[1] DAK Industries, a supplier of computer hardware, entered into a license agreement with Microsoft, a software distributor, that granted DAK the rights to distribute and license copies of Microsoft Word on the computers it sold during the term of the agreement.

[1] Microsoft alleged that it was entitled to 'administrative expenses' from DAK to compensate it for the continued use of the license agreement that allowed distribution of its software.

[1] The Ninth Circuit provided several reasons for its belief that the 'economic realities' of the agreement between Microsoft and DAK was about a 'lump sum sale of software' rather than the permission to use the Word intellectual property: The court found that simply naming the agreement as a license and denoting the payments as royalties did not in fact make it a license in terms of intellectual property.

[1] The idea of courts looking at the 'economic realities' of a deal to decide if a transaction is a sale or a 'license to use' was also adopted in SoftMan Products Co. v. Adobe Systems Inc.

When a consumer purchased Adobe software, they received a single copy for which they paid in entirety and the license is valid forever.

Any payment made by DAK were merely an advancement against potential royalties: a common agreement in book and motion picture licenses.