4dd Holdings, LLC v. United States ( 2022 )

No. 15-945C
(Filed: March 31, 2022)
(Re-Filed: April 20, 2022)1
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4DD HOLDINGS, LLC, and
T4 DATA GROUP, LLC,
Plaintiffs, Copyright infringement;
FAR 52.212-4; FAR
v. 52.227-14; DFARS
252.227-7013; conditions
THE UNITED STATES, versus covenants; license;
implied-in-fact license;
Defendant, accord and satisfaction;
release; 17 U.S.C. § 117(a)
and (2018)
IMMIX TECHNOLOGY, INC.,
Third-Party.
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Roman M. Silberfeld, Los Angeles, CA, with whom were Ronald J.
Schutz, Christopher K. Larus, Bryan J. Mechell, Christine Yun Sauer, Jessica
Gutierrez Alm, Zac Cohen, Holland Hauenstein, Minneapolis, MN, for
plaintiff, 4DD Holdings, LLC, and T4 Data Group, LLC.
John J. Todor, Senior Trial Counsel, United States Department of
Justice, Civil Division, with whom were Brian M. Boynton, Acting Assistant
Attorney General, Martin F. Hockey, Jr., Acting Director, and Elizabeth M.
Hosford, Assistant Director, for defendant.
1
This opinion was originally issued under seal in order to afford the parties
an opportunity to propose redactions of the protected material. The parties
agreed that none were necessary; thus it appears in full.
OPINION
This is an action for copyright infringement. Pending are the parties’
cross-motions for summary judgment. 4DD Holdings, LLC, and T4 Data
Group, LLC (“4DD” or “plaintiff”2) seek partial summary judgment on their
claim that the government violated their copyright by over-installing copies
of its computer program, TETRA. Plaintiff claims that it had a valid
copyright, that the license at issue prohibited additional copying beyond what
it explicitly allowed, that additional copying of TETRA would be a copyright
violation, and finally, that the government made a certain number copies of
the software. The government also seeks summary judgment, claiming that
4DD waived the right to additional compensation for additional copies of
TETRA through a release executed as part of a modification to the contract.
In the alternative, the government claims that, under copyright law, it was
entitled to make most of the additional copies of TETRA for which plaintiff
now seeks compensation.
The issues are fully briefed, and oral argument was held on January
28, 2022. We grant in part and deny in part plaintiff’s motion, and we deny
in full defendant’s motion.
BACKGROUND3
Since the late 1990s, both the Department of Defense (“DoD”) and
Department of Veterans Affairs (“VA”) have had difficulty in linking their
respective databases of millions of healthcare records of servicemembers,
veterans, and their beneficiaries. Beginning in 2011, the DoD and VA sought
to jointly rectify those problems and achieve greater data federation, entering
into a program known as the integrated Electronic Health Record (“iEHR”).
In 2013, the DoD and VA elected to develop their own answer to the data
federation problem and began the Defense Medical Information Exchange
(“DMIX”) project. That same year the government conducted a build versus
buy analysis and elected to buy a commercial solution rather than build its
own federation software. A government contractor, Systems Made Simple,
Inc. (“SMS”), brought on to assist the government with the DMIX project,
selected 4DD and one other finalist from a host of solutions to compete in a
flyoff, which 4DD subsequently won.
2
Although there are two named plaintiffs, we will refer to them as one
plaintiff and use a singular pronoun.
3
The facts have been taken from the complaint and the exhibits of the
motions for summary judgment.
2
4DD is a veteran-owned small business whose primary business is
developing and licensing software, including the software at issue, TETRA.
TETRA Healthcare Federator contains a suite of components (collectively
referred to as “TETRA”) designed to enable federation between databases,
the main goal of the DoD and VA. TETRA Enterprise Studio is an interface
which a user employs to “instruct the TETRA Healthcare Federator
components what data to use and how to manipulate the data.” Pl.’s Mot. at
5 (citing Ex. 3, McPhatter Dep. p.22:7-10). On September 26, 2013, the
government and ImmixTechnology, Inc. (“Immix”), a 4DD reseller, entered
into a contract to license 64 cores4 of TETRA and 50 seats5 of TETRA
Enterprise Studio. Government contractors, such as SMS, were to oversee
the implementation and configuration of TETRA and TETRA Enterprise
Studio for the government’s use. The installations were to take place at the
Development and Testing Center (“DTC”), a government facility in
Richmond, Virginia, and SMS’s lab.
One month after performance began, the parties executed a
modification to the contract. While the original contract incorporated 4DD’s
End User License Agreement (“EULA”) by reference through an Immix
Sales Quotation, this modification expressly included the EULA in the
contract. The EULA contained a number of restrictions on the government’s
use of TETRA, such as limiting the number of copies the government could
4
According to plaintiff:
TETRA Healthcare Federator is optimized to run on a server,
but may be installed on any type of device, including laptops,
servers, and virtualizations of computer systems called “virtual
machines” (“VMs”). 4DD therefore licensed TETRA
Healthcare Federator on a “per core” basis to account for the
computing power available to each copy of TETRA on a
machine. For example, under this “per core” license for up to
64 cores, the Government could make 16 copies of TETRA on
four-core VMs (64 total cores) or, it could make four copies of
TETRA on 16-core VMs (64 total cores).
Pl.’s Mot. at 8 (citations omitted).
5
A per-seat license limits TETRA Enterprise Studio by the user. “One seat
allows one user to access that copy of TETRA Enterprise Studio.” Pl.’s Mot.
at 24 (citing Ex. 5) (Emphasis in original).
3
make, how the government could use TETRA, and forbidding any
distribution of copies of TETRA. However, while the EULA prohibited
more than one backup copy for the government, 4DD was not permitted to
track copies of TETRA that the government or SMS installed. This was
because the government forbade activation of a “phone home” feature, which
could have allowed 4DD to track installs and executions of TETRA. Instead,
the parties agreed that the government would use a license portal created by
4DD to track each download of TETRA.6
While the government was implementing TETRA, 4DD became
aware that a number of unauthorized copies had been made. In February
2014, 4DD estimated that there were 10 extra cores of TETRA in use and
notified SMS. Def.’s Resp. at 4 (citing Ex. H). Government officials were
aware, however, that there were over-installations of copies of TETRA, and
the agency subsequently ordered them deleted. In August 2014, 4DD
contacted the government to discuss the over-installations, attaching a
spreadsheet from the portal showing more than double the number of cores
allowed had been installed. The Defense Health Agency (“DHA”) and 4DD
then began true-up negotiations to settle the over-installations. This process
began in September 2014, and thereafter, the DHA continued to remove
copies of TETRA.
In December 2014, the parties agreed that 168 extra cores had been
installed, which resulted in a modification of the contract in March 2015.
