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US Navy Responds to Copyright Infringement Suit Filed by Bitmanagement Software

Written by on Tuesday, November 22nd, 2016 Print This Post Print This Post

Bitmanagement Software GmbH recently filed suit against the US Navy, alleging willful copyright infringement of its 3D virtual reality software “BS Contact Geo” and demanding $600 million in damages.  A copy of the complaint  has been posted by Business Insider at the attached  link.  Bitmanagement’s complaint alleges that the software license agreement entered into with the US Navy authorized the installation of the software on 38 machines “for the purposes of testing, trial runs, and integration into Navy systems” but that the US Navy decided it wanted to deploy the software on a wider scale and proceeded to install the software on more than 558,000 computers while it entered into negotiations with Bitmanagement to purchase additional licenses.

The initial reporting on this case in such publications as PC Magazine,  The Register, and ars Technica suggested that the US Navy had flagrantly infringed the intellectual property rights of this German software company on a massive scale and that the damages were likely to be significant.  However, the US Navy has now filed a response to Bitmanagement Software complaint, in which it denies that the license limited the US Navy to installation of the software on 38 personal computers and alleges instead that the Navy instead procured concurrent-use network licenses and was authorized to install the software on its network.

As a software licensing attorney who has had occasion to review many European software licenses, the nature of the US Navy’s response to facts that seem on their face to be quite clear-cut and entirely favoring the plaintiff software company leads me to question whether the license agreement at the heart of this dispute is as poorly drafted as many of the European license agreements I have reviewed in my practice over the years.  While I have no direct knowledge of Bitmanagement Software’s standard licensing terms or the terms entered into by Bitmanagement Software specifically with the US Navy, the mere fact that the Navy raised an argument in its response that it “procured concurrent-use networking licenses” suggests that the software agreement might not have had a clear license grant that clearly stated the scope of the grant and that the agreement might have just contained a fee schedule, which did not specifically define how the fees were calculated.  If this were in fact the case, the US Navy lawyers may just have interpreted the software license in such a way to favor the US Navy rather than engaging in willful copyright infringement as the plaintiff software company claims.

It has been my experience that many software companies around the world do not fully appreciate the significance of two key terms in every software license: the license grant itself and the payment clause.  It is not enough to state in a software license that you are granting a license for a particular purpose.  Rather, you have to actually define the parameters of the license grant.  For example, does the license authorize the installation of the software at a specific workstation at a specific location by a single employee? Or does the license authorize the installation of the software at a specific workstations at a specific location by an unlimited number of employees?  Alternatively, does the license authorize installation of the software on an unlimited number of workstations at several locations of the business by an unlimited number of employees? Or does the license authorize installation of the software on a server for concurrent use by a certain number of workstations of an unlimited number of employees?  As you can see the same grant to install software can be interpreted a number of different ways if all the different parameters are not carefully considered.

However, when you have a vaguely drafted software license that only “grants” a license or, alternatively, grants a very broad right to “use” the software, you have an additional interpretation problem in that it is unclear the scope of use that is in fact granted.  While the drafter might have intended “use” to mean merely the right to “install and run” the software, “use” might be interpreted to authorize not only “installation” and “running” but also “copying” and “distribution” provided the “copying” is limited to making archival backup copies or copies to other internal hardware and the distribution is similarly limited to with the licensee organization.

The other common problem I run into in reviewing software licenses is the vague drafting of license fees and payment terms and over-reliance on a fee schedule that simply lists prices based on number of licenses granted. Obviously, if you charge a set fee per license and neither the license grant nor the payment terms are specifically drafted, then the licensee is going to interpret the fees due and payable in the manner most favorable to the licensee. Frequently I see licenses, where the licensor likely intended to charge by the number of authorized users at a business but doesn’t specifically state how the fees are to be calculated, and obviously in these instances, the licensor is not likely to collect the volume of fees it intended to collect.

