Attorney Steve® Software License Compliance Essentials - Is non-commercial use of software protected by the copyright fair use defense?

Introduction

One explanation we commonly get from company owners who are facing a software audit demand letter, or being sued for copyright infringement are that there was no commercial use, or minimal use only.  In most cases, this is not a defense to unlicensed software.  However, here is some key language from federal caselaw.  In the right case, perhaps there is room to argue that the installation of software was solely for research or teaching purposes.  This remains to be seen.

Issue

Is it copyright infringement in the 9th circuit if a company uses unlicensed copyrighted software programs for non-commercial usage?

Facts

An engineer had installed a personal copy of CAD software on his home computer.  He used this only for his personal non-commercial use.  The software publisher found out that he had this unlicensed software installed and sent him a copyright infringement demand letter.  The engineer is claiming "fair use" of the software because he was not using it for business or commercial purposes.  Will the copyright fair use defense succeed?

Let's take a look at the possible outcomes.

Quick Conclusion

To prevail on a claim of copyright infringement, a plaintiff must prove ownership of a copyright and a copying of protectable expression beyond the scope of a license. (MAI Systems Corp. v. Peak Computer, Inc., 26 USPQ2d 1458, 991 F.2d 511 (9th Cir. 1992))

To establish the copying element, a plaintiff must catch the defendant in the act or be able to demonstrate circumstantial evidence of the defendant's access to the copyrighted work and substantial similarity between the copyrighted work and the defendant's work.  (CNC Software, Inc. v. T D Mfg., 2020 U.S. Dist. LEXIS 76586, 2020 WL 2042330 (C.D. Cal. March 24, 2020))

A "copying" for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM. (MAI Systems Corp. v. Peak Computer, Inc., 26 USPQ2d 1458, 991 F.2d 511 (9th Cir. 1992))

Running copyrighted software, without ownership of the copyright or a license to run the software, constitutes copyright infringement. (Iconix, Inc. v. Tokuda, 457 F.Supp.2d 969 (N.D. Cal. 2006))

FAIR USE DEFENSE IN SOFTWARE INFRINGEMENT CASES

17 U.S.C. § 107 (2022) sets out the fair use defense. In determining whether the use is a fair use, the four factors to be considered include the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon the potential market for or value of the copyrighted work. (17 U.S.C. § 107 (2022))

Whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product. (Wall Data v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006))

Not all four factors of the fair use defense must favor the defendant for the defense to apply.  (Wall Data v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006))

No decisions were identified in which a Ninth Circuit court found copyright infringement specifically where a company used unlicensed copyrighted software programs for non-commercial use; however, the following decisions may be instructive.

In the unpublished decision of CNC Software, Inc. v. T D Mfg., 2020 U.S. Dist. LEXIS 76586, 2020 WL 2042330 (C.D. Cal. March 24, 2020), the United States District Court for the Central District of California held that the plaintiff established a claim of direct copyright infringement. The plaintiff was the undisputed owner of numerous registered copyrights in various versions of its Mastercam® software. Copying was established because the pirated software was a cracked version of the licensed software. Thus, the defendants' loading of the pirated software onto their several computers and unlicensed use of the software constituted copyright infringement.

Furthermore, one of the defendants was personally liable because as a corporate officer and engineer, he downloaded, installed, and used the pirated software on several computers. The plaintiff also established that the defendants engaged in willful copyright infringement where the defendants were informed on numerous occasions of the plaintiff's copyright and their infringement, but they continued to use the pirated software.

In Wall Data v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006), the United States Court of Appeals found that the defendant was not entitled to fair use where they made unauthorized copies of computer software. The defendant created exact copies of the software and put those copies to the identical purpose as the original software. The Court explained that the defendant's use was not transformative and was commercial in nature; the software took years to develop and required extensive investment from the plaintiff; the defendant copied the entire copyrighted work; and, the defendant affected the legitimate market for the product. Thus, all four factors under 17 U.S.C. § 107 (2022) weighed against a finding of fair use. 

Additional Copyright Case Law

17 U.S.C. § 117 (2022) sets out limitations on exclusive rights as applicable to computer programs. Subdivision (a) sets out limited circumstances where the owner of a copy of a computer program may make or authorize the making of another copy or adaption of that program. 

