Bitmanagement Software GmbH v. US, 20-1139 (Fed. Cir. 2021)

Bitmanagement distributes graphics-rendering software that the US Navy makes available to computers connected to the Navy Marine Corps Intranet.  The Navy purchased these copies, but did not pay the full seat license fees for system-wide use.  As part of the discussion between the parties, the Navy was supposed to (but did not) use licensing-tracking software (“Flexera”) to monitor and limit the number of simultaneous users of its system. After learning of that failure, Bitmanagement registered its copyright and then sued for copyright infringement.

Since the U.S. Gov’t is a defendant, the lawsuit was filed in the Court of Federal Claims (CFC) under 28 U.S.C. § 1498(b).

(b) [W]henever the [US] copyright in any work protected … shall be infringed by the United States … the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims [CFC] for the recovery of his reasonable and entire compensation as damages for such infringement.

Section 1498(b).  The CFC agreed with Bitmanagement that it “had established a prima facie case of copyright infringement.”  But, the lower court went on to excuse the Navy’s actions–finding an implied license to make/distribute copies. Bitmanagement Software GmbH v. United States, 144 Fed. Cl. 646 (2019).

Suing on Copyright vs. Contract: The Navy admitted that it did not fully live up to the implied agreement — it did not track/limit usage. On that point, the Navy suggested that potential breach should be pursued via a breach-of-contract claim, not a copyright claim. This is a convenient argument for the Navy because Bitmanagment did not allege breach of contract.

On appeal, the Federal Circuit sided with the copyright holder and found that the Navy’s failure to track/limit usage created an infringement claim.  The line on this is fairly thin — the Federal Circuit makes a distinction between breaches of (a) “a condition that limits the scope” or instead is (b) “merely a covenant.” Slip Op.  There is no infringement claim if the licensee breaches a mere covenant, but there will be a copyright claim that arises from breach of a condition.  The court went on to explain that terms of a license “are presumed to be covenants, rather than conditions, unless it is clear that a condition precedent was intended.”   Thus, “[n]ormally, a copyright owner who grants a license to his copyrighted material has waived his right to sue the licensee for copyright infringement and must instead pursue a claim for breach of contract.”

On appeal here, the court found that the use of Flexera to limit/monitor usage was a condition that induced Bitmanagment to enter the contract.  The CFC did not reach the condition/covenant question, but did expressly conclude that Bitmanagment entered the contract “because Flexera would limit the number of simultaneous users  … regardless of how many copies were installed on Navy computers.”  On appeal, the Federal Circuit found this implied clause “critical to the basic functioning of the deal.”

Thus, the Flexera term was clearly a condition rather than merely a covenant. Unlike payment, which is typically considered a covenant, the use of Flexera at the time of copying was critical to the basic functioning of the deal. The timing of Flexera was key because the Navy’s tracking of BS Contact Geo users was intended to establish how many additional licenses the Navy would purchase. Without tracking, the Navy would have no basis to purchase more licenses and, consequently, Bitmanagement would have had no reason to enter into the implied-in-fact license. Unlike payment, which can feasibly come at any time after contract performance, Flexera was only useful if it could track, from the beginning, the number of Navy users.

Slip Op.

Bottom line here: this provision is a condition and thus its breach opens the door to a copyright infringement claim.  Because the CFC already found infringement but-for the license all that remains on remand is to determine the damages owed.

Regarding damages, the court also provided some guidance to the lower court:

Because Bitmanagement’s action is against the government, it is entitled only to “reasonable and entire compensation as damages . . ., including the minimum statutory damages as set forth in section 504(c).”  28 U.S.C. § 1498(b). This amount may not include non-compensatory or punitive damages. Contrary to Bitmanagement’s argument, it is not entitled to recover the cost of a seat license for each installation. If Bitmanagement chooses not to pursue statutory damages, the proper measure of damages shall be determined by the Navy’s actual usage of BS Contact Geo in excess of the limited usage contemplated by the parties’ implied license. That analysis should take the form of a hypothetical negotiation. As the party who breached the Flexera requirement in the implied license, the Navy bears the burden of proving its actual usage of the BS Contact Geo software and the extent to which any of it fell within the bounds of any existing license. See Restatement (Second) of Contracts § 352 cmt. a (Am. L. Inst. 1981) (“Doubts [about the extent of damages] are generally resolved against the party in breach.”).