This modification, which led to a payment by the government of $1.7 million
for those cores, contained a release: “In consideration of the modification
agreed to herein, the contractor hereby releases the Government from any
and all liability under this contract for further equitable adjustments
attributable to such facts and circumstances giving rise to this particular
modification. All other terms and conditions remain unchanged.” DHA then
discontinued the use of TETRA in 2014, opting to “leverage and consolidate
the existing legacy software DHA already possessed. . . to provide the
interoperability of DoD and VA data.” Def.’s Mot. at 11. The contract
between 4DD through Immix and the government expired “at the conclusion
of the term of the March 2015 contract modification.” Id.6
The government was clearly aware of 4DD’s reliance on it to accurately
track the installations of TETRA. See Pl.’s Mot., Ex. 19 (Email from Sheila
Swanson to 4DD’s CEO, Bennett McPhatter, ensuring that the government
is tracking TETRA accurately and stating, “Thank you, by the way for
trusting us!”).
4
Following the true-up modification, 4DD instituted this action for
copyright infringement for the government’s unauthorized copying of
TETRA in August 2015. During discovery, plaintiff brought a motion for
sanctions, arguing that the government destroyed relevant evidence of over-
installation it had a duty to preserve with the intent to deprive plaintiff of the
evidence. We agreed, finding that (1) “[t]he agency deleted instances of
TETRA during the true-up period without informing 4DD,” (2) “[t]he agency
destroyed the DTC servers’ hard drives,” and (3) “[t]he agency erased all the
information on many laptops used on the DMIX project.” 4DD Holdings,
LLC v. United States, 143 Fed. Cl. 118, 130 (2019).
We found that government officials engaged in spoliation with respect
to all three categories. The government had a duty to preserve the evidence
at issue due to “pending or reasonably foreseeable” litigation but did not do
so. Id. Consequently, we awarded plaintiff “fees and costs for bringing this
motion and conducting additional discovery necessary to assess and
ameliorate the government’s spoliation.” Id. at 133. We further held that
“the government w[ould] be precluded from arguing that evidentiary gaps
created by its spoliation should be construed in the government’s favor.” Id.We also considered whether we should draw inferences adverse to the
government from the spoliation. As to the first and third categories of
spoliation, we found that the government deleted the relevant evidence with
the intent to deprive 4DD of its use, allowing us to draw the inference that
the deleted evidence would be unfavorable to the government. For the
second category, though, we found that although relevant evidence was
destroyed, it was not done through a “pattern of willful behavior,” but as a
result of a regular decommissioning process wherein the hard drives were
shredded. Id. at 134. Although the evidence should have been preserved,
those responsible for decommissioning the hard drives did not receive notice
in time. While negligent, this communication failure was not intentional, and
we rejected applying adverse inferences against the government for it. We
reserved the right to determine the effect of our holding on later proceedings.
DISCUSSION
I. Plaintiff’s Motion for Summary Judgment
A. Plaintiff’s Copyright
The first step of 4DD’s motion is its request that we find as a matter
of law that it has a valid copyright for TETRA. The government concedes
the matter, and so we find that 4DD has a valid copyright for TETRA.
5
B. Contract Language Prohibits Copying
The second element of plaintiff’s motion is a ruling that the license
explicitly limits the number of copies the government could make of
TETRA: 232 cores of TETRA, 50 seats of TETRA Enterprise Studio, and 1
backup copy. Specifically, the EULA provided that the government “may
not copy” TETRA. Plaintiff thus seeks a ruling that the EULA prohibits
copies beyond the fixed number (plus one backup) allowed by the license.
Plaintiff further seeks clarification that this restriction constitutes a condition
precedent to the license, and that it is not a covenant, thereby allowing
plaintiff to bring a claim for copyright infringement.
While the government concedes the application of the EULA, it
contends that there are several reasons the EULA’s restrictions do not
prevent whatever additional copying occurred.7 The initial argument we can
readily dismiss. The government contends that the EULA was incorporated
after the license was entered into and that any extra copies made before the
EULA was incorporated should not be counted. The EULA was
incorporated by reference in the original contract prior to the modification,
however, and we see no basis for not deeming it to be effective.
We turn now to the remaining arguments the government aims at the
effectiveness of the EULA. First, according to the government, an “order of
precedence” clause in the EULA gave priority to government rules and
regulations in the event of a dispute between contract terms and rules and
regulations, allowing the government to make backup copies. Second, the
government adds that a Professional Services Agreement (“PSA”) included
with the EULA allowed the government to make backup copies of TETRA.
Third, the government contends that a subcontract entered into between 4DD
and SMS also allowed for backup copying. Finally, the government argues
that an implied-in-fact license from the parties’ course of dealing allowed the
government to make backup copies and copies that were essential for the use
of TETRA.
7
Some of these arguments reappear in the government’s own motion for
summary judgment. To the extent that the arguments are the same, we
respond to them in the section covering the government’s motion.
6
1. Government Counterarguments
a. The Order of Precedence Clause
The government argues that FAR clause 52.212-4, incorporated into
the contract through the October 28, 2013 modification, mandated the
creation of backup copies of TETRA pursuant to federal rules and
regulations. The clause states:
Order of precedence. Any inconsistencies in this solicitation or
contract shall be resolved by giving precedence in the
following order: (1) the schedule of supplies/services; (2) The
Assignments, Disputes, Payments, Invoice, Other
Compliances, Compliance with Laws Unique to Government
Contracts, and Unauthorized Obligations paragraphs of this
clause; (3) the clause at 52.212–5; (4) addenda to this
solicitation or contract, including any license agreements for
computer software; (5) solicitation provisions if this is a
solicitation; (6) other paragraphs of this clause; (7) the
Standard Form 1449; (8) other documents, exhibits, and
attachments; and (9) the specification.
FAR 52.212-4(s) (Emphasis in original). The “Other Compliances” in FAR
52.212-4(s)(2) refer to “all applicable Federal, State and local laws, executive
orders, rules and regulations.” FAR 52.212-4(q). The government therefore
argues that copies of TETRA made pursuant to the various Standard
Operating Procedures (“SOPs”) cited by plaintiff were permitted because the
SOPs, as rules and regulations under “Other Compliances,” trump provisions
in the EULA, as a “license agreement for computer software.”8
Plaintiff correctly points out, however, that this clause applies to
inconsistencies between the explicit terms of solicitations or contracts.9 We
8
For example, the DTC’s SOPs, according to the parties, mandated the
“routine creation of . . . backup copies throughout the project.” Pl.’s Mot. at
22 (citing Ex. 57, MHS DTC Backup and Recovery Dot Mil Network
Standard Operating Procedures (SOP)). Specifically, the SOPs “outline[] the
procedures for configuring, performing, and validating the backup of DTC
Management Infrastructure.” Ex. 57, APP-1256.
9
Plaintiff also argues that the SOPs are not “rules and regulations” under
FAR 52.212-4(q)’s “Other Compliances.” We need not reach that issue,
however, as we find the clause inapplicable to the facts.
7
agree with plaintiff that the clause is inapplicable to the facts of this case.
