5/17. The U.S. Court of Appeals (9thCir) issued its opinion [29 pages in PDF] in Wall Data v. LA County Sheriffs, a software copyright infringement case. The Court of Appeals affirmed the judgment of the District Court for the software company.

In this case a governmental agency licensed a commercial software product. It over installed the software, in the sense that it put the software on more computers than allowed by the licenses. However, it argued that it did not over use the software. The Court of Appeals held that both the fair use and essential step defenses fail.

Background. Wall Data makes software that allows personal computers that use one operating system to access data stored on computers that use different operating systems. It holds the copyright on this software. It sells through third party vendors. It uses shrink wrap licenses, click through licenses, and distributes license booklets. The name of this line of software products is RUMBA.

The Los Angeles County Sheriff’s Department (LA Sheriffs) purchased a total of 3,663 licenses to Wall Data's software. However, it installed Wall Data's software on 6,007 of its computers.

The LA Sheriffs' computers were configured using a password based security system so that the number of users who could access Wall Data's software was limited to the number of licenses. It argued that installing the software on all of its computers, and then limiting access, was more efficient than installing the software on the computers that would actually use the software.

District Court. Wall Data filed a complaint in U.S. District Court (CDCal) against the LA Sheriffs alleging, among other things, copyright infringement. It alleged that the LA Sheriffs overinstallation violated the terms of the shrink wrap license, click through license, and volume license booklets. The only claim that survived to trial was violation of its exclusive rights under 17 U.S.C. § 106.

The LA Sheriffs asserted the affirmative defense of fair use under 17 U.S.C. § 107, and the essential step defense under 17 U.S.C. § 117(a)(1).

The District Court granted summary judgment to Wall Data on the fair use defense. The jury returned a verdict for Wall Data as to infringement, rejecting the essential step defense, and awarding $210,000 in damages. The Court entered judgment upon the verdict, adding a award of $516,271 in attorneys' fees and approximately $38,000 in costs.

The LA Sheriffs appealed the grant of summary judgment on the fair use issue, evidentiary rulings, jury instructions on the essential step defense, and the award of attorneys fees and costs. The Court of Appeals affirmed in full.

Fair Use Defense. The Court of Appeals rejected the fair use defense. It followed the four prong test of Section 107, prong by prong.

Section 107 provides, in part, that "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 Court determined that the first prong ("the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes") weighs in Wall Data's favor because the LA Sheriffs use was not transformative, did not promote the advancement of arts or science, was commercial in nature, and violated the license.

The Court determined that the second prong ("the nature of the copyrighted work") weighs in Wall Data's favor because the "software products were developed over several years, and required a multi-million dollar investment on Wall Data's part."

The Court determined that the third prong ("the amount and substantiality of the portion used in relation to the copyrighted work as a whole") weighs in Wall Data's favor because the LA Sheriffs copied Wall Data's software verbatim, in its entirety.

Finally, the Court determined that the fourth prong ("the effect of the use upon the potential market for or value of the copyrighted work") weighs in Wall Data's favor. The Court wrote that it was not persuaded by the LA Sheriffs argument regarding efficiency in installation. It wrote that "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, ..."

The Court also wrote that "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."

It might be noted that under the analysis applied by the Court of Appeals in this case the fair use defense would fail in almost all situations where commercial software products are copied in their entirety.

Essential Step Defense. The Court of Appeals rejected the essential step defense.

Section 117(a)(1) provides that "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".

The Court explained this section. "This section permits the owner of a copy of a copyrighted computer program to make (or authorize the making of) another copy of the program, if the copy is created as an ``essential step in the utilization of the computer program in connection with the [computer, and] is used in no other manner.´´ Id. The ``essential step´´ defense also ensures that a software user does not infringe when the user ``copies´´ the software from the computer’s permanent storage (the hard drive, for example) onto its active memory (the random access memory, for example). Section 117 also allows the owner to make a copy of the computer program if the copy is ``for archival purposes only and ... all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.´´" (Parentheses, brackets and emphasis in original.)

