Ninth Circuit Squashes Fair Use Defense In Software Case

Wall Data Incorporated v. Los Angeles County Sheriff’s Department (9th Cir. May 17, 2006)

(Note: This summary only addresses issues of copyright law present in this case. Other areas of law were discussed by the court's opinion, but those aspects of the case are not discussed in the summary below.)

“Between December 1996 and February 1999, the Appellants-Defendants, the Los Angeles County Sheriff's Department and the County of Los Angeles (collectively, ‘Sheriff's Department’), purchased both of Wall Data's RUMBA software products through an approved vendor.” Thereafter the Sheriff’s Department, “[a]fter initially installing RUMBA Office manually, one at a time, onto approximately 750 computers, decided to switch to hard disk imaging instead. This allowed the Sheriff’s Department to reduce installation costs and rapidly deploy RUMBA software, as hard disk imaging allowed them to prepare any new computer by simply duplicating a single master hard drive (where RUMBA software was already installed) onto that new computer’s hard drive. To ensure that the Sheriff’s Department did not exceed its 3,633 RUMBA licenses on the 6,007 computers installed with RUMBA software, the Sheriff’s Department added “a password security system such that the number of users who could access RUMBA Office was limited.” Eventually, Wall Data Inc. (“Wall Data”) discovered what the Sheriff’s Department had done, and after some unsuccessful attempts to settle the dispute, filed suit for copyright infringement.

In its defense, the Sheriff’s Department first claimed that its use of RUMBA software in this unusual manner was protected by fair use, “because it has done nothing more than apply technology to make the broadest authorized use of its license.” The Ninth Circuit rejected this defense.

First Factor Analysis:

Utilizing the fair use factor analysis of Section 107 of the Copyright Act, the Ninth Circuit first found that the purpose and character of the allegedly infringing use weighed against the Sheriff’s Department. The Sheriff Department’s copying lacked the requisite quality of transformative use because:

• (1) they made exact duplicates and used them for the identical purpose of the original software,
• (2) the copying did not provide new creative works to the marketplace or advance the state of public knowledge, and
• (3) the copying was a commercial use.

This last point particularly resonated with the appeals court. The judges unambiguously held that the costs savings and flexibility obtained by the hard disk imaging process were a benefit derived from the software’s unauthorized distribution and use without having obtained consent from the copyright holder. Such flexibility and costs savings, the court held, “could only have been achieved by purchasing licenses for each of the computers on which the software was loaded, or by negotiating with Wall Data for a less restrictive license.”

Second & Third Factor Analysis:

The Ninth Circuit also easily found that the second and third fair use factors weighted against a finding of fair use for the Sheriff’s Department. The fact that copyright law protects computer software resolved the second fair use factor analysis against the Defendant. On the third fair use analysis, the Defendant’s verbatim copying of the software for the same use as intended under their license also led to a conclusion against it on the third fair use factor.

Fourth Factor Analysis

On the final fair use factor, the Ninth circuit unleashed its strongest criticisms on the Sheriff Department’s defense:

The Sheriff's Department could have bargained for the flexibility it desired, but it did not. Whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product. Thus, although hard drive imaging might be an efficient and effective way to install computer software, we conclude that “unrestricted and widespread conduct of the sort engaged in by the defendant” would nonetheless lead to over-use of the software.

Of particular concern to the court was that the Sheriff’s Departments fair use defense would make “copyright infringement easier while making detection of over-use more difficult[:]

In recognition of the ease with which software can be over-used, courts have been cautious to extend protection to methods that would make copyright infringement of software any easier:

Software fundamentally differs from more traditional forms of medium, such as print or phonographic materials, in that software can be both, more readily and easily copied on a mass scale in an extraordinarily short amount of time and relatively inexpensively. One of the primary advantages of software, its ability to record, concentrate and convey information with unprecedented ease and speed, makes it extraordinarily vulnerable to illegal copying and piracy. [Thus,] it is important to acknowledge these special characteristics of the software industry and provide enhanced copyright protection for its inventors and developers.

Consequently, without the support of the fourth fair use factor or any other in the Defendant’s favor, the Ninth Circuit rejected Sheriff Department’s fair use defense.

Lack of Ownership Defeats Section 117 Defense

The Sheriff’s Department also attempted to raise one other significant defense to copyright infringement under Section 117 of the Copyright Act, which “permits the owner of a copy of a copyrighted computer program to make (or authorize the making of) another copy of the program, if the copy is created as an ‘essential step in the utilization of the computer program in connection with the [computer, and] is used in no other manner.’”

Once again, the Ninth Circuit, citing MAI Sys. Corp. v. Peak Computer, Inc., rejected the Defendant’s arguments. :

Generally, if the copyright owner makes it clear that she or he is granting only a license to the copy of software and imposes significant restrictions on the purchaser's ability to redistribute or transfer that copy, the purchaser is considered a licensee, not an owner, of the software. In this case, as in MAI, the licensing agreement imposed severe restrictions on the Sheriff's Department's rights with respect to the software. Such restrictions would not be imposed on a party who owned the software. The Sheriff's Department's use of and rights to the RUMBA software products were restricted under the terms of the click-through and volume booklet licenses. These restrictions were sufficient to classify the transaction as a grant of license to Wall Data's software, and not a sale of Wall Data's software. For these reasons, under MAI, the Sheriff's Department is not the “owner” of copies of Wall Data's software for purposes of [Section 117].

The appeals court also held that even if the Sheriff’s Department was an owner of the software, that the hard disk imaging process did not constitute an essential step to installing the software, as the Sheriff’s Department had already demonstrated that manual installation was sufficient to the task of installing Rumba.

Holding: The district court’s judgment against the Sheriff’s Department was affirmed.