Technology Law Update

SCO v. Novell Litigation to Resume Despite Bankruptcy Petition

    The judge presiding over the SCO Group's bankruptcy case has lifted the automatic stay that stopped the SCO v. Novell and SCO v. IBM litigations in their tracks recently. Recall that in August of this year, in the SCO v. Novell slander of title litigation in Utah, Judge Dale Kimball issued a ruling rejecting SCO's claims of copyright ownership in the code that was the subject of the 1994 licensing transaction between Novell and SCO's successor in interest. Not only does the ownership of the code underly the slander of title claims at issue in that litigation, it also largely determines the outcome of SCO's copyright litigation against IBM, which is predicated upon ownership of the allegedly infringed code.

    A trial date had been set for September 17 on the remaining issues in the slander of title case, which consisted primarily of the amount of royalties due to Novell under the license. Facing the prospect of a multimillion dollar judgment that might sink the company, SCO decided to get out of Dodge (or Utah, at any rate), and filed the Chapter 11 bankruptcy petition in the District of Delaware just a few days before the trial was to proceed before Judge Kimball.

    Novell responded with a motion to lift the stay, in order to allow the remainder of the SCO v. Novell case proceed to trial. In granting Novell's motion to lift the stay, the Bankruptcy Court concluded that without resolving the question of SCO's liability to Novell "simply cannot file a confirmable plan of reorganization." The court rejected SCO's argument that preparation for the trial would distract SCO management from the task of reorganizing the company, noting that the petition was filed on the very eve of trial, after the preparation by management and by trial counsel had already taken place. Further delay, the court concluded, would be more burdensome than moving forward now.

    The Bankruptcy Court also made particular note of Judge Kimball's expertise in the SCO litigations pending in Utah:

    Of particular importance to the Court are the specialized knowledge that the District Court has developed in presiding over the Lawsuit for four years, the interests of judicial economy and the expeditious and economical resolution of litigation and, as stated earlier, the fact that the parties are ready for trial. The Court does not presume that the busy District Court will be able immediately to schedule the anticipated five day trial in the Lawsuit, and respectfully defers to the District Court on scheduling.

        It is undeniable that the Lawsuit involves many highly technical issues that the District Court has already addressed and mastered. Debtors concede that it is unreasonable to expect this Court to spend a significant amount of time learning and resolving the Liability Issues when the District Court already has the knowledge required to adjudicate the Liability Issues. Moreover, to do so would be economically inefficient and unnecessarily time consuming.

The Bankruptcy Court's order does not lift the stay entirely, it is quite specific as to the action (SCO v. Novell) and the specific claims that can be adjudicated:

    (1) the amount of the royalties to which Novell is entitled from certain SCOSource licenses that the District Court determined to be SVRX Licenses and any additional licenses that are determined to be SVRX Licenses; and (2) whether SCO had the authority to enter into licensing agreements with Microsoft Corporation and Sun Microsystems.

    The court expressly reserved to itself the further question of whether a constructive trust should be imposed on SCO's assets in favor of Novell, depending upon the outcome of the trial.

    As the Bankruptcy Court recognized, the determination of the amount of royalties due to Novell is likely to determine SCO's future as a going concern. And that, in turn, will largely determine the ultimate disposition of SCO's long-running open source litigation against IBM.

In re The SCO Group, Inc., No. 07-11337 (Del. Bankr. Ct. Nov. 27, 2007).

Opinion: http://www.groklaw.net/pdf/SCOGBK-232.pdf

Order: http://www.groklaw.net/pdf/SCOGBK-233.pdf

Failure to Adhere to Terms of Open Source License Constitutes Breach, Not Copyright Infringement

All the attention has been paid over the last several years to the SCO-IBM litigation, and the recent decision in SCO v. Novell. But another open source case has been slowly cooking away, largely unnoticed. It involves the JRMI open source project that makes model railroad train software code available under the Artistic License.

On August 17, the District Court ruled in Jacobsen v. Katzer, No. 3:06-cv-01905 (N.D. Cal. Aug. 17, 2007) that the defendant's alleged failure to adhere to the provisions of the Artistic License, by distributing copies of code covered by the license without the required attribution to the JRMI project, constitutes a breach of the license, but not copyright infringement.

This is a significant ruling on the enforceability of open source licenses.

