Software Copyright Infringement Defenses: Ownership of a Copy and Implied License

A defendant accused of infringing a software copyright was, according to facts plead in the plaintiff’s complaint, an owner of a copy of the software under 17 U.S.C. § 117(a)(1). Further, the facts established that the defendant had an implied license. Therefore, the court in Zilyen, Inc. v. Rubber Mfrs. Ass’n, No. 12-0433 (RBW) (D.D.C April 2, 2013), granted the defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).

As plead in the plaintiff’s complaint, the parties had entered into a contract for the plaintiff to deliver to the defendant CDs that included content specified by the defendant. The defendant paid half of the agreed-upon price to the plaintiff upon execution of the contract. When the CDs were delivered, the defendant’s employees ran the CD software on their computers, and alleged that there was an error.  The defendant never paid the balance of the contract price. The plaintiff sued, alleging breach of contract and copyright infringement. The defendant moved to dismiss (and also brought counterclaims, which the plaintiff moved to dismiss).

The plaintiff alleged that, when the defendant’s employees used the CD software, they made unauthorized, unlicensed copies. The defendant raised affirmative defenses of implied license and that its actions did not constitute infringement under 17 U.S.C. § 117, which governs “Limitations on exclusive rights: Computer programs.” Specifically, 17 U.S.C. § 117(a)(1) provides:

(a) Making of Additional Copy or Adaptation by Owner of Copy.— Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner.

Because the D.C. Circuit had not interpreted this provision, the court relied on Krause v. Titleserv, Inc., 402 F.3d 119, 122 (2d Cir. 2005). The court explained that:

In Krause, the Second Circuit held that “courts should inquire into whether the party exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of § 117(a)” and considered the circumstances of the parties’ relationship and the use of the software in order to determine whether the possessor of the computer program could be considered an “owner” under § 117(a).

Further, the court here agreed with Krause’s conclusion that formal title was not necessary to establish ownership under § 117. Therefore, the court would “assess whether the defendant exercised sufficient incidents of ownership over the CD software such that the defendant could be deemed an ‘owner’ within the meaning of § 117(a).”

Here, the facts were sufficient to establish the defendant’s ownership of copies of the software. The plaintiff had designed and revised the software at the defendant’s request. Contrary to the plaintiff’s assertions, the parties’contract contained no restrictions on the use of the software. The plaintiff did not have the right to repossess the software, and the agreement divested the plaintiff of any liability for the accuracy of the CDs’ content. The plaintiff had acquiesced to providing the software to the defendant so the defendant could place the software on its website.

The court thought that the defendant’s failure to pay the entire contract price was of little moment with respect to ownership under § 117. Although “a lack of intent to pay for a computer program in general raises an inference regarding the parties’ intentions as to ownership of the program, non-payment due to an alleged defect does not.”

Moreover, even if the § 117 defense had failed, the court found that the defendant had an implied license to the software. Under D.C. Circuit law, a “nonexclusive [copyright] license ‘arise[s]from the conduct of the parties’ when ‘(1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes the particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.’”

Based on the plaintiff’s complaint, the court easily disposed of the first two prongs of the implied license analysis. The final prong was more difficult, but “[t]he parties’ conduct, as derived from the allegations contained in the plaintiff’s amended complaint, indicates that the parties intended that the defendant would be able to use the CDs, and thus, the copyrighted CD software.”

The court declined to exercise jurisdiction over state law claims, and dismissed all claims.

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