Slip op. Note 5.   I’ll pause here to note the oddity with regard to proving damages.  Normally, the burden is on the IP holder to prove its damages.

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I guess I don’t fully understand the law of implied contract.  One reason justifying the finding of an implied contract was the fact that the parties were careful to avoid entering in an express contract. “Application of the preclusion rule was not warranted in this case for three primary reasons. First, Bitmanagement and the Navy were intentional in their decision not to enter into an express contractual relationship. As to the express agreements, the parties stipulated that “[t]here is no privity of contract between the United States and Bitmanagement.” J.A. 10057 ¶ 34. Instead, Bitmanagement and the Navy chose to use intermediary Planet 9 to conduct business.”  Seems to me that both parties being careful to avoiding entering into an express contract suggests that there is also no implied contract.

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The appellate panel’s reasoning for upholding the implied contract finding was that it gave substantial deference to the lower court’s factual finding.   The opinion notes that Bitmanagement’s alternative position “is certainly supported by the record.”  Although Plausible, the court affirmed because the CFC’s factual findings were “plausible … and thus is not clearly erroneous.”  The deference here is huge — the court also noted “grave doubts” and that it was “dubious” as to whether there was any meeting of the minds. Still, did not disturb the CFC’s ruling on that point .

The majority opinion was written by Judge O’MALLEY and joined by Judge DYK.

Judge NEWMAN wrote a concurring opinion and would have found no implied contract.

I discern no license, implied or otherwise, for the Navy to make hundreds of thousands of copies of Bitmanagement’s commercial software product “BS Contact Geo.” The Navy made the copies using Bitmanagement’s keys and installation file, and admitted that it distributed the copies throughout the Navy, although without authorization, without license, and without payment. The Navy has not justified this improper copying; it violates the terms of its purchases of Bitmanagement’s product, and violates Bitmanagement’s copyright.

Slip Op. (Concurring Op.)

Willowood, LLC v. Syngenta Crop Protection, LLC, Docket No. 19-1147 (Supreme Court 2020)

Syngenta sued Willowood for both patent and copyright infringement associated with its generic fungicide compound.  Willowood won at the district court, but that holding was overturned on appeal. Now Willowood is bringing it to the Supreme Court.

The copyright claim: Syngenta product “labels” have many pages of small-type that were registered with the US Copyright office.  Willowood apparently copied the labels for its competing generic product.  Because the fungicides are dangerous chemicals, these labels are required in order to sell the product.

The district court dismissed the copyright claims — holding that the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) precludes the copyright claim because FIFRA requires a generic product to use “identical or substantially similar” labels that are typically mandated by EPA regulations.  On appeal, the Federal Circuit vacated — holding that statute does not allow thoughtless copying since “the text of FIFRA does not, on its face, require a me-too registrant to copy the label of a registered product.”  Rather, according to the court, the court must look at each copyrightable element of Syngenta’s label and consider whether that portion is “necessary” for the generic approval process.

In its petition for certiorari, Willowood asks for a blanket rule:

Whether, by requiring the EPA to grant expedited review and approval of labels for generic pesticides that are “identical or substantially similar” to the previously approved labels for the same product, Congress intended to preclude claims of copyright infringement with respect to generic pesticide labels.

Question presented in Petition for Certiorari.  This portion of the case could be a nice companion case to Google v. Oracle if certiorari is granted there.

