©2015. Published in Landslide, Vol. 7, No. 3, January/February 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Litigation is nothing if not unpredictable, and it’s safe to say that when Versata Software sued Ameriprise Financial Services for breaching its software license,1 neither party got what it bargained for. Versata had its dirty laundry aired when Ameriprise discovered that Versata’s software incorporated third-party software in violation of the applicable free and open source software (FOSS) license. And both Versata and Ameriprise found themselves defending claims for copyright and patent infringement brought by the developer of the third-party software.2 These cases raise important issues of first impression related to FOSS licensing: whether providing FOSS to a third-party contractor for customization constitutes “distribution” of the software, and whether FOSS licensees can rely on estoppel or an implicit patent license in the absence of an express grant.
Versata v. Ameriprise
Versata provides software for the financial services industry and for 13 years had licensed its distribution channel management software (DCM) to Ameriprise. Ameriprise used the software to manage its network of independent financial advisors. A dispute arose between the two companies regarding Ameriprise’s use of third-party contractors to produce customizations to DCM. Versata claimed the contractors’ activities (specifically, decompiling Versata’s software) were prohibited by the license agreement. Ameriprise claimed Versata had approved its use of contractors for years and was objecting now only to force Ameriprise to purchase Versata’s newer, more expensive cloud-based software. On November 13, 2012, Versata sued Ameriprise in Texas state court for breach of the software license agreement (but not for copyright infringement).
During discovery, Ameriprise obtained documents from Versata showing that DCM contained third-party FOSS, including an XML parsing utility called VTD-XML, produced by XimpleWare. XimpleWare licenses VTD-XML under the GNU General Public License, version 2 (the GPL or GPLv2),3 a “copyleft” or “reciprocal” FOSS license. Like any FOSS license, GPLv2 permits licensees to copy and distribute the software freely, as well as to modify the software’s source code and distribute those modifications. GPLv2 also requires that if a licensee incorporates GPLv2-licensed code into its own product, then that product (and its source code) must also be made available to licensees under GPLv2. (This is referred to as a “copyleft” license because it reverses the rights in a typical software license, giving to all licensees rights usually reserved to the copyright owner. XimpleWare also offers proprietary licenses to customers who do not wish to apply the GPL to their own software, but Versata did not have a proprietary license to VTD-XML.4)
Armed with these facts, on July 24, 2013, Ameriprise filed a motion for summary judgment that Versata’s inclusion of VTD-XML caused the whole of DCM to be licensed under the GPL, and that Ameriprise’s modifications and decompilation were consistent with the GPL.5
Familiar Fears about FOSS Licenses
Lawyers for commercial software vendors have feared a claim like this for essentially the entire 20-odd-year lifetime of the GPL: a vendor incorporates some GPL-licensed code into a product—maybe naively, maybe willfully—and could be compelled to freely license the entire product as a result.6 The characterization of the GPL by Ameriprise and the Versata court reflects this fearful atmosphere by adopting the fear-mongering portrayal of the GPL as a “viral” license that “infects” its host and “requires it to become open source, too.”7 It’s unfortunate that these ideas are still in circulation, even among lawyers who should know better. The “virus” analogy in particular is badly flawed. The GPL isn’t communicated invisibly: whether it’s used correctly, incorrectly, or not at all is a matter of basic education and diligence.
Also, the likelihood that a court will order a party to release its infringing product under the GPL is exceedingly slim. It’s a hornbook principle of contract law that specific performance is not an appropriate remedy for breach of contract where money damages or an injunction is adequate. Absent extraordinary circumstances, an injunction or statutory damages should be a sufficient remedy for a FOSS license violation. In a case like this one, a judge could also apply the copyright misuse doctrine and refuse to enforce Versata’s copyrights until it ceased its own misuse of XimpleWare’s copyrights.
