Promises Made, Promises Not Kept: Even an Implied License Requires Compliance With Its Terms

BITMANAGEMENT SOFTWARE GMBH v. UNITED STATES

Before NEWMAN, DYK, and O’MALLEY, Circuit Judges.  Appeal from the United States Court of Federal Claims.

Summary: The U.S. Navy infringed Bitmanagement’s software copyright by copying its software outside the scope of an implied license. 

In 2013, the United States Navy purchased a license for the use of Bitmanagement’s copyrighted software. Though the parties never signed an express contract, the parties’ communications made clear that the license allowed the Navy to operate approximately 120 simultaneous copies of the software. The parties also agreed that the Navy would track the number of currently operating copies of Bitmanagement’s software with third-party license tracking software. The Navy then installed the copyrighted software onto approximately 430,000 computers in the Navy Marine Corps Intranet using a mass installer provided by Bitmanagement.  The Navy never tracked its usage of Bitmangement’s software. Bitmanagement sued the government for copyright infringement in the United States Court of Federal Claims. After trial, the court found that the parties’ conduct created an implied-in-fact license that authorized the copying. Bitmanagement appealed that decision.

On appeal, the Federal Circuit held that the parties had created an implied-in-fact license, but that the Navy’s copying was outside the scope of that license. Because the Navy never tracked its usage of Bitmanagement’s software, the Federal Circuit found that the Navy had not complied with the terms of the license. The Federal Circuit then considered whether the Navy’s failure was a breach of a covenant of the license, such that Bitmanagement’s remedy was to sue for breach of contract, or whether the requirement to use third-party license tracking software was a condition precedent of using Bitmanagement’s software at all, such that Bitmanagmenet’s remedy was to sue for copyright infringement. The Federal Circuit found that use of the third-party license tracking software was a condition precedent to the Navy’s copying of Bitmanagement’s software because Bitmanagement would never have provided a mass installer to the Navy except for the Navy’s promise to track the number of currently operating copies.  Thus, the Federal Circuit remanded for consideration of copyright damages. 

Editor: Paul Stewart