Court Opinion

ID: 4912640
Source: CourtListenerOpinion
Date Created: 2021-09-21 17:04:18.659733+00
Date Added: 2024-06-11T08:13:42.359753
License: Public Domain

In the United States Court of Federal Claims
                                           No. 16-840C
                              (Filed Under Seal: September 7, 2021)
                                   Reissued: September 21, 2021

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                                                      *
BITMANAGEMENT SOFTWARE GMBH,                          *
                                                      *
                       Plaintiffs,                    *
                                                      *
       v.                                             *
                                                      *
THE UNITED STATES,                                    *
                                                      *
                       Defendant.                     *
                                                      *
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                                     OPINION AND ORDER

        On February 5, 2021, the U.S. Court of Appeals for the Federal Circuit vacated and
remanded this Court’s decision in Bitmanagement Software GMBH v. United States, 989 F.3d
938 (Fed. Cir. 2021). The majority of the panel agreed with this Court’s opinion,
Bitmanagement Software GMBH v. United States, 144 Fed. Cl. 646 (2019), that there was an
implied license between Bitmanagement (hereinafter “Plaintiff”) and the Navy regarding the
Navy’s use of Plaintiff’s software. However, the majority found that the use of the Flexera
software to monitor the Navy’s use of Plaintiff’s software was a condition precedent to the
implied license; therefore, since the Navy did not deploy Flexera, it had not complied with this
condition, with the result that the license was ineffective. Consequently, the Navy’s copying of
Plaintiff’s software was an infringement. 1

        This much is straightforward. The majority’s instruction to this Court on how to
calculate damages, however, is confusing. 2 In footnote 5, the majority states that Plaintiff “is not

       1
        “Thus, while the Navy had an implied-in-fact license to copy BS Contact Geo onto its
computers, the Navy’s failure to abide by the Flexera condition of that license renders its
copying of the program copyright infringement.” Bitmanagement, 989 F.3d at 951.
       2
         Judge Newman, in her concurrence, criticized the majority for instructing this Court on
damages: “The panel majority properly remands for determination of damages, but also offers
rulings on the measure of damages, Maj. Op. at 951-52 n.5. Damages and the measure thereof
were not reviewed by the Court of Federal Claims, and were not presented on this appeal. The
parties have not here briefed nor argued the subject, although it must be determined on remand.”
Bitmanagement, 989 F.3d at 954.
                                                 1
entitled to recover the cost of a seat license for each installation.” Bitmanagement, 989 F. 3d at
951-52 n.5. Further on, it states that “the proper measure of damages shall be determined by the
Navy’s actual usage of BS Contact Geo in excess of the limited usage contemplated by the
parties’ implied license.” Bitmanagement, 989 F. 3d at 952 (emphasis added). What does the
majority mean by “usage”? How does this instruction fit with the determination that the Navy is
liable for copyright infringement because of its copying of Plaintiff’s software?

I.     Copying

        One possibility is that the majority equates usage with the making of copies. If so, then
the base for calculating damages would be the number of unauthorized copies made by the Navy.
Yet, the equating of usage and copies seems to contradict the majority’s statement that Plaintiff
“is not entitled to recover the cost of a seat license for each installation.” Bitmanagement, 989
F.3d at 951-52 n.5. The majority may mean that Plaintiff cannot simply recover the cost of a
seat license as indicated in the purchase orders, but rather must argue for what it would receive
under a hypothetical negotiation as compensation for the number of copies made by the Navy.
But it may also be that the majority had in mind the floating license contemplated by the 2012
implied license. 3

II.    Use

        Another possibility is that the base for calculating damages is the number of times that
the software was actually used instead of the number of copies. This alternative is consistent with
not using the cost of a seat license. It is also consistent with the majority’s observation that
Plaintiff was looking to compensation based on the usage of the software rather than charging for
each copy. Indeed, monitoring the use of the software was the task of Flexera, which the Navy
failed to deploy. 4

III.   Copyright Infringement

       Unlike the Patent Act, the Copyright Act does not provide a right to “use” the
copyrighted work. In this case, the relevant right is the right to reproduce in copies. The
copyright owner may authorize another to exercise the owner’s copyright rights, by license, for

       3
        “This will allow us to track the use of the 20 licenses across a broad spectrum of the
NMCI realm (versus having those 20 licenses mapped to individual PCs).” Viana, deputy
program manager for the Navy, email to Alex Koerfer, Financial Officer of Bitmanagement,
November 24, 2011, Bitmanagement, 989 F.3d at 944 (emphasis in original).
       4
          “This is one of those rare circumstances where the record as a whole reflects that the
only feasible explanation for Bitmanagement allowing mass copying of its software, free of
charge, was the use of Flexera at the time of copying.” Bitmanagement, 898 F.3d at 950.
Similarly, this Court observed: “The more logical explanation is that Bitmanagement agreed to
this licensing scheme because Flexera would limit the number of simultaneous users of BS
Contact Geo, regardless of how many copies were installed on Navy computers.”
Bitmanagement, 144 Fed. Cl. at 658.
                                                2
example. Thus, in this case, Plaintiff impliedly agreed not to limit the number of copies that the
Navy could make and instead conditioned this permission on the use of the software monitored
by Flexera. Since the use of Flexera was a condition precedent to the license (as the majority
found), the failure of the Navy to deploy Flexera, vitiated the license. Therefore, the Navy did
not have permission to make any copies of Plaintiff’s software, except for the few copies covered
by express agreements. This reasoning leads to the conclusion that the base for damages in this
case is the price that the parties would have agreed to in a hypothetical negotiation for the
number of unauthorized copies that the Navy made. However, as the majority cautions, the
starting point cannot be the cost of a seat license for each copy. See Bitmanagement, 989 F.3d at
951-52 n.5. The cost of the seat licenses in the express agreements needs to be reduced by
relevant factors, including, for example, volume discounts. This Court, then, adopts the first
possible interpretation of the majority’s instructions on damages.