But for procedural reasons, this won’t be the case that cures the virus. In response to Ameriprise’s counterclaim that Versata breached the GPL’s copyleft requirement, Versata argued that the counterclaim could not be heard by the state court because it was a copyright claim preempted by the federal Copyright Act. On October 31, 2013, Ameriprise removed the case to the United States District Court for the Western District of Texas, which took the case solely to resolve the issue of whether the breach of copyleft claim should be in a state or federal court. On March 12, 2014, the court ruled that the GPL’s copyleft provision imposed an obligation over and above what the Copyright Act requires—an affirmative obligation to provide source, rather than simply an obligation not to copy the software without permission. Because the Copyright Act does not specifically protect the right of a software licensee to receive source code, the court ruled, it does not preempt a claim in state court to enforce that right.8
Finding the counterclaim not preempted and no other basis for federal jurisdiction, the federal court remanded the case back to Texas state court. If Versata’s and Ameriprise’s claims and counterclaims are litigated to final judgment in the Texas state court, then that judgment will have little precedential effect in a federal copyright action.9
Revisiting Jacobsen v. Katzer
While neither Versata nor Ameriprise raised the comparison, the preemption issue relates closely to the central question in Jacobsen v. Katzer,10 an important FOSS licensing case decided by the Federal Circuit in 2008. In Jacobsen, the Federal Court held that the breach of a free/open source software license was an infringement of the underlying copyrights if the breach was of a “condition,” or a term that “limit[s] the scope” of the license, rather than a “covenant,” or a promise made in return for the license.11 The answer is very important for software producers: if a breach of the license is copyright infringement (i.e., because the provision breached was a condition), the copyright holder can sue in federal court, request an injunction preventing further distribution of the software, and seek statutory damages. If the breach of the license is only a breach of contract (i.e., because the relevant provision was a covenant), these remedies are not available to the copyright holder.12 Jacobsen held that the licensee’s obligations under the Artistic License (another FOSS license) are conditions, in part because they are essential to preserving the purpose of the license, which is to secure the benefits of downstream development to the original developers.
Despite touching on similar issues, the Western District of Texas decision doesn’t address the question whether the GPL’s copyleft provision is a covenant or a condition. Unlike in Jacobsen, Ameriprise does not involve an open source developer suing a licensee. Ameriprise is a licensee of both Versata’s software and the third-party GPL-licensed software. Consequently, Ameriprise couldn’t bring a claim for copyright infringement because Ameriprise was not the copyright owner. Rather, Ameriprise claimed that when it received DCM (and thereby VTD-XML) from Versata, it was entitled under the GPL “to obtain and freely use the source code for DCM Version 3.9 subject only to the terms and conditions of the GPL.”13
XimpleWare v. Versata & Ameriprise
Ameriprise had precious little opportunity to enjoy its clever GPL jujitsu. On November 5, 2013, just a few days after Ameriprise brought its counterclaim against Versata, XimpleWare filed two suits accusing both Versata and Ameriprise of infringing XimpleWare’s copyrights and patents on VTD-XML. The copyright suit accuses both parties of distributing DCM to their customers in violation of the GPL.14 The patent suit accuses Versata and its customers of direct infringement and also accuses Versata of inducing infringement by its customers. The patent suit also accuses Ameriprise and several other Versata customers of direct infringement for using and distributing DCM without a valid patent license from XimpleWare.15
When Is a Distribution a “Distribution”?
The patent suit raises the question of whether, when Ameriprise distributed GPL-licensed software to franchisees, Ameriprise made a “distribution” under section 3 of GPLv2 and was therefore required to provide the recipients with source code and other things the GPL requires. This issue was lightly briefed by the parties for Ameriprise’s motion to dismiss, which the judge ruled on in May 201416 but won’t be fully resolved until a later stage. Nonetheless, the parties’ briefs preview their arguments.
Ameriprise’s primary defense is that providing DCM to its independent franchisees was not “distribution” because the recipients—even the independent contractors—were all “personnel” of Ameriprise.17 The support for this argument is fairly weak. Ameriprise cites two copyright cases for the proposition that use of independent contractors was explicitly provided for in the applicable license agreement.18 GPLv2, by contrast, does not distinguish distribution to independent contractors from distribution to other third parties. Ameriprise also cites a third case stating the long-standing principle of patent law that a license to “make” a patented article includes a license to have that article made by a third party, unless the license explicitly says otherwise.19 But if Ameriprise breached its license to XimpleWare’s copyrights under the GPL, Ameriprise automatically lost any license to XimpleWare’s software under GPLv2 section 4, presumably including any license to Versata’s patents.20 And in any case, Ameriprise doesn’t allege that its distribution of DCM to independent advisors was for the purpose of having anything made.
For its part, the Free Software Foundation has always maintained that “providing copies to contractors for use off-site is distribution.”21 However the court resolves the issue, its decision will be important both for developers and corporate consumers of GPL-licensed software because it will determine to what extent companies can restrict their contractors’ redistribution of GPL-licensed software.