As previously stated, I have no knowledge of the software license at the heart of this dispute, so I am only speculating as to how this relationship might have deteriorated to the point of filing a $600 million lawsuit.  However, my own experience suggests that the contract which was the basis of this relationship may have been poorly drafted with respect the key terms of the license grant and license fee terms, and the choice of language in the response to the complaint makes me more suspicious that these problems I often see in my own practice could have been an issue in this relationship.  The bottom line is that key clauses in software licenses need to be drafted very precisely, regardless of which side of the contract you are on, and where terms are left vague, you may very end up in court having to pursue or defend copyright infringement claims which could have easily been avoided if only a better contract had been negotiated upfront.

 

 

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Takeaways for Software Industry from New Study on Costs of Data Breach

Written by on Thursday, November 10th, 2016 Print This Post Print This Post

If you are a cloud service provider or a software provider who offers maintenance services to enterprise-level companies, then your company has likely had occasion to negotiate indemnification clauses relating to data breaches.  Moreover, your company has probably had to provide warranties around data security or employee bad acts that would provide some protections to your customers in the event of a data breach.

But have you ever taken the time to really consider what the cost of a possible data breach might actually be for your company?

Network World recently published an article looking at the results of a 2016 data breach study conducted by the Ponemon Institute and IBM and determined that the total average cost for a breach is now $7 million, and that average cost per compromised record is now $221.  Network World further reported that the same study concluded that the average cost of a data breach of more than 50,000 records was $13 million.

Obviously, these costs are significant enough that unlimited liability indemnifications relating to data breaches have the potential to generate significant expenses, as do actions for breaches of warranties relating to data security.

So, what can software companies do to protect themselves against data breach liabilities?

First and foremost, companies need to take data security seriously and enact policies and procedures that prioritize data protection.

Second of all, companies need to carefully negotiate clauses related to cyberrisk and cyberliability with the expectation that a data breach will occur that is going to trigger the application of all such clauses down the road.  In particular, if you agree to take on unlimited liability of all costs related to a data breach, you need to be prepared to cover the expected costs that will arise from any such data breach.    Similarly, in negotiated services contracts, companies need to take the time to carefully define the full scope of services they provide with respect to data protection and data security in such a way that a data breach will not constitute a material breach so long as the services are fully performed in accordance with the defined scope of services.

Third of all, companies need to purchase cyberinsurance in order to ensure that they have sufficient coverage in the event of a data breach.  While cyberinsurance is a relatively new insurance product which has in the past often had many gaps in coverage, Tech Republic suggested in an article published today that the newer policies are starting to close some of the earlier policy gaps to coverage.  However, Tech Republic reported that companies should still watch for coverage limits in cyberinsurance policies for regulatory actions, cost of call monitoring, credit monitoring, forensic investigations, hacks that began prior to the coverage term, and attacks that have third party consequences.

The bottom line is that software companies need to have contractual and insurance protections in place to protect the businesses against the consequences of the inevitable data breach that affects their business.  With data breaches as well as costs on the rise, companies of all sizes need to be prepared to deal with the fallout of a cyberbreach when it occurs.

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Silicon Valley Software Law Blog’s Kristie Prinz to Speak at Webinar on “Negotiating Service Level Agreement Key Terms”

Written by on Thursday, November 10th, 2016 Print This Post Print This Post

JEL28958-Prinz, KristieThe Prinz Law Office is pleased to announce that Silicon Valley Software Law Blog’s Kristie Prinz will be speaking at an upcoming webinar on “Negotiating Service Level Agreement Key Terms” on December 21, 2016 from 10 a.m. to 11:30 PST. For more information about the webinar, please see the firm’s press release on the event published below:

Press Release on Stratford Publications Webinar

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Silicon Valley Software Law Blog’s Kristie Prinz to Speak at Upcoming Webinar on “Negotiating Software as a Service Contracts”

Written by on Thursday, November 10th, 2016 Print This Post Print This Post

JEL28958-Prinz, KristieThe Prinz Law Office is pleased to announce that Silicon Valley Software Law Blog’s Kristie Prinz will be speaking at an upcoming webinar “Negotiating Software as a Service Contracts” on December 19, 2016 from 1 to 2:15 p.m. EST. For more information, please see the firm’s attached press release.

