Thoroughbred Software Intern., Inc. v. Dice Corp.

• Decision Date: 14 June 2007
• Docket Number: No. 06-2080.,06-2080.
• Citation: 488 F.3d 352
• Parties: THOROUGHBRED SOFTWARE INTERNATIONAL, INC., Plaintiff-Appellant, v. DICE CORPORATION, Clifford V. Dice, Fred Wager, and John Does 1-10, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

488 F.3d 352

THOROUGHBRED SOFTWARE INTERNATIONAL, INC., Plaintiff-Appellant, v. DICE CORPORATION, Clifford V. Dice, Fred Wager, and John Does 1-10, Defendants-Appellees.

No. 06-2080.

United States Court of Appeals, Sixth Circuit.

Argued: April 26, 2007.

Decided and Filed: June 14, 2007.

ARGUED:

Lindsey H. Taylor, Carella, Byrne, Bain et al., Roseland, New Jersey, for Appellant. Scott C. Strattard, Braun Kendrick Finkbeiner, Saginaw, Michigan, for Appellees.

ON BRIEF:

Lindsey H. Taylor, Carella, Byrne, Bain et al., Roseland, New Jersey, for Appellant. Scott C. Strattard, Timothy S. Arnold, Braun Kendrick Finkbeiner, Saginaw, Michigan, for Appellees.

Before: KEITH and COLE, Circuit Judges; OLIVER, District Judge.^*

OPINION

SOLOMON OLIVER, JR., District Judge.

Plaintiff-Appellant Thoroughbred Software International, Inc. (hereinafter, "Thoroughbred") appeals the award of damages and attorney's fees in a case where the district court found Defendants-Appellees Dice Corporation and Clifford V. Dice (hereinafter, collectively, "Dice Corp.") liable for copyright infringement. Thoroughbred appeals the district court's denial of: (1) an award of actual damages for infringing software that was not used by Dice Corp.'s customers; (2) profits that Dice Corp. earned as a result of the infringement; and (3) attorney's fees on the ground that Thoroughbred was not a prevailing party. For the following reasons we REVERSE the district court's judgment denying actual damages for the unused infringing software; AFFIRM the denial of profits; and VACATE the district court's denial of attorney's fees. We hereby REMAND this action to the district court to enter judgment in favor of Thoroughbred on its claim for actual damages for the unused infringing software in the amount of $183,794.25, and to determine whether Thoroughbred, as the prevailing party, is entitled to an award for attorney's fees.

I. BACKGROUND

Thoroughbred is a New Jersey-based company that develops and sells business accounting computer software. Thoroughbred offers the Solution-IV™ software, which contains modules that allow the user to manage various accounting tasks. Thoroughbred also offers other software, such as OPENworkshop™ and Thoroughbred BASIC, which interact with the Solution-IV software. A license is required for each copy of the software purchased, except for one back-up copy. Although a customer can choose to license only specific modules of a computer program, certain modules will not operate without others. To install the software, the user must contact Thoroughbred to obtain an authorization code. It is permissible to move the software from one computer to another, as long as the software is deleted from the first computer. A user must inform Thoroughbred when software is moved. It is undisputed that Thoroughbred has valid, registered copyrights for all the relevant software. Thoroughbred's license fee ranges from $500 to $30,000, depending upon the number of modules and users sought.

Dice Corp. is a Michigan-based company that provides computer hardware with pre-installed software to its business customers in the security and alarm monitoring industry. Clifford V. Dice (hereinafter, "Dice") is the Chief Executive Officer and sole shareholder of Dice Corp. and Fred Wager (hereinafter, "Wager") is the company's President. Dice Corp. has been one of Thoroughbred's customers since 1986. Dice Corp. purchases software from Thoroughbred and, instead of transferring ownership of the software license by "reselling" it to its own customers (as most of Thoroughbred's customers do), it installs the software on computers (along with software from many other companies), and then rents the computers to its customers.¹ Dice Corp. charges its customers a monthly fee that incorporates "use of the computer hardware, the software, and the service it provides," with no specific cost allocation for any of the installed software. Thoroughbred Software Int'l, Inc. v. Dice Corp., 439 F.Supp.2d 758, 762 (E.D.Mich.2006).

Prior to 2001, the parties apparently did not have a written agreement. In 2001, the parties signed the Solution-IV Accounting Source Licensing Agreement ("Dealer Agreement"), which purports to appoint Dice Corp. as a non-exclusive dealer of Thoroughbred's software.² The Dealer Agreement provides, in pertinent part:

III. Agreement 1. TSI [Thoroughbred] hereby appoints Licensee as a non-exclusive dealer and grants to Licensee non-exclusive marketing and licensing rights to Solution-IV and Licensee hereby accepts such appointment from TSI. Licensee recognizes and agrees that TSI has established and may establish other non-exclusive dealers in licensing Solution-IV who may compete with Licensee. The standard Thoroughbred Software License Agreement is attached to this agreement . . . and is made a part of this agreement.

