Although the open source movement has been active for more than a decade, it is only in recent months that such a copyright license actually has received the imprimatur of enforceability — from an unlikely court (the Federal Circuit) construing a perhaps unlikely license (the Java Model Railroad Interface for model train software). Open source licensing, of course, is the innovative (if controversial) tool that makes source code available to the general public on conditions (of varying severity) to guarantee continued public access to works derived from the original. Such licenses can require licensees to disclose source code and distribute derivative works royalty-free. Well-known open source licenses include the Creative Commons License, Apache License and Sun Community Source License. Perhaps best-known is the General Public License, now in its third version, which governs Linux, MySQL, and other major software products. It is perhaps also the most feared for its requirement that any source code compiled with any GPL-licensed source code be publicly disclosed upon distribution — often referred to as “infection.”

However, despite the great interest in open source licensing, there has been virtually no precedent construing or applying any of these widely used “copy-left” licenses (or indeed any open source licenses) prior to the Federal Circuit’s December decision in Jacobsen v. Katzer, 535 F.3d 1373 (Fed Cir. 2008). Although Jacobsen left many issues still to be decided (a point well demonstrated on remand), the Federal Circuit held that breach of an open source license does not merely permit a breach of contract claim, but that violating the “conditions” to the intellectual property license creates a cause of action for copyright infringement — with associated remedies. Indeed, in turning the focus from contract to infringement, the Federal Circuit remanded for the district court to reassess its denial of a preliminary injunction.

Although the District Court, on remand, nonetheless denied Jacobsen’s request for equitable relief barring further distribution of the allegedly infringing code (finding insufficient evidence of irreparable harm), the Federal Circuit’s recognition that the terms in an open source license can create enforceable conditions to use of copyrighted materials (as distinct from mere covenants conferring contractual remedies) confirms the potential potency of such licenses — as well as potential new concerns for licensees.

To be sure, specific performance is not an available remedy under the Copyright Act to compel licensees to disclose source code. However, comparable injunctive relief for copyright infringement, coupled with potentially harsh infringement awards of statutory damages, lost profits and disgorgement of defendant’s profits, along with attorney fee awards, may set this train off down an entirely different set of tracks. Moreover, because Jacobsen confirmed that a licensee can be liable for copyright infringement for violating the conditions of an open source license, the original copyright owner may now have standing to sue all downstream licensees for copyright infringement, even absent direct contractual privity. Although injunctive relief ultimately was denied on remand, Jacobsen thus could prove to be something of a Lionel in sheep’s clothing.

RULINGS

Jacobsen, a California physics professor and model train enthusiast, authored software to program the decoder chips that control model trains. He made the software publicly available under an open source license: the “Artistic License.” Matthew Katzer and Kamind Associates, Inc. (KAM) also develop commercial software products for the model train industry. Jacobsen alleged that certain portions of Jacobsen’s software were incorporated into certain Katzer and KAM software, contrary to the terms of the Artistic License. Specifically, the program, known as Decoder Commander, did not include certain required notices of attribution.

As a counterclaim to a patent infringement suit brought by Katzer and KAM against Jacobsen in the U.S. District Court for the Northern District of California, Jacobsen asserted that Katzer and KAM’s violations of the Artistic License constituted copyright infringement. The District Court initially concluded that “Defendant’s alleged violation of the conditions of the license may have constituted a breach of the non-exclusive license, but does not create liability for copyright infringement where it would not otherwise exist.” Jacobsen v. Katzer, No. 06-CV-01905, 2007 WL 2358628, at * 7 (N.D. Cal. 2007). As a result, Jacobsen would have been entitled to provable monetary damages (if any) for breach of the Artistic License, but not a preliminary injunction, pendente lite, barring distribution of Decoder Commander.

Because of the underlying patent claim, the appeal was to the Federal Circuit, which reversed the District Court, holding that the grant of an open source license can be subject to “conditions,” the breach of which constitutes copyright infringement. The decision thus rested on the distinction between “conditions,” on which the copyright license depends, and “covenants,” which impose obligations but do not impair the existence of the license itself. The remedy for a violation of the former is copyright infringement, and for a violation of the latter, is breach of contract.

As the Federal Circuit noted, the Artistic License expressly provided that: “The intent of this document is to state the conditions under which a package may be copied.” Jacobsen v. Katzer, 535 F.3d 1373, 1381 (Fed Cir. 2008) (quoting the Artistic License). The Artistic License also used the traditional language of conditions by noting that the rights to copy, modify, and distribute were granted “provided that” the conditions (violated by the Defendants) were met. The Federal Circuit thus remanded for the District Court to make the necessary factual determinations as to whether Jacobsen was entitled to a preliminary injunction. Once again applying the brakes, however, the District Court again declined to grant preliminary relief, holding that Jacobsen had failed to make the necessary showing of irreparable harm. (The District Court also held on remand that the breach of contract claim was pre-empted by the copyright claim. In striking contrast with its original ruling, which rested solely on contract, the court held there could be no such claim because the right sought to be enforced was equivalent to copyright.)

