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Storm Impact, Inc., et al. v. Software of the Month Club

Plaintiffs marketed two computer games in which they held copyrights by posting them on the Internet as "shareware." The versions of the software posted as shareware permitted the user to play only half of the game, a mock ski run. If the user paid plaintiffs a registration fee, he was provided a "key" and registration number which permitted operation of the entire game.

Each product contained express restrictions on its use. While permitting and encouraging free copying and distribution among family and friends, these restrictions prohibited commercial distribution of the software, distribution in exchange for compensation, or alteration of the products.

Defendant Software of the Month Club provides newly released "shareware" to its customers. In exchange for a monthly fee, club members regularly receive a CD-Rom disk containing what defendant considers to be the "best" new shareware currently available. Defendant advises its members that they should register their shareware with the authors if they like the work.

Defendant included plaintiffs' programs in one of its offerings to club members. Charging that this distribution infringed their copyright in the software, plaintiffs commenced suit. After a bench trial, the court agreed, and awarded plaintiffs $20,000 in statutory damages for this copyright infringement.

Defendant conceded that its activities infringed plaintiffs' copyright. However, it argued that "because [plaintiff] posted its shareware product on the Internet for non-commercial distribution, any reservation of its rights with regard to commercial distribution failed. By publishing its shareware, [defendant] says that [plaintiff] impliedly consented to [defendant's] distribution."

The court rejected this argument, holding that plaintiffs could post their software on the Internet for free distribution and still validly restrict the uses to which it was put by posting express reservations on such use. Said the court:

Protecting material placed on the Internet for free distribution appears to be a question of first impression. I find that [plaintiff's] express reservations of distribution rights are valid, enforceable, and militate against a finding of fair use.

The court also found that defendant's activities did not amount to permissible "fair use" of plaintiffs' software under section 107 of the Copyright Act. In reaching this conclusion, the court pointed to the fact that defendant had copied plaintiffs' shareware programs in their entirety, had not altered or transformed the programs in any way, had made a profit from their distribution and had a negative impact on the potential market for the products.

Defendant argued that its increased distribution of shareware along with defendant's product recommendation helped plaintiffs market their product. The court rejected this argument on plaintiffs' evidence that club members were less likely to pay plaintiffs a registration fee because they had already paid defendant a monthly subscription fee to receive the shareware. The court also found that defendant created ill will among consumers because of poor technical support given regarding plaintiffs' products.

The court did not find defendant's infringement to be willful, however. Said the court:

I ... find that [defendant] did not willfully infringe [plaintiff's] copyrights. This case was an issue of first impression, and [defendant] has made a plausible, although ultimately unconvincing, case that [plaintiff's] release of the free software indicated its implied consent and that the remaining restrictions on the shareware's use were enforceable. Furthermore, once notified that [plaintiff] did not consent, [defendant] removed MacSki and TaskMaker from its monthly compilations.