The Court noted that Section 117 allows "the owner of a copy" to take certain actions, but that the LA Sheriffs was merely a "licensee" of the software. The Court explained that "if the copyright owner makes it clear that she or he is granting only a license to the copy of software and imposes significant restrictions on the purchaser’s ability to redistribute or transfer that copy, the purchaser is considered a licensee, not an owner, of the software."

It continued that "the licensing agreement imposed severe restrictions on the Sheriff’s Department’s rights with respect to the software. Such restrictions would not be imposed on a party who owned the software. The Sheriff’s Department’s use of and rights to the RUMBA software products were restricted under the terms of the click-through and volume booklet licenses. These restrictions were sufficient to classify the transaction as a grant of license to Wall Data's software, and not a sale of Wall Data's software. For these reasons, under MAI, the Sheriff’s Department is not the ``owner´´ of copies of Wall Data’s software for purposes of § 117."

And since the LA Sheriffs was not an "owner", it cannot avail itself of the essential step defense.

The Court also concluded, in the alternative, that even if the LA Sheriffs were an owner of a copy, the essential step defense would fail because copying Wall Data's software onto every computer was not essential to making it available on some computers. The Court wrote that it "was not an essential step, but a matter of convenience".

This case is Wall Data v. Los Angeles County Sheriffs Department, App Ct. No. 03-56559, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-02-00301-RGK, Judge Gary Klausner presiding. Judge Harry Pregerson wrote the opinion of the Court of Appeals, in which Judges Mary Schroeder and Stephen Trott joined.

5/15. The Supreme Court denied certiorari in Gonzalez v. BMG Music, a copyright infringement case involving peer to peer software. See, Order List [13 pages in PDF] at page 3, and Supreme Court docket. This lets stand the judgment of the U.S. Court of Appeals (7thCir).

The Court of Appeals held in its December 9, 2005, opinion [9 pages in PDF] that individuals who use Grokster's peer to peer software to download copyrighted music files are direct infringers, and that their use does not constitute fair use. See also, story titled "7th Circuit Holds Downloading Copyrighted Music with P2P Software is Not Fair Use" in TLJ Daily E-Mail Alert No. 1,270, December 12, 2005.

The Supreme Court wrote in its June 27, 2005, opinion [55 pages in PDF] in MGM v. Grokster that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." See, story titled "Supreme Court Rules in MGM v. Grokster" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005.

However, that case was a dispute between copyright holders and P2P companies. None of the individuals who downloaded copyrighted music were parties to that case. The Supreme Court held that the P2P services could be held vicariously liable for the direct infringement by others. The District Court held that individuals who use the Grokster software to download copyrighted files directly infringe copyrights. However, the District Court's holding was not an appeal issue before the Court of Appeals or the Supreme Court.

The District Court and Court of Appeals rulings in the present case do set the precedent that the individual copiers are infringers, and that the fair use defense fails.

This case is BMG Music, Inc. v. Celilia Gonzalez, Sup. Ct. No. 05-1172, a petition for writ of certiorari to the U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 05-1314. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Evans and Williams joined. The Court of Appeals heard an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 03 C 6276, Judge Blanche Manning presiding.

The House will meet at 10:00 AM for legislative business. See, Republican Whip Notice.

The Senate will meet at 9:00 AM. It will resume consideration of S 2611, the "Comprehensive Immigration Reform Act of 2006".

9:00 AM. The House Commerce Committee's (HCC) Subcommittee on Telecommunications and the Internet, will hold a hearing on HR 5126, the "Truth in Caller ID Act of 2006". The witnesses will be Tom Navin (Chief of the FCC's Wireline Competition Bureau), Staci Pies (PointOne Communications, for the Voice on the Net Coalition), Lance James (Secure Science Corporation), and Marc Rotenberg (Electronic Privacy Information Center). See, notice. Press contact: Larry Neal (Barton) at 202-225-5735, Terry Lane (Barton) at 202-225-5735, or Sean Bonyun (Upton) at 202-225-3761. The hearing will be webcast by the HCC. Location: Room 2123, Rayburn Building.

