THE RIGHTS OF LICENSEES UNDER THE COPYRIGHT ACT
Many software makers used to sell copies of programs to computer owners. In recent years, most software makers have licensed rather than sold programs. The rights of owners of copies and licensees of copies were not distinguished under Section 117 of the Copyright Act until recent Ninth Circuit cases of MAI Systems Corp v. Peak Computer Inc., 991 F.2d 511 (9th Cir. 1993), and Triad Corp. v. Southeastern Express, 95 C.D.O.S. 6889 (9th Cir. 1995).
Prior to the enactment of the Copyright Act, Congress created the Commission on New Technological Uses of Copyrighted Works, known as the CONTU Commission. Congress adopted all of the language contained in the CONTU Commission's Report with the exception of two words. The report recommended that "rightful possessors" of copies of computer a program be authorized to make copies of that program under certain circumstances. Congress adopted the suggested language that became Section 117 of the Copyright Act, but substituted the word "owner" for the phrase "rightful possessor."
Section 117 provides:
- ...it 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, or (2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful....
(emphasis added). The reason for the change from "rightful possessor" to "owner" is not known, and is not discussed in the legislative history of the statute. A recent letter from the Register of Copyrights states that "the legislative history offers no real explanation for the change." Letter from Marybeth Peters to Congressman Carlos J. Moorhead, dated September 19, 1995.
The change does not really make sense. Developers of copyrighted programs would not need the protections afforded in Section 117. A copyright owner clearly would be able to do anything it wanted with a software program it had developed; no additional statutory protection is required.
The construction of this statute by recent Ninth Circuit panels has led to a result that, because of the nature of software, destroys the distinction between copying and use. This distinction has been a pillar of the copyright laws and will become more critical as more software and hardware interoperate with each other.
MAI v. PEAK
MAI Systems Corporation, which was a computer manufacturer that now concentrates on servicing its own hardware, sued Peak Computer, Inc., which is a small independent service organization that services MAI hardware. MAI, 991 F.2d at 513. MAI claimed that Peak had infringed MAI's copyright by turning on MAI hardware in conjunction with servicing the equipment. After losing in the district court, Peak appealed to the Ninth Circuit. Id. at 514.
Peak argued to the Ninth Circuit that turning on a computer and loading the operating system from the read only memory (ROM) into the random access memory (RAM) did not constitute a "copy" within the meaning of the Copyright Act because it was not sufficiently fixed under 17 U.S.C. Section 101. Peak also claimed that MAI hardware owners constituted "owners of copies" (as opposed to owners of the software itself) under Section 117, and therefore could authorize Peak or another service company to make copies of the program as long as those copies were an essential step in utilizing the program.
The Ninth Circuit summarily rejected both arguments, reaching what it acknowledged was the unprecedented conclusion that even though no copies of the operating system were proliferated, Peak had infringed MAI's copyright. MAI, 991 F.2d at 518. Furthermore, the Court reached this conclusion even though it acknowledged that the "copy" that was made in the computer's RAM was destroyed after the computer was turned off. Id. at 519.
The court likewise held that licensees of MAI software did not constitute "owners" of copies, and thus were not entitled to the protections in Section 117. Id. at 518 n.5. That ruling misinterpreted the logic behind Section 117, essentially reading "owner" of a copy to mean the copyright holder. This interpretation makes no sense; affording copyright holders the right to use a copy of a program as long as it is an essential step in the utilization of that program is not necessary.
The MAI decision has been universally criticized in the law reviews.[2] The well respected treatise on copyright law, Nimmer on Copyright, recognizes that the distinction between use of a program and actual copying of a program is important in determining the existence of copyright infringement. Nimmer states "not every unauthorized use of a work, even assuming such work emanates from a copyrighted work is necessarily an infringement of copyright. A use of a copyrighted work is not an infringing act if such a use does not fall within the scope of those rights expressly granted to the copyright proprietor." 2 Nimmer on Copyright § 8.01[A] at 8-13 (footnotes omitted). Nimmer acknowledges that "[t]his protection has never accorded the copyright owner complete control over all possible uses of his work." Id. at 8-13 n.6 (quoting Sony Corp v. Universal City Studios, Inc., 464 U.S. 417, 432 (1984) ). Nimmer offers an example of a use that would not constitute infringement: "one who having purchased a copy of plaintiff's work, redecorates the copy and offers it for sale, has used the work but has not infringed any of the rights granted to the copyright proprietor." Id. at n.9.
After MAI, the rights of licensees of computer programs were seriously in doubt. However, one issue remained to be considered: whether "copying" of a computer program for the purpose of effecting repairs constituted a fair use under the Copyright Act. The MAI decision did not consider that issue because Peak had not raised fair use as a defense.
The Ninth Circuit's opinion in Triad v. Southeastern took MAI one step farther. Unfortunately, it was a step backward for licensees of computer software.
TRIAD v. SOUTHEASTERN
Triad, a computer manufacturer, sued Southeastern Express, an independent service organization that services Triad equipment, for copyright infringement. Triad, 95 C.D.O.S. at 6889. Triad claimed that Southeastern used Triad's operating system software and utilities programs when repairing Triad machines, and that such an act constituted copyright infringement. Id. Southeastern counterclaimed against Triad for antitrust violations, claiming that Triad was monopolizing the market for service of Triad computers. Id.