Motions to Dismiss
XimpleWare’s copyright infringement claims against Ameriprise and Versata survived motions to dismiss on February 4, 2014,22 and March 14, 2014,23 respectively, and the trial date has been set for June 8, 2015.24
Versata’s customers also each moved to dismiss XimpleWare’s direct patent infringement claims against them, pointing to section 0 of GPLv2, which provides that “[t]he act of running the Program is not restricted.”25 Because the customers had not distributed DCM, they argued, they had not breached the license passed on to them by Versata. The judge agreed that XimpleWare had not sufficiently alleged distribution by any Versata customer (except Ameriprise) and dismissed XimpleWare’s direct infringement claims against those customers.26
The judge also dismissed XimpleWare’s induced and contributory infringement claims against Versata and customers. Both claims require that the defendant be aware of the patents allegedly infringed, but XimpleWare did not claim in its complaint that Versata knew XimpleWare’s patents existed.27 For the same reason, the judge dismissed XimpleWare’s claim that Versata’s infringement was willful because “a party cannot be found to have ‘willfully’ infringed a patent of which the party had no knowledge.”28
The judge gave XimpleWare leave to amend its complaint in the patent suit, which XimpleWare did on May 31, 2014, adding allegations that each of the Versata customers worked with third parties who were “beneficiaries of the DCM software,” and also that Versata knew of XimpleWare’s patents.29 Whether these new allegations are sufficient to save XimpleWare’s patent claims will depend on the outcome of a new round of motions to dismiss filed by the defendants that the court heard on September 9, 2014, but has not ruled on as of this writing.30
A Dangerous New Issue: Does GPLv2 Contain a Patent License?
XimpleWare makes a new argument in its amended complaint: regardless of whether Versata’s customers distributed VTD-XML in violation of the GPL, they infringed XimpleWare’s patents by using the software because GPLv2 only grants a copyright license, not a patent license.31 Several of Versata’s customers point out the consequences of this argument in their renewed motion to dismiss: “In essence, XimpleWare is saying that it can entice users to download VTD-XML under the GPL and then immediately sue them [for] patent infringement. This goes against the letter and the spirit of the GPL.”32
GPLv2 is one of the most widely used FOSS licenses, if not the most. It is the license for some of the most important and commercially valuable FOSS projects, including the Linux kernel, whose contributors include such uncomfortable bedfellows as Oracle and Google (involved in high-profile litigation over Google’s replication of Java APIs (application programming interfaces) in its Linux-based Android operating system), Intel and AMD (who in 2009 settled a lawsuit over Intel’s allegedly anticompetitive business practices for $1.25 billion), and Cisco and Huawei (rival telecommunications equipment manufacturers and combatants in a proxy war between the United States and China). If XimpleWare’s argument is accepted by the judge, and a license under GPLv2 offers no protection from the licensor’s patents, Linux would be a landmine for these companies, and really for any company with fewer patents than IBM (the sixth most frequent corporate contributor to Linux and the recipient of a record-breaking 6,800 U.S. patents in 2013).33
Even without an explicit patent grant, lawyers advising businesses on FOSS issues generally agree that GPLv2 protects licensees (at least those in compliance with the license terms) from patent suits by licensors.34 This is because the law provides for an implied license (or judicial estoppel) where a licensor’s conduct leads the licensee to believe it will not be sued, or where fairness otherwise demands that the licensor should be prevented from suing. Because the GPL encourages licensees to copy, modify, and distribute the licensed software—all conduct that would infringe any patents on the software absent a license—licensees should reasonably expect that the software’s producers won’t sue them for doing those things.
United HealthCare Services, one of the Versata customers sued by XimpleWare, states the case for estoppel succinctly in its reply:
Plaintiff chose to distribute its software to the public under the GPL for its own commercial reasons. In so doing, Plaintiff represented to the consuming public that mere use of its software was “not restricted.” Plaintiff cannot wish that representation away now that it inconveniences its litigation strategy. Plaintiff’s arguments amount to a “bait and switch,” seeking to recover payment for mere use that Plaintiff, through its adoption of the GPL, told the world would be unrestricted.35
Businesses that depend on GPLv2 software should watch this case carefully. Based on precedent, XimpleWare’s argument should not succeed. However, if the judge were to accept that argument, the millions of relationships built upon GPLv2, and upon any FOSS license that doesn’t contain an explicit patent license, could be fundamentally destabilized.
1. Versata Software, Inc. v. Ameriprise Fin., Inc., No. A-14-CA-12-SS, 2014 WL 950065, at *1 (W.D. Tex. Mar. 11, 2014).
2. Complaint, XimpleWare Corp. v. Versata Software, Inc. (XimpleWare Copyright Case), No. 3:13-cv-05160-SI (N.D. Cal. Nov. 5, 2013), ECF No. 1; Complaint, XimpleWare, Inc. v. Versata Software, Inc. (XimpleWare Patent Case), No. 5:13-cv-05161-PSG (N.D. Cal. Nov. 5, 2013), ECF No. 1.