Press Release on Clear Law Institute Webinar

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Digital Rights Management Software and the Printer Hardware Business

Written by on Thursday, September 29th, 2016 Print This Post Print This Post

HP reopened a new front in the controversy between the printer hardware business and digital rights management software when it reportedly downloaded digital rights management software to customer printers as a recent security update.  Fortune reported that HP’s actions were first recognized by a Dutch printer cartridge vendor after some 1000 customers contacted the company to inquire about the sudden problem.

The controversy received national attention when the Electronic Frontier Foundation (“EFF”) went public with its concerns and published a letter to HP.  A link to EFF’s letter is published here.  A story published by Tech Crunch on the controversy is linked here.

The publicity surrounding the controversy has reportedly already prompted HP to “reach out” to EFF and do some public back-peddling on the issue.  Wired is reporting that HP has said it will release an “optional firmware update” that will remove the software within the next two weeks.  The Wall Street Journal actually published an interview with HP, where the company apologized for “how it handled” the software update but at the same time indicated that “HP would continue such practices, which may prevent some third-party supplies from working.”

The whole episode calls to mind the Lexmark lawsuit filed against Static Control challenging the circumvention of Lexmark’s printer DRM software, which I once wrote about in a New York Law Journal publicationWired likewise referenced the Static Control case, which Lexmark ultimately lost, and reported that Lexmark simply changed its strategy and pursued and won its next case on patent rather than copyright law grounds.

According to Wired, this whole controversy has been driven purely by HP’s bottom-line: revenues in its printing business are incrementally dropping, as are sales in printing supplies.  HP is trying to preserve its revenue share in the industry for as long as possible.  However, as EFF clearly articulated, HP runs the risk of losing its existing customer base in the process.  HP’s efforts at damage control suggest that the company has recognized that there is a fine line that they are walking between preserving a revenue share and sending customers elsewhere.

Will this controversy open a new legal front over the use of digital rights management software with printing cartridges?  This episode suggests that printer companies would still like to put out of business competitors on the cartridge supply front, and ensure that their customers buy their “authentic” cartridges only.  With that in mind, why wouldn’t they pursue new legal routes to the same end?

In the current situation, however, HP has apparently relented to some degree and has said it will be making available an update, and Wired is reporting that the Danish manufacturer has already designed new chips to circumvent HP’s security update, so one way or another, customers should be able to go back to using third party printer cartridges in the near future.  Whether the next stop for HP will be to pursue the issue in litigation is yet to be determined.  The Silicon Valley Software Law Blog will keep you posted of any new developments as they unfold.

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FTC Announces Approval of Final Order in Deceptive App Case Against Vulcan

Written by on Wednesday, May 11th, 2016 Print This Post Print This Post

The Federal Trade Commission has today announced the approval of its final order resolving its complaint against the San Francisco-based software company Vulcan on deceptive and misleading conduct allegations that Vulcan had purchased a browser extension game and replaced it with a program that caused the automatic installation of applications on the game users’ mobile devices without their permission.  According to the Federal Trade Commission (“FTC”), Vulcan’s unfair and deceptive acts and practices in replacing a legitimate game with the new program severely disrupted the ability of the 200,000 users of the game to subsequently use their mobile devices and put their sensitive information stored on the device at risk. The FTC’s complaint also contained a false claims allegation over the inaccurate promotional and advertising claims made by the replacement program.   The original FTC complaint filed against Vulcan can be viewed here.

In its Order, the FTC prohibits Vulcan from offering “a product or service or materially change a Covered Product or Service” unless the company has  disclosed “clearly and conspicuously” in advance of any downloading or installation the types of information the product or service will access and how the information will be used to perform related services, and the nature of any material change to a covered product or service.  Also, the FTC expressly prohibits Vulcan from making a number of specific deceptive advertising claims. The FTC Order has been made available for viewing here.