The “order of precedence” clause clearly refers to inconsistencies in the
language of a contract. The clause states at the outset that it governs when
there are “[a]ny inconsistencies in this . . . contract.” FAR 52.212-4(s)
(Emphasis added). Any inconsistency must be within the four corners of the
contract. See, e.g., Apollo Sheet Metal, Inc. v. United States, 44 Fed. Cl. 210,
214 (1999) (“One thus looks to the order of precedence clause to resolve
inconsistencies between specific terms in competing clauses of like
provision. . .”) (Emphasis added); Manuel Bros., Inc. v. United States, 55
Fed. Cl. 8, 37 (2002) (“The Order of Precedence clause generally is relied on
to resolve conflicts between clauses of the contract.”) (Emphasis added). The
conflict here, according to the government, is between the language of the
EULA and the SOPs; however, the SOPs do not appear in the EULA, and so
there can be no conflict in the terms of the contract. Therefore, the order of
precedence clause has no bearing in this dispute.
b. Professional Services Agreement
Next, the government responds that the PSA between 4DD and the
government allowed for the government’s backup copying of TETRA. The
government argues that DFARS clause 252.227-7013, incorporated into the
PSA, permitted the copying.10 The government then contends that if DFARS
252.227-7013 does not permit copying, then it is because the contract is
contradictory and should be read in favor of the government. Finally, the
government argues that, in the alternative, we should read DFARS 252.227-
7014 into the contract instead of DFARS 252.227-7013, and that this clause
would also permit the government’s backup copying.
Plaintiff replies that the PSA is inapplicable to the current dispute for
a variety of reasons. First, the PSA only applies to “software consulting and
professional services,” and the creation of new software executed through
purchase orders for 4DD, which did not occur here.11 Further, plaintiff
10
The government also cites FAR clause 52.227-19 for the same reason. The
PSA, however, says that FAR 52.227-19 is applicable when the customer is
a non-DOD Federal agency. Here, the customer was a DOD agency, so this
FAR provision is inapplicable.
11
Although whether services were actually provided by 4DD is a disputed
fact question, it is not material. 4DD claims that it never provided services
to the government, while the government points to a Contract Line-Item
Number (“CLIN”) for support services for the proposition that services were
provided. However, whether services were actually provided has no bearing
8
claims that Immix did not have the authority to enter into a PSA for 4DD.12
Finally, it claims that the regulations cited by the government in the PSA did
not permit the government’s copying of TETRA.
We agree with plaintiff that the PSA does not allow the government’s
alleged over-installation of TETRA for backup purposes. The PSA’s
pertinent provision, section 5.5, says:
[I]f 4DD Software and/or Developed 4DD Software are
provided to the Department of Defense (DoD), such 4DD
Software and/or Developed 4DD Software (as applicable) are
classified as "Commercial Computer Software," and the
Government is acquiring only "restricted rights" in such 4DD
Software and/or Developed 4DD Software (as applicable)
(including, without limitation its related Documentation and
fonts) as that term is defined in Clause 252.227-7013(c)(1) of
the Defense Federal Acquisition Regulation System
("DFARS").
Pl.’s Mot., Ex. 17, APP-0525. As the government points out, there is no
paragraph (c)(1) in DFARS 252.227-7013. Further, there are no “restricted
rights” referenced in DFARS 252.227-7013. Because the clause as a whole
discusses the rights the government acquires in technical data when licensing
software, and because there are no “restricted rights” referred to in DFARS
252.227-7013, the government points us to “limited rights” under that
subsection. Limited rights give the government a variety of rights, including
the right to “reproduce . . . technical data,” seemingly allowing it to copy
TETRA. DFARS 252.227-7013(a)(14). This construction, however, ignores
the definition of “technical data” in DFARS 252.227-7013. The clause
explicitly states that “[technical data] does not include computer software.”
DFARS 252.227-7013(a)(15). Even having limited rights in technical data
would therefore not give the government the right to copy TETRA.
The government also made an argument during oral argument, not
present in its briefs, that the PSA is contradictory and should be read in favor
of the government. The government argues that the PSA gives the
government limited rights “in such 4DD software,” which includes the right
to copy. The inclusion of DFARS 252.227-7013’s definition of technical
on our holding.
12
We need not reach this issue either, as our holding on the PSA rests on
other grounds.
9
data, however, would exclude TETRA from the limited rights the
government would enjoy. The contradiction lies in the fact that the
government is specifically granted limited rights in TETRA according to the
contract, but those rights are also curtailed by the definition of technical data.
Because the contract was written by 4DD, the government argues, it should
be construed against 4DD and read in favor of the government. We find this
argument unavailing.
A basic principle of contract construction is that the contract must be
read in its entirety so as not to render any provision meaningless. NVT Tech.,
Inc. v. United States, 370 F.3d 1153, 1159 (citing Gould, Inc. v. United
States, 935 F.2d 1271, 1274 (Fed. Cir. 1991)). Section 5.5 states that “the
Government is acquiring only ‘restricted rights’ in such 4DD Software . . .
(as applicable) (including, without limitation its related Documentation and
fonts) as that term is defined” in the DFARS. (Emphasis added). If we look
to limited rights in the clause instead, as the government suggests, the
definition of limited rights, as stated above, does allow copying of technical
data, but technical data does not include computer software. That is the
clearest reading of the PSA.
In any event, the above-quoted portion of section 5.5 is not internally
inconsistent. The government would have limited rights in TETRA’s
documentation and fonts, along with technical data, which includes
“recorded information, regardless of the form or method of the recording, of
a scientific or technical nature (including computer software
documentation).” The most harmonious reading of section 5.5 would give
the government limited rights in TETRA’s technical data, as allowed by
section 5.5, in a way that is consistent with the definition of both terms in the
clause.
Section 5.5 must also be read in harmony with the rest of the PSA.
Section 5.1 of the PSA explicitly states, “[The Government] shall not . . .
copy any 4DD software . . . except as expressly provided in a separate
software license agreement between the parties.” Here, a software license
agreement between the government and 4DD expressly restricted the
government’s copying to one backup copy. When read in conjunction with
section 5.5, the PSA clearly says that TETRA shall not be copied and that
the government would only have the rights it would normally have under
DFARS 252.227-7013, which does not include the right to copy software.
Finally, the government argues that another regulation potentially
allows it to copy TETRA for backup purposes. “Restricted rights” are
defined in DFARS 252.227-7014, which, if it were applicable, would allow
10
the government to “[m]ake the minimum number of copies of the computer
software required for safekeeping (archive), backup, or modification
purposes.” DFARS 252.227-7014 appears nowhere in the PSA, however,
and it is not incorporated by reference. Further, section 5.5 of the PSA also
explicitly says that 4DD’s software is commercial software, and restricted
rights under DFARS 252.227-7014 apply only to “noncommercial computer
software.”13
c. The SMS Subcontract
Next, the government responds that the subcontract plaintiff entered
into with SMS allowed portions of the government’s copying. FAR clause
52.227-14, which was incorporated into the subcontract between SMS and
4DD, states, in its pertinent part, that TETRA could be “[r]eproduced for
safekeeping (archives) or backup purposes.” FAR 52.227-14, Alternate III,
Restricted Rights Notice(b)(3). The government specifically quotes the
“Restricted Rights Notice” in the Alternate III version of FAR 52.227-14,
which was also incorporated into the subcontract. This notice informs the
government of the rights it has in computer software.