The product label was apparently substantially copied, but without the TM, patent claims, or Syngenta name.

The Patent Claims: A portion of the infringement case turned on the court’s interpretation of 35 U.S.C. 271(g).

(g) Whoever without authority imports into the United States … a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.

The district court ruled found no infringement because the product was purchased from a separate entity and that the single-infringer-rule requires “every step of a claimed process to be performed or attributable to a single entity.”

On appeal, the Federal Circuit also rejected this statement of the law — holding that importation is the act of infringement under 271(g) (or sale/offer).  The statute does not require that the accused infringer be the one performed the method.

This [statutory] language makes clear that the acts that give rise to liability under § 271(g) are the importation, offer for sale, sale, or use within this country of a product that was made by a process patented in the United States. Nothing in this statutory language suggests that liability arises from practicing the patented process abroad. Rather, the focus is only on acts with respect to products resulting from the patented process. Thus, because the statutory language as a whole is clear that practicing a patented process abroad cannot create liability under § 271(g), whether that process is practiced by a single entity is immaterial to the infringement analysis under that section.

Syngenta Crop Protec., LLC v. Willowood, LLC, 944 F.3d 1344, 1359–60 (Fed. Cir. 2019). In its petitition, Willowood asks that the Supreme Court step-in here as well:

Whether liability for patent infringement under 35 U.S.C. § 271(g) requires that all steps of a patented process must be practiced by, or at least attributable to, a single entity, a requirement that the Supreme Court previously recognized is a prerequisite for infringement under 35 U.S.C. §§ 271(a) and (b) in Limelight Networks Inc. v. Akamai Technologies Inc.

Petition.

Issues: (1) Whether copyright protection extends to a software interface; and (2) whether, as the jury found, the petitioner’s use of a software interface in the context of creating a new computer program constitutes fair use.

This 30 second clip comes from a recent Federal Circuit oral arguments in a case captioned In Re Google Technology Holdings LLC (2019-1828).  The voices you hear are Judge Chen asking a question and Kathryn Kayali representing Google.

Until recently, patent applicants have always been the human inventors.  Now the law allows the patent owner to serve as the applicant.  Thus, rather than identifying Bogdan Carbunar as the inventor, the caption as well as the briefing identify Google as the innovative entity.  The following quote is just one from Google’s briefing:

Google explains here that it (not the inventor) recognized the networking congestion problem and that it was the company (rather than the inventor) who developed a solution.

by Dennis Crouch

On October 12, 2022, the Supreme Court will hear oral arguments in the fair use copyright case of Andy Warhol Foundation, Inc. v. Goldsmith, Docket No. 21-869 (2022).  Roman Martinez (Latham Watkins) is set to argue for Warhol and Lisa Blatt (Williams Connolly) for Goldsmith.  The Court is also giving 15 minutes to Yaria Dubin (USDOJ) who also filed a brief supporting Goldsmith.

Andy Warhol admittedly used Lynn Goldmith’s copyrighted photographs of Prince as the basis for his set of sixteen silkscreens. Warhol’s Estate argues that the artworks represent a commentary on the dehumanizing nature of celebrity whereas the Goldsmith photos merely reflect Prince in his unique human form.

The Supreme Court has taken-up the case to consider the extent that the doctrine of transformative fair use should value “differences in meaning or message,” especially in cases where the works share core artistic elements and have the same purpose.

Question presented: Whether a work of art is “transformative” when it conveys a different meaning or message from its source material (as the Supreme Court, U.S. Court of Appeals for the 9th Circuit, and other courts of appeals have held), or whether a court is forbidden from considering the meaning of the accused work where it “recognizably deriv[es] from” its source material (as the U.S. Court of Appeals for the 2nd Circuit has held).