9:00 AM. The Senate Judiciary Committee (SJC) may hold an executive business meeting. The agenda includes consideration of Sandra Ikuta to be a Judge of the U.S. Court of Appeals (9thCir) and Kenneth Wainstein to be Assistant Attorney General in charge of the DOJ's new National Security Division. See, stories titled "DOJ and FCC to Create National Security Units" and "Bush Picks Wainstein to be AAG for New National Security Division" in TLJ Daily E-Mail Alert No. 1,328, March 13, 2006. The agenda also includes consideration of S 2453, the "National Security Surveillance Act of 2006", S 2455, the "Terrorist Surveillance Act of 2006", and S 2468, a bill to provide standing for civil actions for declaratory and injunctive relief to persons who refrain from electronic communications through fear of being subject to warrantless electronic surveillance for foreign intelligence purposes. See, notice. The SJC frequently cancels or postpones meetings without notice. The SJC rarely follows its published agenda. Location: Room 226, Dirksen Building.

10:00 AM. The Senate Commerce Committee (SCC) will hold the first of two hearings on S 2686 [135 pages in PDF], the "Communications, Consumer's Choice, and Broadband Deployment Act of 2006". See, notice of hearing, statement [5 pages in PDF] by Sen. Stevens, and Sen. Stevens' section by section summary [7 pages in PDF]. See also, stories titled "Stevens Introduces Telecom Reform Bill" and "Section by Section Summary of Sen. Stevens' Telecom Reform Bill" in TLJ Daily E-Mail Alert No. 1,362, May 2, 2006. There will be a panel of witnesses on video franchising. The witnesses will be Kyle McSlarrow, (National Cable & Telecommunications Association), Walter McCormick (U.S. Telecommunications Association), Michael Guido (U.S. Conference of Mayors), Julia Johnson (Video Access Alliance), Gene Kimmelman (Consumer's Union). There will also be a panel on universal service. The witnesses will be Shirley Bloomfield (National Telecommunications Cooperative Association), Walter McCormick (USTA), Kyle McSlarrow (NCTA), Steve Largent (CTIA), Joslyn Read (Satellite Industry Association), and Philip McClelland (Pennsylvania Office of Consumer Advocate). Press contact: Aaron Saunders (Stevens) at 202-224-3991 or Andy Davis (Inouye) at 202-224-4546. The hearing will be webcast by the SCC. Location: Room 216, Hart Building.

11:30 AM. The House Judiciary Committee's (HJC) Subcommittee on Crime will meet to mark up several bills, including HR 5318, the "Cyber-Security Enhancement and Consumer Data Protection Act of 2006". The hearing will be webcast by the HJC. Press contact: Jeff Lungren or Terry Shawn at 202-225-2492. Location: Room 2141, Rayburn Building.

12:15 - 2:00 PM. The Council on Competitiveness's (COC) Forum on Technology and Innovation will host an event titled "Moving Ideas from the Lab to the Marketplace -- the Role of Tech Transfer in an Innovative Economy". The program will begin at 12:30 PM. A box lunch will be served. Register by 5:00 PM on Tuesday, May 16, 2006, at registration web page. Location: Room G50, Dirksen Building, Capitol Hill.

12:00 NOON. The Federal Communications Bar Association's (FCBA) will host a lunch featuring general counsels. Reservations and cancellations are due by May 15 at 5:00 PM. Prices vary. See, registration form [PDF]. Location: Mayflower Hotel, 1127 Connecticut Ave., NW.

POSTPONED. 2:00 PM. The House Ways and Means Committee's (HWMC) Subcommittee on Health will meet to mark up HR 4157, the "Health Information Technology Promotion Act of 2005". See, notice. Location: Room 1100, Longworth Building.

2:00 - 4:00 PM. The Department of State's International Telecommunication Advisory Committee will meet to prepare for meetings of the Organization for Economic Co-operation and Development (OECD) WPIE and CISP committee meetings of May 29-31, 2006. See, notice in the Federal Register, April 19, 2006, Vol. 71, No. 75, at Pages 20153-20154. Location: Room 2533, Harry Truman Building, 2201 C Street, NW.