While the government is correct that this notice gives it the right to
reproduce software, the government also ignores an earlier paragraph in the
notice that clearly limited SMS’s rights to make copies of TETRA for backup
purposes. It states, “[TETRA] may not be used, reproduced, or disclosed by
[SMS] except as provided in paragraph (b) of this notice or as otherwise
expressly stated in the contract.” FAR 52.227-14, Alternate III, Restricted
Rights Notice(a) (Emphasis added). While paragraph (b) of the notice allows
backup copying, the subcontract between 4DD and SMS explicitly states that
SMS could make only one copy of TETRA “for archival purposes.” Pl.’s
Reply, Ex. 84. The contract, therefore, controls according to FAR 52.227,
and SMS could not copy TETRA except for one copy for backup purposes.
d. Implied-in-Fact License
Finally, the government argues that the government had an implied-
in-fact license to “make backup copies and other copies that were essential
for the use of TETRA.” Def.’s Mot. at 35–36. It contends that 4DD and
other offerors were aware that any federation software would be used in a
13
Although DFARS 252.227-7013 is titled “Rights in Technical Data—
Noncommercial Items,” the “limited rights” provision does not apply only to
noncommercial computer software, unlike DFARS 252.227-7014. And
again, DFARS 252.227-7013 is in the PSA.
11
developmental environment, which 4DD should have understood would
require multiple backup and other essential copies and configurations of
TETRA during its integration.14 Further, according to the government, 4DD
never sought compensation during the true-up process for any backup copies,
only active installations, reinforcing that 4DD was not concerned with
backup copies.15 Lastly, the government says that the license tracker set up
by 4DD to replace the phone home feature only focused on “running
installations” of TETRA, not copies. With those facts taken together, the
government argues, 4DD was not concerned about backup copies, and it
“either knew or should have known about the backup procedures in effect for
the project and explicitly or implicitly agreed to follow them,” creating an
implied-in-fact license. Id. at 38.
Plaintiff takes the position that an implied-in-fact license cannot exist
when, as here, there is an express written contract. Further, according to
plaintiff, there could be no implied-in-fact license because there was no
meeting of the minds due to the government’s “concealment and destruction
of evidence.” Pl.’s Reply at 6. It also argues that the government should not
be allowed to benefit from its own spoliation. It is unnecessary to consider
the latter argument, as we agree that the EULA precludes a finding of an
implied-in-fact license.16
14
The government points to multiple steps in the solicitation to show that
4DD was aware that TETRA would be used in a developmental environment,
requiring the use of backup and other essential copies. For example, a
Request for Quote the government sent to 4DD explained that the
government was “developing and implementing an integrated Electronic
Health record. . . system,” and the chosen contractor’s software was “needed
to support [the government]’s requirements.” Def.’s Resp. at 37 (ex. PPP).
15
The government cited the deposition of 4DD CEO, Bennett McPhatter for
the proposition that it would be reasonable for the government to make
multiple backup copies during this project. 4DD disputes this
characterization of the deposition. Mr. McPhatter testified that it was
reasonable to create backups of a “TETRA package,” not the object code.
Only the latter would constitute a copy, according to 4DD. According to Mr.
McPhatter’s deposition, packages are akin to a savable document like a
spreadsheet; different than copying a program’s object code.
16
The government repeatedly uses the existence of an implied-in-fact license
in other arguments in its response. To the extent the government uses the
existence of an implied-in-fact license, we reject those arguments.
12
The Federal Circuit in Bitmanagement Software GmBH v. United
States stated the baseline rule for implied-in-fact licenses: “It is well
established that ‘the existence of an express contract precludes the existence
of an implied-in-fact contract dealing with the same subject matter, unless
the implied contract is entirely unrelated to the express contract.’” 989 F.3d
938, 949 (Fed. Cir. 2021) (quoting She Ahn Lee v. United States, 895 F.3d
1363, 1370 (Fed. Cir. 2018)).. The Federal Circuit nevertheless found an
implied-in-fact license in Bitmanagement. The court deviated from the
general rule for three reasons. First, the parties there did not have a
contractual relationship, instead using an intermediary which could not bind
Bitmanagement. Second, the issue in the case was not expressly dealt with
by the contract. Finally, the contract was ambiguous with respect to how the
parties understood that the software would be used.
The same rationale for an exception does not apply here. First,
although the parties in this case were not in an express contractual
relationship themselves, Immix did have a contract with the government, and
Immix was an authorized reseller of TETRA for 4DD and could bind 4DD.
Next, the topic at issue here, copies of TETRA, was expressly dealt with in
the EULA. The EULA provided that the government could not copy TETRA
beyond what was allowed in the EULA. Finally, although the government
argues that 4DD knew how the government would use TETRA in a
developmental environment, the EULA is not ambiguous with respect to
limitations on TETRA’s use. It specifically laid out the number of cores,
seats, and copies the government could make of the various software. We
see no reason to deviate from the baseline rule that an implied-in-fact license
is inapplicable when there is an express contract that deals with the same
issue.
2. Conditions v. Covenants
The second part of plaintiff’s argument in this subsection of its motion
is that the EULA’s prohibitions on copying constituted conditions precedent,
allowing it to bring its copyright infringement claim. The Federal Circuit
has held that:
Normally, 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. “If, however, a license is limited in scope
and the licensee acts outside the scope, the licensor can bring
an action for copyright infringement.” Whether a licensee acts
outside the scope of a contract by failing to comply with a term
13
of the parties’ agreement turns on whether that term is a
condition that limits the scope of the license or is merely a
covenant.
Bitmanagement, 989 F.3d at 950 (internal citations omitted). In other words,
if the prohibitions on copying are covenants, plaintiff is limited to a breach
of contract action; only if they are conditions precedent can plaintiff bring an
action for copyright infringement. “Terms of a license or contract are
presumed to be covenants, rather than conditions, unless it is clear that a
condition precedent was intended.” Id. (citations omitted).
Plaintiff seeks summary judgment that the prohibitions on
government copying are conditions precedent, not covenants, allowing it to
bring a claim for copyright infringement. Plaintiff points to multiple
examples of cases and courts finding that specific provisions in licenses were
conditions precedent, and then it compares those provisions’ language to the
EULA’s language to show that the EULA contained conditions precedent,
allowing plaintiff to bring a claim of copyright infringement.
The government does not squarely challenge plaintiff’s argument.
Instead it contends that the issue is moot because of what it asserts is the
implied-in-fact license to allow use beyond the EULA restrictions. We have
already established, however, that an implied-in-fact license does not exist.
Plaintiff noted in its reply that the government makes no other argument to
establish whether the EULA contained conditions precedent or covenants on
copying, but that is not entirely accurate. While difficult to parse from the
government’s response, the government appears to argue that, because
Bitmanagement’s facts differ from the current facts, we should not find that
there was a condition precedent here.
