September 20, 2011 Articles

Obtaining Preliminary Injunctions in Open-Source Cases

By S. Christian Platt, Bob B. Chen, and Kenneth Newton

On August 13, 2008, the Federal Circuit held in Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008) (Jacobsen I), that parties who distribute software under the terms of an open-source license may obtain copyright remedies, including a preliminary injunction, against defendants who breach the terms and conditions of their license. On January 5, 2009, on remand, the U.S. District Court for the Northern District of California denied for a second time the plaintiff's motion for a preliminary injunction to stop a defendant from violating the terms of an open-source license. Jacobsen v. Katzer, 609 F. Supp. 2d 925 (N.D. Cal. 2009) (Jacobsen II). In so doing, the district court rejected the prevailing rule in copyright cases that entitled plaintiffs to an automatic presumption of irreparable harm upon showing a reasonable likelihood of success on the merits.

The Jacobsen II court's interpretation of a higher standard of proof and the move by other courts away from the presumption of irreparable harm casts doubt on whether open-source plaintiffs can ever practically meet the preliminary injunction standard. Although economic considerations may exist in the open-source licensing context beyond that of traditional license royalties or lost profits, such damages are more difficult to prove. In practice and given the lack of available evidence, the further open-source plaintiffs deviate from a profit-based software model, the harder they will find it to obtain a preliminary injunction.

Obtaining a Preliminary Injunction and Proving Irreparable Harm
The Copyright Act, 17 U.S.C. § 502(a) (2011), authorizes courts to issue an injunction to "prevent or restrain infringement of a copyright." A plaintiff must satisfy a four-factor test to obtain a preliminary injunction under the Copyright Act. First, the plaintiff must show that he or she is likely to prevail on the merits. Second, the plaintiff must show that he or she is reasonably likely to suffer irreparable harm absent an injunction. Third, the balance of equities must favor the plaintiff. Finally, imposing the injunction must be in the public interest.

In general, an irreparable harm is defined as an injury that the plaintiff suffers for which the court cannot compensate should the plaintiff prevail in a final decree. Economic losses that are calculable and compensable by monetary damages ordinarily do not constitute an irreparable injury. In contrast, courts have found irreparable harm in those circumstances where losses have been difficult to calculate or impossible to measure—for instance, where a plaintiff has suffered damage to his or her reputation or where the calculation of lost sales is too speculative.

At the time of the Federal Circuit's Jacobsen I decision the prevailing view among courts, including the Ninth Circuit, gave plaintiffs the benefit of a presumption of irreparable harm in cases where the plaintiff was able to show a reasonable likelihood of success on the merits of a claim of copyright infringement. Pursuant to this approach, so long as they could show that they were likely to succeed on their infringement claims, plaintiffs were not required to offer a detailed showing that they would be irreparably harmed. 4 Melville B. Nimmer and David Nimmer, Nimmer on Copyright § 14.06[b] (Matthew Bender, Rev. Ed.)

The Federal Circuit Upholds the Enforceability of Open-Source Licenses
In Jacobsen I, 535 F.3d at 1382–83, the Federal Circuit held that open-source licenses are enforceable under copyright law. The plaintiff, Jacobsen, managed an open-source software group that developed DecoderPro, an application to program decoder chips that controlled model trains. Under the terms of the artistic license, one of many available open-source licenses, the group released the application for public use. The defendant, Katzer, developed and patented a proprietary competing application that allegedly incorporated portions of the DecoderPro program. The software was released without complying with the terms of the artistic license. Specifically, the software files Katzer used that incorporated the DecoderPro program did not provide proper attribution to Jacobsen's code, did not reference how that code had been changed, did not include the authors' names, did not include Jacobsen's copyright notices, and did not include a reference to a file that contained the terms of the artistic license.

Jacobsen brought suit seeking a preliminary injunction against Katzer for breach of contract and copyright infringement and seeking a declaratory judgment that Katzer's patent was invalid. At the center of the dispute was whether the key limitations set forth in the artistic license created covenants governed by contract law, conditions governed by copyright law, or both. If the limitations set forth created only covenants, Jacobsen would generally be limited to monetary damages. But if the limitations set forth conditions, Jacobsen could recover remedies under copyright law, including a preliminary injunction.

