Sixth Circuit: Damages for copyright infringement available even if copies not actually used
June 15, 2007

The Sixth Circuit issued a ruling that, by largely following the Second Circuit, clarifies the calculation of damages for copyright infringement under 17 U.S.C. § 504(b) and 17 U.S.C. § 505 for infringing copies of software. Specifically, the court decided that unused infringing copies should still be included in actual damages, the use of the list price of the software does not sufficiently establish the profits the infringer made by infringement, and a party does not necessarily need to prevail on all issues in order to be eligible for an award of attorneys' fees.

More details of Thoroughbred Software Int’l v. Dice Corp. after the jump.

Accounting software from Thoroughbred Software International, Inc. ("TSI") was installed on computers that defendant Dice Corp. leased to their customers. Although leasing of TSI software was a somewhat unusual arrangement, Dice had been leasing the software and hardware since 1986. In 2001, the companies finally entered into a written agreement that, among other restrictions, precluded copying the software and transferring the software between computers without prior approval.

All was well until 2005, when a disgruntled former Dice employee informed TSI that Dice had developed software that was able to "crack" the TSI license keys and make unauthorized copies and transfers of the software. Dice claimed it was concerned about the availability of TSI's software in case TSI was not successful in its bankruptcy reorganization. Based on the employee's information, TSI was concerned about the possibility of copyright infringement, performed an audit, and discovered numerous license violations in the form of unauthorized installations. As a result, TSI brought suit for copyright infringement.

At the bench trial, the district court awarded actual damages for the unauthorized installations of the software on computers Dice was actually leasing, but did not award damages for installations on computers not leased to consumers. The court also denied TSI's request for lost profits and attorney's fees. TSI appealed the denial of actual damages on the yet-to-be leased installations as well as the denial of lost profits and attorney fees.

Regarding actual damages, Dice claimed that TSI could not establish a causal connection between some of the infringing installations and TSI's lost revenue because the installations were unused. Additionally Dice claimed that, if license fees had been required for the additional installations, they would not have done the installs and would not have paid the fees. The district court agreed and did not award actual damages for the unused copies. The Sixth Circuit reversed the district court, stating that:

the causal connection between the unused infringing software and [TSI]'s actual damages is that, under the Dealer Agreement, Dice Corp. should have paid [TSI] a license fee for each copy of the software.

As a result, the fact that Dice had not yet leased some of the computers with the TSI software illicitly installed did not shield Dice from infringement damages on those installations.

Regarding Dice's profits from infringement, the calculation of the amount was difficult as Dice charged a set fee that included all of the services, hardware, and software and did not break the amounts down into categories. In an attempt to show profits, TSI attempted to use the retail price of their software to establish the proportion of the fee attributable to their software. The district court determined that the list price of the software was not sufficient to meet TSI's burden of proof under 17 U.S.C. § 504(b), which requires proof of the amount of the infringer's gross revenue attributable to the infringement. The Sixth Circuit agreed, stating that:

Athough Dice Corp.'s opaque pricing scheme admittedly makes it more difficult for [TSI] to meet its burden . . . this complication does not relieve [TSI] of its obligation to put forth evidence that would allow the trier of fact to determine what portion of Dice Corp.'s monthly customer fee was attributable to the infringing software.

As a result, the denial of lost profits was affirmed.

The district court summarily denied an award of attorneys' fees to any party because no party had prevailed in full. On appeal Dice argued that, despite being found to have infringed and having to pay for actual damages for the used copies, they had actually prevailed at the district court. Alternatively, Dice argued that TSI could not be a prevailing party because it had voluntarily dismissed alternative theories of recovery that were not brought under the copyright act. Dismissing these arguments, the Sixth Circuit determined that TSI was the prevailing party because they had succeeded on a significant issue in the litigation that achieved some of the benefits they sought in bringing the suit. The decision regarding attorneys' fees was vacated and remanded for a determination of whether TSI merited an award of fees as the prevailing party.

To read the full decision in Thoroughbred Software Int’l v. Dice Corp., click here.

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