Monday, May 15, 2017

A recent federal district court decision denied a motion to dismiss a complaint brought by Artifex Software Inc. (“Artifex”) for breach of contract and copyright infringement claims against Defendant Hancom, Inc. based on breach of an open source software license. The software, referred to as Ghostscript, was dual-licensed under the GPL license and a commercial license. According to the Plaintiff, those seeking to commercially distribute Ghostscript could obtain a commercial license to use, modify, copy, and/or distribute Ghostscript for a fee. Otherwise, the software was available without a fee under the GNU GPL, which required users to comply with certain open-source licensing requirements. The requirements included an obligation to “convey the machine-readable Corresponding Source under the terms of this License” of any covered code. In other words, under the open source license option, certain combinations of proprietary software with Ghostscript are governed by the terms of the GNU GPL.

Plaintiff alleged that because Defendant did not have a commercial license for Ghostscript, its use and distribution of Ghostscript constituted consent to the terms of the GNU GPL, Section 9 of which states:

You are not required to accept this License in order to receive or run a copy of the Program…However, nothing other than this License grants you permission to propagate or modify any covered work. These actions infringe copyright if you do not accept this License. Therefore, by modifying or propagating a covered work, you indicate your acceptance of this License to do so.

Plaintiff further alleged that Hancom failed to comply with key provisions of the GNU GPL, including the requirement to distribute the source code for Hancom’s software.

Hancom responded to these allegations with three arguments. First, it alleged Plaintiff failed to state a claim for breach of contract and that any such claim is preempted by copyright law. Second, it alleged Plaintiff’s copyright claim must be dismissed in part because Plaintiff has failed to allege that Defendant committed a predicate act in the United States. Finally, Defendant moved to strike portions of the relief sought in the complaint.

The Court rejected all three arguments. On the first issue, the court stated: “Defendant contends that Plaintiff’s reliance on the unsigned GNU GPL fails to plausibly demonstrate mutual assent, that is, the existence of a contract. Not so. The GNU GPL, which is attached to the complaint, provides that the Ghostscript user agrees to its terms if the user does not obtain a commercial license.” The Court added: “Plaintiff’s allegations of harm are also adequately pled. Plaintiff plausibly alleges that Defendant’s use of Ghostscript without obtaining a commercial license or complying with GNU GPL deprived Plaintiff of the licensing fee, or alternatively, the ability to advance and develop Ghostscript through open-source sharing. Indeed, as the Federal Circuit has recognized, there is harm which flows from a party’s failure to comply with open source licensing: “[t]he lack of money changing hands in open source licensing should not be presumed to mean that there is no economic consideration” because “[t]here are substantial benefits, including economic benefits, to the creation and distribution of copyrighted works under public licenses that range far beyond traditional license royalties.”

The court disagreed with the preemption claim, stating that the Defendant failed to account for an additional open source obligation, which included “an affirmative promise to make its derivative work open source because it incorporated an open source program into its software.” Citing a prior federal court decision, the court stated: “[The] claim therefore requires an ‘extra element’ in addition to reproduction or distribution: a failure to disclose the source code of the derivative software.”

The court also added: the Ninth Circuit Court has held that the Copyright Act “does not preempt causes of action premised upon possible extraterritorial infringement.” As discussed below, both parties agree that this action is premised upon possible extraterritorial infringement to which the Copyright Act would not apply. Because any such extraterritorial infringement would not be subject to the Copyright Act, claims based on this infringement would not be preempted and thus could be maintained under state law instead.”

On the copyright claims, the court found that here is no dispute that Plaintiff has adequately alleged that Defendant committed acts of infringement in the United States: “Hancom has offered and distributed its infringing products incorporating Ghostscript in California through the Internet.” Defendant, however, moved to dismiss Plaintiff’s copyright claim to the extent that it is predicated on any extraterritorial acts of alleged infringement. As the Ninth Circuit has recognized, “wholly extraterritorial acts of infringement cannot support a claim under the Copyright Act.” The Court denied the motion to dismiss without prejudice to raising this issue in a subsequent pleading should the evidence suggest that the requisite link between the extraterritorial infringement and activities in the United States does not exist.

As to Plaintiff’s prayer for relief, including Plaintiff’s request for specific performance, restitution, and consequential damages on the breach of contract claim, and statutory and exemplary damages, as well as attorney’s fees on the copyright claim, Plaintiff conceded that as pled it is not entitled to exemplary damages on either claim, but otherwise contends that Defendant’s request to dismiss and parse portions of its prayer for relief is otherwise improper at this stage. The Court agreed.

This case highlights the need to understand and comply with the terms of open source licenses. Many companies use open source without having adequate open source usage policies or understanding of the legal risks of using open source. As this case highlights one of the key risks with using open source is that in certain circumstances, a company may be required to release the source code for its proprietary software based on usage of open source code in the software. It also highlights the validity of certain dual-licensing open source models and the need to understand when which of the options apply to your usage. If your company does not have an open source policy or has questions on these issues, it should seek advice.