R.C .Burgener, for the Plaintiff.
K.R. Anderson and S.J. Hammel, for the Defendants.
REASONS FOR JUDGMENT
VEIT J.:— This action deals with the rights of a copyright owner of computer software sold over the counter.
On April 3, 1986, an authorized dealer of the plaintiff sold to the defendant, King & Company, a floppy disk copy of "With Interest", a computer program developed by the plaintiff, in which the plaintiff claims a copyright. Shortly after the sale, having been informed by its agent that the software purchaser reported a problem in printing the program, the president of the plaintiff attended at the premises of the corporate defendant and corrected the problem, which originated in the defendant's printer and not in the program. While at the defendant's premises, the plaintiff learned that "With Interest" had been installed on the hard drives of other micro- computers owned by the defendants, although only one copy of the program had been purchased. On April 30, 1987, or approximately one year after the discovery of the copies of the program, the plaintiff notified the defendant company by letter that the latter was in breach of the plaintiff's copyright. The defendant immediately responded; it notified the plaintiff that the program "With Interest" had been removed from the hard drives of its micro-computers; that the defendant retained only the floppy disk; that, for the purposes of the demand letter, it did not contest the plaintiff's assessment of its rights; and that it undertook not to use the floppy disk except in the manner outlined by the plaintiff. In November, 1987, the plaintiff issued a statement of claim, subsequently amended, praying for: - an accounting, an order declaring the infringing copies to be the property of the plaintiff; an order prohibiting the defendants' use of unauthorized copies; an order of delivery off the infringing copies to the plaintiff; damages in the amount of $15,000; punitive damages in the amount of $25,000.00; costs of the action on a solicitor-client basis.
1. Ownership of Copyright
All of the plaintiff's claims depend from ownership of copyright in "With Interest." The defendant does not dispute that a computer program was subject to copyright or copyrightable, even prior to the explicit 1988 amendments to the Copyright Act. The defendant does dispute that the plaintiff is the copyright owner of "With Interest."
The plaintiff is not a registered holder of the copyright; it relies on the Copyright Act which states:
| 34(3) | In any action for infringement of copyright in any work in which the defendant puts in issue either the existence of the copyright or the title of the plaintiff thereto, | ||
| (a) | the work shall, unless the contrary is proved, be presumed to be a work in which copyright subsists; and | ||
| (b) | the author of the work shall, unless the contrary is proved, be presumed to be the owner of the copyright. | ||
| (4) | Where any question referred to in subsection (2) is at issue, and no grant of the copyright or of an interest in the copyright, either by assignment or licence, has been registered under this Act, | ||
| (a) | if a name purporting to be that of the author of the work is printed or otherwise indicated thereon in the usual manner, the person whose name is so printed or indicated shall, unless the contrary is proved, be presumed to be the author of the work; and |
| However, the defendant points to s. 13(3) of the same Act: |
| (3) | Where the author of a work was in the employment of some other person under a contract of service or apprenticeship and the work was made in the course of his employment by that person, the person by whom the author was employed shall, in the absence of any agreement to the contrary, be the first owner of the copyright, but where the work is an article or other contribution to a newspaper, magazine or similar periodical, there shall, in the absence of any agreement to the contrary, be deemed to be reserved to the author a right to restrain the publication of the work, otherwise than as part of a newspaper, magazine or similar periodical. |
As evidence of a s. 13(3) right in a person other than the plaintiff, the defendant refers to the evidence of the plaintiff's witness Syrja to the effect that the unique aspect of the "With Interest" algorithm is a specific way of calculating interest and that Mr. Syrja first produced that unique way of calculating interest in the 1960's when he was an employee of Western Computing Limited:
| Q. | Well, what is it that makes your program unique, Mr. Syrja? | ||
| A. | It's simply that I'm the only one that's putting out one that does it that way. |
Q. Okay. And --
A. All the others are using the amortization tables.
| Q. | And isn't that the essence of what you claim ownership in? | ||
| A. | The fact that I wrote a particular program that does calculations that way, yes. | ||
| Q. | Okay. And the first time you wrote it was for Western Computing Limited and they owned it. Right? |
A. That's right.
Moreover, the defendant relies on the evidence that the algorithm or solution used in "With Interest" has been written by Mr. Syrja in other computer languages or versions such as in NEAT-3, an NCR programming language; in Basic-4S Business Basic; and in the MS DOS version bought by the defendant.