According to the summary of the litigation on the JMRI site, defendant Katzer is the owner of KAM industries, a company that sells model railroad software. Jacobsen is a contributor to the JMRI open source project, and the maintainer of the project's Web site. Katzer obtained certain patents relating to model railroad software. According to the JRMI site, the patents are invalid because Katzer excluded mention of significant prior art in his patent application. Katzer has since been seeking patent royalties from a variety of parties. In particular, Katzer demanded royalties from Jacobsen for every copy of the JMRI source code downloaded from the JRMI site maintained by Jacobsen.

In response, Jacobsen claims that Katzer copied certain source code from the JRMI project and distributed it with his proprietary product, but failed to comply with the portion of the Artistic License that requires attribution of the code to the JRMI project.

Jacobsen brought suit against Katzer on various theories, including copyright infringement, seeking a declaratory judgment and an injunction.

There are a number of interesting and significant rulings in the court' s opinion, but the most relevant appears to be the ruling on probability of success on the merits of the copyright claim. The court ruled that Jacobsen was not entitled to the presumption of irreparable harm available to a copyright owner who has demonstrated copying of protected expression, because the protected expression in this case are subject to an open source license that permits copying, distribution and creation of derivative works. Because the open source license broadly permits such uses, the court reasoned, the defendant did not commit copyright infringement by copying and redistributing the JMRI project's code, but only breached the terms of the license. The court therefore denied Jacobsen's motion for a preliminary injunction.

Here are the several paragraphs in which the court explains its reasoning: 

2. Plaintiff’s Claim Sounds in Contract, Not Copyright.

Plaintiff contends that he has a claim for copyright infringement, and has demonstrated Defendants’ copying of the protected expression, and is therefore, entitled to a presumption of irreparable harm. Plaintiff’s claim for copyright infringement states that Defendants, “without permission or consent, has [sic] made copies, distributed copies to the public, or created derivative works in violation of the exclusive rights. Defendants’ actions constitute infringement of plaintiff’s copyright and exclusive rights under the Copyright Act.” (See Amended Complaint at ¶ 100.) However, Plaintiff’s copyrighted decoder definition files are subject to an open source software license that permits potential licensees, members of the public who have access to the files on the internet, to make copies, distribute and create derivative works from the software, provided the licensees give proper credit to the JMRI Project original creators. (See id. at ¶¶ 2, 41; see also Supplemental Declaration of Robert Jacobsen (“Suppl. Jacobsen Del.”), ¶ 2, Ex. A.) The license provides that potential licensees

“may make or give away verbatim copies of the source form ... without restriction provided that [the licensee] duplicate all of the original copyright notices and associated disclaimers.” (See Suppl. Jacobsen Decl., Ex. A.) The license further provides that the user or licensee may distribute the copyrighted work “in a more-or-less customary fashion, plus [have] the right to make reasonable modifications.” (Id.) Lastly, the license provides that the licensee “may distribute [the material] in aggregate with other (possibly commercial) programs as part of a larger (possibly commercial) software distribution provided that [the licensee] not advertise [the material] as a product of [the licensee’s] own.” (Id.)

Based on the both the allegations in the amended complaint and the explicit language of the JMRI Project’s artistic license, the Court finds that Plaintiff has chosen to distribute his decoder definition files by granting the public a nonexclusive license to use, distribute and copy the files. The nonexclusive license is subject to various conditions, including the licensee’s proper attribution of the source of the subject files. However, implicit in a nonexclusive license is the promise not to sue for copyright infringement. See In re CFLC, Inc., 89 F.3d 673, 677 (9th Cir. 1996), citing De Forest Radio Telephone Co. v. United States, 273 U.S. 236, 242 (1927) (finding that a nonexclusive license is, in essence, a mere waiver of the right to sue the licensee for infringement); see also Effects Associates, Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990) (holding that the granting of a nonexclusive license may be oral or by conduct and a such a license creates a waiver of the right to sue in copyright, but not the right to sue for breach of contract). Therefore, under this reasoning, Plaintiff may have a claim against Defendants for breach the nonexclusive license agreement, but perhaps not a claim sounding in copyright.