2. Licensee shall pay to TSI the Source License fee set forth in the current Product Catalog and Pricing Schedule in return for which Licensee shall receive rights to license Solution-IV modules under the terms of this agreement, subject to compliance by Licensee with all terms of this agreement. Upon receipt of the Source License fee and this executed Source License Agreement, TSI shall deliver to Licensee one copy of Solution-IV for in-house use plus the Solution-IV Source Toolkit manual. The in-house development environment must be licensed separately. New Licensees must agree to attend a Solution-IV technical training class before receiving rights to license Solution-IV modules to end-user customers.

3. Licensee shall pay to TSI the end-user module license fees set forth in the then current Product Catalog and Pricing Schedule on each licensing or disposition of Solution-IV, whether or not a fee is charged by Licensee and whether or not Solution-IV is actually ordered from TSI. These fees are due to TSI even if the resulting installation is highly modified. One copy of the Solution-IV System Utilities and either a Solution-IV Environment, an IDOL-IV™ Development Environment, or an OPENworkshop™ Environment are also required for each installation.

(Dealer Agreement III. 1-3, Joint Appendix ("JA") 307.)

The Dealer Agreement also incorporates Thoroughbred's standard Software License Agreement, which provides, in pertinent part:

2. OWNERSHIP. THOROUGHBRED SOFTWARE is the sole owner of the enclosed Software and its accompanying documentation. All of the Software and documentation is copyrighted. You may not copy or otherwise reproduce any part of the contents of this package except that you may make one (1) backup copy of the Software and you may load the Software into a computer as an essential step in executing the Software on the computer.

3. RESTRICTIONS ON USE AND TRANSFER. The original and any backup copies of the Software are to be used only in connection with a single computer. You may not distribute copies of the Software to others. You may not transfer the Software electronically from one computer to another. You may transfer this license, together with the original and all backup copies of the Software, provided that the transferee completes and returns to THOROUGHBRED SOFTWARE a Warranty Registration Card and agrees to be bound by the terms of this License Agreement. Any modification or translation of the Software by the Licensee or by any other party shall be subject to the full terms and conditions of this License Agreement. YOU MAY NOT USE, MODIFY, COPY, OR TRANSFER THE SOFTWARE, OR ANY MODIFICATION, COPY, OR MERGED PORTION THEREOF, IN WHOLE OR IN PART, EXCEPT AS EXPRESSLY

PROVIDED FOR IN THIS LICENSE AGREEMENT.

(Software License Agreement ¶¶ 2-3, JA 309-10.)

The Dealer Agreement also states that it "(i) supersedes all prior agreements between [Thoroughbred] and [Dice Corp.] with respect to the same subject matter, and fully sets forth our understanding with respect to the subject matter hereof; [and] (ii) shall not be modified, except by written agreement. . . ." (Dealer Agreement VII.1, JA 308.) Dice Corp. maintains that, prior to and during the Dealer Agreement, the parties had a verbal agreement that allowed Dice Corp. to install an entire software license, but pay only for the modules that it or its customers used.

In the fall of 2005, an apparently disgruntled former Dice Corp. employee informed Thoroughbred that Dice Corp. possessed a "crack" or "lock pick" program that allowed it "to copy Thoroughbred's software and install it without obtaining authorization codes from Thoroughbred." Thoroughbred Software, 439 F.Supp.2d at 765. Dice Corp. maintains that one of its employees developed the program on his own time, and that the program's purpose was to ensure that Dice Corp. "would have a steady supply of Thoroughbred software in the event that Thoroughbred's bankruptcy reorganization was unsuccessful," and that some employees used the crack program to save time when "activating legally purchased software packages at customer locations instead of using Thoroughbred's website" to obtain an authorization code. Id.

The discovery of the crack program prompted Thoroughbred to conduct an audit "of Dice Corp.'s computers, records of installations, and licenses sold to it by Thoroughbred." Id. Besides finding that Dice Corp. possessed software that was properly authorized and paid for, yet was not installed on any computer, "the audit showed that Dice Corp. had 33 unauthorized installations of Solution-IV software, plus an additional five customers running unlicensed modules, and 31 unauthorized installations of OPENworkshop software," which were all installed on computers. Id. Although Dice Corp. disputed the method by which the audit was conducted, the district court accepted the results of the audit. Id. at 767.

After a bench trial held on April 19 and 20, 2005, the district court found that Dice Corp. "exceeded the scope of its license and violated the Copyright Act," id. at 769, by copying...