Monday, February 25, 2008

Jacobsen Redux: Remedies for Breach

As I mentioned in my post on Jacobsen v. Katzer, the issue of remedies for the breach of open source licenses is a difficult one. A recent decision in the Northern District of California, Netbula, LLC v. Storage Technology Corporation ("STC"), is a reminder of these difficulties. Netbula tried to convince the court that STC's alleged violation of the license agreement should be copyright infringement as well as breach of contract. As I noted in that post, most licensors prefer copyright infringement remedies:

Generally, the remedy for contract violations under US law is damages, not "injunctive relief" (which means that the court order a party to cease their violation). On the other hand, copyright infringement generally includes a presumption that injunctive relief is appropriate. Thus, the question of whether the violation of a license is a contract violiation or copyright infringement (it can be both) is very important, because licensors would prefer to obtain an injunction prohibiting the breach of the license. The question turns on a nuanced legal issue of whether the term in the license is a "restriction on the scope" of the license or a covenant. In the first case, the failure to comply with the provision means that the licensee is outside the scope of the license and thus is a copyright infringer (as well as liable for breach of the contract). On the other hand, if the term is merely a covenant, then the failure to comply with it is a breach of contract. The most celebrated case dealing with this issue involved the Java license between Sun and Microsoft in which the court found that the obligation on Microsoft to meet the Java compatability tests was a covenant, not a restriction on the scope of the license and the court denied Sun an injunction on those grounds (Sun got an injunction for unfair competition).

The Netbula decision demonstrates the difficulty of proving that a license obligation is a "condition". Briefly, STC licensed Netbula's SDK for development and runtime version for distribution. Netbula alleges that STC used the SDK for more users than was permitted and on operating systems that were not permitted. The license grant is as follows: " a non-exclusive, perpetual, irrevocable license for Storagetek's employees, consultants and subsidiaries for up to ONE user(s) for each of the licenses purchased, to use the PowerRPC SDK Product under Windows NT and 95/98 platforms; each user can only use the software on one computer." The court found that the limitation on users was not a condition, but only a covenant. Consequently, the remedies for breach of the license would be damages and the breach was not copyright infringement. On the other hand, the court found that the restriction on the use of the SDK for certain operating sytems was a condition and its breach would be copyright infringement. However, Netbula did not prove that STC had used the SDK on the non permitted operating system.

Netbula also alleges that STC did not pay the royalties for all of the copies which it distributed. The license provided for payment of a fixed amount for 1000 copies. The court found that this obligation is covenant, not a condition.

This case demonstrates the difficulties in making these distinctions. The case demonstrates the reluctance of the courts to find a "limitation" on the license and provide a licensor with copyright infringement remedies. This case is important for open source licensors: even though the Jacobsen case was probably wrongly decided, this issue is a difficult one. The appeal of the Jacobsen case has the potential for disaster for open source licensors: if the CAFC decides the issue incorrectly and uses sweeping language (as opposed to narrowly focusing on the provisions of the Artistic License), open source licensors will be in a considerably weaker position in pursuing licensees who are in breach.