Triad moved for summary judgment after the MAI decision came out. Although the district court ruled in Triad's favor on the copying issue, Southeastern raised fair use as a defense. The district judge refused to grant Triad's motion for summary judgment on fair use, finding that at least some of the fair use factors weighed in Southeastern's favor. See id. at 6889.
The judge bifurcated the trial, allowing the copyright claim to be tried first. Id. at 6889-90. The jury, however, was not permitted to make findings on the fair use factors, even though those factors require an analysis of facts.
The district judge made findings of fact on the fair use issue and judgment was entered against Southeastern. Id. at 6890. Based on the judgment, the judge granted a preliminary injunction in favor of Triad. The injunction was stayed pending appeal, but the Ninth Circuit ultimately ruled against Southeastern when it considered the merits of the injunction. Id.
Rejecting Southeastern's claim regarding fair use, the court found that the service Southeastern performed provided no public benefit, stating that "we detect no appreciable public benefit arising from Southeastern's practice to justify this continuance under the fair use doctrine." Id. at 6891. The court also found that Triad's copyrighted software could be used to extend Triad's control over the service market. The court held that "Triad invented, developed, and marketed its software to enable its customers and its own technicians to service Triad computers. Southeastern is getting a free ride when it uses that software to perform precisely the same." Id. The court also rejected Southeastern's reliance on another Ninth Circuit opinion on the fair use issue, Sega Enterprises v. Accolade, 977 F.2d 1510 (1992).
In that case, Accolade reverse engineered a copyrighted Sega program and then used that knowledge to create its own game program. The Ninth Circuit found that such a use constituted fair use under the Copyright Act. The court stated that "[w]e are in wholehearted agreement with the Second Circuit's recent observation that '[t]hus far, many of the decisions in this area [application of copyright law to software] reflect the courts' attempt to fit the proverbial square peg in a round hole.'" Sega, 977 F.2d at 1524.
The Triad panel did not take the same common-sense approach to the fair use issue. In Triad, the court distinguished Accolade's use of the program from Southeastern's use in part because Accolade's use resulted in a new creative work.
That reasoning appears flawed. If anything, the Sega opinion dictates that Southeastern should have prevailed. By using Sega's copyrighted program to create its own new game program, Accolade clearly supplanted Sega's ability to market its game.
Southeastern, by contrast, did nothing of the kind. The demand for Triad's copyrighted software is no greater or less because of Southeastern's use. The demand for that software is driven by who owns Triad computers, not who services them. The customers paid for that software when they bought the machine - it should not have to be paid for again when the machine is serviced by a third party and no copies are proliferated.
THE RESULT OF MAI AND TRIAD
The opinions read together lead to one conclusion: the rights of licensees of computer programs have been severely truncated. Before these decisions came down, most licensees would never have considered that allowing an independent company to service their equipment would constitute copyright infringement. That is, however, the state of the law in the Ninth Circuit.
The issue of whether computer software loaded into RAM constitutes a copy for purposes of the Copyright Act is a novel issue that may well be reviewed by the Supreme Court eventually. Peak filed a petition for certiorari in the Supreme Court, but the case settled before the Court could rule on that petition. Southeastern has asked the en banc Ninth Circuit to review the Triad opinion, and may seek Supreme Court review. In the meantime, however, the rights of licensees of computer software are diminished at best, at least in the Ninth Circuit.
A POSSIBLE SOLUTION
The root of the problem that confronts software licensees today in the Ninth Circuit lies in the court's reading of Section 117 of the Copyright Act, which does not make sense because it gives copyright owners a right they do not need, to make copies of their own works. Congress is currently considering a bill, H.R. 533, which would change the word "owner" to the phrase "rightful possessor" as the CONTU Report originally recommended. This simple change would allow licensees to have full use of the computer programs that they have licensed. This would include their rights under Section 117, which the Ninth Circuit has currently repealed.
ENDNOTES
1. Ron Katz and Janet Hart are attorneys with the San Francisco office of the international law firm Coudert Brothers. Mr. Katz serves as lead counsel for Southeastern Express.
2. See e.g. Johnson, The Uncertain Future of Computer Software Users' Rights In The Aftermath of MAI Systems, 44 Duke L.J. 327, 328 ("The MAI Systems case demonstrates how a series of legal determinations, each somewhat defensible as a mechanical application of statutory language and caselaw precedent, can yield a result that is plainly at odds with the policies behind the statutes it seeks to apply") ; Stovsky, MAI Systems Corp. v. Peak Computer, Inc.: Using Copyright Law to Prohibit Unauthorized Use of Computer Software, 56 Ohio L.J. 593 ("The Ninth Circuit's ruling permits software vendors to use copyright interests in their programs to control who uses the machine and in what capacity") ; Arriola, Software Copyright Infringement Claims After MAI Systems v. Peak, 69 Wash. L.Rev. 405 ("The MAI Systems court reached a flawed decision lacking any cogent rationale or supporting public policy") ; Levin, MAI v. Peak: Should Loading Operating System Software Into RAM Constitute Copyright Infringement?, 24 Golden Gate U. L. Rev. 649 ("The MAI decision has resulted in incongruous consequences that have puzzled and confused both the legal community and third-party maintenance providers") ; 2 Nimmer, Nimmer On Copyright, §8.08[B] at 8-113 - 114, fn. 38 and 39. at 8-113 - 114, fn. 38 and 39.