Can licenses limit competitors’ use?

August 13, 2018
Patterson Thuente IP

Copyright ruling hits third-party software support providers

Purchasers of software know that it’s not just the license that can take a bite out of their wallets — it’s also the costly maintenance contracts. Smelling an opportunity, third-party providers have begun offering licensees cheaper maintenance and support alternatives. But one software company has struck back, and the favorable ruling it obtained in its copyright infringement lawsuit against a third-party provider may make it harder for such businesses to compete.

 

Case developments

Oracle USA, Inc., licenses customized enterprise software and sells its licensees maintenance contracts. The maintenance includes software updates.

Updates to enterprise software must be tested and modified to fit licensees’ individual customizations before being implemented. The testing process requires the creation of “development environments” that contain a copy of the software. Oracle’s licenses permit its licensees to maintain their software and make development environments for themselves. Some licensees outsource the maintenance to Oracle but also to third parties, such as Rimini Street, Inc.

To compete effectively with Oracle’s maintenance services, Rimini needed to provide software updates. This required copying the software, which, unless allowed by license, would constitute infringement.

Oracle sued Rimini for copyright infringement. The alleged infringement included copying software under the license of one Rimini customer for work for other existing customers or for unknown or future customers (so-called “cross-use infringement”). After a jury ruled in Oracle’s favor, Rimini appealed to the Ninth Circuit Court of Appeals.

License limitations

On appeal, Rimini asserted the express license defense. Under that defense, the existence of a license defeats a claim of copyright infringement. Because Rimini didn’t possess a license to copy or modify Oracle’s software, the success of its defense depended on whether its infringing acts fell within the scope of its customers’ licenses.

Rimini contended that its cross use under the licenses for two of the three types of software at issue wasn’t infringement. It claimed that it could create environments without restriction because any business that might hire it to service Oracle software would have a license to create development environments.

Oracle responded — and the Court of Appeals agreed — that both licenses limited copying and use to support the licensee. The licenses didn’t authorize Rimini to develop products it could sell for its financial gain. Work Rimini performed under one customer’s license for other existing customers wasn’t work in support of that particular licensee.

The same reasoning applied to work that Rimini performed for currently unknown or future customers. The licensees could hire a third party to maintain their software, but the licenses didn’t permit them to grant a nonparty to the license a general right to copy proprietary software.

Location matters

The licenses for the third type of software at issue in the case were more restrictive than those for the other software types, limiting the copying of the software to the licensees’ “facilities.” Oracle’s claim regarding this license related to Rimini’s creation of development environments on Rimini computers, as opposed to the licensees’ computers.

Rimini argued that a licensee’s facilities could encompass Rimini’s own servers. It pointed out that “sophisticated companies like Oracle’s customers (and Rimini’s clients)” don’t keep all of their servers on their actual premises. They may own some, lease others and contract with third parties for even more capacity (for example, cloud computing providers). All of these servers, Rimini said, fell within “facilities.”

The Court of Appeals, however, found that facilities under the control of a third party couldn’t qualify as a licensee’s facilities. It endorsed the trial court’s interpretation of the definition of “a licensee’s facilities” as requiring control. And the Rimini servers where the copying occurred were outside the licensee’s control.

Maintaining the competitive edge

Among other things, this case demonstrates the importance of clear language in licenses. By tailoring its language to narrow possible uses of its software, Oracle lawfully limited other companies’ ability to compete with it.

Oracle USA, Inc. v Rimini Street, Inc., No. 16-16832, -16905, Jan. 8, 2018, 9th Cir.

Copyright misuse defense fails, too

The defendant in the Oracle USA, Inc. v. Rimini Street, Inc. case also asserted the copyright misuse defense. The defense blocks copyright holders from leveraging their limited monopoly on the copyrighted material to control areas beyond that monopoly — that is, it applies when copyright holders try to impose license agreements that would prevent licensees from using any other competing product.

Rimini claimed that finding it liable for copyright infringement would limit third parties to making copies of Oracle’s software only for archival and emergency backup purposes. But the Ninth Circuit Court of Appeals found that Oracle’s licenses didn’t preclude Rimini from developing competing software or providing competing support services. Rimini could still create development environments for a licensee for various purposes — after the licensee has become a Rimini customer.

The court dismissed Rimini’s argument that forbidding it from creating development environments for licensees before they’re customers gave Oracle an unfair “head start” in making copies. Just as a copyright holder has the “right of first publication,” it also enjoys the right of “first copy.”

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