4. See Order Denying Defendant’s Motion to Dismiss, XimpleWare Copyright Case, No. 3:13-cv-05160-SI, 2014 WL 490940, at *1 (N.D. Cal. Feb. 4, 2014) [hereinafter Ameriprise Copyright MTD Order].
5. See Versata v. Ameriprise, 2014 WL 950065, at *4–5.
6. See, e.g., Risks Associated with Open Source Licenses, IP News (Morse Barnes-Brown & Pendleton P.C., Waltham, Mass.), June 2005, available at http://www.mbbp.com/resources/iptech/newsletters/pdfs/ip%20-%200605%20-%20open%20source%20licenses.pdf.
7. Versata v. Ameriprise, 2014 WL 950065, at *1.
8. Id. at *5.
9. Id. at *6.
10. 535 F.3d 1373 (Fed. Cir. 2008).
11. Id. at 1380.
12. See id. at 1381–82.
13. Ameriprise Motion for Partial Summary Judgment, Versata Software Inc. v. Ameriprise Fin., Inc., No. D-1-GN-12-003588 (Tex. Civ. Dist. Ct. July 24, 2013).
14. Ameriprise Copyright MTD Order, supra note 4, at *1.
15. Order Granting-in-Part Defendants’ Motions to Dismiss, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. May 16, 2014), 2014 WL 2080850, at *2 [hereinafter Defendants’ Patent MTD Order].
16. See id. at *1.
17. Defendants Ameriprise Financial, Inc. and Ameriprise Financial Services, Inc.’s Notice of Motion and Renewed Motion to Dismiss Plaintiff XimpleWare Corp.’s Claims of Patent Infringement and Declaratory Judgment and Memorandum of Points and Authorities at 8–9, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. Dec. 31, 2013), ECF No. 25.
18. See Womack+Hampton Architects, L.L.C. v. Metric Holdings Ltd. P’ship, 102 F. App’x 374, 382 (5th Cir. 2004); Hogan Sys., Inc. v. Cybresource, Int’l, Inc., 158 F.3d 319, 323 (5th Cir. 1998).
19. See CoreBrace LLC v. Star Seismic LLC, 566 F.3d 1069, 1072–73 (Fed. Cir. 2009).
20. See discussion of what patent license, if any, is granted by GPLv2 infra.
21. Frequently Asked Questions about the GNU Licenses, Free Software Found., https://www.gnu.org/licenses/gpl-faq.html#InternalDistribution (last updated June 28, 2014).
22. See Ameriprise Copyright MTD Order, supra note 4, at *3.
23. Order Denying Versata Defendants Motion to Dismiss, XimpleWare Copyright Case, No. 3:13-cv-05160-SI (N.D. Cal. Mar. 14, 2014), ECF No. 77.
24. See Second Amended Pretrial Preparation Order, XimpleWare Copyright Case, No. 3:13-cv-05160-SI (N.D. Cal. July 29, 2014), ECF No. 93.
25. See Defendants’ Patent MTD Order, supra note 15, at *5 n.48; GNU General Public License, version 2, supra note 3.
26. Defendants’ Patent MTD Order, supra note 15, at *5.
27. Id. at *7.
28. Id. at *8 (internal quotation marks omitted).
29. Ameriprise Second Amended Complaint at 16, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. May 30, 2014), ECF No. 88.
30. Stipulation and Order to Continue Hearing Date, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. Aug. 12, 2014), ECF No. 113.
31. Ameriprise Second Amended Complaint, supra note 29, at 9.
32. Defendants Pacific Life Ins. Co., Metropolitan Life Ins. Co., the Prudential Ins. Co. of America, Wellmark, Inc., and Aviva USA Corp.’s Notice of Motion and Motion to Dismiss and Memorandum of Points and Authorities at 8, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. June 13, 2014), ECF No. 91.
33. See Press Release, IBM, IBM Sets U.S. Patent Record (Jan. 14, 2014), http://www-03.ibm.com/press/us/en/pressrelease/42875.wss; Jon Brodkin, Google and Samsung Soar into List of Top 10 Linux Contributors, Ars Technica (Sept. 16, 2013), http://arstechnica.com/information-technology/2013/09/google-and-samsung-soar-into-list-of-top-10-linux-contributors/.
34. See, e.g., Adam Pugh & Laura A. Majerus, Potential Defenses of Implied Patent License under the GPL, Fenwick & West LLP (2006), https://www.fenwick.com/FenwickDocuments/potential_defenses.pdf.
35. United HealthCare Services, Inc.’s Reply in Support of Its Motion to Dismiss Plaintiff’s Second Amended Complaint at 4, XimpleWare Patent Case, No. 5:13-cv-05161-PSG (N.D. Cal. July 3, 2014), ECF No. 102 (citation omitted).