In summary, the defendant's position is that the evidence establishes that Mr. Syrja has had only one original algorithm for calculating interest and that one is the property of Western Computing Ltd.
I will not consider whether each different version of the program in a different language is an original work. Given the legislative onus on the defendant who challenges the plaintiff's copyright, given that there is no copy of the first interest calculation program devised by Mr. Syrja, given the evidence from Mr. Syrja that there have been some changes in the program since he originally had the idea, notably in the area of calculations for leap years, I am not satisfied that the defendants have successfully displaced the legislative presumption.
The plaintiff is, therefore, for the purposes of this action, on the basis of the evidence before me, the owner of the copyright in "With Interest."
2. Over-The-Counter Sale of Computer Program
Next I turn to the assessment of the legal result of the sale of the floppy disk to the defendants. In its Statement of Claim the plaintiff posits:
| The program . . is sold under a licence statement which entitles the purchaser to make copies of the licensed program for backup purposes only. . . . The plaintiff further says that the defendants have breached the licensing agreement by making more than backup copies and by having multiple users. . |
At the trial the plaintiff argues that the use of the word "agreement" in the Statement of Claim was unintended and that the plaintiff does not anchor its claim in contract. Rather it alleges that the claim is limited to copyright. It relies on ss. 27(1) and 3(1) of the Act:
| 27(1) | Copyright in a work shall be deemed to be infringed by any person who, without the consent of the owner of the copyright, does anything that, by this Act, only the owner of the copyright has the right to do. | ||
| 3(1) | For the purposes of this Act, `copyright' means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform, or in the case of a lecture to deliver, the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right | ||
| (a) | to produce, reproduce, perform or publish any translation of the work, | ||
| (b) | in the case of a dramatic work, to convert it into a novel or other non-dramatic work, | ||
| (c) | in the case of a novel or other non-dramatic work, or of an artistic work, to convert it into a dramatic work, by way of performance in public or otherwise, | ||
| (d) | in the case of a literary, dramatic or musical work, to make any record, perforated roll, cinematograph film or other contrivance by means of which the work may be mechanically performed or delivered, | ||
| (e) | subject to subsection (2), in the case of any literary, dramatic, musical or artistic work, to reproduce, adapt and publicly present the work by cinematograph, if the author has given the work an original character, and | ||
| (f) | in the case of any literary, dramatic, musical or artistic work, to communicate the work by radio communication, |
and to authorize any such acts.
In this case, the parties agreed that the making of a copy of a computer program constituted the making of a "contrivance by means of which the work may be mechanically performed or delivered"; absent such agreement, one might have concluded that the forces at work in the performance of a computer software program were electromagnetic rather than mechanical.
The plaintiff alleges that the statutory framework has this result: so long as the copyright symbol is displayed on the software, when a copyright owner of a computer software program sells that program over-the-counter the onus shifts to the purchaser to ensure that the owner is willing to permit the purchaser to make the use of the program which the purchaser intends. In other words, the display of the copyright forces the purchaser to seek out, and abide by, a licence statement, or permission, or conditions of use from the copyright owner.
(a) How was the sale made?
In this case, the precise circumstances of the sale are not clear. The plaintiff's witness Syrja states that the floppy disk was inserted into the center of the booklet "With Interest" and those contents were covered in cellophane which was then shrink-wrapped, or tightly reduced around the contents. Despite a discovery request by the defendant for an unopened, shrink-wrapped, package, and an undertaking to provide one, no pristine package of "With Interest" has been introduced into evidence.