Although Andy Warhol is dead, his art, legacy, copyrights, and potential copy-wrongs live on.  In the 1980s, Warhol created a set of silkscreens of the musician Prince. Prince did not personally model for Warhol. Rather, Warhol worked from a set of studio photographs by famed celebrity photographer Lynn Goldsmith. Vanity Fair had commissioned Warhol to make an illustration for its 1984 article on Prince. As part of that process, the magazine obtained a license from Goldsmith, but only for the limited use as an “artists reference” for an image to be published in Vanity Fair magazine. The published article acknowledges Goldsmith.  One reason why the magazine knew to reach-out to Goldsmith was that her photos had also previously been used as magazine cover-art. Warhol took some liberties that went beyond the original license and created a set of sixteen Prince silkscreens. Those originals have been sold and reproduced in various forms and in ways that go well beyond the original license obtained by Vanity Fair.  (Warhol was never personally a party to the license).

Warhol claimed copyright over his artistic creations and his Estate continues to receive royalty revenue long after his death in 1987. Goldsmith argues that her copyrighted photographs serve as the underlying basis for Warhol’s art and that she is owed additional royalties. After unsuccessful negotiations, Warhol’s Estate sued for a declaratory judgment and initially won. In particular, the SDNY District Court granted summary judgment of no-infringement based upon the doctrine of transformative fair use. The district court particularly compared the works “side-by-side” and concluded that Warhol’s creation had a “different character, a new expression, and employs new aesthetics with [distinct] creative and communicative results.”  This test quoted comes from another famous a photo-transformation case, Patrick Cariou v. Richard Prince, 714 F. 3d 694 (2d Cir. 2013).

Richard Prince had modified Cariou’s photographs of a Jamaican Rastafarian community and exhibited his work as “appropriation art.”  The copier eventually won, with an appellate holding that the majority of Richard Prince’s works were clearly transformative in their newly presented “aesthetic.” In that case, the 2nd Circuit also held that the new work can still be a transformative fair use even if not a “satire or parody” of the original work, or even be commenting on the original work in any way. That said, uses of someone’s copyright work for a the purpose of parody, news reporting, comment, or criticism make it much more likely that the use will be deemed a fair use.

After losing at the district court, Goldsmith appealed to the Second Circuit who reversed and instead concluded that Warhol’s art was “substantially similar to the Goldsmith Photograph as a matter of law” and “all four [fair use] factors favor Goldsmith.”  The appellate court warned against too broadly reading its prior Cariou decision.

Warhol’s key legal precedent on point is Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).  Campbell involved 2 Live Crew’s parody of the famous Roy Orbison song “Oh, Pretty Woman.”  The unanimous decision by Justice Kennedy delves into the first statutory fair use factor (“purpose and character of the use”) and distinguishes between (a) uses that simply replace or supersedes the original work and (b) those that are transformative of the original work. The more transformative a work, the more likely that it will be deemed a fair use and thus not infringing.  Campbell goes further and explains that transformativeness is not solely about new expression—it is also focused on whether the new work has “a further purpose or different character, altering the first with new expression, meaning, or message.”

Goldsmith argues that transformative meaning is only one element of a wide-ranging fair use analysis appropriately conducted by the Second Circuit.  As the Supreme Court recently explained in Google v. Oracle decision, the process is a “a holistic, context-sensitive inquiry” operating without any “bright line rules.”

The Copyright Act promises the original creator some amount of control over similar and follow-on works. In fact, the copyright owner is given exclusive rights to control preparation of any “derivative works based upon the copyrighted work.” For Warhol to rely entirely upon transformativness for his fair-use defense, the use must be so transformative as to leap beyond these derivative use rights.  Still, Warhol argues that the Second Circuit erred by refusing to give weight to the transformed “meaning or message” even if underlying elements of his artwork were similar to elements of the original photographs. As the Court wrote in Campbell, transformative uses “lie at the heart of the fair use doctrine’s guarantee of breathing space within the confines of copyright.” Warhol’s particular complaint with the Second Circuit is its apparent ruling that “a new work that indisputably conveys a distinct meaning or message” will still not be deemed transformative if its expression unduly retains “the essential elements of its source material.” Warhol argues that legal conclusion was recently rejected by the Supreme Court  in Google. Goldsmith responds that Warhol is misreading the Second Circuit’s decision – making a caricature of its holding.  Rather, Goldsmith argues, the Second Circuit properly weighed all the fair use factors. Further, although “message and meaning” is an aspect of fair use, it not found in the statutory nor intended by its creator (Judge Leval) to fully explain fair use.

