COFC decision finding that government was not liable for copyright infringement is vacated. The claimant asserted that the Navy infringed on its copyright by making unauthorized copies of software. The COFC found that the Navy had an implied-in-fact license to make the copies and thus did not violate the claimant’s copyright. The Federal Circuit agreed that the parties had established an implied-in-fact license that allowed the Navy to copy the software. But the court found that the implied license contained a condition that required the Navy to track use of the software. The Navy failed to track use of the software, violated the implied license’s condition and thus infringed on the claimant’s copyright.
Bitmanagement Software GMBH is a German software development company. In 2006, Bitmanagement entered a software reseller agreement with Planet 9 Studios, Inc. under which Planet would market and sell Bitmanagement’s products in the United States.
Between 2006 and 2012, the Navy purchased, through Planet 9, several copies of Bitmanagement software called BS Contact Geo, which is a three-dimensional visualization program. Initially, Bitmanagement provided the Navy with a seat license for each individual copy of the program.
But by 2011, the Navy was experiencing problems administering the individual licenses over the computer’s in the agency’s network. Bitmanagement proposed a license tracking option under which the server would maintain a counter to keep track of people on the network using the BS Contact Geo program.
The Navy was amenable to this licensing tracking approach. Indeed, the Navy told Bitmanagement that it had an existing floating license tracking application called Flexara that could track and limit the number of simultaneous users of the software. The Navy represented that it could “FlexWrap” the software, which would limit the number of programs that could be used at one time.
The Navy confirmed use of the Flexara approach in an email to Bitmanagement. Shortly thereafter the Navy sent a license proposal to Planet 9 stating that 20 undeployed licenses and 18 new licenses would be deployed with Flexara protection. The Navy then submitted a purchase order to Planet 9 for 18 new copies of the BS Contact Geo program.
The Navy deployed the BS Contact Geo program on its network in 2013. But the Navy did not FlexWrap the web-based version of the program. Thus, although the Navy had only purschased 119 licenses for the software, it made over 429,000 copies of the program.
Bitmanagement, which had copyrighted the BS Contact Geo program, sued the government in the Court of Federal Claims, alleging copyright infringement. The COFC ruled in favor of the government. The COFC found that, based on the parties’ communications, the Navy had an implied-in-fact license that permitted it to make copies of the program. The COFC reasoned that through this license, Bitmanagement had authorized the Navy to make multiple copies of the program across the Navy’s network. Bitmanagement appealed the COFC decision to the Federal Circuit.
On appeal, Bitmanagement argued that the COFC erred in finding an implied-in-fact license. Specifically, Bitmanagement contended that the COFC failed to address the prevailing legal test for an implied license set forth in the Ninth Circuit’s opinion in Effects Associates v. Cohen, 908 F.2d 555 (9th Cir. 1990). Instead, Bitmanagement claimed, the COFC improperly engaged in a generalized assessment of the parties’ communications under the normal implied-in-fact contract standards.
The court noted that license is a type of contract and thus governed by contract law principles. As with an implied-in-fact contract, and implied-in-fact license is founded on the meeting of the minds, which is inferred from the surrounding circumstances. The finding of implied-in-fact contract requires (1) mutuality of intent to contract, (2) consideration, and (3) lack of ambiguity in offer and acceptance.
The Ninth Circuit Effects Associates decision adds additional factors for an implied-in-fact license. But the Federal Circuit found that those factors, which were articulated in a case involving movie footage, were too remote from the facts of this case to be useful. In cases like this, involving software, it is appropriate to consider the totality of the communication as the court would in a typical implied contract case.
The court found that based on the totality of the communications, the COFC’s finding of an implied license was not clearly erroneous. Bitmanagement understood that the Navy intended to broadly deploy the software. The company agreed to a floating license approach. The Navy informed Bitmanagement several times that it planned to broadly deploy the program. Bitmanagement had told that Navy that it understood the agency’s plan to broadly deploy the program. While it was possible to read the communications differently, the COFC’s reading was a plausible and thus not clearly erroneous.
Bitmanagement also argued that the express purchase order between the Navy and Planet 9 precluded the existence of an implied-in-fact license. Generally, the existence of express contract preludes the existence of implied contract dealing with the same subject matter.
The court, however, noted that this preclusion rule is less applicable when the express contract is not directly between the parties to implied contract. When such a situation exists, the court will only apply the preclusion rule when the totality of the circumstances show that an implied agreement was in fact precluded by an express agreement.
Here, the court opined that the totality of the circumstances did not preclude an implied agreement. Bitmanagement and the Navy were actually intentional in their decision to not enter an express contract. Also, the subject of the implied agreement—a license to copy software—was not covered by any express agreement. In fact, no express agreement mentioned copies. Moreover, the express contract was ambiguous as to how the parties understood Flexara would be used. It was clear that the Navy and Bitmanagement came to an agreement that was separate from the purchase order.
Bitmanagement further argued that even if the parties had an implied-in-fact license, the use of Flexara was a condition precedent of that license. The Navy, Bitmanagement, contended, had failed to comply with that condition and thus committed copyright infringement. The COFC had not reached this issue. But the Federal Circuit determined that the undisputed facts in the record would sufficient to allow resolution of this issue as a matter of law.
The court reasoned that the Flexara condition of the implied license could be readily understood from the parties’ course of dealing. Bitmanagement agreed to the licensing scheme because Flexara would limit the number of simultaneous users. The use of Flexara was thus a condition of the implied license. Indeed, the court reasoned, this condition was the only feasible explanation for Bitmanagement allowing mass copying of its software free of charge. The use of Flexara was critical to the basic functioning of the deal.
The court concluded that the Navy failed to abide by the Flexara condition in the implied license and that the Navy made copies of the program outside the scope of the license. These copies constituted copyright infringement. The court vacated the COFC decision and remanded for a determination of damages.
One of the judges on the Federal Circuit concurred only in the result, agreeing that the Navy had violated Bitmanagement’s copyright. This judge, however, did not believe that the Navy and Bitmanagement had established an implied-in-fact license. Without a license, the Navy had simply made unauthorized copies of the program, which violated Bitmanagement’ copyright.
Bitmanagement is represented by Adam Raviv, Brent Gurney, and Mark Christopher Fleming of Wilmer Cutler Pckering Hale and Dorr LLP. The government is represented by Scott David Bolden, Jeffrey B. Clark, Gary Lee Hausken, and Patrick C. Holvey of the Department of Justice as well as Richard James Huber of the Navy.