BREACH OF CONTRACT OR COPYRIGHT INFRINGEMENT?

Whether breach of an open source license is treated as a breach of contract or as copyright infringement has important implications. Prior to Jacobsen, perhaps the greatest concern for commercial software vendors using open source components was the possibility that they would have to disclose their own source code compiled with licensed code, and that they would be required then to license, royalty-free, their own code so-compiled. (This was essentially the analysis by the district court in Jacobsen prior to the appeal.) Not to minimize this concern, the Free Software Foundation had in fact never brought suit seeking disclosure of a GPL licensee’s source code, and doubts have often been raised about how easily a licensor could enforce this requirement. Because Jacobsen ultimately did not address the licensor’s right to seek specific performance, the decision does little to address those particular concerns.

After Jacobsen, however, users of source code subject to open source licenses (or for that matter any generally distributed “click-wrap” licenses), must now ponder possible monetary remedies under the federal Copyright Act, not to mention equitable remedies for infringement. Provided the subject code has been timely registered with the Copyright Office, the Copyright Act provides for statutory damages (of not less than $750 and up to $150,000 for willful misconduct), per infringed work. Under Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 347, 353 (1998), these sums may be calculated by a jury. Moreover, the copyright owner may elect to pursue statutory damages and attorneys’ fees even if there are no actual damages to speak of. This is particularly important in the open-source context where the plaintiff is a distributor of “free” software and damages are difficult to ascertain.

As an alternative to statutory damages, the Copyright Act permits the copyright owner to claim the actual damages suffered as a result of the infringing conduct, as well as “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.” Accordingly, if a plaintiff’s lost profits are less than a defendant’s actual gains, the open source licensor may recover its lost profits under the rubric of actual damages, as well as the difference between its lost profits and defendant’s actual profits under the rubric of defendant’s profits. Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983). The Free Software Foundation recently filed suit alleging that Cisco is infringing various copyrights licensed under the GPL and Lesser General Public License, and has demanded, in addition to its actual or statutory damages, that Cisco be made to disgorge any profits derived from the infringement.

Proving defendant’s profits under the Copyright Act is far simpler than quantifying unjust enrichment as an equitable remedy for breach of contract. New York law, for example, requires a plaintiff seeking to recover for unjust enrichment to prove that: 1) the defendant was enriched; 2) such enrichment was at the plaintiff’s expense; and 3) in equity and good conscience, the defendant should be required to return the money or property to the plaintiff. In re Harvard Knitwear, Inc., 153 B.R. 617 (Bankr. E.D.N.Y. 1993) (applying New York law). Typically, plaintiffs recovering for unjust enrichment in contract actions have made some sort of expenditure on behalf of the defendant. Proving that a licensee’s commercialization of software is at the expense of the licensor, when the licensor licensed away its copyright for free could be challenging, to say the least.

Under copyright law, by contrast, there is no requirement that the plaintiff prove that the defendant’s enrichment was at the plaintiff’s expense. In a copyright action to recover the infringer’s profits, the plaintiff need only demonstrate that the defendant’s profits were derived from the infringement of the plaintiff’s copyright, and that they were not taken into account in computing actual damages. The statute explicitly allows a plaintiff to collect the defendant’s profits in addition to any actual damages the plaintiff may have suffered. This may be particularly significant in the open source licensing context, because it can be applied to the breach of otherwise seemingly innocuous licenses, such as the Artistic License, which principally required attribution.

An additional consequence of the Federal Circuit’s opinion is that, by pursuing copyright claims, an open source licensor may now be able to sue downstream licensees for copyright infringement, notwithstanding the absence of any direct contractual relationship between the owner and the ultimate user. Because the Federal Circuit found that a violation of the conditions of the Artistic License constituted copyright infringement, and because copyright infringement (and patent infringement) are strict liability torts, a user of such open source software lacking a licensed right would be subject to suit by a copyright or patent owner. It should be noted that a violation of the GPL likely would not subject a user to patent suit since the patent license grant in the GPL lacks the conditional language deemed by the Federal Circuit in Jacobsen to give rise to an infringement claim where the terms of the license are breached. Thus, the effect of Jacobsen is twofold; it enables a set of potentially onerous monetary remedies for failures to comply with even modest license terms, and it subjects a potentially larger community of intellectual property users to liability.

SIGNALS AHEAD

Before Jacobsen v. Katzer, commercial software developers already often avoided incorporating open source components in their offerings for fear of being stripped of ownership rights. While software development benefits from peer review and transparency of process facilitated by open source, the resulting licenses, by their terms, could require those using any open source code to disclose all associated source code and distribute incorporated works royalty-free. Following Jacobsen v. Katzer, commercial software developers should be even more cautious of incorporating any open source code in their offerings. Potentially far greater monetary remedies (not to mention continued availability of equitable relief) make this vehicle one train to board with caution.

Jonathan Moskin is a partner and Howard Wettan and Adam Turkel are associates in the NY office of White & Case LLP.