These circumstances include where the new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or where the new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful. Subdivision (c) sets out that the copying of software for purposes of servicing the computer is not an infringement: 

• 117. Limitations on exclusive rights: Computer programs

(a) MAKING OF ADDITIONAL COPY OR ADAPTATION BY OWNER OF COPY.-Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or

(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

(b) LEASE, SALE, OR OTHER TRANSFER OF ADDITIONAL COPY OR ADAPTATION.-Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program. Adaptations so prepared may be transferred only with the authorization of the copyright owner.

(c) MACHINE MAINTENANCE OR REPAIR.-Notwithstanding the provisions of section 106, it is not an infringement for the owner or lessee of a machine to make or authorize the making of a copy of a computer program if such copy is made solely by virtue of the activation of a machine that lawfully contains an authorized copy of the computer program, for purposes only of maintenance or repair of that machine, if-

(1) such new copy is used in no other manner and is destroyed immediately after the maintenance or repair is completed; and

(2) with respect to any computer program or part thereof that is not necessary for that machine to be activated, such program or part thereof is not accessed or used other than to make such new copy by virtue of the activation of the machine.

(d) DEFINITIONS.-For purposes of this section-

(1) the "maintenance" of a machine is the servicing of the machine in order to make it work in accordance with its original specifications and any changes to those specifications authorized for that machine; and

(2) the "repair" of a machine is the restoring of the machine to the state of working in accordance with its original specifications and any changes to those specifications authorized for that machine.

In MAI Systems Corp. v. Peak Computer, Inc., 26 USPQ2d 1458, 991 F.2d 511 (9th Cir. 1992) ("MAI"), the United States Court of Appeals for the Ninth Circuit explained that to prevail on a claim of copyright infringement, a plaintiff must prove ownership of a copyright and a copying of protectable expression beyond the scope of a license.

In this case, the plaintiff's software licenses allowed the plaintiff's customers to use the software for their own internal information processing; however, the software licenses did not allow for the use or copying of MAI software by third parties such as the defendant. Therefore, any copying done by the defendant was beyond the scope of the license. The Court noted that it is generally accepted that the loading of software into a computer constitutes the creation of a copy under the Copyright Act and that a copy created in the computer's RAM can be perceived, reproduced, or otherwise communicated. Therefore, the Court held that a "copying" for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM (at 517-519): 

To prevail on a claim of copyright infringement, a plaintiff must prove ownership of a copyright and a " 'copying' of protectable expression" beyond the scope of a license. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 (9th Cir.1989).

MAI software licenses allow MAI customers to use the software for their own internal information processing.  This allowed use necessarily includes the loading of the software into the computer's random access memory ("RAM") by a MAI customer. However, MAI software licenses do not allow for the use or copying of MAI software by third parties such as Peak. Therefore, any "copying" done by Peak is "beyond the scope" of the license.

It is not disputed that MAI owns the copyright to the software at issue here, however, Peak vigorously disputes the district court's conclusion that a "copying" occurred under the Copyright Act.

The Copyright Act defines "copies" as:

material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.

17 U.S.C. § 101.

The Copyright Act then explains:

A work is "fixed" in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.

17 U.S.C. § 101.

The district court's grant of summary judgment on MAI's claims of copyright infringement reflects its conclusion that a "copying" for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM. This conclusion is consistent with its finding, in granting the preliminary injunction, that: "the loading of copyrighted computer software from a storage medium (hard disk, floppy disk, or read only memory) into the memory of a central processing unit ("CPU") causes a copy to be made. In the absence of ownership of the copyright or express permission by license, such acts constitute copyright infringement." We find that this conclusion is supported by the record and by the law.

Peak concedes that in maintaining its customer's computers, it uses MAI operating software "to the extent that the repair and maintenance process necessarily involves turning on the computer to make sure it is functional and thereby running the operating system." It is also uncontroverted that when the computer is turned on the operating system is loaded into the computer's RAM. As part of diagnosing a computer problem at the customer site, the Peak technician runs the computer's operating system software, allowing the technician to view the systems error log, which is part of the operating system, thereby enabling the technician to diagnose the problem. 4

Peak argues that this loading of copyrighted software does not constitute a copyright violation because the "copy" created in RAM is not "fixed." However, by showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."