In the underlying district court proceeding, the Northern District of California held that while the terms of the license had been breached, the terms created covenants under contract law and not conditions under copyright law. In addition, Jacobsen was not entitled to monetary damages, as he had distributed the DecoderPro software for free. Jacobsen v. Katzer, No. C 06–01905 JSW, 2007 WL 2358628, at *6–7 (N.D. Cal. 2007). The Federal Circuit heard the case on appeal under its supplemental jurisdiction in light of Jacobsen's related patent claim. In deciding whether to grant Jacobsen's motion for a preliminary injunction, the Federal Circuit interpreted Ninth Circuit law to determine the copyright and contract issues.

The Federal Circuit reversed the decision of the district court, interpreting the terms of the license as including conditions giving open-source developers copyright protection for their software. It held that copyright owners "who engage in open source licensing have the right to control the modification and distribution of copyrighted material" and that, absent the right to obtain a preliminary injunction, open-source license restrictions "might well be rendered meaningless." Jacobsen I, 535 F.3d at 1381–82. Under Ninth Circuit law, Jacobsen was further entitled, upon showing a reasonable likelihood of success on the merits, to a presumption of irreparable harm.

The Federal Circuit further held that the lack of monetary exchange in the issuance and use of an open-source license should not be presumed to mean that there are no substantial economic benefits to the creation and distribution of copyrighted works under public license. For example, software developers could save the time and costs of improving software by making components available to the public free of charge. Releasing software under an open-source license would also grant developers the ability to generate market share and build a software developer's reputation. Id. at 1379.

The Federal Circuit remanded the case to the Northern District of California to decide whether Jacobsen's preliminary injunction motion was consistent with its determinations.

The Effect of the Heightened Standard of Proof
On remand, the Northern District of California denied Jacobsen's request for a preliminary injunction in Jacobsen II, 609 F. Supp. 2d 925. The district court held that, while open-source plaintiffs could be granted a preliminary injunction, the Supreme Court's intervening decision in Winter v. National Resources Defense Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 374 (2008), had created a heightened standard of proof requiring the plaintiff to demonstrate the injunction's necessity. In Winter, the Supreme Court emphasized that a preliminary injunction is an extraordinary remedy that "may only be awarded upon a clear showing that the plaintiff is entitled to such relief" and that a plaintiff must show that irreparable injury is "likely in the absence of an injunction." Id. at 367, 376.

Relying on the Winter decision, the district court held that plaintiffs were no longer entitled to a presumption of irreparable harm upon showing a reasonable likelihood of success on the merits of their copyright infringement claims. Jacobsen II, 609 F. Supp. 2d at 936. Instead, the district court held that the plaintiff must meet all four factors of the preliminary injunction test. The Jacobsen II court then denied Jacobsen's motion for a preliminary injunction a second time, as Jacobsen had proffered no admissible evidence that he had suffered irreparable harm; he only demonstrated that such harm was possible.

Other recent court decisions have also cast doubt on whether the presumption of irreparable harm still applies in copyright cases. On April 30, 2010, in Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010), the Second Circuit provided a more thorough analysis for abandoning the presumption of irreparable harm for preliminary injunctions in copyright cases. Relying on the Supreme Court decision eBay v. MercExchange, LLC, 547 U.S. 388, 392 (2006), which held that permanent injunctions do not automatically follow a finding of patent infringement, the Salinger court reasoned that nothing in the text or logic of the eBay decision limited the rule to patent cases. The Salinger court noted that the Supreme Court had expressly relied on copyright cases in reaching its decision and had cited similar provisions in both the Copyright Act and Patent Act for providing injunctive remedies. Salinger, 607 F.3d at 78. Further relying on Winter, the Second Circuit held that, in the eBay decision, the same broad principles of equity applied with equal force to preliminary injunctions as they did to permanent injunctions. Id. at 78–79.

