On January 7, 2025, the United States Court of Appeals for the Federal Circuit issued its decision in Bitmanagement Software GmbH v. United States, affirming a damages award of $154,400 for copyright infringement by the U.S. Navy. The case centered around the Navy’s unauthorized copying and use of Bitmanagement’s 3D rendering software, BS Contact Geo, raising significant issues in copyright law, licensing agreements, and damages calculations.
Background of the Case
Bitmanagement, a German software company, initially licensed BS Contact Geo to the Navy in 2008 through seat licenses, which restricted installation to specific computers. In 2012, the parties transitioned to a floating license model, which allowed broader access but required monitoring software (Flexera) to enforce concurrent usage limits. However, the Navy later installed the software on over 429,000 computers without ensuring compliance with the agreed usage restrictions.
After discovering this breach, Bitmanagement sued the U.S. government for copyright infringement in 2016, leading to a complex litigation over the scope of the Navy’s license and the appropriate damages for the unauthorized copying.
Major Legal Issues Addressed
1. Implied License and Copyright Infringement
One of the core disputes was whether the Navy’s actions constituted copyright infringement or were covered by an implied license. The Court of Federal Claims initially ruled in favor of the Navy, holding that an implied license existed. However, on appeal, the Federal Circuit clarified that while an implied license was granted, it was conditioned on the use of Flexera to track and limit concurrent use. Since the Navy failed to implement this safeguard, its conduct amounted to copyright infringement.
2. Method of Calculating Damages
A crucial issue in the case was the method for calculating damages under 28 U.S.C. § 1498(b), which governs copyright infringement claims against the U.S. government. Bitmanagement argued that it should be compensated based on a per-copy basis, amounting to approximately $85.9 million, as the Navy had installed the software on 429,567 computers.
The Court, however, applied the Gaylord v. United States precedent, which mandates that damages in such cases should reflect a hypothetical negotiation at the time of the infringement. The Court reasoned that because Bitmanagement had previously agreed to floating licenses—where charges were based on concurrent users rather than installations—the hypothetical negotiation would have led to a license fee based on usage rather than per-copy sales.
3. Burden of Proof on Usage
The ruling also addressed the burden of proof regarding the Navy’s actual use of the software. The Federal Circuit held that, as the party that breached the licensing agreement, the Navy bore the burden of proving its actual software usage. However, the Court found that Bitmanagement had not sufficiently challenged the government’s usage estimates and did not provide alternative damages calculations.
4. Admissibility of Expert Testimony
Bitmanagement challenged the admission of testimony from the government’s expert, David Kennedy, who estimated damages based on Navy usage data. The Court upheld his testimony, finding it credible and aligned with standard methodologies for determining copyright damages in government infringement cases.
Implications for Intellectual Property and Government Licensing
1. Importance of Clear Licensing Terms
This case underscores the importance of well-defined licensing agreements, particularly for software providers dealing with government entities. The failure to enforce explicit monitoring and usage restrictions allowed the Navy to argue for a more limited interpretation of damages.
2. Challenges in Proving Damages
The decision highlights the difficulties in proving damages for software infringement, especially when a floating license model is involved. Companies should maintain detailed records of negotiations and enforce monitoring mechanisms to strengthen potential claims in litigation.
3. Limits on Government Copyright Liability
Under Gaylord, the Court reaffirmed that copyright damages against the government are limited to “reasonable and entire compensation,” which does not necessarily equate to commercial licensing rates in the private sector. This means companies contracting with the government should anticipate that damages may be awarded based on actual use rather than theoretical maximum exposure.
Conclusion
The Federal Circuit’s decision in Bitmanagement Software GmbH v. United States sets a precedent for how copyright damages are calculated in government infringement cases. By affirming a relatively modest damages award, the Court reinforced the principle that compensation should reflect a reasonable licensing negotiation rather than punitive measures. For intellectual property owners, the ruling serves as a reminder to establish clear contractual safeguards and proactively enforce licensing terms to avoid disputes over implied use and damages calculations.
By Charles Gideon Korrell