After reviewing the record, we find no specific facts (and Peak points to none) which indicate that the copy created in the RAM is not fixed. While Peak argues this issue in its pleadings, mere argument does not establish a genuine issue of material fact to defeat summary judgment. A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials in pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. Proc. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Harper v. Wallingford, 877 F.2d 728 (9th Cir.1989).

The law also supports the conclusion that Peak's loading of copyrighted software into RAM creates a "copy" of that software in violation of the Copyright Act. In Apple Computer, Inc. v. Formula Int'l, Inc., 594 F.Supp. 617, 621 (C.D.Cal.1984), the district court held that the copying of copyrighted software onto silicon chips and subsequent sale of those chips is not protected by § 117 of the Copyright Act. Section 117 allows "the 'owner' 5 of a copy of a computer program to make or authorize the making of another copy" without infringing copyright law, if it "is an essential step in the utilization of the computer program" or if the new copy is "for archival purposes only." 17 U.S.C. § 117 (Supp.1988).

One of the grounds for finding that § 117 did not apply was the court's conclusion that the permanent copying of the software onto the silicon chips was not an "essential step" in the utilization of the software because the software could be used through RAM without making a permanent copy. The court stated:

RAM can be simply defined as a computer component in which data and computer programs can be temporarily recorded. Thus, the purchaser of [software] desiring to utilize all of the programs on the diskette could arrange to copy [the software] into RAM. This would only be a temporary fixation. It is a property of RAM that when the computer is turned off, the copy of the program recorded in RAM is lost.

While we recognize that this language is not dispositive, it supports the view that the copy made in RAM is "fixed" and qualifies as a copy under the Copyright Act.

We have found no case which specifically holds that the copying of software into RAM creates a "copy" under the Copyright Act. However, it is generally accepted that the loading of software into a computer constitutes the creation of a copy under the Copyright Act. See e.g. Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 260 (5th Cir.1988) ("the act of loading a program from a medium of storage into a computer's memory creates a copy of the program");

Nimmer on Copyright, § 8.08 at 8-105 (1983) ("Inputting a computer program entails the preparation of a copy."); Final Report of the National Commission on the New Technological Uses of Copyrighted Works, at 13 (1978) ("the placement of a work into a computer is the preparation of a copy").

We recognize that these authorities are somewhat troubling since they do not specify that a copy is created regardless of whether the software is loaded into the RAM, the hard disk or the read only memory ("ROM"). However, since we find that the copy created in the RAM can be "perceived, reproduced, or otherwise communicated," we hold that the loading of software into the RAM creates a copy under the Copyright Act. 17 U.S.C. § 101. We affirm the district court's grant of summary judgment as well as the permanent injunction as it relates to this issue.

In Iconix, Inc. v. Tokuda, 457 F.Supp.2d 969 (N.D. Cal. 2006), the United States District Court for the Northern District of California cited MAI, supra, with approval and noted that according to the Ninth Circuit, running copyrighted software, without ownership of the copyright or a license to run the software, constitutes copyright infringement (at 994-995): 

Plaintiff observes that Netpickle does not challenge that Netpickle's use of Iconix-registered code or insubstantial variants of that code continued through at least mid-May 2006. Plaintiff argues that using the code to operate and further develop the website necessarily involves making infringing copies of it Indeed, according to the Ninth Circuit, running copyrighted software, without ownership of the copyright or a license to run the software, constitutes copyright infringement: "[T]he loading of copyrighted computer software from a storage medium (hard disk, floppy disk, or read only memory) into the memory of a central processing unit ('CPU') causes a copy to be made.

In the absence of ownership of the copyright or express permission by licence, such acts constitute copyright infringement." MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir.1993). Netpickle does not challenge this proposition. Thus, Plaintiff has provided convincing evidence that Netpickle has infringed copyrighted software owned by Plaintiff.

No decisions were identified in which a Ninth Circuit court found copyright infringement specifically where a company used unlicensed copyrighted software programs for non-commercial use; however, the following decisions may be instructive. 