The Vulcan enforcement action by the FTC makes a clear statement to software companies that the government is monitoring the nature of the software being distributed to consumers as well as the advertising claims made in connection with such software for any conduct that may rise to the level of an unfair and deceptive trade practice.  Any software company contemplating the replacement of an app previously installed by users with their permission with another an unauthorized app are on notice that the FTC does not approve of the practice and will exercise its enforcement authority against you once your conduct is brought to its attention.

 

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Silicon Valley Software Blog Author Kristie Prinz to Speak on Best Practices for Negotiating and Drafting Effective SaaS Customer Agreements

Written by on Tuesday, May 3rd, 2016 Print This Post Print This Post

Are  your SaaS customers really signing an agreement that is effective for your business?  How do you even know if your SaaS company is working with a customer agreement that is sufficiently protecting your business?

The Silicon Valley Software Law Blog’s author Kristie Prinz is presenting a webinar on June 13, 2016 at 10 a.m. PDT on “Best Practices for Negotiating and Drafting Effective SaaS Customer Agreements” which will explore these topics of concern for SaaS companies.  At this webinar, you will learn the following:

  • What makes an effective SaaS customer contract?
  • What terms should you include in your SaaS customer contract to protect your business?
  • Common drafting problems in SaaS customer contracts
  • What drafting problems frequently result in customer disputes?
  • How can these drafting problems be avoided?
JEL28958-Prinz, Kristie P2
Ms. Prinz’s practice focuses on advising early stage and small to mid-sized businesses on the negotiation and drafting of complex commercial transactions in the software, hardware, Internet, health technology fields of practice, as well as other related high tech and life sciences fields.  Ms. Prinz is a regular speaker, media contributor, and author on technology law, intellectual property and entrepreneurship issues.  Ms. Prinz has developed particular expertise in advising SaaS companies in negotiating and drafting their customer agreements.  Ms. Prinz is a graduate of Vanderbilt Law School and is licensed to practice in the states of California and Georgia. To register to attend this webinar, please sign up here: link.
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Should Your Software Company Be Concerned about Product ADA Compliance?

Written by on Tuesday, April 19th, 2016 Print This Post Print This Post

If your software company leases office spaces, then you may have some familiarity with the legal issues involving whether or not the space is compliant with the Americans with Disabilities Act (the “ADA”), but have you ever considered whether your software product itself is ADA compliant?

If the answer is no, then it may be time to allocate some resources toward the issue of ADA compliance.

A California judge last month granted summary judgment to a blind plaintiff who had filed a lawsuit against Bag’n Baggage on the grounds that he was unable to shop online at the company’s website because the website lacked features for aiding the disabled.   According to The Wall Street Journal, Bag n’ Baggage was ordered to update its website, pay the plaintiff Four Thousand Dollars ($4,000.00) in damages, and pay attorneys’ fees which are expected to exceed One Hundred Thousand Dollars ($100,00.00).  Forbes reports that the plaintiff in the Bag n’Baggage case has filed nine lawsuits in San Bernardino County Superior Court and two in federal court, presumably on the same issue.

However, according to Forbes, this California ruling is not an isolated case, and it comes just a month after a federal judge ruled against Harvard University and the Massachusetts Institute of Technology  in similar cases, rejecting their arguments that the cases should be dismissed or stayed pending DOJ regulations being adopted.  Tech Crunch also reports that the Department of Justice itself has launched investigations which included the issue of website accessibility against the NewSeum in Washington D.C. and the Quicken Loans Arena and has settled with several universities:  Florida State and the University of Montana.  In addition, Tech Crunch reports that the Department of Justice has already entered into settlements with the online grocer PeaPod and H & R Block, which have required the businesses to make applications accessible to vision-impaired users.

