IP Law Daily U.S. Navy violated implied-in-fact license to use Bitmanagement’s graphics software
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Thursday, February 25, 2021

U.S. Navy violated implied-in-fact license to use Bitmanagement’s graphics software

By Robert Margolis, J.D.

Navy’s failure to track simultaneous users created copyright infringement liability.

Though the Court of Federal Claims correctly found that the U.S. Navy was deemed to have received an implied-in-fact license to copy Bitmanagement Software GmbH’s copyrighted graphics-rendering software onto its computers, the trial court erred by not finding that the Navy breached this license when it did not monitor the number of users at any given time, which was a condition of the license, the U.S. Court of Appeals for the Federal Circuit has held. The appellate court held that the Navy is liable for copyright infringement and remanded the case for the determination of damages (Bitmanagement Software GmbH v. U.S., February 25, 2021, O’Malley, K.).

Three dimensional renderings. Bitmanagement develops software for rendering three-dimensional graphics. Its core product has been a three-dimensional renderer called BS Contact, which in 2006 was upgraded to BS Contact Geo that included geospatial features for positioning objects with geographic coordinates. In 2006, when the U.S. Navy began developing virtual reality software allowing Navy engineers and technicians to view and optimize configurations of Navy installations, bases, and facilities, they realized the need for a three-dimensional visualization software that could "render X3D content" and turned to the reseller of Bitmanagement’s software.

Licensing arrangements. In March 2008, Bitmanagement entered into a written reseller agreement with its U.S. reseller for the resale of 100 non-exclusive licenses to the Navy. By 2010, the Navy had deployed 80 of the 100 licenses leaving 20 undeployed licenses.

Due to problems using the software, the Navy requested to revisit the licensing scheme, and with Bitmanagement settled on use of a "floating license" scenario whereby a third-party server-based license manager, Flexera, would limit the number of simultaneous users who could access the software program by allowing the program to run only if the number of persons using the program was less than the number of available licenses.

Deployment throughout the NMCI network. In November 2011, the Navy repeatedly explained to Bitmanagement that they would deploy the licenses of BS Contact Geo version 7.215 within the Navy’s NMCI network using a server-side license key management approach in order to track the usage and demand of the 20 license keys. Specifically, a Navy representative emailed to Bitmanagement’s CEO that he wanted to make sure that the parties had the same understanding of the Navy’s planned approach whereby the 20 licenses that had not been deployed, would be managed from the Navy’s server, thereby allowing them to track their use "across a broad spectrum of the NMCI realm"—as opposed to being mapped to 20 individual PCs. Bitmanagement responded that "that was their understanding as well."

Aware of widespread deployment. Prior to the Navy’s deployment of BS Contact Geo version 8.001 on the NMCI network, Bitmanagement cited the Navy’s planned deployment of its software in a July 2013 project offer to a potential customer, noting approval of BS Contact Geo on 350,000 PCs of the US Navy in May 2013, and, Bitmanagement continued to cite the Navy’s deployment after the installations had begun. The program remained on the Navy Marine Corp. Intranet (NMCI) computers through at least September 2016, during which time Flexera neither monitored nor controlled the use of the software.

Bitmanagement sued for copyright infringement on July 15, 2016. After a bench trial, the Claims Court found that Bitmanagement made out a prima facie case of copyright infringement but that the Navy was not liable because it had an implied license to install the software "across a broad spectrum of the NMCI realm."

Implied-in-fact license. The Claims Court correctly found an implied-in-fact license. The appellate court first rejected Bitmanagement’s argument that the Claims Court erred by not employing the three-part "effects test" from the Ninth Circuit to determine if there was an implied-in-fact license. While that test is often used, it is not the exclusive inquiry, and other Circuits use different tests (such as the Fifth Circuit’s looking at "the totality of the parties’ conduct"). The appellate court noted that it in the past has looked more to the totality of conduct, and the Claims Court did not err by doing so.

Next, while rejecting the government’s argument that finding a "meeting of the minds" is not necessary for a court to find an implied license, the appellate court held that the Claims Court did not clearly err in finding that there was a meeting of the minds in this case. It considered the parties’ email exchanges reflecting Bitmanagement’s (1) understanding that the Navy wanted to deploy the software broadly, (2) agreement to a "floating license server approach," and (3) understanding and confirmation of the Navy’s plan.

The appellate court also held that the existence of an express contract did not preclude finding an implied-in-fact license for three reasons. First, there was no direct contract between Bitmanagement and the government since they contracted through the reseller. Second, the topic of the implied-in-fact license was not covered in any express contract with the reseller. Finally, the contracts are ambiguous on the use of Flexera, in that they did not capture the direct discussions between Bitmanagement and the Navy.

Breach of license. Though it agreed with the government that there was an implied-in-fact license, the appellate court agreed with Bitmanagement that the Navy breached that license when it failed to properly employ Flexera to monitor and limit the software’s use to comply with the number of licenses granted. While a copyright owner who grants a license typically waives the right to sue a licensee for copyright infringement and must sue for breach of contract, an infringement claim is not precluded if the license is limited and the licensee acts outside the scope of the license. If the limit in the license is a condition, rather than a covenant, the failure to abide by that condition renders the license not effectively granted, thus opening the door to an infringement claim. The court found that to be the case here. Bitmanagement agreed to the arrangement because Flexera would limit the number of simultaneous users, no matter how many copies of the software were installed on Navy computers. The use of Flexera was a condition, not a covenant, the appellate court held.

This case is No. 20-1139.

Attorneys: Brent Gurney (Wilmer Cutler Pickering Hale and Dorr LLP) for Bitmanagement Software GmbH. Scott David Bolden for the U.S.

Companies: Bitmanagement Software GmbH

MainStory: TopStory Copyright TechnologyInternet FedCirNews GCNNews

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