The witness Wallace, an employee of the authorized agent, was questioned about the sale.
| Q. So how would you obtain copies of this? | ||
| A. We purchased them from North American Systemshops and then re-sell them. |
| Q. | Do you recall the package that you sold to the defendants if I can call them King and Company? | ||
| A. | Oh, yes. Mike came over and sat down and I gave them a package and he -- we -- I showed my copy running on my micro and went through the initial part of it and he left and took it away with him. - | ||
| Q. | So to your knowledge does North American Systemshops put different registration numbers on their copies? |
A. I would assume so.
Q. And do you recall the number of the defendant's micros?
| A. | No. Well, it was 10 but the one that I sold them I didn't know what the number was because, of course, it's packaged. | ||
| Q. | Okay, now if we can just step back a minute here. When you ordered these from North American Systemshops, are you advised of the serial number of the diskette inside? |
| A. No. |
| Q. | When it's shrink wrapped can you see the number of diskette inside? | ||
| A. | No, because the diskette is inside -- well, basically in the middle of manual where the page folds, where the book folds. |
On the evidence, I conclude that: the program was sold to the defendants shrink-wrapped; that no copyright symbol was visible to the purchaser, (since the copyright symbol on the booklet is on the inside front cover of the booklet and not on the outside cover and the copyright symbol on the floppy disk is in the same general location on the disk as the registration number and the evidence of the witness Wallace is that the registration number was not visible through the shrink-wrap); and that no licence statement was visible (the licence statement being on the inside back cover of the booklet and not being on the floppy disk). In addition, the evidence establishes that the copyright symbol comes up on the first screen when the program is used, but no licence statement comes up on the screen. Finally, I am satisfied that the user of the program would not have to refer to the booklet for general use of the program as the program was designed to be, and was in fact, "user-useful" in Mr. Syrja's phrase.
| (b) Do all copyright restrictions apply on the sale or only those restrictions brought to the attention of the purchaser? |
Since the copyright symbol is found on the first screen of the program, the plaintiff argues that the defendant must search out the plaintiff's permission to use this program in any way.
The defendant argues that the sale itself carries with it an implied right to make use of the copy of the program in any way the purchaser may devise. The defendant adopts the positions, including references to existing jurisprudence, taken by Sookman, Computer Law, in particular, at pp. 2-48 and
| If copies of software are sold and not licensed, without restrictions binding on the purchasers, the purchasers of the copies sold are entitled to resell them, give them away, hire them, or destroy them, without infringing the copyright of the owner of the software. No term will usually be implied in such sales that the buyers can only re-sell the software but not let them out. These rights can substantially affect the revenues that a software publisher can earn and impinge on its ability to maintain the confidentiality of the software. For these reasons, software is frequently licensed rather than sold to end users. | ||
| Shrink wrap licenses commonly contain restrictions in the rights of use of the software, including restrictions relating to copying, modifying, renting, and re-selling the software. Such licenses often also exclude the conditions of merchantability and fitness for purpose implied under sale of goods legislation, contain limited repair and replace remedies, and limitation of damage provisions. | ||
| The enforceability of shrink wrap licences has not yet been tested in the courts in Canada. It is submitted that they will not be enforceable against an ordinary vendee, unless there is some clear communication of the shrink wrap terms at the time of purchase to the party to whom the software is sold. The reason is that an ordinary vendee without knowledge of any restrictions affecting the use of goods is not bound to honour any restrictions concerning the goods since restrictive conditions do not run with them. | ||
| If the vendor sells, imposing no restriction or condition upon his purchaser at the time of sale, he cannot impose a condition subsequently by a delivery of the goods with a condition endorsed upon them or on the package in which they are contained. Unless the purchaser knows of the condition at the time of sale, he has the benefit of the implied licence to use the article free from conditions. Furthermore, the buyer will only be restricted to the limitations expressly brought home to his attention, and has no obligations to make inquiries of the owner of the rights in the article to ascertain if there are other restrictions that have not been brought to his attention. | ||
| In view of this law, which would likely be applied to restrictions imposed pursuant to shrink wrap licences, licensors of mass-marketed software should make every effort to ensure that prospective licensees are made aware of the terms to be imposed on them before the transaction is completed. |
(The citation of the cases footnoted to this text are reproduced in Appendix 1 to these reasons.)