However, merely finding that there was a license to use does not automatically preclude a claim for copyright infringement. A licensee infringes the owner’s copyright where its use exceeds the scope of the license. See S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088 (9th Cir. 1989), citing Gilliam v. American Broadcasting Cos., 538 F.2d 14, 20 (2d Cir. 1976). In S.O.S., the plaintiff held a copyright in a computer program and had granted defendant a licence to “use” the software and had explicitly reserved all other rights. The plaintiff claimed that by modifying the software the defendant had exceeded the scope of the license and therefore infringed the copyright. Id. Here, however, the JMRI Project license provides that a user may copy the files verbatim or may otherwise modify the material in any way, including as part of a larger, possibly commercial software distribution. The license explicitly gives the users of the material, any member of the public, “the right to use and distribute the [material] in a more-or-less customary fashion, plus the right to make reasonable accommodations.” (See Suppl. Jacobsen Decl., Ex. A.) The scope of the nonexclusive license is, therefore, intentionally broad.

The condition that the user insert a prominent notice of attribution does not limit the scope of the license. Rather, Defendants’ alleged violation of the conditions of the license may have constituted a breach of the nonexclusive license, but does not create liability for copyright infringement where it would not otherwise exist. Therefore, based on the current record before the Court, the Court finds that Plaintiff’s claim properly sounds in contract and therefore Plaintiff has not met his burden of demonstrating likelihood of success on the merit of his copyright claim and is therefore not entitled to a presumption of irreparable harm. See Sun Microsystems, 188 F.3d at 1119. Plaintiff has not met his burden of demonstrating either a combination of probable success on the merits of his copyright claim nor the existence of serious questions going to the merits. See GoTo.com, 202 F.3d at 1204-05.

Accordingly, the Court DENIES Plaintiff’s motion for preliminary injunction.

Consequential Damage Exclusion In Software License Agreement Bars Copyright Infringement Claims

A consequential damage exclusion clause in a software license agreement limits a software company’s copyright infringement claims stemming from the customer’s alleged unlicensed use of the software following termination of the agreement.   Piper Jaffray & Co. v. SunGard Systems International, Inc., No. 04-2922, 2007 U.S. Dist. LEXIS 11399 (D. Minn. Feb. 16, 2007).

Universities And Software Companies Announce Principles For Ownership Of Collaborative Software Projects

Summit participants developing and adopting these principles include the Kauffman Foundation, Carnegie Mellon University (Penn.), Georgia Institute of Technology, Rensselaer Polytechnic Institute (N.Y.), Stanford University (Calif.), University of California at Berkeley, University of Illinois - Urbana-Champaign, The University of Texas at Austin, Cisco, HP, IBM and Intel. Additional collaborators include the National Science Foundation, the Office of U.S. Senator Joseph Lieberman and the National Academies' Government University Industry Research Roundtable (GUIRR).

"Willful Misconduct" In License Dispute Involving Google AdSense Program Requires Intentional Or Reckless Conduct

A provision in a technology license limiting damages for breach of the license to harm caused by "willful misconduct" requires a showing that the licensee acted "with specific intent to harm," or "with a positive, active and absolute disregard of the consequences of its actions." Digital Envoy, Inc. v. Google, Inc., No. 5:04-cv-1497, 2005 U.S. Dist. LEXIS 27939 (N.D. Cal. Nov. 8, 2005). The licensor claimed that the use of its geo-targeting technology in Google's popular AdSense advertising program violated the terms of the license. In dismissing the licensor's claim for damages for breach of the license, the magistrate judge noted prior rulings that questioned whether a trier of fact could conclude that the terms of the license were violated, and ruled that the licensor failed to show that the licensee believed that its use of the licensed technology would violate the terms of the license. The court refused, however, to dismiss the licensor's claim for damages based upon the theory of misappropriation of its trade secrets, and ruled that the licensor could recover such damages if it could show "some causal nexus" between the licensee's profits and the use of the licensor's trade secrets.

The opinion is available at http://www.thelen.com/tlu/brmfs/DigitalEnvoyVGoogleNov2005.pdf

Sale Of Data Generated By Licensed Technology Does Not Constitute A License Or Sublicense To Third Party

A licensor's use of a licensed technology to internally generate data that is then provided to third parties does not constitute an unauthorized license or sublicense of the technology. Digital Envoy, Inc. v. Google, Inc., No. 5:04-cv-1497 (N.D. Cal. Sep. 8, 2005) The court noted that the participants in the Google AdSense program were "provided only with the results of Google's internal use of Digital's geo-targeting method" and were not granted the right to access or use Digital's proprietary data. The court ruled that Digital had failed to show undisputed facts supporting the conclusion that Google had licensed or sublicensed Digital's technology in violation of the parties' agreement, therefore Digital was not entitled to summary judgment on that issue.
The opinion is available at http://brownraysman.com/InternetLawUpdate/DigitalEnvoy.pdf