In the unpublished decision of CNC Software, Inc. v. T D Mfg., 2020 U.S. Dist. LEXIS 76586, 2020 WL 2042330 (C.D. Cal. March 24, 2020), the United States District Court for the Central District of California held that the plaintiff established a claim of direct copyright infringement. The plaintiff was the undisputed owner of numerous registered copyrights in various versions of its Mastercam® software. To establish the copying element, a plaintiff must catch the defendant in the act or be able to demonstrate circumstantial evidence of the defendant's access to the copyrighted work and substantial similarity between the copyrighted work and the defendant's work. In this case, copying was established because the pirated software was a cracked version of the licensed software.

The defendants' loading of the pirated software onto their several computers and unlicensed use of the software constituted copyright infringement. Furthermore, one of the defendants was personally liable because as a corporate officer and engineer, he downloaded, installed, and used the pirated software on several computers (at 8-9):

To establish a claim of direct copyright infringement, a plaintiff must prove: 1) ownership of a copyright; and 2) the copying of constituent elements of the work that are original. Feist Pubs., Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361, 111 S. Ct. 1282, 113 L. Ed. 2d 358 (1991). CNC is the undisputed owner of numerous registered copyrights in various versions of its Mastercam® software. Complaint ¶¶ 10 to 18,; Keshishian Decl. ¶ 5. The copyright registrations presumptively satisfy the first element of copyright infringement. 17 U.S.C. § 410(c); S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081 (9th Cir. 1989).

To prove the "copying" element, a plaintiff must catch the defendant in the act or can demonstrate "(1) circumstantial evidence of the defendant's access to the copyrighted work; and (2) substantial similarity between the copyrighted work and the defendant's work." Universal City Studios, Inc. v. Film Ventures Int'l, Inc., 543 F.Supp. 1134, 1140 (C.D. Cal. 1982).

Here, copying is established because the pirated software is a cracked version of the licensed software. Xiang Li v. United States, No. CR 10-112-LPS, 2017 U.S. Dist. LEXIS 118613, 2017 WL 3222537, at *7 (D. Del. July 28, 2017) ("in the eyes of the individuals who purchased and used the pirated software, the pirated software was substantially identical to non-cracked versions.").

Defendants' loading of the pirated software onto their several computers and unlicensed use of the software constitutes copyright infringement. MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 519 (9th Cir. 1993) (defendants loading of the operating software constituted copying and further "violated [plaintiff's] copyright through the unlicensed use of [plaintiff's] software at [defendant's] headquarters").

Truong is also personally liable for the direct infringement because, as a corporate officer and engineer, he downloaded, installed, and used the pirated software on several computers. Complaint.  "A corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf." Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir.1985) (internal quotation marks omitted).

The Court also explained that to prove willfulness under the Copyright Act, the plaintiff must show that the defendant was actually aware of the infringing activity, or that the defendant's actions were the result of reckless disregard for, or willful blindness to, the copyright holder's rights. In this case, the defendants were informed on numerous occasions of the plaintiff's copyright and their infringement, but they continued to use the pirated software. Thus, the plaintiff also established that the defendants engaged in willful copyright infringement.

Finally, CNC alleges that Defendants' acts of copyright infringement were willful. "finding of 'willfulness' in [the copyright] context can be based on either 'intentional' behavior, or merely 'reckless' behavior." In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008).

"To prove 'willfulness' under the Copyright Act, the plaintiff must show (1) that the defendant was actually aware of the infringing activity, or (2) that the defendant's actions were the result of 'reckless disregard' for, or 'willful blindness' to, the copyright holder's rights." Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005); Peer Int'l Corp. v. Pausa Records, Inc., 909 F.2d 1332 (9th Cir. 1990).

On numerous occasions, Defendants were informed of CNC's copyrights and Defendants' infringement, but Defendants continued using the pirated software and their actions of infringement were "knowing, intentional and willful." Willfulness can also be inferred from a defendant's failure to defend. Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal. 2003). Thus, CNC has established that Defendants engaged in willful copyright infringement.

"Copyright is a federal law protection provided to the authors of ‘original works of authorship,' including software programs." Vernor v. Autodesk, Inc. , 621 F.3d 1102, 1106 (9th Cir. 2010) (citing 17 U.S.C. §§ 101 –03 ). Copyright infringement occurs whenever someone "violates any of the exclusive rights of the copyright owner." Id. at 1106. As a copyright owner, Plaintiff possesses the exclusive right to reproduce its work. 17 U.S.C. § 106(1).

