An Implied License Is Not a “Get Out of Copyright Jail Free” Card
Late last year, I wrote about a spate of athlete-driven cases that highlighted implied license defenses in copyright infringement suits. While an implied license can be a defense, it does not always erase liability. A recent case may cause the U.S. Navy to learn that lesson to the tune of $600 million.
A license is just permission to act. Permission to use copyrighted works normally comes with terms and conditions. The same is true even where the permission granted is only implied based on the action of the parties.
The two most basic terms of copyright licenses are the scope of the license and the royalties owed. In most cases where permission is granted to use a copyrighted work, that permission has limits. Those limits might be territorial (only in these countries or only in these buildings) or may be use related (only for certain types of customers or only in making certain types of products). Using the work outside that allowed scope is often not just a breach of contract, but also copyright infringement.
The other basic term, royalties owed, can also create liability for a party with an implied license, even where there is no copyright infringement. In these cases, the implied license is a “get out of copyright infringement jail” card. But that defense comes with a cost.
Even with an implied license, a defendant may still be liable for copyright infringement.
The U.S. Court of Appeals for the Federal Circuit’s recent ruling shows that acting outside the allowed scope of use in an implied license can support a copyright infringement judgment.
In that case, the Navy wanted to use a new software program from a developer it worked with in the past. Normally, the developer and the Navy entered written agreements for software licensing. This time, the Navy wanted to change some of the licensing terms usually included in the agreements. In the meantime, the developer let the Navy deploy the software before any written agreement was in place. The developer agreed to this because the Navy was supposed to run a second program to keep track of the software’s users. The Navy did not use the program that tracked users and installed the software in a way that it could be accessed by about 400,000 computers.
While the appellate court upheld the trial court’s finding that there was an implied license, it reversed the trial court’s decision that the Navy was not liable for copyright infringement. The appellate court found that the Navy was liable for infringement because it used the software without meeting its implied duty to track users and to presumably pay for their access to the software. This case was sent back to the trial court for more fact-finding about the proper damages, but the likely result is that the Navy will owe the developer millions, if not hundreds of millions, of dollars.
A defendant may owe royalties under an implied license.
Even when an implied license is a complete defense to copyright infringement, the licensee may still owe royalties.
An implied license is created by the parties’ conduct. That means the way the parties act toward each other sets the terms of the permission that is granted. The parties’ conduct might include an express or implied royalty. For instance, an implied license between two parties that work together often might include an implicit agreement that the same royalty is owed as the one generally paid in their agreements.
And because implied licenses are equitable in nature, courts can impose a fair royalty, even where the parties’ conduct does not imply the royalty itself.
Implied licenses are common in the context of software development. These agreements based on conduct help ease friction between users and developers, but they may create lots of ambiguity about parties’ rights. Whenever you learn about uses of copyrighted material without a written agreement, you should talk to counsel right away about mitigating your risks.
Our Intellectual Property Practice Group will continue to monitor copyright infringement cases. Please contact Andrew Coffman or any member of Phelps’ Intellectual Property team if you have questions or need advice and guidance.
