4DD Holdings, LLC v. United States is a copyright case brought by the developer of the TETRA data federation software against the United States over copying by a Department of Defense (DOD) contractor. The government had licensed 64 processor cores and 50 user seats; during development its contractor made tens of thousands of further copies. After a true-up in which the government paid for 168 extra cores, 4DD sued. The Court of Federal Claims held in 2023 that the true-up release was void because government officials had misrepresented the extent of copying, and awarded USD 12,683,065.86.[1][2] In 2026 the Federal Circuit affirmed the method of assessing damages but vacated the award in part and remanded.[3]
Background
DOD needed a short-term way to share healthcare data held in many separate databases. Its lead contractor, Systems Made Simple (SMS), selected TETRA Healthcare Federator. The Federator was licensed per computer core, with no distinction between physical and virtual cores, and its companion programming tool, TETRA Studio, per seat (named user). TETRA was listed on a reseller’s government-wide contract at USD 24,000 per core and USD 6,000 per seat, with volume discounts.[1]
In September 2013 the government licensed 64 Federator cores at USD 10,447 per core and 50 Studio seats at USD 3,337 per seat through the reseller.[3] It agreed to 4DD’s EULA, which prohibited copying except for a single backup copy for use if the original was damaged or destroyed. TETRA’s built-in activation reporting could not be used because it posed security risks to government networks, so tracking fell to the government; 4DD built a self-reporting licence portal, but the official responsible never looked at it.[1]
SMS used an agile, continuous-integration process built on virtual machines. It regularly made backup copies that included TETRA, cloned virtual machines containing TETRA, and made new copies each time it released a code package to the government’s test centre.[1]
The dispute
From the portal, 4DD concluded that the government had exceeded its licence by at least 68 cores and invoiced it. The contracting officer ordered a “true-up” to locate and pay for all copies. While that was under way, the government’s chief engineer, without telling anyone, ordered the TETRA copies in the test centre deleted, citing “a license issue that [he] must clear up”. Officials then “verified” 64 cores in the test centre, a figure that was a placeholder not based on any data, and planned to open at 168 cores. The parties settled on 168 excess cores at the original contract price, about USD 1.7 million, and 4DD released the government from further liability.[1]
In 2014 DOD ended its work with TETRA. 4DD sued in August 2015, seeking more than USD 5 billion. The court found that the government had intentionally destroyed evidence, applied adverse presumptions and ordered about USD 1.1 million in fee sanctions. On summary judgment it held that the EULA’s copying prohibition was a condition of the licence, that copying beyond it was infringement, and that the government was a licensee rather than an owner of the copies.[1][3]
Decision or outcome
The true-up release. After a two-week trial, the Court of Federal Claims held that the government “fraudulently and materially misrepresented the extent of its copying”, which invalidated the release. An accurate copy count was “a basic fact that lies at the heart of the true-up agreement”, and 4DD was entitled to rely on the government’s figures because, having required vendors to disable their enforcement tools, the government “cannot later claim that those software providers have unreasonably relied on government misrepresentations”.[1]
Damages at trial. The court found infringement “thousands of times over” but did not apply the per-core or per-seat prices, which would have produced billions of dollars. It constructed a hypothetical negotiation and awarded USD 9,174,922.88 for non-backup Federator copies, priced as discounted development licences; a 20 percent convenience fee of USD 1,834,984.57 for backup copies; nothing for copies held in RAM, because 4DD did not charge for them; and USD 150,000 for Studio, whose 171,421 infringing seats far exceeded the team of about 60 developers.[1] Judgment was entered for USD 12,683,065.86; reconsideration was denied, and a further USD 418,477.50 was awarded as a spoliation sanction.[2]
Appeal. On 2026-07-16 the Federal Circuit held that “no rule of law compels courts to defer to such an agreement in lieu of conducting a hypothetical negotiation”, particularly where the licence and the infringing use differ materially. But the trial court had erred by negotiating with knowledge of the later cancellation of the project, which was not foreseeable at the time, and had wrongly awarded the enhanced statutory amount for willful infringement against the government. The court vacated in part and remanded, noting that the backup-copy fee would also have to be reconsidered if the non-backup award changed.[3]
Significance for software licensing and SAM practice
The case is the clearest published example of a failed true-up. The customer did not know its own deployment, its count was invented, copies were deleted during the exercise, and the settlement that should have closed the matter was set aside. It also shows how development practices multiply copies: cloned virtual machines, automated builds, backups and test deployments all counted under a licence that prohibited copying. On damages it follows Bitmanagement Software v. United States, where the Federal Circuit also declined to award compensation simply per copy made.[1][3]
Lessons learned
- A true-up settlement and release can be set aside if the customer’s counts were misrepresented, so the count you certify must be one you have actually verified. The release was invalid because the 64-core figure was a placeholder and deleted copies were not disclosed.[1]
- Deleting copies while a true-up or audit is under way can be treated as concealment and spoliation, with sanctions. The court treated the deletions as concealment, applied adverse presumptions and imposed fee sanctions.[1][2]
- Copies made by contractors in development, test, backup and cloned virtual machines can count against a licence that prohibits copying. The contractor’s agile process produced the infringing copies, and the government was held responsible.[1]
- Where the vendor’s own usage reporting is switched off for security reasons, the customer carries the whole burden of tracking deployments. TETRA’s activation alerts could not be used on government networks, and tracking fell to the government.[1]
- List prices and contract prices do not automatically set infringement damages; courts may instead reconstruct the licence the parties would have agreed. The Federal Circuit upheld the hypothetical negotiation approach.[3]