The High-touch Legal Services® Blog • For Startup/Early-stage Companies

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Erik Anderson developed certain software that he contributed to BusyBox, a compact set of embedded Linux utilities licensed under the GNU General Public License, Version 2 (the “GPL”). In October 2008, Anderson registered a copyright on the code that he contributed.

On September 2, 2009, Anderson’s counsel notified Westinghouse that it was infringing Anderson’s copyright because it was distributing BusyBox – both integrated into Westinghouse televisions and separately with other software – on terms that are more restrictive than the GPL. Westinghouse continued infringing Anderson’s copyright.

Anderson and the Software Freedom Conservancy brought suit against Westinghouse and 13 other defendants on December 14, 2009. Westinghouse initially mounted a defense, but stopped participating in the suit when it filed for bankruptcy.

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A federal court of appeals held in 2008 that an open source developer case sue for copyright infringement despite the breadth of the open source license. The closely-watched case recently settled, meaning that the opinion may well be cited for many years to come.

Plaintiff Robert Jacobsen holds a copyright to certain computer programming code that he makes available for public download for free pursuant to the Artistic License, an open source license.

Defendants Matthew Katzer and Kamind Associates, Inc. develop commercial software products for the model train industry and hobbyists. Defendants copied certain materials from Jacobsen’s website and incorporated them into one of their software packages without following the terms of the Artistic License. Jacobsen sued for copyright infringement and moved for a preliminary injunction.

On appeal from denial of the injunction, the Court of Appeals for the Federal Circuit held, in Jacobsen v. Katzer, that Artistic License provisions were conditions of a license granted under Jacobsen’s copyright. By breaching those conditions, defendants infringed Jacobsen’s copyright.

The parties recently settled the case, the settlement agreement obligating the defendants to pay the plaintiff $100,000. With the settlement, Jacobsen v. Katzer will not be subject to appeal and, given the dearth of open source case law, probably will be considered a leading case for some time to come.

Significance for open source developers: Alleging copyright infringement, instead of or in addition to breach of contract, can be valuable because it is a comparatively quick and easy route to statutory damages and an award of attorneys’ fees, in addition to an injunction. See Copyright Registration: Whether, When and Why.

Significance for proprietary software developers: Be sure that your license terms state that restrictions on use are conditions of the license, and not merely covenants to be performed by the licensee.

Photo credit: FreeFoto.com

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Almost a year ago, I wrote about why independent contractors (as contrasted to employees) own the copyrights in works that they create, so a prudent customer will ensure that the contractor assigns its copyrights to the customer (Why “Work Made for Hire” is a Term Made for Confusion). This post discusses the implied copyright license that is granted in the absence of an assignment.

If there is no assignment provision, a court will determine that there is an implied license under the copyright, because it would be unfair to deprive the customer of all rights in a work for which the customer has paid. The issue, then, will be the terms of the implied license.

The one certain characteristic of the implied license is that it will be non-exclusive rather than exclusive. The reason: Under 17 U.S.C. Section 101, an exclusive license is considered a transfer of copyright ownership, and under 17 U.S.C. Section 204(a), a transfer of copyright ownership must be in writing and must be signed.

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I recently answered a LinkedIn question about whether providing Software as a Service (SaaS) is considered a “distribution” under the open-source GNU General Public License. The question and answer are reproduced, in slightly edited form, below.

Q. Is hosting a software as a SaaS offering considered as ‘distribution’ under GPL / LGPL open source licenses?

A. I believe that SaaS hosting is not intended to be considered distribution.

To start, please note the following from A Quick Guide to GPLv3:

GPLv2 talks about “distribution” a lot—when you share the program with someone else, you’re distributing it. The license never says what distribution is, because the term was borrowed from United States copyright law. We expected that judges would look there for the definition. However, we later found out that copyright laws in other countries use the same word, but give it different meanings. Because of this, a judge in such a country might analyze GPLv2 differently than a judge in the United States.

