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Recent Copyright Developments (Copyright Misuse and the Allen-Myland Case)

October 1990

Recent court decisions and legal activity involving issues of copyright law should be of great interest to the computer industry.

Lasercomb America, Inc. v. Reynolds

The federal appeals court in Philadelphia has issued the first decision preventing the owner of a copyrighted computer program from pursuing an infringer, on the ground that the copyright owner previously “misused” its copyright.

Lasercomb is the owner of CAD/CAM die making software. In one of Lasercomb’s licenses, it required a source code licensee to agree that it would not develop computer-assisted die making software during the term of a 99 year license agreement, and for one year after termination of the agreement.

Lasercomb then discovered that another of its customers, which had been sent a license agreement for execution by Lasercomb but had never signed and returned the license, had engaged in blatant and illegal copying of Lasercomb’s software. The defendants admitted the copying, but argued that they should be exonerated from liability because Lasercomb had misused its copyright by forcing one of its licensees to agree to a noncompetition clause.

The court agreed, holding that Lasercomb had misused its copyright by demanding a noncompete from a licensee, and that this action barred Lasercomb from enforcing its copyright against any infringer.

Misuse of patent has long been a legal doctrine by which a patent might be invalidated based on use of the patent by its owner to gain some illegal advantage. In most cases, patent misuse has involved some violation of the antitrust laws. Only once before, in 1949, has this doctrine been applied in the copyright context, and it has never been applied to bar an action for infringement of copyrighted software.

However, the court found that the same principles which permitted the courts to punish a patent owner for misuse should apply in the copyright context as well, and therefore the court expressly extended the “misuse” doctrine to encompass copyright law.

TLB Comment : Lasercomb has asked the three judge panel which issued this decision to reconsider the appeal. If the court denies the request for a rehearing, or affirms the decision, it is likely that the case will be appealed to the Supreme Court. If there is no appeal, or the Supreme Court turns down an appeal, it will remain to be seen to what extent federal courts in other parts of the nation, who are not bound by decisions in the Fourth Circuit, will follow this case.

Although the specific holding of the case invalidates a copyright based on the owner’s condition that a licensee agree to a noncompete provision to obtain access to a license, the implications of the case go far beyond this ruling. Once the Pandora’s Box of copyright misuse is opened, other practices may fall afoul of this doctrine as well. For example, defendants in copyright suits may claim the right to examine every license agreement that the plaintiff has ever entered into to, find possible bases for claiming misuse. Defendants can be expected to argue that every restriction on use or conduct imposed by a copyright holder beyond those expressly authorized by the Copyright Act constitute misuse, thereby invalidating the copyright.

If Lasercomb becomes settled law, licensors of software may need to consider releasing licensees from restrictions which might be deemed to be misuses of copyright. In any case, licensors should be extremely cautious to take no steps in the future which might run afoul of the misuse doctrine until the either the Lasercomb decision is repudiated, or the scope of the doctrine under copyright law is further defined.

Postscript: The Lasercomb decision was upheld by the full panel, and was not appealed to the U.S. Supreme Court. However, the doctrine of copyright misuse has not been widely applied in the wake of the Lasercomb decision in 1990.

Allen-Myland, Inc. v. IBM

There may be thousands of software consultants who earn their livings modifying software that their clients bought from other companies. The legal foundation of that business — that the software user can hire consultants to modify the software — has been attacked by a federal court holding the Allen-Myland case.

AMI provides third party maintenance and reconfiguration services to owners of IBM 3090 mainframe computers. One service that AMI provides is to reconfigure a 3090 mainframe into two smaller systems, and duplicate the original mainframe’s microcode so that both systems can function properly. While performing this service AMI retained archive copies of 3090 microcode. In this manner, AMI built up a library of hundreds of tapes containing various version of the microcode. AMI has used this library to combine portions of tapes to create what the Court termed “rainbow” tapes, which were provided to legitimate licensees of the code.

AMI sued IBM for antitrust violations, and IBM counterclaimed, alleging that AMI’s practices with respect to IBM’s microcode constituted copyright infringement. The court ruled for IBM on its claims of copyright infringement. The most significant aspect of the lengthy opinion is the judge’s rejection of AMI’s defenses under Section 117 of the copyright statute. Section 117 permits the owner of a copy of a computer program to make, or authorize the creation of, a “copy or adaptation” of the program as “an essential step” in the utilization of the program in conjunction with a machine, or for archival purposes only.

The court held that the copying AMI performed to create a library of 3090 microcode was not performed as “an essential step” in the use of the microcode, stating that this section of the law only permitted inputting a program into a computer’s memory. The court then held that while the law permitted the “adaptation” of a program for use on a particular computer, or to add features, this did not include the creation of “rainbow” copies taken from various 3090 systems. The court suggested that AMI might have acted legally had it adapted a single 3090 microcode system without in any way copying or including another 3090 system, but refused to address that issue on a hypothetical basis, since AMI had not shown that it had made adaptations to the 3090 microcode for a system without copying the 3090 microcode for at least one other 3090 system. Lastly, since AMI did not make copies of the microcode programs for archival purposes only, but instead to make copies for other systems, AMI was not protected under the archival exception in Section 117.

TLB Comment : The AMI decision took place in the context of modifications by a third party maintenance organization, but the court’s holding has broader implications. The effect of the AMI decision is to prohibit the modification of a properly licensed computer program, where the modification includes elements from another program, even if it is a program licensed from the same licensor.