[I might add parenthetically, at this point that the plaintiff assumes that the decision in this case will be of interest to all developers and purchasers of computer software programs. However, it appears to me that this is not the likely result. On the facts, it is to be noted that the evidence in this case establishes that it is no longer usual in the computer industry to sell software programs in the way in which "With Interest" was sold in 1986. Today, and for the last several years, it has been common to insert the floppy disk in a sealed envelope which prominently displays both a warning that the disk is sold subject to the conditions of a licence agreement, the licence agreement, that a card referring to the licence agreement must be signed by the purchaser and returned to the copyright owner, etc. On the law, The Copyright Act has recently been amended specifically to deal with computer programs.]
It is true, as the plaintiff emphasizes, that the jurisprudence relied upon by Sookman is mainly patent based and not copyright based.
However, the reasons for decision in those cases often refer only to general principles of law, or even of common sense, to support the conclusions reached:
| When a man has purchased an article he expects to have the control of it, and there must be some clear and explicit agreement to the contrary to justify the vendor in saying that he has not given the purchaser his licence to sell the article, or to use it wherever he pleases as against himself. |
Betts v. Willmott at p. 245
and
| . . . the sale of a patented article carries with it the right to use it in any way that the purchaser chooses to use it, unless he knows of restrictions [which may be as limiting, unreasonable or absurd as the owner chooses] | ||
| It seems to be common sense, and not to depend upon any patent law, or any other particular law. |
| Incandescent Lighting v. Cantelo |
| at p. 264 |
It is true that in every contract, including a contract for the sale of goods, the Court may imply terms. However, it will not imply reasonable terms; it will only imply necessary terms: Liverpool City Council at p. 44.
The law does imply that the purchaser has intended to divest itself of all rights in the article sold, unless restrictions are brought home to the purchaser:
| If a Patentee sells the patented article to a purchaser and the purchaser uses it, he, of course, does not infringe. But why? By reason of the fact that the law presumes from the sale an implied licence given by the Patentee to the purchaser that he shall use that which he has bought, and in the absence of condition, this implied licence is a licence to use or sell or deal with the goods as the purchaser pleases. |
Badische Anilin at p. 180
The jurisprudence does conclude that patented articles, and I am prepared to find that copyrighted articles belong to a similar category, are different from normal goods in that restrictions not only may be imposed on the sale, but the restrictions will run with the goods:
| [after referring to, and explaining, the earlier jurisprudence] | ||
| [It is] open to the patentee by virtue of his statutory monopoly to make a sale sub modo or accompanied by restrictive conditions, which would not apply in the case of ordinary chattels; secondly, that the imposition, of these conditions in a sale is not presumed, but, on the contrary, a sale having occurred the presumption is that the full right of ownership was meant to be vested in the purchaser; while, thirdly, the owner's rights in a patented chattel will be limited, if there is brought home to him the knowledge of conditions imposed . . upon him at the time of sale. |
National Photograph at p. 248
It appears to me that this general thrust of English jurisprudence is all the more applicable to the over-the- counter sale of computer software because of the way in which a computer program must be used, i.e. in order to be used, it must be copied at least once into the computer's memory. In that way, the sale of computer software programs differs markedly from the sale of other types of copyrightable materials such as books.
Indeed, the American case referred to by Sookman is a most interesting summary of the background to the establishment of specific computer program copyright laws in the United States and determination that a court would not go beyond the narrow construction of even that statute.
The Vault Corporation case may be best summarized in the Federal Reporter headnote:
| Producer of computer software program designed to defeat copyrighted anti-copying program did not infringe on anti- copying program producer's copyright by copying the anti-copying program into its computer's memory for express purpose of defeating its protective function, in that copy was created as an essential step in the utilization of anti-copying program, within meaning of exemption to copyright infringement statute. |
The Fifth Circuit Court of Appeal mentions at p. 256 and at p. 260 the distinctive feature of a software program that it must be able to be copied to be used. That court, and the trial court from which the appeal was taken, both concluded that there was no breach of copyright in that case.