IV.    Burden

        The Federal Circuit held that “[a]s the party who breached the Flexera requirement in the
implied license, the Navy bears the burden of proving its actual usage of the BS Contact Geo
software and the extent to which any of it fell within the bounds of any existing license.”
Bitmanagement, 989 F.3d at 951-52 n.5. In its brief, the Navy takes issue with this statement,
arguing that damages were not part of Plaintiff’s appeal; therefore, “the panel majority’s views
on damages in this case are not controlling.” ECF No. 148 at 3. Although it is true that damages
were not on appeal, the Federal Circuit’s statement is clear, and it is not this Court’s role to
excise this particular sentence from the opinion. Indeed, later in the same paragraph the Navy
softened its view: “At most, the panel majority observed that the Government bore the burden of
proving the contours of its licensing affirmative defense.” ECF no. 148 at 4. This Court
interprets the Federal Circuit’s statement as laying the burden on the Navy to prove the number
of unauthorized copies it made and to exonerate its acts by pointing to a license that authorized it
to do so.

V.     Measure of Damages

        The measure of damages for infringement of “the right to reproduce in copies,” 17 U.S.C.
§ 101 et seq., begins with the determination of how many unauthorized copies the infringer
made. 5 Ordinarily, the next step would be to calculate the damages suffered by the copyright
holder. However, in the context of 25 U.S.C. §1498(b), as the Federal Circuit states, the
determination of damages “should take the form of a hypothetical negotiation.” Bitmanagement,
989 F.3d at 951-52 n.5. In the copyright context, the relevant factors to be considered are laid
out in the Gaylord cases. See Gaylord v. United States, 678 F.3d 1339 (Fed. Cir. 2012); Gaylord
v. United States, 112 Fed. Cl. 539 (2013), aff’d 777 F.3d 1363 (Fed. Cir. 2015).

       In addition, the parties must take into consideration the distinction that the Federal Circuit
drew between the EXE file and the web plug-in file (OCX). The Federal Circuit found that the

       5
        “We do not disturb the Claims Court’s uncontested finding that at least 38 copies of BS
Contact Geo 8.001 were authorized based on 38 remaining licenses from the 2012 Navy
Purchase Order.” Bitmanagement, 989 F. 3d at 951 n.4.
                                                 3
OCX file “was at no point properly monitored by Flexera” and that “[t]he extent to which the
EXE version was monitored by Flexera appears to be disputed.” Bitmanagment, 989 F.3d at
951-52. In other words, no copies of the OCX file were authorized under the license because the
use of Flexera was a condition precedent to the application of the license. The parties may,
however, argue about the number of copies of the EXE file that were protected by Flexera (and
thus authorized) and the number of copies not protected by Flexera, which copies are infringing
according to the Federal Circuit.

       VI.      Conclusion

         As indicated above, the Federal Circuit remanded the case for a determination of
damages taking the form of a hypothetical negotiation. It is clear that the Federal Circuit looked
to the Gaylord line of cases as a guide; therefore, the relevant factors to take into consideration
should mirror the factors articulated in the Gaylord line of cases. Thus, the parties are instructed
to file a brief, not to exceed 10 pages, using the guidance below.

             1. The government bears the burden to prove the number of unauthorized copies it
                made and to exonerate its acts by pointing to a license that authorized it to do so.

             2. All copies of the OCX files were not authorized and are to be counted for
                damages.

             3. The parties may argue about the number of copies of the EXE file that were
                protected by Flexera (and thus authorized) and the number of copies not protected
                by Flexera.

             4. Using the Gaylord factors, the parties may support their positions of fair market
                value by presenting evidence of (1) past arms-length licensing practices by the
                copy owner or infringer for similar uses, (2) “benchmark” licenses by others in
                the industry, (3) unique features of the software, (4) whether different licensing
                fees would have been appropriate for different categories of usage, and/or (5)
                whether a lump sum payment would have been the outcome of the hypothetical
                negotiation.

       The parties shall file simultaneous briefs no later than Friday, October 1, 2021.

        The parties shall also file any redactions to this opinion within 7 days from the date of
this opinion and order. 6

                IT IS SO ORDERED.

                                                               s/Edward J. Damich
                                                               EDWARD J. DAMICH

       6
           No redactions were forthcoming from the parties.
                                                  4
    Senior Judge

5