Federal Circuit Affirms COFC Decision Limiting Infringement Damages to Copies of Software Actually Used Rather Than Made

In Bitmanagement Software GMBH v. United States, Case No. 23-1506 (Fed. Cir. Jan. 7, 2025), the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) denied the appeal of Bitmanagement Software Gmbh (Bitmanagement) challenging the Court of Federal Claims’ (COFC) $154,400 damages award, and denying its demand for $85 million in damages resulting from the Navy’s infringement of Bitmanagement’s software copyright.  The Federal Circuit affirmed the COFC’s (1) use of a hypothetical negotiation approach to compute damages; and (2) decision to award damages using a “per use” rather than a “per copy” approach.

The Navy licensed a three-dimensional software product from Bitmanagement titled “BS Contact Geo” under a “floating license” that permitted a wide range of computers to access the software.  But the Navy was required and agreed to use a tracking application called “Flexera” to restrict the number of simultaneous users, in this case, to 33.  However, Flexera did not operate as intended and did not restrict the number of users.  Ultimately, BS Contact Geo was accessible by 429,000 computers. 

Bitmanagement sued the government in the COFC for copyright infringement under 28 U.S.C. § 1498.  Although the COFC denied the claim, the Federal Circuit reversed, finding that the Navy infringed Bitmanagement’s copyright and remanding the case to the COFC for a calculation of damages.  On remand, Bitmanagement argued that it should receive a license fee for all 429,567 copies of the software that the Navy made, which, Bitmanagement argued, amounted to $85,913,400.

The COFC and the Federal Circuit disagreed.  The COFC awarded damages “based on the number of copies of BS Contact Geo that were used by the Navy, rather than every copy of the software the Navy made,” and the Federal Circuit affirmed that approach.  The Federal Circuit noted that (1) there is no legal requirement to award copyright infringement damages on a per copy basis; and (2) there is legal authority supporting the position that calculation of damages on a usage basis is permitted.  Moreover, there were certain factual determinations made in the first COFC decision that were not previously challenged, including (1) Bitmanagement’s course of conduct in other negotiations; and (2) Bitmanagement’s precarious financial condition at the time the hypothetical negotiations would have taken place.

Finally, the Federal Circuit addressed the burden of proof with respect to the issue of usage.  Because the software failed to limit usage as intended, the evidentiary record on how many copies were actually used was spotty, and the COFC seemed to rely on some available usage logs and witness testimony.  Bitmanagement argued that the burden of proof should be on the Navy because it was the infringer.  The Federal Circuit stated that the COFC did place the burden of proof on the Navy, but that “if actual damages can not be ascertained with precision because the evidence available from the infringer is inadequate, damages may be estimated on the best available evidence, taking cognizance of the reason for the inadequacy of proof and resolving doubt against the infringer.”  Id. at 20 (emphasis in original) (citing Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1572 (Fed. Cir. 1996)).  The Federal Circuit observed that:

The trial court proceeded in a manner consistent with this directive, which permitted it, in its role as factfinder, to credit the government’s best available evidence over Bitmanagement’s failure to offer contrary evidence.

Id.  at 20-21.

Because Bitmanagement had no insight into the Navy’s actual usage, it is unclear how it could have presented additional evidence of usage.  Nevertheless, in the end, the Federal Circuit found no basis to reverse the COFC.

At bottom, Bitmanagement serves as a lesson to contractors that provide software to the Government that they should consider negotiating standard license terms that calculate fees based on copies, and that establish audit or similar rights that allow for the tracking or reporting of copies made and used.