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Wednesday, May 24, 2006

Wall shot the Sheriff ... and won $764,271 in copyright damages and fees

The United States Court of Appeals for the Ninth Circuit affirmed a lower court ruling in Wall Data Inc. v. Los Angeles County Sheriff's Dept. (PDF) that the Los Angeles County Sheriff's Department infringed upon Wall Data's copyright in software by making copies of software in excess of the number of copies permitted by the License Agreement between Wall and the Sherrif.

The Sherrif purchased a total of 3,663 licenses from Wall and at first loaded the software individually on each PC. Finding that this was time consuming, the Sherrif decided to image the remaining hard drives with a baseline of software, including Wall's software. All told, the Sheriff loaded Wall's software onto 6,007 computers. The Sheriff then configured the computers using a password-based security system such that the number of users who could access the software was limited. When confronted with allegations of copyright infringement, the Sheriff claimed that its use was a fair use.

The court disagreed. Applying the four factor test for fair use, the court found that none of the factors weighed in the Sheriff's favor and thus held that its use was not fair.

The First Fair Use Factor: the Purpose and Character of the Allegedly Infringing Use. The Court found that the Sheriff's use was not transformative, did not promote an advancement of the arts, and was commerical in nature.

A finding that a new work is more transformative reduces the significance of the other factors. A use is considered transformative only where a defendant changes a plaintiff's copyrighted work or uses the plaintiff's copyrighted work in a different context. Here, the Sheriff created exact copies of the software and used the software for the same purpose, thus its use was not transformative.

Under the promotion of the advancement of the arts, the Court stated that "Copyright law ultimately serves the purpose of enriching the general public through access to creative works." The Court simply found that the Sheriff did not provide the marketplace with new creative work, nor was there an advancement of public knowledge in this case.

Finally, the Court found that the Sheriff's use was commercial in nature because it repeatedly and exploitatively mad unauthorized copies to save the expense of purchasing authorized copies. The license clearly restricted use to a "single designated computer" and specifically prohibited use of the software "in any other multiple computer or multiple user arrangement." The Sheriff could have purchased or negotiated a more flexible license, but it did not.

The Second Fair Use Factor: Nature of the Copyrighted Work. Under this factor, the Court looked at the nature of the copyrighted work. This factor values creative works as being closer to the core of intended copyright protection rather than informational and functional works. The Court also adopted the reasoning of other circuits by considering whether the copyrighted work represents substantial investment of time and labor in anticipation of a financial return. The court held that although software is not purely creative works, copyright law nonetheless protects computer software. Additionally, it found that Wall presented evidence of a substantial investment of time and labor.

The Third Fair Use Factor: Amount and Substantiality of the Portion Used. The Court ruled that the Sheriff used entire verbatim copies of the copyrighted work and put the copies to the exact purpose for which the original software licenses were purchased.

The Fourth Fair Use Factor: Effect of the Use Upon the Potential Market. Here, the Court found that the Sheriff bought a few licenses and found a way to install the program onto all of its computers without paying the fee required for each installation. Again, the Sheriff could have bargained for more flexibility. But it did not. The Court stated that whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product.

Having thus found that the Sheriff's use was not a fair use (plus striking down some other arguments), the Court upheld the lower court decision of $210,000 in damages, $516,271 in attorneys' fees and $38,000 in costs.

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