In the case at bar, the plaintiff manifestly did not bring home to the defendants, or any of them, that there were restrictions on the purchase. None of the simple, cheap, obvious methods to do this were used by the plaintiff. No implied restrictions were necessary to the sale; therefore the court should not, in the absence of explicit instructions brought to the notice of the purchaser, introduce any implied restrictions into the contract of sale.
On the contrary, the sale by the plaintiff of its product over-the-counter constitutes the implied granting by the plaintiff of an implied permission to the purchaser to do whatever the purchaser wished with the product.
In the result, the plaintiff's claim fails in its entirety.
3. Breach of Licence
If I were wrong in my decision as to the results of the sale of the copy of the program by the copyright owner without prominently displaying a licensing agreement, I should then consider whether there was, on the evidence, a breach of the licence statement.
The licence statement is contained on the inside back cover of the booklet and reads as follows:
Not Copy Protected
NORTH AMERICAN SYSTEMSHOPS LTD. (NASL)
LICENSE STATEMENT
| NASL recognizes that copies of the licensed program must be made for backup purposes. Therefore, we grant you this license. We DO NOT grant you the license to make copies for any other purpose. We also recognize that the program may be moved from one computer location to another, however, the program MAY NOT be used in one location while it is being used in another. Neither may the software be used by two different people in two different places at the same time. By use of the purchased program, the purchaser agrees to the terms and conditions of the license statement. |
On the evidence in this case, I am only concerned about unlicensed use within the defendant's organization as the evidence is clear that none of the defendant, any of its partners or employees, made a copy of the program for personal use outside the office, sold a copy of the program to another, or allowed any other person to use the program.
The first thing to note about the statement is that the plaintiff used the word "copies" rather than the word "copy." Just as in the Vault Corporation case, there is in this statement recognition that archival copies may be needed for more than electrical or mechanical failure, and may be necessary to compensate for other mishaps.
The second thing to note is that the plaintiff chose the word "also" for use in the fourth sentence. The choice of that word, and indeed the licence statement as a whole, make it clear that the fourth and fifth sentences in the licence statement deal with a different issue than the first three sentences.
The third thing to note is that the language of the last sentence of the license statement is the language of contract, despite the arguments of the plaintiff otherwise.
The fourth thing to note is that the wording of the fourth sentence of the licence statement explicitly recognizes that the program may be on two or more of the purchaser's computers at the same time.
The evidence establishes that the easiest, because more efficient and faster, way to use this computer program is to read it into the computer's memory permanently and to operate the program in that way rather than from floppy disk. Therefore, in the absence of a specific restriction by the plaintiff, the defendant was entitled to keep the floppy disk as a back-up and to copy the program into a computer's permanent memory bank for use.
Next, the evidence establishes that given the limited usefulness of the program in the defendant's business, and the fact that most of the individual uses were for one client, it is improbable both that the program was used in two locations at the same time and "that the program was used by two different people in two different places at the same time.
As the plaintiff explicitly had no objection to the defendant moving the program from one of its micro-computers to another, and as it explicitly authorized the purchasers to make back-up copies, it appears to me that the core of the plaintiff's restriction in the fourth and fifth sentences of the licence statement is that the program shall not be used in two or more places at once. The plaintiff has not established, on a balance of probabilities, that the defendants breached this part of the statement.
4. Damages
If I were wrong in my assessment that there has been no breach by the defendant of the licence statement, I would have to consider the issue of damages.
(a) Loss of Profits
The evidence is that none of the defendants copied With Interest" for re-sale, for personal use, or to give to any other person. It is also clear that the program was not made available to another person for use or copying.