GPLv3 uses a new term, “convey,” and provides a definition for that term. “Convey” has the same meaning we intended for “distribute,” but now that this is explained directly in the license, it should be easy for people everywhere to understand what we meant. There are other minor changes throughout the license that will also help ensure it is applied consistently worldwide.

Then we have the following from Section 0 of GPLv3, itself:

To “convey” a work means any kind of propagation that enables other parties to make or receive copies. Mere interaction with a user through a computer network, with no transfer of a copy, is not conveying.

I assume that your SaaS setup merely allows use of the software, without transferring a copy, thus SaaS hosting does not constitute conveying and was not intended to constitute distribution.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

The December 2009 issue of les Nouvelles, a publication of Licensing Executives Society International, has an interesting article about the interplay between domain name disputes and trademark licensing.

“WIPO Domain Name Cases Offer Trademark Licensing Lessons,” by Hee-Eun Kim, an LLM student in Munich, Germany, starts by describing the Uniform Domain Name Dispute Resolution Policy (UDRP) and the role of the World Intellectual Property Organization (WIPO) in resolving disputes under the UDRP.

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In Vernor v. Autodesk, the U.S. District Court for the Western District of Washington told Autodesk that despite the restrictions in its license agreement, Autodesk could not preclude its customer from selling AutoCAD software to a third party.

Background: Vernor makes his living selling goods on eBay. On several occasions, when he purchased copies of AutoCAD (at a garage sale or from an architectural firm) and offered them on eBay, Autodesk sent eBay DMCA takedown notices, to which Vernor replied with counter-notices; eBay then reinstated the auctions. Eventually, however, eBay suspended Vernor’s account for one month because of repeat copyright infringement. Vernor brought a suit for declaratory relief to preclude Autodesk from stopping Vernor’s sale of additional copies of AutoCAD on eBay.

The court acknowledged that the AutoCAD license was “nontransferable” and stated that the licensee may not “rent, lease, or transfer all or part of the Software, Documentation, or any rights granted hereunder to any other person without Autodesk’s prior written consent.”

The court pointed out, however, that under the first sale doctrine (17 U.S.C. Section 109(a)), a person who owns a lawfully-made copy of a copyrighted work may sell or otherwise dispose of the copy. The issue, thus, was whether the initial transfer of the AutoCAD packages from Autodesk to its customer was a sale for copyright purposes.

Acknowledging an irreconcilable conflict among Ninth Circuit Court of Appeal cases (thus we probably should expect Autodesk to appeal), the court held that the initial transfer of the software packages to the customer was a sale, for copyright purposes – even though use of the software was merely licensed – because the transferee was entitled to keep the software (there was no obligation at any time to return the package to Autodesk).

The lesson for software licensors: If you provide packaged software and want to preclude licensees from transferring the software to third parties, require that the software be returned to you when it is no longer used or when it is upgraded to a new version. Although this approach could be perceived as a hassle, and there is no guarantee that it will be effective, the Vernor decision puts licensors on notice that typical license terms, alone, may not suffice.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Last month I posted You May Be a Software Pirate and Not Even Know It. The issues raised there now apply to equally content.

The Software & Information Industry Association is pursuing unlicensed use of content as aggressively as unlicensed use of software. For example, as recently reported in InfoWorld and elsewhere, Knowledge Networks agreed to pay SIIA $300,000 to settle a complaint that it distributed news articles to its employees without permission of the copyright owners. Similarly, in a media release earlier this year, SIIA announced that it was aggressively fighting graphics content piracy by filing lawsuits against individuals and companies that copied and distributed clip art without appropriate licenses. In another media release, SIIA touted the use of paid whistleblowers to help SIIA find infringers.

The implications are clear: Whether the subject is software, content or any other works of authorship, use and distribute the products only to the extent that you are authorized to do so by the terms of the applicable licenses.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

A fundamental tenet of patent law is that the owner of a patent can preclude others from using or manufacturing inventions that the patent covers. Few people realize, however, that there is a major loophole regarding the U.S. government.

