US Navy Responds to Copyright Infringement Suit Filed by Bitmanagement Software

Bitmanagement Software GmbH recently filed suit against the US Navy, alleging willful copyright infringement of its 3D virtual reality software “BS Contact Geo” and demanding $600 million in damages.  A copy of the complaint  has been posted by Business Insider at the attached  link.  Bitmanagement’s complaint alleges that the software license agreement entered into with the US Navy authorized the installation of the software on 38 machines “for the purposes of testing, trial runs, and integration into Navy systems” but that the US Navy decided it wanted to deploy the software on a wider scale and proceeded to install the software on more than 558,000 computers while it entered into negotiations with Bitmanagement to purchase additional licenses.

The initial reporting on this case in such publications as PC Magazine,  The Register, and ars Technica suggested that the US Navy had flagrantly infringed the intellectual property rights of this German software company on a massive scale and that the damages were likely to be significant.  However, the US Navy has now filed a response to Bitmanagement Software complaint, in which it denies that the license limited the US Navy to installation of the software on 38 personal computers and alleges instead that the Navy instead procured concurrent-use network licenses and was authorized to install the software on its network.

As a software licensing attorney who has had occasion to review many European software licenses, the nature of the US Navy’s response to facts that seem on their face to be quite clear-cut and entirely favoring the plaintiff software company leads me to question whether the license agreement at the heart of this dispute is as poorly drafted as many of the European license agreements I have reviewed in my practice over the years.  While I have no direct knowledge of Bitmanagement Software’s standard licensing terms or the terms entered into by Bitmanagement Software specifically with the US Navy, the mere fact that the Navy raised an argument in its response that it “procured concurrent-use networking licenses” suggests that the software agreement might not have had a clear license grant that clearly stated the scope of the grant and that the agreement might have just contained a fee schedule, which did not specifically define how the fees were calculated.  If this were in fact the case, the US Navy lawyers may just have interpreted the software license in such a way to favor the US Navy rather than engaging in willful copyright infringement as the plaintiff software company claims.

It has been my experience that many software companies around the world do not fully appreciate the significance of two key terms in every software license: the license grant itself and the payment clause.  It is not enough to state in a software license that you are granting a license for a particular purpose.  Rather, you have to actually define the parameters of the license grant.  For example, does the license authorize the installation of the software at a specific workstation at a specific location by a single employee? Or does the license authorize the installation of the software at a specific workstations at a specific location by an unlimited number of employees?  Alternatively, does the license authorize installation of the software on an unlimited number of workstations at several locations of the business by an unlimited number of employees? Or does the license authorize installation of the software on a server for concurrent use by a certain number of workstations of an unlimited number of employees?  As you can see the same grant to install software can be interpreted a number of different ways if all the different parameters are not carefully considered.

However, when you have a vaguely drafted software license that only “grants” a license or, alternatively, grants a very broad right to “use” the software, you have an additional interpretation problem in that it is unclear the scope of use that is in fact granted.  While the drafter might have intended “use” to mean merely the right to “install and run” the software, “use” might be interpreted to authorize not only “installation” and “running” but also “copying” and “distribution” provided the “copying” is limited to making archival backup copies or copies to other internal hardware and the distribution is similarly limited to with the licensee organization.

The other common problem I run into in reviewing software licenses is the vague drafting of license fees and payment terms and over-reliance on a fee schedule that simply lists prices based on number of licenses granted. Obviously, if you charge a set fee per license and neither the license grant nor the payment terms are specifically drafted, then the licensee is going to interpret the fees due and payable in the manner most favorable to the licensee. Frequently I see licenses, where the licensor likely intended to charge by the number of authorized users at a business but doesn’t specifically state how the fees are to be calculated, and obviously in these instances, the licensor is not likely to collect the volume of fees it intended to collect.

As previously stated, I have no knowledge of the software license at the heart of this dispute, so I am only speculating as to how this relationship might have deteriorated to the point of filing a $600 million lawsuit.  However, my own experience suggests that the contract which was the basis of this relationship may have been poorly drafted with respect the key terms of the license grant and license fee terms, and the choice of language in the response to the complaint makes me more suspicious that these problems I often see in my own practice could have been an issue in this relationship.  The bottom line is that key clauses in software licenses need to be drafted very precisely, regardless of which side of the contract you are on, and where terms are left vague, you may very end up in court having to pursue or defend copyright infringement claims which could have easily been avoided if only a better contract had been negotiated upfront.

Kristie Prinz

See Full Bio