Softech Worldwide v. Internet Technology Broadcasting

Citation
Softech Worldwide, LLC v. Internet Technology Broadcasting Corp., No. 1:10cv651 (E.D. Va., Jan. 24, 2011) (full-text).

Factual Background
Softech Worldwide (“Softech”) is a self-described “premier provider of streaming media platforms,” and the developer of a series of software programs for use by the United States Department of Veterans Affairs (the “VA”). Softech was contracted to perform software development services by Internet Technology Broadcasting Corp. (“ITBC”) as a subcontractor; Softech worked on seven pieces of software for use by the VA, including two upgrades to the VA’s Content Delivery Network (“CDN”), and to the Digital Media Architecture (“DMA”), as well as work on the Employee Data Record (“EDR”), the Learning Catalog (“LC”), the Learning Management System (“LMS”), and the Very Small Aperture Terminal (“VSAT”).

Softech claims that ITBC still owes it money for the development of the software in question and ITBC contends that the software provided was of insufficient quality and workmanship for the purposes required by the VA. Softech sued Defendants for copyright infringement with respect to the Defendants’ modifications and maintenance of the software for the VA. ITBC concurrently brought suit against Softech in Florida state court.

Trial Court Proceedings
Softech brought a motion for a preliminary injunction against the Defendants ITBC and Fedstore Corp. to prevent alleged violations of copyrights in its software.

While the court acknowledged that Defendants had made modifications to the software provided by Softech for the VA, the motion for a preliminary injunction was denied due to the “essential step” defense available to the Defendants, as well as the finding of a irrevocable implied license.

A court considering a motion for a preliminary injunction “must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief.” A plaintiff seeking preliminary injunction must establish (1) a likelihood of success on the merits of the case, (2) the likelihood of irreparable harm in the absence of the issuance of an injunction, (3) that the balance of equities tips in the plaintiff’s favor, and (4) that an injunction is in the public interest.

In order for Softech to show a likelihood of success on the merits it was required to establish a case of copyright infringement against Defendant ITBC and either direct or vicarious liability against Defendant Fedstore. To establish its case against ITBC, Softech was required to allege both an ownership of a valid copyright and copying of the original elements of the material by ITBC. Softech presented certificates of registration for the software at issue and Defendants made no challenge as to the validity of the registrations. In order to show copying of its works, a plaintiff can present evidence of the infringing of any of the copyright owner’s five exclusive rights. Those exclusive rights include reproduction, distribution, public performance, public display, and derivative use. 17 U.S.C. § 106. In the present case, Softech alleged violations of its exclusive rights to distribution, reproduction, and derivative use, however, Softech did not specifically allege which pieces of software had been copied. In addition, ITBC claimed that “the software, and source code developed by Softech for EDR, LMS, CDN, and VSAT is unusable, unreliable, incomplete, and defective ‘deadware,’ which [ITBC] has never maintained or copied.” Softech presented no evidence to dispute these claims with respect to ER, LMS, and VSAT and as such the court declined to find any copyright violations as to those pieces of software and subsequently denied the requested injunction with respect to them as well. With respect to DMA, while there appears to be no actual implementation of the software, Softech alleged that ITBC had viewed the source code for this program and is planning its own versions for use by the VA. Because the plaintiff was unable to establish an actual use of the source code, or any persuasive evidence that future programs developed by ITBC for VA would necessarily constitute a “copy” of plaintiff’s software, the court denied Softech’s motion with respect to DMA. The only software remaining to be addressed by the court was CDN and LC, which ITBC admitted to maintaining on behalf of and as authorized by the VA but to which ITBC also claimed protection under the “essential step” defense. 17 U.S.C. § 117(a) provides, in relevant part: [I]t is not an infringement for the owner of a copy of a computer program to make or 	authorize the making of another copy or adaptation of that computer program provided: (1) that such a new copy or adaptation is created as an essential step in the utilization of 	the computer program in conjunction with a machine and that it is used in no other 	manner. As such, to qualify for this defense, ITBC must prove that its work involving CDN or LC was authorized by the owner of a copy of the software, that it was created as an essential step in using that program in conjunction with a machine, and that the software was used in no other manner. Krause v. Titleserv, Inc., 402 F.3d 119, 122 (2d Cir. 2005).

Ownership of a Copy While the Fourth Circuit has not previously outlined a test for determining ownership under Section 117(a), this court adopted the Second Circuit’s reasoning in Krause v. Titleserv, which overturned a rule requiring formal title to establish ownership in favor of a rule looking for “incidents of ownership.” 402 F.3d at 123-24. As stated by the Second Circuit, “it seems anomalous for a user whose degree of ownership of a copy is so complete that he may lawfully use it and keep it forever, or if so disposed, throw it in the trash, to be nonetheless unauthorized to fix it when it develops a bug, or to make an archival copy as a backup security.” Id. at 123. In Krause, Titleserv had paid Krause to develop programs for its sole benefit that were customized for their particular operations. Krause never reserved the right to repossess the copies and agreed that Titleserv had the right to continue to use and possess the programs forever. Similar to Krause, Softech was paid a substantial amount of money for the development of the software and it was customized to serve the purposes of the VA only. Softech offered no evidence that it reserved the right to repossess or control the programs in the VA’s possession and as such the court determined that that the VA was an owner of a copy of CDN and LC and was therefore entitled to authorize the Defendants to make a copy under the essential step doctrine.

Essential Step The actions of Defendants that Softech alleges constitute a violation of its rights include changing a webpage to reflect a “video of the week” and other cosmetic changes, adding new fields to databases, restarting a software process if it locks up or fails, and generally correcting bugs and defects in the original programs. As in Krause, these changes were specifically aimed at making the software function for the very purpose for which it was purchased. Such modifications are “essential, not because they were essential to make the software work, but because they were necessary to make the software helpful or worth using.” Id. at 126-27.

Use Of the Software In No Other Manner The remaining essential-step factor was met by Defendants by a showing that the modifications were aimed at making the software function for the purposes it was originally intended. In the absence of any contradictory evidence by Softech, the court agreed with Defendants’ raising of the essential step defense.

Because Softech was unable to establish any direct infringement by Defendant ITBC, there could be no vicarious liability by Defendant Fedstore. ITBC also argued, and the court agreed, that even in the absence of an essential step defense, Softech had granted an implied nonexclusive license to the copyrights associated with its software. An implied nonexclusive license does not transfer ownership but does permit the use of copyrighted work in a particular manner. The existence of such a license is an affirmative defense to an allegation of copyright infringement. ITBC established that the licensee (VA) had requested the creation of a work, that the licensor (Softech) made the particular work and delivered it to the requesting licensee, and that the licensor intended the licensee copy and distribute the work. For the aforementioned reasons, the court could not find that Softech had a likelihood of success on the merits of its case. Similarly, there was no likelihood of irreparable harm because the software at issue was not for sale on the open market; there would be no damage or dilution resulting from the VA’s continued use of, or the Defendants’ continued updates to, the software at issue. While the court noted a general public interest in upholding copyright owners, the public interest in permitting the Veterans’ Administration to continue its work unhampered during the pendency of the case outweighed Softech’s potential rights.