The evidence is that the program was placed on a maximum of six of the defendant's micro-computers ("I think 5" - Syrja; "2 other copies" - Wallace; "I could only have loaded it on the five machines possibly" - Troke; it was "loaded on four" machines - Fedoretz). The program sold for $59 a copy. Therefore, the maximum number of sales the plaintiff lost as a result of the actions of the defendants was 5 or $295. (The evidence is that this program was not a commercial success for the plaintiff; although Mr. Syrja testified to having invested $25,000 - $30,000 in the development of the program, only 31 copies of it were sold.)
There is no evidence that the defendants made a profit through the use of the program; the only evidence advanced by the plaintiff on this point is the evidence that the users of the program accounted for the time spent running the program on individual client files. The plaintiff also has not led any evidence relating to the relative importance of this program to the overall profitability of the defendant chartered accountant company. The plaintiff failed to prove any loss of profits.
(b) Punitive Damages
Finally, the plaintiff claims punitive damages. As I understand the plaintiff's position on this issue it is threefold:
- as a firm of chartered accountants, the defendants should have known better;
- as a firm of chartered accountants having experienced a previous licence dispute, the defendants should have known better;
- even if the defendants immediately complied with every demand made by the plaintiff, the defendant has -failed to take software program restrictions purchased by them from other software program developers seriously.
As to the issues, it is rare that the courts will impose a harsher sanction on one who breaches a contract because of that person's status. The program "With Interest" was available for purchase by anyone. There is no logical nexus established between the status of the defendants as chartered accountants and the alleged breach of contract that would support such a finding in this case. The evidence establishes that chartered accountants in general, and these defendants in particular (even the partner described by his colleague as a "computer nerd"), did not have in 1986 such a knowledge of restrictions on the use of computer software that their alleged abuse of any licence could be considered flagrant.
The evidence establishes that the individual defendants were not themselves involved in the day to day operation of the Edmonton Data Centre which was involved in an earlier licence dispute. The existence of that dispute should not fix the defendants with any particular knowledge of computer software licensing patterns. Indeed, the evidence of the plaintiff's witness Wallace makes it clear that the primary object of the earlier dispute was the resolution of the non-payment of a contract for the purchase of hardware and software; on that occasion, an alleged licence infringement was merely a minor collateral issue.
Finally, the plaintiff has no status to raise other alleged breaches of copyright, this not being a representative action. Nor has it, in fact, proved that the defendant is in breach of any other copyright. It cannot, therefore, claim in its action damages which others may have suffered.
In summary, therefore, I am of the view that the plaintiff has not established any entitlement to punitive damages.
If the parties cannot agree on costs, I may be spoken to within 30 days of this decision.
VEIT J.
La societe d'Informatique R.D.G. Inc. v. Dynabec Ltée (1984) 6 C.P.R. (3d) 299 (Que. S.C.)
CBS Inc. v. Ames Records & Tapes (1981] 2 All E.R. 812 (Ch. D. Whitford, J.)
Fethering v. Boughner (1978) 40 C.P.R. (2d) 253 (Que. H.C.)
Liverpool City Council v. Irwin [1976] 2 All E.R. 39 (H.L.)
Vault Corp. v. Quaid Software (1988) 847 F. 2d 255, 655 F. Supp. 750, 775 F. 2d 638; U.S. Ct. of Appeals, Fifth Circuit Louisiana and trial decisions (note that the Sookman reference to 655 F. 2d 750 appears to be in error)
Nat'l. Phonograph Co. of Australia v. Menck (1911) 28 R.P.C. 229 (P.C.)
Betts v. Wilmott (1871) 6 Ch. App. 239 (C.A.)
Gillette v. Rea (1909) 1 O.W.N. 448 (Boyd, C.)
Badische Anilin und Soda Fabrik v. Isler (1906) 23 R.P.C. 173 (Ch. D.)
Incandescent Gas Light Co. v. Cantelo (1895) 12 R.P.C. 262 at 264 (Q.B.D.)
Incandescent Gas Light Co. v. Brogden (1899) 16 R.P.C. 179 (Q.B.D.)