Copyright, Software Programmers and The Implied Unlimited License to Use and Modify

In Asset Marketing Systems, Inc. v. Gagnon, 542 F.3d 748 (9th Cir. Sept. 9, 2008), the Ninth Circuit found that a computer programmer granted AMS an "unlimited, nonexclusive license to retain, use, and modify" custom software that the programmer Gagnon dba "Mister Computer" had designed. AMS is a company located in San Diego engaged in, inter alia, "information technology consulting". When AMS employees booted up, they saw a copyrighted "Mister Computer" notice. During the course of dealing between the parties, the issue of AMS using the software after the ongoing consulting relationship was not expressly addressed. At a late point in the relationship, the parties exchanged proposed contracts and written statements reflecting their respective understandings (which differed). AMS eventually terminated the contract, hired most of Mister Computer's employees, and moved happily ahead. During the course of negotiations, Mister Computer variously made exorbitant demands for the continued use of his copyrighted software programs, asserted that the source code was a trade secret, and belatedly registered his copyrights. The legal action started when AMS sued in state court on employment claims, Gagnon removed and counterclaimed for copyright. I am not sure how, but the state claims to have gotten remanded (leaving only federal counterclaims), and then AMS appears to have dropped the now remanded claims in state court and then asserted its state law claims as "counter-counterclaims" to Mister Computer's federal counterclaims in the federal action. Whew!

The court's decison turns around the mysterious language of 17 U.S.C. Section 204(a). Section 204(a) requires that a transfer of copyright be in writing, signed by the owner. The case law has not required a writing for a transfer of a non-exclusive license. I discuss non-exclusive licenses as a litigation defense at Section 13:12 of Copyright Litigation Handbook (3d Ed. West 2008).

The 9th Circuit had previously considered implied licenses in the context of movie special effects and architectural drawings. To illustrate: someone is paid $56,000 for special effects film footage, delivers it, then claims the film company can't use it. Effects Assocs. Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990) (link courtesy http://www.coolcopyright.com/). This is the "Moviemakers do lunch, not contracts" case.

But in this very hot area of work-for-hire disputes - the implied license doctrine has now been applied to software, substantially reducing the leverage that outside consultants may wield over clients who have not protected themselves in acquiring custom software.

An implied license may be found where (1) licensee requests creation of a work; (2) the creator makes the work and delivers it to the licensee who requested it; (3) the licensor intends that the licensee-requestor copy and distribute his work.

The AMS court found that Mister Computer intended, through "objective manifestations" that AMS "use, retain and modify" the software programs as well. Mister Computer should have put a better warning on his material. Now large and sophisticated software users, too, can do lunch, not contracts.

Declaratory Judgments on Unregistered Copyrights: A Cobbler's Dilemma

Stuart Weitzman LLC v. Microcomputer Resources Inc., 542 F.3d 859 (11th Cir. Sept. 12, 2008).
What happens when your custom computer programmer sends you a cease and desist letter telling you that you have the right to use the software they built for you, but that you do not have the right to possess the source code and that it "cannot be modified, changed or reverse engineered by anybody."
Well, the Stuart Weitzman people responded with a declaratory judgment action. They claimed that they were being accused of copyright infringement, that the subject matter was completely pre-empted, that there was a "case or controversy", that the court had federal jurisdiction. Seems pretty simple, right?
Wrong. The computer vendor had not registered the copyright in the software program, and Weitzman did not contest that the vendor owned the copyright. Nor could the Weitzman folks think up any state-law claims that they could seriously be sued for, which might raise a federal question to be decided (interpretation of the copyright act). Weitzman argued that the "federal question" raised was an anticipated copyright infringement action, and asked the court to construe Weitzman's defenses under 17 U.S.C. Section 117 (you are allowed to copy a computer program if such copying is necessary to run the program).
So the case was dismissed on subject matter jurisdiction, simply because the computer company had neither sued nor filed a copyright registration. This result appears to be anomalous and not in the spirit of other declaratory judgment cases. It is not clear that Weitzman showed how the business would be immediately and irreparably harmed by the cease and desist letter or that the controversy was "ripe".

Creative Commons, Open Source, Copyright and Contract Law

For a number of years, activists dismayed at how commercial enterprises exploited copyright agitated to change the nature of how copyrighted works affected creative collaboration. They imagined a world of greater creative collaboration where everyone would still be able to make a living.

Authors, artists and musicians who wished to have their works used in others' materials could signify their interest.

Information and tools to understand this movement, including the "creative commons" marking and sample licenses are available at the Creative Commons website.

Wikipedia is a stunning example of this type of creative collaboration.

But what about the making money part? If you put your work on the internet and tell everyone that they can use it, are these very creative "creative commons" licenses going to eventually help you make a living? Can these licenses be enforced? And if someone ventures beyond the terms of the license, is that a breach of contract or is it copyright infringement?

The issue went from an interesting and hotly debated academic question to a tremendous commercial reality with the advent of the "open source" software movement, which adopted a creative commons-type license. Essentially, software programmers put up programming code that anyone can download, modify, use and distribute for free, as long as the "borrowed" or "open source" code is clearly indicated and enabled for the distributee to copy, download and use.

On August 13, 2008, the Court of Appeals for the Federal Circuit decided Jacobsen v. Katzer, 2008 WL 3395772, a decision that reviewed a district court's denial of a preliminary injunction to the owner of programming code who sued a person who downloaded his code, removed the identifying materials, and sold a new software package commercially.

The district court found that the open source license was an intentionally broad non-exclusive license unlimited in scope. Rather than being a matter of "copyright infringement", the issue became one of "breach of contract". The district court's holding meant that the owner of the open source code would be stripped of powerful rights and remedies available in federal court to copyright owners who are victims of copyright infringement, including the right to injunctive relief.

Generally, a copyright owner who grants a nonexclusive license to use copyrighted materials waives the right to sue the licensee for copyright infringement. But where a license is limited in scope and the licensee acts outside the scope, the licensor can sue for copyright infringement.

The Court of Appeals framed the issue as follows: if, under California law the terms of the open source license were "conditions" for the use of the copyrighted materials, then use outside such conditions would be copyright infringement. If, however, the terms of the open source license were "covenants" under state contract law, then the open source owner would be limited to remedies for breach of contract.

Analyzing the terms of the open source license, the Court of Appeals found that its provisions were "enforceable copyright conditions" for the use of the copyrighted material and that copyright remedies would be available to the owner.

The Court of Appeals decision contains an excellent discussion of the commercial benefits flowing from open source collaboration that cannot be measured in terms of traditional royalties. This is a well-reasoned opinion that is a strong victory for the owners of these copyrighted works. According to Creative Commons, it is estimated that approximately 100,000,000 works are licensed under various Creative Commons licenses. The court noted that both Creative Commons and the Wikimedia Foundation filed friend of the court (amicus curiae) briefs in support of the appeal.

While the question of how or if many of these copyright owners will seek or achieve returns on their investments is an open one, this case is a clear victory for the rights of copyright owners who want to make their works available through the digital commons.