POSTPONED. 3:00 PM. The Senate Judiciary Committee's (SJC) Subcommittee on Antitrust, Competition Policy and Consumer Rights will hold a hearing titled "AT&T and BellSouth Merger: What Does it Mean for Consumers?". Sen. Mike DeWine (R-OH) will preside. See, notice. Location: Room 226, Dirksen Building.

Day one of a two day closed meeting of the Defense Science Board 2006 Summer Study on Information Management for Net-Centric Operations. See, notice in the Federal Register, April 11, 2006, Vol. 71, No. 69, Page 18292. Location: 3601 Wilson Boulevard, 3rd Floor, Arlington, VA.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to various petitions for reconsideration of the FCC's Report and Order regarding the equipment authorization requirements for Unlicensed National Information Infrastructure (U-NII) devices employing dynamic frequency selection (DFS). See, notice in the Federal Register, May 3, 2006, Vol. 71, No. 85, at Pages 26004-26006. This proceeding is ET Docket No. 03-122.

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding Draft Special Publication 800-92 [64 pages in PDF], titled "Guide to Computer Security Log Management".

The House will meet at 9:00 AM for legislative business. See, Republican Whip Notice.

? TIME? The Center for Democracy and Technology (CDT) may host a panel discussion titled "Tracking Wireless Location Privacy: Who Knows Where You Are?" The scheduled speakers are Jed Rice (Skyhook Wireless, a Wi-fi positioning technology company), Michael Altschul (CTIA), Jim Smolen (WaveMarket, a wireless services and applications provider). See, notice. Location: __.

8:30 AM - 4:30 PM. The U.S. Court of Appeals for the Federal Circuit will host the Federal Circuit Judicial Conference. See, conference web site. The general registration fee is $225; government employee fee is $175; the late registration (after May 5) fee is $245. Location: Grand Hyatt Washington, 1000 H Street, NW.

Day two of a two day closed meeting of the Defense Science Board 2006 Summer Study on Information Management for Net-Centric Operations. See, notice in the Federal Register, April 11, 2006, Vol. 71, No. 69, Page 18292. Location: 3601 Wilson Boulevard, 3rd Floor, Arlington, VA.

Extended deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding privacy of consumer phone records. See, notice in the Federal Register, March 15, 2006, Vol. 71, No. 50, at Pages 13317-13323. See also, notice of extension [PDF]. The FCC adopted this NPRM on February 10, 2006, and released the text [34 pages in PDF] on February 14, 2006. See, story titled "FCC Adopts NPRM Regarding Privacy of Consumer Phone Records" in TLJ Daily E-Mail Alert No. 1,308, February 13, 2006, and story titled "FCC Rulemaking Proceeding on CPNI May Extend to Internet Protocol Services" in TLJ Daily E-Mail alert No. 1,310, February 15, 2006. This NPRM is FCC 06-10 in CC Docket No. 96-115 and RM-11277.

Deadline to submit initial comments to the Federal Communications Commission (FCC) regarding the petition of the Georgia Public Service Commission (GPSC) for a declaratory ruling that the GPSC is not preempted by federal law from regulating rates under 47 U.S.C. § 271 for local switching, high capacity loops and transport, and line sharing. See, FCC notice [PDF]. This is WC Docket No. 06-90.

12:15 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee and Common Carrier Committee will host a brown bag lunch. The topic will be "An Introduction To Intercarrier Compensation: Past, Present, and Future". The speakers will be Don Stockdale (Associate Bureau Chief of the FCC's Wireline Competition Bureau), John Nakahata (Harris Wiltshire), Jon Nuechterlein (Wilmer Hale), and Eric Einhorn (AT&T). Location: Wiley Rein & Fielding, 1776 K St., NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding ACA International's petition for an expedited clarification and declaratory ruling concerning the Telephone Consumer Protection Act (TCPA) rules. See, notice in the Federal Register, April 26, 2006, Vol. 71, No. 80, at Pages 24634-24635. This is CG Docket No. 02-278.