In Bitmanagement, the Federal Circuit held that the implied-in-fact
license at issue had a condition precedent for the government to use a
tracking program to limit the number of users that would have access to the
copyrighted software. The government exhaustively points out how there
was no tracking method suggested or implemented to track backup or RAM
copies, but the government does not adequately explain how the lack of a
tracking condition in this case affects plaintiff’s motion. Plaintiff is not
arguing that there was a tracking condition in the license but that there was a
condition against copying and exceeding the EULA’s limits, and the
government does not challenge that assertion. Instead, the government
appears to be using this section again to bolster its argument that there was
14
an implied-in-fact license for the government to make multiple backup
copies, an argument we have rejected.17
We find that the EULA contained conditions precedent, allowing
plaintiff to bring its copyright infringement claim.
C. Copying in Excess of EULA
Next, plaintiff seeks summary judgment that if the government
exceeded the EULA’s limits, then the excess copying would constitute
copyright infringement. It argues that the EULA was unambiguous in its
prohibition of excess copying, a statement with which we already agreed, as
stated in the above section. Plaintiff then contends that if the government did
copy in excess of the EULA, then it would constitute copyright infringement
under the Copyright Act. Finally, plaintiff argues that different types of
copies the government made, if they exceeded the EULA, are infringing, an
argument that largely mirrors the plaintiff’s overall thesis of this section.
The government’s response presents numerous disagreements with
plaintiff’s arguments, but it largely does not set forth new legal arguments.18
The government’s new argument that pertains to this section is that copies
that are nonfunctional should not be counted as infringing, but this argument
does not rely on any legal authority.19
Plaintiff first points to the Copyright Act’s reservation of the right to
“reproduce the copyrighted work in copies” or authorize such reproduction
in the copyright holder. The government does not appear to dispute this
17
The government repeats many of its arguments already made in the same
subsection, such as how 4DD did not track backup copies or how 4DD did
not seek compensation for backup copies during the true up negotiations.
18
Any legal arguments the government set forth in response to plaintiff in
this section have already been addressed earlier, such as the government
arguing that an implied-in-fact license should have foreclosed a finding of
copyright infringement for some types of copies.
19
The government also argues that 4DD’s measure of copies is different from
how it presented its count during the true up negotiations. Plaintiff disputes
this characterization, but we need not rule on this argument by the
government as our holding rests on other grounds.
15
assertion. We agree that the Copyright Act prohibits copying TETRA
beyond what 4DD authorized in the EULA.20
Plaintiff then argues that the various types of copies the government
made would constitute copyright infringement if those copies exceeded the
EULA. First, plaintiff argues that copies of TETRA made during the
software development life cycle (“SDLC”)21 resulted in numerous types of
copies, all of which were infringing once the government exceeded the
EULA. Plaintiff also contends that Random-Access Memory (“RAM”)
copies of TETRA constituted infringing copies once the government
exceeded the license. Plaintiff then argues that any copies of TETRA
Enterprise Studio that exceeded the EULA’s limits were infringing as well.
Finally, plaintiff argues that any backup copies that exceeded the EULA were
also infringing. In each explanation of the types of copies, plaintiff repeats
the hypothetical with which it began this portion of the argument: if any of
those copies exceeded what the EULA prescribed, each subsequent copy
would constitute infringement.
The government argues that nonfunctional types of copies cannot be
infringing. The government’s expert, Ronald Schnell, disagrees with
plaintiff’s expert, for instance, as to whether to treat nonfunctional copies of
TETRA as infringing. Mr. Schnell claims that, as a “matter of computer
science,” only functional copies should be considered infringing, and Mr.
Myers, the plaintiff’s expert, had entire categories of copies that were
nonfunctional that he counted as infringing.
Plaintiff replies that neither the Copyright Act nor the EULA restrict
the limit on copying to functional copies. Plaintiff then points to two cases,
20
Our ruling, however, does not resolve the question of what exactly a copy
of TETRA or TETRA Enterprise Studio is, as neither party squarely presents
it in their motions and the question is not necessary for our ruling.
21
The SDLC is a “process implemented by the government with the goal of
efficiently moving software through the complex phases of, among other
things, planning, development, integration, testing, and deployment of
software.” Pl.’s Mot. at 15 (citing Ex. 27).
16
one from the Sixth Circuit22 and one from the Court of Federal Claims,23 to
argue that the number of copies is the issue, not whether they were functional.
The government presented no legal arguments in response. We must note,
however, that these cases do not address the functionality of copies. They
focus their analysis on the number of copies made versus used; functionality
is not considered.
We are not satisfied that there has been sufficient factual development
of the record to rule on this portion of plaintiff’s motion. We are persuaded
that ruling on this issue with no real understanding of how the government
undertook to utilize the copyright, in particular the more technical aspects of
what the alleged copies consisted of,24 and for what purpose they were made,
would be premature. The government’s expert asserts that short of a certain
level of completeness and functionality, there is not a copy. See Def.’s Resp.,
Ex. WWW (Ronald Schnell’s Report) (saying repeatedly that plaintiff’s
expert’s types of copies are not “runnable” instances of TETRA and should
not be counted as copies). We are unwilling to reject that assertion without
further factual development.
D. Government Over-installations
Finally, plaintiff argues that it is entitled to summary judgment that
the government made at least 79,220 copies of TETRA and at least 74,115
copies of TETRA Enterprise Studio based on its expert’s findings, and that,
22
Thoroughbred Software Int’l, Inc. v. Dice Corp., 488 F.3d 352, 359 (6th
Cir. 2007) (holding that a defendant was “liable for all the unauthorized
copies it made, regardless of whether these copies were accessible or used.”).
23
Bitmanagement Software GmBH v. United States, No.16-840C, Dkt. 80
(Ct. Fed. Cl., Mar. 22, 2019) (ruling on a motion in limine excluding in part
an expert’s testimony because the expert calculated damages “based on the
number of copies allegedly used by the [government] rather than made by
the [government],” as the “number of unauthorized copies must be
determined.” (Emphasis in original).)
24
As stated before, the parties do not squarely present what exactly a copy
is. Further, there appears to be some confusion between the parties’ experts
on what certain types of copies entail. For example, Mr. Schnell, when
discussing plaintiff’s expert’s counting of “Full Reserve VM” copies, works
from many assumptions of what Mr. Myers did, as it is not clear to Mr.
Schnell what exact kinds of images or files Mr. Myers used to discuss Full
Reserve VM Copies. Def.’s Resp., Ex. WWW at ¶ 39.
17
if those copies were generated after the government exceeded the EULA,
then those copies were infringing. Plaintiff does not argue which particular
copies are infringing, stating that “the exact number of cores and seats
associated with each copy of TETRA will be determined at trial.” Pl.’s Mot.
at 55.
Plaintiff has organized those copies into the following charts:
Pl.’s Mot. at 26–27. Plaintiff’s count of TETRA and TETRA Enterprise
Studio copies comes from an exhibit attached to its expert’s, Mr. Myers’s,
report.25
25
Plaintiff “summarize[d] total copy counts indicated in Exhibit C to Monty
Myers’s report, which is a voluminous Microsoft Excel spreadsheet with
multiple tabs comprising tens of thousands of lines tracking every copy of
TETRA counted by [Mr. Myers]. Pl.’s Mot. at 26, n.131.