Plaintiff alleges Defendant has copied and reproduced its products without permission and circumvented technological measures designed to control access to them. It provides a list of nine Autodesk copyright registrations. Id. Ex. A. While Plaintiff does not state whether Defendant has allegedly infringed upon all these products, the Court finds Plaintiff's allegations provide fair notice to Defendant of the claims against it. 

17 U.S.C. § 107 (2022) sets out the fair use defense. This section states that the fair use of a copyrighted work, including such use by reproduction in copies, for purposes such as criticism, comment, news reporting, teaching, scholarship, or research (QUERY: what if the software is used only for research or training), is not an infringement of copyright. In determining whether the use is a fair use, the factors to be considered include the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and, the effect of the use upon the potential market for or value of the copyrighted work:

• 107. Limitations on exclusive rights: Fair use

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include-

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

In Wall Data v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006), the United States Court of Appeals for the Ninth Circuit explained that not all four factors of the fair use defense must favor the defendant for the defense to apply. In weighing the factors, courts bear in mind that fair use is appropriate where a reasonable copyright owner would have consented to the use (at 777-778): 

To determine whether the Sheriff's Department's use was fair, we must balance four factors. See id. at 800. These factors are: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. See Dr. Seuss, 109 F.3d at 1399-1404.

Not all of the four factors must favor the Sheriff's Department. See Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1522 (9th Cir.1992). As we balance these factors, we bear in mind that fair use is appropriate where a "reasonable copyright owner" would have consented to the use, i.e., where the "custom or public policy" at the time would have defined the use as reasonable. Subcomm. on Patents, Trademarks & Copyrights of the Sen. Comm. on the Judiciary, 86th Cong., 2d Sess., Study No. 14, Fair Use of Copyrighted Works 15 (Latman) (Comm. Print 1960).

The Court found that the defendant was not entitled to a fair use defense where they made unauthorized copies of computer software. The defendant's use was not transformative because they created exact copies of the software and put those copies to the identical purpose as the original software. Furthermore, the defendant's use was commercial in nature. A commercial use can be demonstrated by showing that repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies.

Additionally, the software products took years to develop and required extensive investment from the plaintiff. Thus, the nature of the copyrighted work also weighed against a finding of fair use. Furthermore, the defendant's copying of the entire copyrighted work also weighed against a finding of fair use. Lastly, the Court explained that whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product. Accordingly, the Court found that the widespread use of hard drive imaging in excess of one's licenses could seriously impact the market for the plaintiff's product. Therefore, the fourth factor also weighed against a finding of fair use.

We first consider the nature of the work: whether the new work is transformative or simply supplants the original work, and whether the work is commercial in nature. See Campbell, 510 U.S. at 579, 114 S.Ct. 1164.

Of primary concern is whether the Sheriff's Department's use was transformative; the more "transformative the new work, the less will be 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 such that the plaintiff's work is transformed into a new creation. See, e.g., id. at 578-79, 114 S.Ct. 1164. The Sheriff's Department created exact copies of RUMBA's software. It then put those copies to the identical purpose as the original software. Such a use cannot be considered transformative. See Kelly v. Arriba Soft Corp., 336 F.3d 811, 819 (9th Cir.2003) (finding that reproducing music CDs in computer MP3 format is not a transformative use because the resulting use of the copyrighted work was the same as the original use, i.e., entertainment). In cases where "`use is for the same intrinsic purpose as[the copyright holder's] ... such use seriously weakens a claimed fair use.'" Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1117 (9th Cir.2000) (quoting Weissmann v. Freeman, 868 F.2d 1313, 1324 (2d Cir.1989)).

Next, the Sheriff's Department's use of hard drive imaging to copy RUMBA Office did not promote the advancement of knowledge and the arts — goals that copyright intends to secure. "[C]opyright law ultimately serves the purpose of enriching the general public through access to creative works," Fogerty v. Fantasy, Inc., 510 U.S. 517, 527, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). But the Sheriff's Department did not "provide the marketplace with new creative works," nor was there any advancement of public knowledge in this case. Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330, 1336 (9th Cir. 1995). Thus, allowing such a "fair use" would not further the ultimate goals of copyright law.

