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Thoroughbred Software International, Inc. v. Dice Corporation, et al.

$183,794 In Damages Awarded For Distribution Of Unauthorized, But Unused Software

Reversing the court below, the Sixth Circuit awards plaintiff Thoroughbred Software International (“Thoroughbred Software”) $183,794.25 in “actual” damages it sustained as a result of defendant Dice Corporation’s (“Dice”) distribution of unauthorized copies of plaintiff’s software to its customers, which software was never used.  Such ‘actual’ damages were held to be the license fees plaintiff would have charged Dice for its use and/or distribution of the software in question.  These actual damages were awarded pursuant to 17 U.S.C. section 504(b) of the Copyright Act.  In reaching this result, the Sixth Circuit rejected defendant’s argument that Thoroughbred Software was not entitled to such relief because it could not prove that defendant’s infringing acts caused Thoroughbred Software any actual injury, as the software in question was never used.  The requisite ‘causal connection’ between defendant’s infringement and plaintiff’s loss of anticipated revenue was satisfied by the parties’ contract, which obligated defendant to pay a license fee for each copy it made and distributed of plaintiff’s software.

The Sixth Circuit also vacated the District Court’s denial of attorney’s fees to Thoroughbred Software as the prevailing party in a copyright infringement action, and remanded the matter for further consideration in light of the Court’s decision on appeal.

Dice Enters Into Distribution Agreement With Developer Of Accounting Software

Plaintiff Thoroughbred Software develops and sells accounting software.  Defendant Dice Corporation rents computers to customers in the security and alarm monitoring industry.  These computers come equipped with various software programs.  Some of these computers contained accounting software programs in which plaintiff held a copyright.
 Dice charges its customer a single monthly fee, which includes both the rental due for the computers and software loaded thereon, as well as fees for services rendered by Dice Corporation.  No separate allocation is made for the software found on the computers it rents.

In 2001, Dice Corporation entered into a Dealer Agreement with Thoroughbred Software which permitted Dice to distribute various accounting programs in which plaintiff held a copyright to Dice’s customers.  The agreement prohibited Dice from making copies (other than a single limited use back-up copy) of plaintiff’s software.  The agreement further obligated Dice to pay a license fee for each copy of plaintiff’s software it sought to use, which was then to be delivered to it by Thoroughbred Software.  To use the software, Dice had to obtain an authorization code from Thoroughbred. 

Dice Distributes Unuathorized Copies Of Plaintiff’s Software

An apparently disgruntled former Dice employee informed Thoroughbred Software that Dice had a ‘crack’ or ‘lock pick’ program that allowed it to make unauthorized copies of plaintiff’s software, which could be activated without obtaining an authorization code from plaintiff. 

As a result, Thoroughbred Software conducted an audit of Dice, which revealed that Dice had placed unauthorized copies of plaintiff’s software on computers rented to Dice’s customers.  The audit further revealed that while some of these customers had used plaintiff’s software, others had not.  Dice was able to establish such non-use by a security program it installed on its computers that prevented Dice customers from using software resident thereon without obtaining authorization from Dice.

After a bench trial, the District Court found defendant Dice liable for copyright infringement as a result of its distribution of unauthorized copies of plaintiff’s software, a determination not challenged on appeal.  As a result of this infringement, plaintiff sought actual damages and defendant’s profits pursuant to 17 U.S.C. Section 504(b) of the Copyright Act.  Plaintiff Thoroughbred Software also sought its attorney’s fees as the prevailing party under 17 U.S.C. Section 505.

The District Court only awarded Thoroughbred Software actual damages – in an amount equal to its license fee – for those Dice customers who were actually using its software.  No actual damages were awarded for those customers who did not use the software, because, held the District Court, such use caused plaintiff no injury.  The District Court also refused to award plaintiff either its attorney’s fees, or defendant’s profits.  This appeal followed.

Sixth Circuit Awards $183,794 In Actual Damages For Unauthorized Software Dice Distributes That Its Customers Never Used

The Sixth Circuit reversed so much of the District Court’s decision that refused to award plaintiff Thoroughbred Software actual damages as a result of defendant’s distribution of unauthorized copies of plaintiff’s software that defendant Dice’s customers never used.

A copyright owner may elect to recover the actual damages it sustains as a result of defendant’s infringement, in lieu of statutory damages, pursuant to 17 U.S.C. Section 504(b) which provides:

The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.

According to the Sixth Circuit, “a plaintiff seeking actual damages ‘must prove the existence of a causal connection between the alleged infringement and some loss of anticipated revenue.’”

Defendant Dice argued that Thoroughbred Software could not establish the requisite causal connection because the software in question was never used by Dice’s customers.  As such, Thoroughbred Software could not show that defendant would have purchased this software, or that the infringing acts deprived it of a licensing fee.

The Sixth Circuit rejected this argument.  Because a licensing fee was due under the parties’ agreement for each copy of the software defendant obtained, it had to pay such fee for each copy of the software it made and distributed, regardless of whether such software was used by its customers.  Said the Sixth Circuit:

In the instant case, the Dealer Agreement provides that a license fee is due for each copy of software purchased, and that the licensee cannot make additional copies.  Accordingly, the causal connection between the unused infringing software and Thoroughbred’s actual damages is that, under the Dealer Agreement, Dice Corp. should have paid Thoroughbred a license fee fore each copy of the software.  Thus, Dice Corp. is liable for the unpaid license fees for all the unauthorized copies it made, regardless of whether these copies were accessible to or used by Dice Corp.s’ customers.  Consequently, the district court’s finding that there were no actual damages for the copies that were unused and/or inaccessible to Dice Corp.’s customers was erroneous.  Therefore, we reverse the district court and award actual damages for the unused infringing software.

The Sixth Circuit held that the lost license fee was the correct measure of plaintiff’s actual damages, and accordingly awarded Thoroughbred Software $183,794.25 in damages as a result of Dice’s unauthorized distribution of copies of plaintiff’s software that were never used.

The Sixth Circuit affirmed so much of the District Court’s decision that denied plaintiff an award of the profits defendant made as a result of its use of plaintiff’s software because of plaintiff’s failure to submit sufficient evidence as to the amount of revenue defendant garnered from such distribution.

Sixth Circuit Vacates District Court’s Denial Of Attorneys Fees

Finally, the Sixth Circuit vacated so much of the District Court’s decision that refused to award plaintiff its attorneys fees.  The District Court erroneously held that plaintiff was only entitled to such an award if it prevailed “in full.”  The Sixth Circuit held that such fees can be awarded if a party has “succeed[ed] on a significant issue in the litigation that achieves some of the benefits the party sought in bringing the suit.”  While such an award is not automatic, the Court noted they are “awarded routinely.”  In determining whether to render such an award, the court is to consider four factors: “frivolousness of the claim, motivation, reasonableness and deterrence.”  The Sixth Circuit remanded the matter to the District Court for further consideration as to whether to award Thoroughbred Software its attorney’s fees, particularly in light of the Sixth Circuit’s decision to award plaintiff Thoroughbred Software an additional $183,794.25 in actual damages.