9:00 - 11:00 AM. The American Enterprise Institute (AEI) will host a panel discussion titled "U.S.-Chile Free Trade Agreement: Building on Success". See, notice. Location: AEI, 12th floor, 1150 17th St., NW.

9:30 AM - 5:00 PM. The Antitrust Modernization Commission (AMC) will hold a public meeting to deliberate on possible recommendations regarding the antitrust laws. The AMC states that preregistration by 12:00 NOON on May 22 is a prerequisite for attendance. Contact: 202-233-0701. See, notice in the Federal Register, May 8, 2006, Vol. 71, No. 88, at Pages 26735. Location: Morgan Lewis, Main Conference Room, 1111 Pennsylvania, Ave., NW.

? 10:00 AM. The House Judiciary Committee's (HJC) Subcommittee on Crime may hold a hearing on HR __, the "Internet Stopping Adults Facilitating the Exploitation of Today's Youth (SAFETY) Act of 2006." This bill contains a data retention mandate. Press contact: Jeff Lungren or Terry Shawn at 202-225-2492. The hearing will be webcast by the HJC. See, notice. Location: Room 2141, Rayburn Building.

10:00 AM - 12:00 NOON. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to prepare for the CITEL PCC.II (Radiocommunication including Broadcasting) meetings on June 20-23, 2006, in Lima, Peru, and on October 17-20, 2006, in San Salvador, El Salvador. See, notice in the Federal Register, March 29, 2006, Vol. 71, No. 60, at Page 15798. Location: __.

RESCHEDULED FOR JUNE 22. 2:00 PM. The House Ways and Means Committee's Subcommittee on Select Revenue Measures will hold a hearing titled "Hearing on the Impact of International Tax Reform on U.S. Competitiveness". See, notice. Location: Room 1100, Longworth Building.

6:00 - 8:00 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host an event titled "Happy Hour". For more information, contact Natalie Roisman at natalie dot roisman at fcc dot gov. Location: Georgia Brown's, 950 15th Street, NW (between I and K Streets, NW).

9:00 AM - 4:35 PM. The Federal Communications Bar Association (FCBA) will host a continuing legal education (CLE) seminar titled "Enforcement CLE Seminar". The participants will include FCC Commissioner Jonathan Adelstein and FCC Enforcement Bureau Chief Kris Monteith. Reservations and cancellations are due by May 23 at 12:00 NOON. Prices vary. See, registration form [PDF]. Location: Holland & Knight, 2099 Pennsylvania Ave., NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding the National Exchange Carrier Association's (NECA) annual payment formula and fund size estimate for the Interstate TRS Fund. The NECA is the Interstate Telecommunications Relay Service (TRS) Fund Administrator. This proceeding is CG Docket No. 03-123. See, notice in the Federal Register, May 10, 2006, Vol. 71, No. 90, at Pages 27252-27253.

10:00 AM. The Senate Commerce Committee (SCC) will hold the second of two hearings on S 2686 [135 pages in PDF], the "Communications, Consumer's Choice, and Broadband Deployment Act of 2006". See, notice of hearing, statement [5 pages in PDF] by Sen. Stevens, and Sen. Stevens' section by section summary [7 pages in PDF]. See also, stories titled "Stevens Introduces Telecom Reform Bill" and "Section by Section Summary of Sen. Stevens' Telecom Reform Bill" in TLJ Daily E-Mail Alert No. 1,362, May 2, 2006. Press contact: Aaron Saunders (Stevens) at 202-224-3991 or Andy Davis (Inouye) at 202-224-4546. The hearing will be webcast by the SCC. Location: Room 106, Dirksen Building.

2:00 - 4:00 PM. The Department of State's International Telecommunication Advisory Committee will meet to prepare for meetings of the Organization for Economic Co-operation and Development (OECD) WPIE and CISP committee meetings of May 29-31, 2006. See, notice in the Federal Register, April 19, 2006, Vol. 71, No. 75, at Pages 20153-20154. Location: Room 2533, Harry Truman Building, 2201 C Street, NW.

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