Section 1498(a) of Title 28 of the U.S. Code says, in part, “Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be action against the United States in the United States Court of Federal Claims for recovery of his reasonable and entire compensation for such use and manufacture.”

In other words, if the U.S. government – or any of its contractors or subcontractors – uses or manufactures an invention covered by your patent, you cannot get a court to stop that use or manufacture, and you cannot sue for infringement. Your only judicial remedy is to seek “reasonable and entire compensation” in the sole court (located in Washington, D.C.) that handles non-tort claims against the United States.

Because these suits are based on eminent domain (government taking of private property for public use), courts have held that the proper measure of recovery is a “reasonable royalty” based on “what the owner has lost, not what the taker has gained.” Unfortunately, litigating a reasonable royalty is expensive and time-consuming. So even though Section 1498(a) allows individuals, nonprofit organizations and small companies (no more than 500 employees) to recover litigation costs, often the most realistic approach is to file an administrative claim (i.e., start negotiating) with the applicable government agency. Under these circumstances, however, government bureaucrats generally will have the upper hand, knowing that many patent owners lack the staying power to bring suit if negotiations end unfavorably.

If you find yourself in this situation, here are some ways to make the best of your limited options:

• Research the agency’s claim procedures. The sooner you provide all required information, the sooner you will receive your royalty.
• If you have licensed your patent commercially, claim a royalty comparable to the commercial royalty. The agency is unlikely to approve any greater amount unless you can show a strong business reason for the difference.
• If you have not licensed your patent commercially, investigate public- and private-sector licenses in related industries to determine whether there is a range of prevailing royalty rates that can be adapted to your patent.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

After months of effort, you have successfully negotiated a nonexclusive license under an important patent. The license agreement allows you to make, use, sell, offer for sale, and import products that are covered by the patent. Much to your horror, your arch-competitor starts making and selling competing products that use the licensed technology, pricing its products substantially below your planned price. When you inquire, the licensor says that the competitor does not have a license. What can you do to stop this “third-party” infringement of the patent?

You examine the license agreement but see nothing about third-party infringement of the licensed technology. Can you stop your competitor from using the technology? Can you force your licensor to stop the competitor? The short answer is “no”.

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One of the challenges my clients often face is how to determine royalty rates for licensing their inventions or other intellectual property. I start by offering the following fundamental observation:

The licensor needs to know the licensee’s business model and profit margin, because the royalty must be less than the licensee’s profit.

An article in the September 2006 issues of les Nouvelles, a quarterly publication of the Licensing Executives Society International, agrees with and expands upon this observation. “Fair And Reasonable Royalty Rate Determination – When Is The 25% Rule Applicable?” was written by Ove Granstrand, Professor of Industrial Management and Economics at Chalmers University of Technology (Goteborg, Sweden).

After presenting several paragraphs of mathematical formulas, Granstrand makes his central point: A fair and reasonable royalty is one where the licensor’s share of the licensee’s operating profits (i.e., the royalty rate) equals the licensor’s share of the combined investment by the licensor and the licensee in research and development, production and marketing the technology.

The licensor’s share of the combined investment will depend on the stage of the technology’s development. For example, an early-stage company with little more than a patent may count on the licensee to do most of the R&D work and all of the production and marketing, earning the patent-holder a royalty of just a few percent. Conversely, if the licensor has a mature technology in which the licensor has already made substantially all of the required R&D investment (Granstrand suggests that some pharmaceuticals fall into this category), the licensor’s royalty might exceed 50%.

Granstrand discusses the well-known “25% rule”, which says that the licensee should pay 25% of operating profit (before depreciation and taxes) as a royalty. The author notes that the 25% rule actually is a special case of his general rule. In some situations where the licensor conducts R&D but leaves production and marketing to the licensee, the licensor’s share of the total investment will be approximately 25%, so the 25% rule applies.

Of course, reality is more complex than academics’ idealized world. For example, the licensed technology may apply to only a component of a finished product, in which case cost and revenue allocations must be considered. Nevertheless, the combined-investment formula remains a useful starting point for establishing royalty rates.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.