Goldsmith also cites a list of historic cases where “conveying new meanings or messages did not save infringers.” One famous case is the Supreme Court’s 1884 decision in Burrow-Giles Lithographic Co. v. Sarony involving a photograph and lithograph copy of the famous playwright Oscar Wilde. Sarony was the first Supreme Court case confirming copyright protection in photographs. Goldsmith notes that the lithographer made a number of stylistic changes to Wilde’s appearance—shifting Wilde’s gaze from a “thousand-yard stare [of a] calculated ennui” to a “soulful gaze and brooding eyebrows [of a] dashing poet.” Despite these shifts, everyone seemed to agree that infringement was clear: “the lithograph was so obviously nontransformative the lithographer did not even try to raise fair use.” Goldsmith’s description of the images of Wilde has the reverb of a pedantic academic art critic—and one may suspect that tone was strategic in order to demonstrate the potentially ridiculous nature of the inquiry into the “message and meaning” of artistic works.

A large number of amicus briefs were filed in the case. The most important of these is likely the brief of the Solicitor General filed on behalf of the U.S. Government (Biden Administration).  The government brief focuses on transformative-use and notes that the Goldsmith and Warhol works have been used for the same purpose (republication in magazine articles about Prince) and do not involve a parody. In this same-use scenario, fair use is much less likely because the new work can be seen as little more than a replacement of the original. Regarding the meaning or message intended by Warhol, the government argues that Warhol failed to explain why he needed to reproduce Goldsmith’s work in order for that expression to take place. Thus, the government is attempting to cabin-in the transformative meaning doctrines to areas where the copying is further justified by reasoning or evidence.

The case’s impact on appropriation art and documentary filmmaking is easy to see, but there are other areas that may also see some big shifts depending upon the Supreme Court’s outcome. Although Warhol used pre-computer technology for his screen printing, the case has important implications for online copyright protections in a world of digital cut-and-paste and fingertip access to AI tools to transform digital works. You may have even seen apps that automatically transform photos into a Warhol-style work. A simple and broad holding from the Supreme Court supporting fair use would give substantial space allow these creative activities (and app development) to expand. But, that would be to the detriment of original creators seeking to protect their copyrights. A win for Goldsmith may require a re-tooling of these apps in order to fit within the stricter fair use requirements.

In his amicus brief, Berkeley Professor Peter Menell argues for Goldsmith, writing that “the Prince series consists of unauthorized derivative works prepared for a commercial purpose and without substantial transformative qualities.” Although Warhol’s work has become iconic within our culture, classifying the work as a “derivative work” creates the quirky conundrum that Warhol’s estate holds no copyright at all. This ruling then might extend to other areas—such as museum exhibits (since Goldsmith would then own the right to public display). I will note that Warhol already paid licensing fees to the owner of the underlying work in a number of situations, including for his use of Henri Dauman’s photo of Jacqueline Kennedy that had appeared in LIFE magazine.

This is not exactly a free speech case, but “meaning and message” certainly seem like forms of protected speech. In earlier cases, the Supreme Court ruled that fair use is a stand-in for First Amendment protections in the copyright world. We have seen copyright used in ways akin to SLAPP actions as well as by artists who do not want their work used to support unworthy causes (such as by politicians they oppose). The outcome here will shift those activities, either in favor of control by the original copyright holder, or more liberty to the potential (unwanted) user.