorithm and I understand that this deal still means they don't own the IP but, with a license to use it for free in perpetuity, isn't it basically the same? Can they now use the algorithm in all their products with this license or are they not allowed to use it outside the chat app?

Addendum: I live outside of the US so, I'm not very familiar with these laws.

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    This is really a question for Law.SE
    – Paulie_D
    Oct 7 '21 at 16:48
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I am afraid your understanding is little off track here.

I understand that this deal still means they don't own the IP but, with a license to use it for free in perpetuity, isn't it basically the same?

Consider, for example, the license to use a piece of software or operating system. They are meant to be used only on one machine. If you try to use one license in two machines, one of them would fail to validate properly.

It's the same thing with Richard's algorithm when he left Piper Chat. He just gave license to use his algorithm in Piper Chat and kept the IP rights to himself. This is like you are given license for software for one user and not the whole company.

Can they now use the algorithm in all their products with this license or are they not allowed to use it outside the chat app?

Hooli cannot legally use Richard's algorithm in a different app without proprietary rights to it.

This is depicted shown when Richard is angry at Dinesh and Gilfoyle for giving access to his algorithm to be embedded in Keenan Feldspar's VR technology.


Update: Supporting my earlier answer which is essentially correct, here is some new information.

In first episode of season 4, Richard decides to have chat with all the guys about leaving the company, this is how it goes.

Richard: I was ready to fight you guys. But, it occurred to me that there might be a better way. I am gonna start my own company. I will give up all of my equity in the video chat if I get to completely own my algorithm. I will grant you guys a perpetual license to use the algorithm in your video chat but I need the algorithm to build something else. And look, forget a million users, me out of the company you guys will be able to raise the money, no problem. And that way everybody wins.

Dinesh: So we can use the algorithm free and clear for video chat?

Richard: Yes.

So it's evident from this conversation that Richard gave Dinesh and Co a perpetual license, which was then sold to Gavin Belson. So Gavin has only perpetual license to use algorithm in video chat only and not other products.

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