Finally, the Sheriff's Department use was commercial in nature. The Sheriff's Department alleges that its use was "commercially insignificant" because not all of the copies of Wall Data's computer software were actually used, and because the Sheriff's Department is a government agency that does not compete with Wall Data. We disagree. As we explained in Worldwide Church of God, "repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use." 227 F.3d at 1118. A commercial use "is demonstrated by a showing that repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies." A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1015 (9th Cir.2001); see also Worldwide Church of God, 227 F.3d at 1118 (concluding that a use is "commercial" where the infringer profited from its infringement because "it gained an `advantage' or `benefit' from its distribution and use of [the plaintiff's product] without having to account to the copyright holder").

The terms of Wall Data's RUMBA license clearly restricted the Sheriff's Department's use to a "single designated computer" and prohibited the Sheriff's Department from using "the Software in any other multiple computer or multiple user arrangement." Despite this condition, the Sheriff's Department loaded an entire suite of software, including RUMBA Office, onto nearly all of the computers in the Twin Towers. By using hard drive imaging, the Sheriff's Department saved man-hours and eliminated possible errors associated with separately installing the individual software packages onto each computer in the Twin Tower facility.

Hard drive imaging also ensured that those users who needed to use RUMBA would be able to access the software at whatever computer they were assigned to work. Such flexibility could only have been achieved by purchasing licenses for each of the computers on which the software was loaded, or by negotiating with Wall Data for a less restrictive license.

Accordingly, we conclude that "the purpose and character" of the Sheriff's Department's use was commercial, because the copies "were made to save the expense of purchasing authorized copies," Napster, 239 F.3d at 1015, or at least the expense of purchasing a more flexible license. Thus, the district court did not err when it decided that the Sheriff's Department's use was not "for a legitimate, essentially non-exploitative purpose," and that the commercial aspect of the Sheriff's Department's use was not "of minimal significance." Sega, 977 F.2d at 1522-23.6

The Sheriff's Department's installation of the RUMBA Office software onto nearly all of its computers in the Twin Towers was not transformative, did not promote an advancement of the arts, and was commercial in nature. The first factor therefore weighs against a finding of fair use.

1. Second Fair Use Factor: Nature of the Copyrighted Work

In analyzing the second fair use factor, we look at the nature of the copyrighted work, creative works being "`closer to the core of intended copyright protection' than informational and functional works." Dr. Seuss, 109 F.3d at 1402 (quoting Campbell, 510 U.S. at 586, 114 S.Ct. 1164). Our sister circuits have also considered, under this factor, whether the copyrighted work represents "substantial investment of time and labor ... in anticipation of a financial return." MCA, Inc. v. Wilson, 677 F.2d 180, 182 (2d Cir.1981). Although the RUMBA software products are not purely creative works, copyright law nonetheless protects computer software. See Sega, 977 F.2d at 1519 ("[T]he 1980 amendments to the Copyright Act unambiguously extended copyright protection to computer programs.").

In addition, Wall Data presented undisputed evidence that RUMBA software products were developed over several years, and required a multi-million dollar investment on Wall Data's part. We therefore conclude that the nature of the copyrighted work weighs against a finding of fair use.

1. Third Fair Use Factor: Amount and Substantiality of the Portion Used

Next, we consider whether the "amount and substantiality of the portion used in relation to the copyright work as a whole," 17 U.S.C. § 107(3), is "reasonable in relation to the purpose of copying," Dr. Seuss, 109 F.3d at 1402. The Sheriff's Department copied RUMBA Office in its entirety to ensure that all of the computers in the Twin Towers had identical copies of the software. And although "entire verbatim reproductions are justifiable where the purpose of the work differs from the original," Mattel, 353 F.3d at 804, the Sheriff's Department put its copies to the exact purpose for which the original software licenses were purchased. Consequently, the Sheriff Department's "verbatim" copying of the entire copyrighted work also weighs against a finding of fair use. See Worldwide Church of God, 227 F.3d at 1118 ("While wholesale copying does not preclude fair use per se, copying an entire work militates against a finding of fair use.") 

