On August 13, 2008, the U.S. Court of Appeals for the Federal Circuit issued the first reported decision by a federal appellate court dealing with the burgeoning area of open source licensing. The decision is important in confirming the availability of powerful copyright remedies to developers of open source applications. Jacobsen v. Katzer, No. 2008-1001, slip op. (Fed. Cir. Aug. 13, 2008)

The developer of open source software typically opens the “hood” to the software blueprints (the “source code”) and makes the software and source code available for anyone to use for free. Developers choose to distribute software on this model for a variety of reasons, including the desire to enlist wider participation of the programming/user community in the process of upgrading and debugging of the initial development. In addition, free open source software frequently offers its users the same functionality and reliability of costly proprietary software, and, because the code is “open” to all, lockdown and control by a single vendor in the lucrative maintenance and support business is not a concern. It is not surprising, then, that many companies, even those that do not specialize in technology, are incorporating open source solutions into their business software applications.

Open source licenses typically provide for an extremely broad license grant. Attached to the grant, though, are usually clauses designed (with more or less particularity depending on the license) to foster the particular open source project giving rise to the application.

In Jacobsen, the “Artistic License” (one of many recognized open source licenses) required the user who modifies and distributes a downloaded file to maintain copyright notices, adequate reference to a file containing the license, references to the source of the original downloaded files, and a description of how the original files had been modified.

The defendants in Jacobsen used the software, but failed to comply with these terms. Because open source developers distribute open source applications for free, one might be tempted to think that the exposure for violating the terms of an applicable license is insubstantial. However, users of open source need to understand (as the Federal Circuit in Jacobsen made strikingly clear) that the full force of copyright law stands behind open source applications. The owner of the copyright to a work is the final arbiter of how the work is to be used, and it is irrelevant under established copyright law that the owner chooses to distribute the work for free under an open source license.

Initially, when the plaintiff sued for copyright infringement, the district court (N.D. Cal.) refused to grant a preliminary injunction, ruling that, because the open source license was a general invitation to everyone to use it, as opposed to an exclusive license, and because there was no economic loss to the author (because open source, by definition, offers programs for no cost), the suit should be for breach of contract, and could not be for copyright infringement. On appeal, the defendants also supported the district court’s ruling with reasoning of the old “Monty Python” case, Gilliam v. ABC, and the proposition that “the law seeks to vindicate economic, rather than personal, rights of authors.” Here, the author suffered no loss of royalties.

However, the Federal Circuit reversed the district’s ruling, finding that economic loss is indeed present in open source license breaches, and that the author-imposed rules for use of the open source program are conditions of, not covenants to, the license.

The difference is that failure to observe covenants of a license results in breach of contract, not copyright infringement, and it is well-established law that breach of the conditions of a copyright license is copyright infringement.

The Federal Circuit decision emphasized that conditions limit the scope of the license, while covenants merely recite the terms under which the license is granted. Thus, by violating those conditions, the court found that the defendants had exceeded the scope of the license and arguably violated the copyright law.

The Federal Circuit remanded the case to the district court for further findings on Jacobsen’s request for injunctive relief.

The availability of remedies under the Copyright Act for open source issues is significant. The Copyright Act expressly allows for injunctive relief, and it also allows for disgorgement of profits and statutory damages. Thus, even though users of open source applications do not pay for the right to use the software, and, even though the right to damages may be speculative, users need to be very careful about complying with the applicable license to the letter.

Many companies are using open source software and a variety of software licenses. Being forced to stop using an open source technology could be disastrous for a business, if that open source code is already embedded in a company’s mission-critical technology, or, worse yet, in a product to be distributed, or already distributed, by the company.

Companies should consider conducting a software audit covering the use of open source products, and they should develop sound practices and procedures for the use of open source software. These practices should include, at a minimum, maintaining an up-to-date log of all open source licenses and a compliance review of all applicable licenses.