18
While the government does dispute whether certain types of copies
are infringing, it also asserts that its expert disputes the actual number of
copies. Def.’s Resp. at 53 (citing Ex. WWW, Ronald Schnell’s Expert
Report). The disagreements raised by Mr. Schnell as to the number of copies,
however, relate to whether certain types of copies included in plaintiff’s
expert’s count were actually copies, such as whether RAM26 or non-
functional copies.27 This is the issue we reserved above, however, for further
factual development.
Mr. Schnell also disagrees with the number of cores and seats
plaintiff’s expert associates with its count of TETRA copies.28 Even plaintiff
concedes that the number of cores and seats associated with the copies is an
issue for trial. Thus, this portion of the plaintiff’s motion is denied.
II. Defendant’s Motion for Summary Judgment
A. Release
The government argues that 4DD cannot pursue its copyright
infringement claims because it released any such claims when Immix signed
the true-up modification. The modification states, “In consideration of the
modification agreed to herein, the contractor hereby releases the government
from any and all liability under this contract for further equitable adjustments
attributable to such facts and circumstances giving rise to this particular
modification. All other terms and conditions remain unchanged.” Def.’s
Mot., Ex. KK at 1. The government argues that this constitutes an accord
and satisfaction, barring any claims for copyright infringement by 4DD. It
claims that the “facts and circumstances giving rise to this particular
modification” refers to all instances of alleged over-installation by the
government, and because 4DD did not reserve the right to seek compensation
for the copies for which it now seeks compensation, then plaintiff’s
infringement claims are waived.
4DD presents multiple challenges to the government’s release. It
argues that (1) the release does not cover copyright infringement, as it only
26
Pl.’s Mot., Ex. WWW, ¶ 23.
27
See id. (discussing repeatedly whether certain types of copies Mr. Myers
counts should count as functional copies).
28
See id.19
released contract claims and copyright infringement is a tort claim; (2) Immix
did not have the authority to release 4DD’s copyright infringement claims;
(3) the release only extends to claims on the 168 cores in the release; and (4)
the release is not valid because the government misrepresented the number
of cores to plaintiff, or there is at least a question of fact as to whether there
was a misrepresentation. We do not agree with plaintiff’s first three
arguments; we do agree, however, that there is a question of fact of whether
the release is valid.
First, plaintiff argues that the release only covers claims arising under
the contract, whereas its claim of copyright infringement is a tort. The
language in the release states that 4DD released the government from liability
“under this contract for further equitable adjustments.” Def.’s Mot., Ex. KK.
Thus, 4DD contends that its copyright infringement claims, as torts, are not
released. This reading of the release, however, ignores the context in which
it was made. 4DD’s copyright infringement claims are inextricably linked to
the parties’ respective contractual rights, including the effects of the release.
Vis a vis the government, plaintiff’s copyright claim is no better than what
remains after the contractual release.
4DD then claims that Immix could not release copyright claims as it
did not have the authority to do so. 4DD argues that the reseller agreement
only gave Immix a non-exclusive license to resell TETRA, and it did not
make Immix its agent. Pl.’s Resp. at 23 (citing Ex. 106, § 5.1(a)). 4DD
admits that it gave Immix the authority to execute the release, but it contends
that such authority did not include infringement claims.29 Pl.’s Resp. at 23–
24. It argues that it reserved any rights not granted to Immix, including the
right to release 4DD’s copyright infringement claims. Id. at 23 (citing Ex.
106, § 2.4).
The government claims that Immix acted as 4DD’s agent. It points to
the fact that Immix could not act without 4DD’s approval, that 4DD would
receive the entire payment for the modification, and that “Immix acted on
4DD’s behalf,” during the negotiations and resulting modification. 30 Def.’s
Reply at 5. We agree with the government.
29
We discussed in the paragraph above why the release encompasses 4DD’s
copyright infringement claims.
30
The government points to various exhibits to show how 4DD acted as the
principal in this relationship. Def.’s Reply, Ex. XXX (Immix asking for
“thoughts/plans” from 4DD on how to move forward with the negotiation);
Ex. YYY (4DD would generate a quote for Immix to use in negotiations as
20
“An agent acts with actual authority when, at the time of taking action
that has legal consequences for the principal, the agent reasonably believes,
in accordance with the principal's manifestations to the agent, that the
principal wishes the agent so to act.” Restatement (Third) of Agency § 2.01.
Although 4DD claims it did not make Immix its agent, 4DD gave Immix the
authority to agree to the release, which encompasses the copyright
infringement claim. Further, Immix had to ensure that 4DD was satisfied
with the release before agreeing to it. Def.’s Reply at 6, Ex. BBBB (email
between 4DD employee, Patrick Truxillo, and Immix employee, Zachariah
Kebetz, with Truxillo telling Kebetz to “not move on [the modification]
without an ok from [4DD].”). Immix therefore had authority to agree to the
release for 4DD, and because the release included any copyright
infringement claim, as we stated above, Immix had the authority to release
4DD’s copyright infringement claim.
4DD also argues that the release only extends to the 168 TETRA cores
at issue in the modification. We find this reading of the release to be too
narrow. “[S]uch facts and circumstances giving rise to this particular
modification” clearly refers to all over-installations by the government, not
the negotiated total between the parties. The over-installations gave rise to
the modification, so the release naturally encompasses the facts and
circumstances surrounding all over-installations, not merely the 168 agreed-
upon ones. Overall, the release, if it meets the standards of an accord and
satisfaction, will apply to 4DD’s copyright infringement claims.
Finally, 4DD’s last argument against the appropriateness of summary
judgment attacks the validity of the release. An accord and satisfaction
requires four elements: “(1) proper subject matter; (2) competent parties; (3)
a meeting of the minds of the parties; and (4) consideration.” Holland v.
United States, 621 F.3d 1366, 1382 (Fed. Cir. 2010) (quoting O’Connor v.
United States, 308 F.3d 1233, 1240 (Fed. Cir. 2002)).
4DD claims that there was no meeting of the minds because the
government misrepresented the number of overinstallations during the true-
up negotiations. 4DD asserted that the government “stated that it had
conducted a full and complete count of all the installations of TETRA in the
DTC.” Def.’s Resp. at 20 (quoting Ex. 68, Plaintiff’s Response to
Defendant’s Request for Admissions, at ¶ 139). Instead, 4DD alleges that
an estimate); Ex. AAAA (4DD’s CEO, Mr. McPhatter, asking Immix to
insert language into the contract modification).
21
the government never completed a full count of the overinstallations,31 never
told 4DD or Immix that it had an incomplete count,32 and misled 4DD about
the finality of the core count during negotiations.33 Further, the government,
as 4DD says and as we have previously found, destroyed relevant copies of
4DD, further preventing 4DD from being able to assess their damages. 4DD
also claims that the government “falsely claimed to senior Government
officials” that it had accurately counted the overinstallations.34 Pl.’s Resp. at
18 (citing Ex. 19).
