Conditions and Implied Licenses: Bitmanagement v. United States

An interesting case was handed down by the Federal Circuit on February 25, 2021, discussing some software licensing issues seldom mentioned in case law. Bitmanagement Software GMBH v. United States was a dispute that involved the use of certain proprietary software, BS Contract Geo, a 3D visualization product.

The facts surrounding the license of the software are complex, but laid out in detail in the opinion. The owner of the software, Bitmanagement, and the user of the software, the US Navy, never entered into a direct or express software license. The contracting process, which took place via a reseller called Planet 9, stalled, when it was determined that the Navy’s system needs were incompatible with Bitmanagement’s software management keys. In the end, the Navy paid for some copies, but engaged in “massive free copying” (see concurring opinion, p.27) of the software with no express license to do so.

Central to the court’s finding, the parties had agreed that as a condition to the license, the Navy would use Flexera’s license-tracking software FlexWrap to monitor the number of simultaneous users of the software. It noted that the Claims Court found that Bitmanagement agreed to the licensing scheme “because Flexera would limit the number of simultaneous users of BS Contact Geo, regardless of how many copies were installed on Navy computers.” (p. 20) But the Navy did not use the FlexWrap tool as agreed. The court held that use of this management software was a condition of the license, even though the license was not in writing. The court said, “This is one of those rare circumstances where the record as a whole reflects that the only feasible explanation for Bitmanagement allowing mass copying of its software, free of charge, was the use of Flexera at the time of copying.” (p.21)

The case contains interesting statements about implied licenses to software. Implied patent licenses are a big unsettled issue in open source licensing, but the court’s statements on implied licensing in this case are not readily transferable to that context, which typically involves an express copyright license with no express patent license (such as in the BSD license or GPLv2).

The court in this case cited the settled rule that “the existence of an express contract precludes the existence of an implied-in-fact contract dealing with the same subject matter,” (citing Seh Ahn Lee v. United States, 895 F.3d 1363, 1370 (Fed. Cir. 2018) (quoting Bank of Guam v. United States, 578 F.3d 1318, 1329 (Fed. Cir. 2009)) but said that in this case, there was no express license between the copyright owner and the user, due to the license having been negotiated via a reseller. It cited Peter v. United States, 6 Cl. Ct. 768, 780 (1984) for this proposition: (“The rule that the existence of an express contract preempts an implied contract has full effect only when the parties to both contracts are the same.”).

The case also underscores that a copyright owner’s claim for use that exceeds the scope of a license and violates its conditions can be a copyright claim rather than a contract claim. The court said “the Navy’s failure to comply with the Flexera condition of the license renders the Navy’s copying outside the scope of that license. Such unauthorized copying is copyright infringement.” Interestingly, the court cited the seminal US case on open source licensing, Jacobsen v. Katzer, 535 F.3d 1373, 1380 (Fed. Cir. 2008), to support this conclusion.

The procedural posture of this case were unusual; it was an appeal of a case in the Court of Federal Claims, a specialty court for lawsuits regarding, among other things, federal procurement disputes — whereas most software license disputes come from state or federal trial courts, and are therefore less likely to be appealed to the Federal Circuit. And its facts are unusual; most software licenses are written rather than merely implied, and where they are not written, their conditions would typically be very difficult to distinguish from their covenants. But it is always good to see a well-reasoned case about these issues.

Author: heatherjmeeker

Technology licensing lawyer, drummer

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