Showing Irreparable Harm in the Open-Source Context
In courts where the presumption of irreparable harm no longer applies, open-source plaintiffs will face different challenges in demonstrating the level of injury needed to satisfy the preliminary injunction standard than plaintiffs in traditional copyright cases face. The traditional copyright model reflects an exchange of copyrighted goods for money. Open-source software developers customarily distribute software for free, subject to the terms of an open-source license.

One source of harm that may suffice is that suffered by an open-source developer who builds a reputation and user base by releasing software under the terms of an open-source license and later sells other software products capitalizing on this reputation. This approach helps attract new users who may be reluctant to purchase software developed by a company that lacks an established reputation. When a copyright infringer "borrows" part of the open-source code into a competing product without following the license terms, the infringer detracts from the name recognition and business goodwill built up by the open-source developer. The extent of this loss is difficult to calculate because the open-source developer loses more than just market share. In open-source communities, users add value by directly improving the developer's software product. End users discriminate among software choices based on the quality of the software, including these improvements. Releasing software under a public license, therefore, has the potential of providing the author with a significant market advantage.

Another source of harm that may suffice to meet the new heightened standard is the harm suffered by open-source developers who distribute open-source licensed software freely but charge for support and warranty services. In this context, the developer's revenue is directly proportional to the size of the user base. A competitor who incorporates the open-source software into a proprietary product in violation of the license terms reduces the open-source developer's market share for providing support services. As these lost sales may be difficult to measure, courts may resort to injunctive relief to compensate such plaintiffs.

But what should courts do with the open-source software developer who does not follow a for-profit model? Given the benefits of open-source development, such "pure" open-source developers may have an interest in growing a user base. These benefits increase in proportion to the number of contributing users—the greater the number of contributors, the greater the likelihood of innovation and improvements on the original open-source product. Open-source plaintiffs should be prepared to come forward with admissible evidence supporting their demonstration of harm.

A legal trend that might benefit such open-source plaintiffs is the "sliding-scale" approach to preliminary injunctions. Under the sliding-scale approach, "the greater the likelihood of success on the merits, the less net harm the injunction must prevent in order for preliminary relief to be warranted." Judge v. Quinn, 612 F.3d 537, 546 (7th Cir. 2010). Therefore, if the plaintiff shows that he or she is very likely to prevail on the merits, the court may reduce the magnitude of harm that the plaintiff must show. After making a particularly strong showing of copyright infringement, an open-source plaintiff might be able to convince the court to issue an injunction even if the likely irreparable harm is small in amount. Theoretically, this could overcome the tendency of courts to recognize the motivation for profit favorably against the desire to keep software source code open to the world. Unfortunately for plaintiffs, this approach can be impractical given the difficulty of making a strong showing of infringement based on code buried in proprietary software. Courts that have removed the presumption of irreparable harm are also less likely to allow plaintiffs to prevail on an argument that essentially creates the same result.

The Federal Circuit decision in Jacobsen I opened the door for open-source plaintiffs to obtain preliminary injunctions for copyright infringement. The emerging trend of removing the presumption of irreparable harm for copyright cases threatens to close that door. Although it is not clear that the Northern District of California's decision in Jacobsen II rejecting the presumption of irreparable harm will become the prevailing rule of law, other courts, including the Second Circuit, have already come to similar conclusions.

Where the presumption of irreparable harm no longer applies, showing such harm and obtaining a preliminary injunction will be difficult for open-source plaintiffs. The plaintiffs with the strongest cases for injunctions will still be those who use the open-source model to build their reputation and market share to produce a profit, giving them supporting evidence of irreparable harm. "Pure" open-source developers who benefit from the distribution of open-source software by itself will have the most trouble. While the sliding-scale approach may benefit such plaintiffs who can make a strong showing of infringement, they must still show that irreparable harm is likely to occur. If the mere fact that the open-source developer has lost the right to control the distribution and modification of his or her software is not enough to establish irreparable harm, then obtaining a preliminary injunction for such "pure" open-source developers may be nearly impossible.

Keywords: litigation, intellectual property, preliminary injunction, open-source license, irreparable harm

S. Christian Platt, Bob B. Chen, and Kenneth Newton – September 20, 2011

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