The government, however, contends that 4DD’s lack of knowledge
surrounding the true-up negotiations is its own fault. It claims that 4DD was
aware of the copying and made no inquiries about the overinstallations.
Further, 4DD, of its admission, could have requested permission to examine
machines, but it did not do so. The government also claims “4DD was aware
that the government was still investigating the number of installations at the
DTC at the time 4DD accepted the 168 processor core figure.”35 Def.’s Reply
at 11 (citing Ex. BB).
31
Pl.’s Mot. Ex. 51 (email between government officials stating that they
would “float[] a number” to 4DD); Ex. 18 (Sheila Swanson dep.) (Ms.
Swanson confirming that she “had no idea” the number of TETRA cores
actually installed after representing to 4DD that 232 cores were installed (64
in license + 168 from true up negotiations).
32
Pl.’s Mot., Ex. 56 (Contracting Officer Gina Walker dep.) (Ms. Walker,
when asked if the government told 4DD that it had installed more than 232
cores, responded, “I don’t believe so.”)
33
For example, a contracting officer’s representative, Sheila Swanson, told
Patrick Truxillo, an employee of 4DD, that “the Government has identified
an over deployment of 168 core licenses.” Pl.’s Resp., Ex. 53.
34
This description of plaintiff’s Exhibit 19, a memorandum to senior
government officials, is misleading, however. The memo specifically says
that the officials working on the true up “settle[d]” on 168 overinstallations,
making this appear less like a misrepresentation to senior officials and more
like a compromise.
35
The exhibit cited by the government is a call summary between the parties,
during which the government informed 4DD that it was still attempting to
“confirm the amount of cores that have been allocated in the DTC).” Def.’s
Reply at 11, Ex. BB. They were also working to finalize a total number of
22
The parties’ dispute as to what occurred and was said during the true-
up negotiations creates disputes of fact not suitable for summary judgment.
It is unclear what exactly was said between the parties during the negotiations
and whether the government misrepresented the number of overinstallations
to 4DD. The exhibits cited by the parties are similarly unclear. Accordingly,
the question of whether the release was valid requires trial. Therefore, this
portion of the government’s motion is denied.
B. 17 U.S.C. § 117The government then argues that, under the Copyright Act, it was
entitled to make most of the copies of TETRA for which 4DD now seeks
compensation. 17 U.S.C. § 117(a) (2018) states, “[I]t 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, or
(2) that such new copy or adaptation is for archival purposes only and
that all archival copies are destroyed in the event that continued
possession of the computer program should cease to be rightful.
The government claims that the “vast majority” of the copies at issue were
“either backup copies or copies created as an essential step in running the
TETRA software.” Def.’s Mot. at 24. Before we reach the issue of whether
the copies were for archival purposes only or as an essential step in the use
of TETRA, we must first decide the threshold issue of whether the
government is an owner of a copy of TETRA.
The government maintains that it is an owner of a copy of TETRA.
Because it bought a perpetual license and because it “had the discretion to
use, install, discard, or otherwise use” TETRA as it wanted, it became an
owner of a copy of TETRA. Citing cases from the Second Circuit and the
Eastern District of Virginia, the government argues that those “indicia of
ownership” are sufficient for a party to qualify as an owner of a copy under
17 U.S.C. § 117(a).
cores for the parties and establish a “minimum threshold” of
overinstallations.
23
Plaintiff disagrees. Plaintiff argues that the EULA specifically stated
that the government would have no ownership rights in any copies of
TETRA. Further, plaintiff claims there were strict limitations on the
government’s rights regarding TETRA, demonstrating that the government
is not an owner of a copy of TETRA. Finally, plaintiff argues that the cases
cited by the government to support its position are not applicable to the
current case. We agree with plaintiff.
An “[o]wner of a copy of a computer program” is not defined by the
Copyright Act. In DSC Communications Corp. v. Pulse Communications,
Inc., 170 F.3d 1354 (Fed. Cir. 1999), cited by plaintiff in support of its
position, the Federal Circuit grappled with this lack of guidance. With the
lack of a definition and because “ownership is an imprecise concept,” the
court first looked to the legislative history of this part of the Copyright Act.
Id. at 1360. When updating the Copyright Act to “accommodate advances
in computer technology,” Congress created the National Commission on
New Technologies Uses of Copyrighted Works (“CONTU”) to suggest
updates. CONTU’s proposed version of § 117 contained one key difference
from the enacted version: it gave the rights enumerated in § 117 to any
“rightful possessor of a copy,” not an owner of a copy. While Congress did
not explain its reasoning for the change, the court in DSC noted that Congress
must have wanted a party to show more than mere “rightful possession” to
invoke § 117.
The court then looked to the leading case at the time on § 117, MAI
Sys. Corp. v. Peak Computer, Inc. 991 F.2d 511 (9th Cir. 1995). The Ninth
Circuit had held that the defendant was not an owner of a copy of software
because it had only licensed the software. Id. at 518 n. 5. This approach,
however, was emphatically rejected by the Federal Circuit. “[A] party who
purchases copies of software from the copyright owner can hold a license
under a copyright while still being an ‘owner’ of a copy of the copyrighted
software for purposes of section 117.” DSC Commc’ns Corp., 170 F.3d at
1360.
MAI, however, did still hold lessons for the Federal Circuit in DSC.
The Federal Circuit noted that the agreement between the copyright holder
and licensee in MAI was similar to the same type of agreement in DSC,
namely that the agreement in MAI “imposed more severe restrictions on [the
licensee’s] rights with respect to the software than would be imposed on a
party who owned copies of software.” Id. Those restrictions, according to
the court, were enough to render a licensee a non-owner.
24
The Federal Circuit then looked to the agreements at issue in DSC.
The court first found that the agreements characterized the licensees as non-
owners of copies. Further, restrictions in the agreements on the licensees
supported that characterization. Notably, the agreement restricted the rights
of the licensees “in ways that are inconsistent with the rights normally
enjoyed by owners of copies of software.” Id. at 1361. For example, §§ 109
and 117 of the Copyright Act afford owners of copies of software certain
rights, such as the “first sale doctrine” under § 109 and the right “to reproduce
or adapt the program if reproduction or adaptation is necessary for the
program to be used in conjunction with a machine” under § 117, yet the
agreements in DSC specifically curtailed those rights, further showing that
the licensees were not owners of copies of the software.
The district court opinion under review in DSC had characterized the
licensees as owners of a copy of software because the licenses were perpetual
and obtained for a single payment. The Federal Circuit disagreed with this
assessment. While whether a license is perpetual or whether it is obtained
after a single payment is relevant to the analysis, “those factors are not
necessarily dispositive if the possessor's right to use the software is heavily
encumbered by other restrictions that are inconsistent with the status of
owner.” Id. at 1362. Ultimately, the licensees in DSC were not owners of a
copy of software.
The agreement in this case is more similar to the agreements in DSC.