According to Tech Crunch, given the fact that law firms are already sending out demand letters threatening to sue unless the business makes their website ADA compliant, it is not much of a stretch to anticipate that the same firms will soon start focusing their efforts altogether towards software and mobile applications.

What can software companies do to protect themselves from potential ADA claims about their software products?  Tech Crunch suggested that companies arrange for testing their products with WCAG 2.0 and Section 508 of the Rehabilitation Act and test usability by built-in screen readers, as well as actively consider accessibility in the design plan.  Obviously, software companies need to be following legal decisions on the issue of ADA compliance in the Internet and software industries and take steps to act on the guidance that comes out of those decisions relating to the ADA compliance issue.

The good news for software companies is that courts have not found uniformly against businesses on the issue of websites being ADA compliant, so in the event your company is sued, there is some precedent that may provide a viable defense to your business.  Forbes reports that the U.S. Court of Appeals for the Ninth Circuit held in 2015 in Earll v. eBay  that ebay.com, was not a “place of public accommodation” under the accessibility requirements of Title III of the ADA and that it came to the same conclusion in 2015 in Cullen v. Netflix, Inc.  Forbes also reports that the Third and Sixth Circuits found in the 1990s that the ADA only applied to actual physical structures.  However, at the same time, Forbes acknowledges that the Eleventh Circuit, the First Circuit, and the Seventh Circuit have reached the opposite conclusion.

So, the bottom line, is that for now at least, software companies need to be proactively adopting plans to make their software products accessible to the disabled, and to be taking steps to maintain compliance with federal and state laws applicable to accessibility issues.  If your software company has not been considering how the ADA or similar state laws might apply to its products, now is the time to start evaluating these issues.

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Microsoft Launches New Constitutional Challenge Against Government Over Secret Data Requests

Written by on Saturday, April 16th, 2016 Print This Post Print This Post

Microsoft has just opened a new chapter in the software industry’s pushback against alleged federal government overreach by filing a constitutional challenge over indefinite government gag orders when the government subpoenas information from customer cloud accounts.  Microsoft’s complaint alleges that the orders violate First Amendment free speech rights and Fourth Amendment rights regarding unreasonable government search and seizure of property.

According to The Wall Street Journal,  Microsoft is claiming that a gag provision under the Stored Communications Act “has significantly expanded the government’s power to conduct secret investigations.”  The Wall Street Journal reports that Microsoft’s position is that the government “has exploited the transition to cloud computing to expand its power” and that the fact that private information is moved from a file cabinet to the cloud does not fundamentally change the constitutional rights that people have to that private information.

The text of the Stored Communications Act is codified at 18 U.S. Code Chapter 121, Section 2703(b) of the Stored Communications Act states as follows:

(b)Contents of Wire or Electronic Communications in a Remote Computing Service.—

(1) A governmental entity may require a provider of remote computing service to disclose the contents of any wire or electronic communication to which this paragraph is made applicable by paragraph (2) of this subsection—

(A)without required notice to the subscriber or customer, if the governmental entity obtains a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction; or
(B) with prior notice from the governmental entity to the subscriber or customer if the governmental entity—

(i)uses an administrative subpoena authorized by a Federal or State statute or a Federal or State grand jury or trial subpoena; or
(ii)obtains a court order for such disclosure under subsection (d) of this section;
except that delayed notice may be given pursuant to section 2705 of this title.

(2) Paragraph (1) is applicable with respect to any wire or electronic communication that is held or maintained on that service—

(A)on behalf of, and received by means of electronic transmission from (or created by means of computer processing of communications received by means of electronic transmission from), a subscriber or customer of such remote computing service; and

(B)solely for the purpose of providing storage or computer processing services to such subscriber or customer, if the provider is not authorized to access the contents of any such communications for purposes of providing any services other than storage or computer processing.

Reuters reports that the Microsoft claims it has received 5624 legal orders under the Stored Communication Act, of which 2576 also contained a gag order, and that most requests involved individuals rather than companies.