1. Fourth Fair Use Factor: Effect of the Use Upon the Potential Market

In addressing the final fair use factor, we focus on "the normal market for the copyrighted work" and whether the allegedly infringing use threatens the potential market for, or value of, a copyrighted work. See Harper & Row, 471 U.S. at 568, 105 S.Ct. 2218 (noting that the fourth fair use factor is concerned with "use that supplants any part of the normal market for a copyrighted work") (quoting S.Rep. No. 473, 94th Cong., 1st Sess. 65 (1975)). We have said:

"[t]his inquiry attempts to strike a balance between the benefit the public will derive if the use is permitted and the personal gain the copyright owner will receive if the use is denied. The less adverse effect that an alleged infringing use has on the copyright owner's expectation of gain, the less public benefit need be shown to justify the use."

Mattel, 353 F.3d at 804-05.

The Sheriff's Department contends that its copying was solely an attempt to use efficiently its licensed copies of the RUMBA software products, and accordingly, there was no negative impact on Wall Data's market. It points to its own statements that it would not have purchased additional copies of the license had it known that its configuration went beyond its license. We are not persuaded.

The Sheriff's Department 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. The Sheriff's Department could have bargained for the flexibility it desired, but it did not. Whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product.

Thus, although hard drive imaging might be an efficient and effective way to install computer software, we conclude that "unrestricted and widespread conduct of the sort engaged in by the defendant" would nonetheless lead to over-use of the software. Campbell, 510 U.S. at 590, 114 S.Ct. 1164 (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.05[A](4), at 13-102.61 (1993)).

Equally important, ghost copies of the software lay dormant and were unuseable only until a Sheriff's Department network administrator decided to activate RUMBA Office on that computer. The Sheriff's Department thus created its own "sub-licensing" system where it granted users permission to use the software and, in essence, asked Wall Data to "trust" that it was not using RUMBA in excess of its authorization under the license.

We recognize that computer licensing is generally an "honor system," in that there is little to stop a person with physical possession of software from installing it on multiple computers. But in this case, the Sheriff's Department's system made tracking infringement almost impossible, because Wall Data could not independently verify which of the computers had been used to access RUMBA and which ones had not — it had to trust the Sheriff's Department that its system was not allowing over-use.

In fact, after Wall Data brought the over-use of RUMBA to the Sheriff's Department's attention, a Sheriff's Department employee admitted, in an email, that he was not sure how to tell which computers had accessed RUMBA.7 This system therefore made copyright infringement easier (because no physical installation was necessary) and made detection of over-use more difficult.

In recognition of the ease with which software can be over-used, courts have been cautious to extend protection to methods that would make copyright infringement of software any easier:

Software fundamentally differs from more traditional forms of medium, such as print or phonographic materials, in that software can be both, more readily and easily copied on a mass scale in an extraordinarily short amount of time and relatively inexpensively. One of the primary advantages of software, its ability to record, concentrate and convey information with unprecedented ease and speed, makes it extraordinarily vulnerable to illegal copying and piracy. [Thus,] it is important to acknowledge these special characteristics of the software industry and provide enhanced copyright protection for its inventors and developers.

Adobe Sys., Inc. v. Stargate Software Inc., 216 F.Supp.2d 1051, 1059 (N.D.Cal.2002). We believe that "widespread use" of hard drive imaging in excess of one's licenses could seriously impact the market for Wall Data's product. See Campbell, 510 U.S. at 590, 114 S.Ct. 1164 (citations omitted). Therefore, we conclude that the fourth factor also weighs against a finding of fair use.

CONCLUSION

In considering the four fair use factors — the purpose and character of the work, the nature of the use, the amount and substantiality of the portion used, and the effect on the plaintiffs' market — none militate in favor of the Sheriff's Department's fair use defense in regard to using unlicensed software.

We therefore hold that the Sheriff's Department is not entitled to a fair use defense, and we affirm the district court's order granting summary judgment on the Sheriff's Department's fair use defense.

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LEGAL AUTHORITIES

17 U.S.C. § 117 (2022)

MAI Systems Corp. v. Peak Computer, Inc., 26 USPQ2d 1458, 991 F.2d 511 (9th Cir. 1992)

Iconix, Inc. v. Tokuda, 457 F.Supp.2d 969 (N.D. Cal. 2006)

CNC Software, Inc. v. T D Mfg., 2020 U.S. Dist. LEXIS 76586, 2020 WL 2042330 (C.D. Cal. March 24, 2020)

17 U.S.C. § 107 (2022)

Wall Data v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006)