First, like the agreements in DSC, the EULA clearly says that the government
does not own any of the copies of TETRA. The EULA states, “All right, title
and interest, including, without limitation, all intellectual property and
proprietary rights, in and to [TETRA] (including, without limitation
derivatives and modifications thereof) and any copies thereof are owned by
[4DD] or its suppliers. You disclaim all interest therein.” Pl.’s Resp. at 43
(quoting Ex. 16 at § 7) (Emphasis in original). Under the EULA, the
government has no ownership interest in a copy of TETRA. Further, the
EULA contains a number of restrictions on the government’s use of TETRA.
See id. at 43–44 (listing various restrictions on the government’s use of
TETRA found in Ex. 16).
Moreover, there are restrictions in the EULA that mirror those in DSC
by curtailing the rights an owner of a copy of TETRA would have under
sections 109 and 117. Similar to language in the DSC agreements, the EULA
in this case recites that the government cannot “give, permit the use of or
distribute any copies of [TETRA] to any third party.” Pl.’s Resp. at 43
(quoting Ex. 16 at § 2(b)) (alterations in original). Also, the government, its
agents, and its contractors cannot “rent, lease, make available, give access to,
25
sell, sublicense or lend [TETRA] to any third parties or use [TETRA] in any
type of service bureau arrangement.” Id. (quoting Ex. 16 at § 2(d))
(alterations in original). Those clauses limit rights under § 109 to transfer
owned copies of software, as was the case in DSC. Further, the EULA
prohibits any copying of TETRA, Pl.’s Resp. at 43, Ex. 16 at § 2(b), contrary
to what an owner of a copy of TETRA could do under § 117(a)’s right to
make archival and essential-step copies. As in DSC, the EULA clearly
restricts the rights that one would normally have if one was an owner of a
copy of TETRA.
The government nevertheless argues that it is an owner of a copy of
TETRA due to its perpetual license and its “discretion to use, install, discard,
or otherwise use” TETRA. Def.’s Mot. at 25. For support, the government
cites two cases from the Second Circuit, Krause v. Titleserv, Inc., 402 F.3d
119 (2d Cir. 2005), and Universal Instruments Corp. v. Micro Systems
Engineering, Inc., 924 F.3d 32 (2d Cir. 2019), and one from the Eastern
District of Virginia, Softech Worldwide, LLC v. Internet Technology
Broadcasting Group, 761 F. Supp. 2d 367 (E.D. Va. 2011). According to
the court in Softech, both Krause and Softech presented similar fact patterns.
A copyright holder developed software for companies without a written
agreement, and that software was in the possession of and accessible to the
company. The copyright holder was paid for his contribution and left copies
of the software on the company’s servers. This was enough in both cases to
qualify the companies as owners of copies of software. Krause, 402 F.3d at124–25; Softech, 761 F. Supp. 2d at 373–74. In Universal Instruments, the
facts are similar, as a copyright holder developed software for a company for
substantial consideration and copies of the program were delivered to the
purchaser. 924 F.3d at 45–46. The difference here is that there was a written
agreement between the parties.
All three cases presented similar reasoning as to why the licensees
were owners of copies of the respective software. In all three, owners of the
copies paid substantial consideration to the copyright holders for the
software. The software was customized for the purchaser in each case.
Copies of the software were stored on the purchasers’ servers. Finally, all
three allowed the purchaser to destroy or discard the software as they saw fit.
None of those cases are similar, therefore, to the current case. While
the government, like the owners of the copies in the other cases, did make a
one-time payment of substantial consideration to 4DD to use TETRA with
seemingly no limitation on being able to discard it, that is largely where the
similarities end. In all three cases, the software provided to the owners of
copies were customized for those companies specifically, giving those
26
companies a closer relationship with the software to consider them an owner.
Here, however, TETRA is a commercial off-the-shelf solution sold to the
government through a license with no customization by 4DD or Immix.
Further, in Krause and Universal Instruments, owners of copies were
permitted to continue using the software even if their relationship with the
copyright holder ended. There is no such right for the government here, as
the EULA expressly states that if the government and 4DD end their
relationship, the government must stop using TETRA and delete all copies
of it. Krause and Softech, notably, do not even contain a written agreement
with restrictions comparable to those in the EULA. The courts in those cases
also recognized that the copyright holder could not repossess the software,
while the EULA here allowed 4DD to revoke the license. Although in
Universal Instruments the Second Circuit rejected the copyright holder’s
argument that there were restrictions in the agreement similar to DSC that
prevented the other party from being classified as an owner, the language in
that agreement and that in the EULA here is remarkably different. The
language in the Universal Instruments agreement stated that the owner of the
copy, its subcontractors, and its suppliers were granted a “non-exclusive,
royalty-free, worldwide, perpetual license, to use, reproduce, display, of the
Pre-Existing Intellectual Property for MSEI’s internal use only.” That
language is far broader than anything in 4DD’s EULA, with its multiple
restrictions.
Further, even if the cases that the government cited were applicable
here and its ability to “use, install, discard, or otherwise use,” Def.’s Reply
at 13, TETRA at its discretion would otherwise indicate that the government
is an owner of a copy of TETRA for purposes of § 117(a), the government
would still face severe restrictions that cut sharply against characterizing it
as an owner. The government does not grapple with these restrictions in the
EULA. It merely asserts, without explanation, that the clauses cited by 4DD
“refer to 4DD retaining the copyright to [TETRA] and do not ‘severely limit
the rights” of [the Government] to use the software.” Id. at 15 (quoting DSC.
Commc’ns Corp., 170 F.3d at 1361). This assertion does not comport with
the restrictions discussed above that limit the government’s rights under
sections 109 and 117.
The government also cites DSC and Krause to support its argument
that its perpetual license grants it ownership of a copy of TETRA, saying that
a “licensee, particularly a perpetual licensee, can be an ‘owner.’” Id. at 15.
This reference to DSC conveniently omits a key caveat from the Federal
Circuit discussed above: even if a license is perpetual, that will still not be
enough to overcome severe restrictions in an agreement that are inconsistent
with the ownership of a copy of software. DSC Commc’ns Corp., 170 F.3d
27at 1362. Those restrictions are present here, greatly weakening any perpetual
license’s effect on ownership.
Based on the restrictions and characterization of the government as a
non-owner in the EULA, we find that the government is not an owner of a
copy of TETRA for purposes of § 117(a). Because the government is not an
owner, we need not reach the issue of whether the copies at issue meet the
standards under § 117(a)(1)–(2).
CONCLUSION
Plaintiff’s motion is granted in part and denied in part. We grant
insofar as we hold that plaintiff has a copyright in TETRA, that the EULA
prohibited excess copying, that the prohibitions on copying were covenants,
and that government would violate the Copyright Act if it copied in excess
of the EULA. We deny the motion, however, insofar as we are asked to rule
that certain types of copies of TETRA are infringing and on how many copies
of TETRA the government made. Fact questions still remain. The
government’s motion is denied in full. There remains a fact question
regarding whether the government misrepresented the extent of its copying
of TETRA during the true up negotiations, possibly rendering the release
invalid. Further, as a matter of law, the government is not an owner of a copy
of TETRA for the purposes of 17 U.S.C. § 117.
s/Eric G. Bruggink
ERIC G. BRUGGINK
Senior Judge
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