According to The Economic Times, Microsoft has decided to pursue this challenge because its business model is increasingly relying on cloud services and Microsoft is concerned that the government’s actions are going to discourage the public from further adopting the cloud business model.  The Economic Times is also reporting that Microsoft is citing as precedent for its case a ruling in 2014 where U.S. Magistrate Judge Paul Grewal rejected a Department of Justice request to have an unlimited gag order over the search of a Microsoft Hotmail account and said that a limited gag order might be appropriate, as well as a Supreme Court ruling that police must announce themselves when they serve a warrant.

Who is likely to prevail here?  As you might expect, Forbes was able to find experts on both sides of the issue.   However, Forbes raised an interesting point that if a court were to find in favor of the government on this case, it sets a precedent for other governments to expect similar access, which could be problematic.

It’s safe to say that Microsoft’s filing of this case on the heels of the very public debate regarding the Department of Justice decision to order Apple to decrypt the San Bernardino terrorist smartphone is a strategic move on Microsoft’s part intended to capitalize on the current public sentiment against the federal government for its perceived intrusion on individual privacy rights.   The software industry has clearly decided that the time is right to draw a line in the sand on government overreaching into its industry.  It is unlikely that the government is going to be able to sidestep a showdown in this case in the same way it was able to do in the Apple dispute.

 

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Third Party Hacks San Bernardino Terrorist iPhone, Ending Standoff Between Apple and FBI

Written by on Wednesday, March 30th, 2016 Print This Post Print This Post

The U.S. Justice Department announced yesterday that the third party who came forward and convinced the FBI that it could unlock the San Bernardino terrorist’s encrypted iPhone successfully unlocked the encrypted iPhone, ending the standoff between Apple and the FBI.  The government informed the court in its filing yesterday that it had successfully retrieved the data stored on the encrypted iPhone and no longer required assistance from Apple.

According to Silicon Beat‘s reporting, at least one founder of an advocacy group, Tiffiniy Cheng, co-founder of Fight for the Future,  is predicting that this standoff “will go down in history as one of the FBI’s biggest public relations failures.”  This general perception that the government has been the big loser in this matter has been the prevailing view among many commentators.

The Wall Street Journal, however, suggested in its reporting that a contrarian view has developed that “Apple’s credibility could be questioned” since clearly the iPhones do have security flaws that can in fact be exploited.  Also, The Wall Street Journal reported that this contrarian view suggests that the episode may “complicate the government’s position the next time” it seeks court-mandated help from a software company over an encryption issue.

The government has been silent on the source of the encryption unlocking assistance it has received; however, Tech Crunch and International Business Times reported that the mysterious third party was the Israeli company Cellebrite, which the government has a long history of working with.

Regardless of the identity of the third party providing the assistance, as The New York Times  has reported,  the very fact that a security flaw was uncovered that Apple was unaware of may serve as a wake-up call to Apple that it may want to rethink its policy on refusing to pay hackers that identify security flaws in its software.  According to The New York Times, it is a standard practice in the industry to pay hackers who identify security flaws that could be exploited for malicious purposes–a practice that Apple has refused to adopt–which has caused a huge underground market to develop for the sale of information on Apple security flaws.

In the meantime, while this particular chapter in the encryption battle has been closed, the Department of Justice’s appeal in the New York case over the unlocking of an iPhone continues on.  There is no word yet if the solution uncovered in the San Bernardino iPhone matter will also work with the iPhone in the New York case, although Reuters is reporting that Apple has already raised that question in New York court filings.   Also, as the Silicon Valley Software Law Blog reported previously, a potential encryption fight over WhatsApp also remains on the Department of Justice ‘s plate that has yet to be resolved.  Thus, it seems likely the debate over the encryption issue will be renewed in the foreseeable future over another software encryption matter.

While legal observers may be disappointed to see that fight postponed for another day,  I would argue that Americans should be relieved that the right result was finally achieved in this case.

 

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