US Navy Violated Implied Software License In Fact, Federal Circuit Decides Bit Management | Morrison & Foerster LLP – Public Procurement Overview

The Federal Circuit handed a substantial victory to Bitmanagement Software GMBH last week, finding that the U.S. Navy infringed the company’s copyright by installing its 3D visualization software on hundreds of thousands of government computers without using license tracking software to monitor and limit the number of concurrent users. The court’s decision is significant, not only in upholding the lower court’s finding that a de facto implied license existed between the government and Bitmanagement despite the lack of a contractual relationship between the two (who transacted through Bitmanagement). ‘a reseller), but also taking it a step further by forcing the Navy to comply with a key condition of that license, a condition which the Navy failed to comply with, with the potential for heavy compensation from the software vendor.

The business arose from purchases by the Navy, between 2006 and 2012, of just over 100 “seats” (that is to say, single computer) in Bitmanagement’s “BS Contact Geo” software. The software, provided both as a desktop executable and as a web browser plug-in, allows a user to visualize geographic information by rendering realistic terrain and city models and allowing the user to position virtual objects using geographic coordinates. After the Navy struggled to manage its individual headquarters licenses, the parties agreed to a floating license structure that allowed the Navy to deploy the software to all Marine Corps Intranet computers in the Navy (“NMCI”), but required the Navy to use a license management system. software to monitor and limit the number of concurrent users. The Navy did not, at least for the web browser plug-in, and from July 2013 through at least September 2016 the program remained available for use on 429,604 government computers without limitation.

Bitmanagement sued in the United States Federal Court of Claims seeking compensation for copyright infringement under 28 USC § 1498(b). The Court of Claims dismissed the claim, finding a de facto implied license for the Navy copy based on several direct email exchanges between the parties. On appeal, the Federal Circuit agreed that a de facto implied license existed, and further, that de facto implied license was not excluded by the express contracts between the government and Bitmanagement’s reseller, which (according to the court) “do not directly capture or reflect the discussions that took place between the Navy and Bitmanagement. In a concurring opinion, Judge Newman weighed even more favorably for Bitmanagement, adding that she would have reversed the Court of Claims’ finding of an implied license in fact, as “there was clearly no mutual intention that Bitmanagement would abandon its business purpose and grant the Navy unlimited free licenses to copy and use” the software.

But it was not enough, according to the majority and the consent, that the Navy demonstrate the existence of an implied license in fact; the court must also determine whether the navy’s conduct violated that license. Additionally, for the purposes of copyright infringement claims, the court had to determine whether the infringement was merely an undertaking (for example, an obligation to pay), in which case Bitmanagement’s remedy only rang within the contract, or if the violation violated a condition precedent to the limitation of the scope of the license itself. The Federal Circuit has held that the facts developed below are sufficient to assert, as a matter of law, that the implied license was conditioned on the Navy’s use of Flexera to limit, from the time of copying, the number of concurrent users of the program. The court held that this limitation was “essential to the basic operation of the agreement” and noted “[w]Without follow-up, the Navy would have no reason to buy more licenses and therefore Bitmanagement would have had no reason to enter into the implied license. Because the Navy failed to comply with this condition of the license, its copying constituted copyright infringement, the court ruled, which quashed and remanded the case to the Court of Claims to determine appropriate damages. .

On this point, the Federal Circuit then offered some advice. In a footnote to its finding and dismissal order, the court suggested that Bitmanagement’s damages should be based on the actual excessive use of BS Contact GEO by the Navy, as determined by a “hypothetical negotiation” in which the Navy, as the party in breach, “bears the burden of proving its actual use . . . and the extent to which any of them fell within the limits of any existing license.” Even if the court suggested that Bitmanagement could not claim damages for every copy made, but only for those used beyond the scope of the license, the damages framework outlined by the court should be reassuring to some consideration for vendors of commercial software selling to the federal government Unique security restrictions often make it very difficult, if not impossible, to monitor and audit the use of software by the government in the same way as a commercial customer, hampering an aggrieved contractor’s ability to prove that its breach damages with the same specificity a court or counsel normally expected in other cases. This framework places the burden of proof more fairly on the government, which is in a better position to gather evidence and whose violation itself could, in some cases, have exacerbated these evidentiary gaps.

As we’ve written before on this blog, commercial software vendors have many reasons to be cautious when selling to the federal government, whether due to an inability to rely on its license terms established and reliable, or because of the various practical obstacles to even legally authorized application. terms. These concerns often lead companies to approach the government through resellers, creating even more enforceability issues between the software manufacturer and its government end user. The decision of the Federal Circuit in Bit management does not address these concerns, but its endorsement of the implied de facto license that might arise between a software vendor and the government, and the obligations it imposes on the government to observe and abide by such licenses, are, without question , promising developments for software companies that support the federal government.

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