Damages awarded for unauthorized but unused copies

When calculating damages for copyright infringement, which controls: the copying or the use of the copies? In Thoroughbred Software Int'l v. Dice Corp., the Sixth Circuit Court of Appeals clarified that an infringer is liable for damages even if the unauthorized copies aren't used.

Thoroughbred and Dice entered into a software licensing agreement under which Thoroughbred required a license for each purchased copy, except for one backup copy. It later discovered that Dice had dozens of unauthorized installations of its software - although not all were actually in use. The district court awarded actual damages for the used software under the license fee but denied actual damages for the unused software. Thoroughbred appealed.

Dice claimed that it wouldn't have purchased the infringing copies if it had been required to pay a license fee for all of the different modules in the copies. It asserted that it had made extra copies merely as a matter of convenience in case a customer subsequently wanted to activate a module. At that time, Dice said, it would have contacted Thoroughbred to obtain authorization and submit payment.

The appellate court found that this contradicted the licensing agreement, which made no mention of an arrangement permitting Dice to make copies or install licensed software without prior payment to and approval from Thoroughbred. In fact, the software license agreement expressly prohibited copying or otherwise reproducing any part of the software package contents other than to make one backup and load the software.

Under the agreement, Dice should have paid a license fee for each copy of the software. This obligation provided the causal connection between the unused infringing software and Thoroughbred's actual damages. Therefore, Dice was liable for the unpaid license fees for all of the unauthorized copies made, regardless of their use.

In this case, as in so many licensing disputes, the agreement's language proved critical to the ultimate cost of its breach. Take the time to draft these vital documents carefully.