MAI Systems Corp. v. Peak Computer, Inc. is a 1993 Ninth Circuit decision about independent maintenance of licensed software. MAI manufactured computers and wrote the operating and diagnostic software that ran on them. Peak maintained MAI computers for more than one hundred clients in Southern California, which accounted for between 50 and 70 per cent of Peak’s business. To service a machine, a Peak technician often had to turn it on and run MAI’s operating system.[1]
Background
MAI sued Peak, Peak’s president and a former MAI employee on 17 March 1992 for copyright infringement, trade secret misappropriation, trademark infringement, false advertising and unfair competition. The district court issued a temporary restraining order, a preliminary injunction, and on 2 February 1993 a permanent injunction after partial summary judgment on the copyright and trade secret issues. The Ninth Circuit stayed parts of both injunctions pending appeal.[1]
MAI’s software licences allowed customers to use the software for their own internal information processing. The court read this as including loading it into the computer’s random access memory (RAM), but not as allowing use or copying by third parties such as Peak.[1] The licence text quoted in the opinion limited use to the customer’s own internal needs on the specified equipment, prohibited examination, disclosure, copying or tampering not expressly authorised, and required the customer to keep the software confidential and not make it available to others.[1]
The dispute
The alleged copyright violations were Peak’s running of MAI software licensed to its customers, Peak’s use of unlicensed software at its own headquarters, and Peak’s loaning of MAI computers and software to customers.[1] Peak conceded that, in maintaining customers’ computers, it ran the MAI operating software to the extent that servicing required turning the machine on. It argued that the copy created in RAM was not “fixed”.[1]
Decision or outcome
The Ninth Circuit held that loading software into RAM creates a “copy” under the Copyright Act, because the representation in RAM could be perceived, reproduced or communicated for more than a transitory period, as shown by the technician’s ability to view the system error log. Because Peak was not a licensee, its copying was beyond the scope of the customers’ licences.[1] The court also held that the licensed customers were not “owners” of the software and so could not rely on the statutory defence in section 117 of the Copyright Act.[1] It affirmed summary judgment for MAI on use of unlicensed software at Peak’s headquarters, where Peak held a licence to operate only one system, and upheld the injunction against loaning because the threat of violation was clear, even though no actual loan had been shown.[1]
On trade secrets, the court affirmed as to MAI’s customer database and the contract claim against the former employee. It reversed summary judgment on misappropriation of MAI’s field information bulletins, because whether Peak had used them was a disputed fact, and on the software, because MAI had not specifically identified its trade secrets in it, and it vacated the injunction on those two points.[1] It upheld the preliminary relief on trademark grounds.[1]
Significance for software licensing and SAM practice
- Who runs the software matters. The licence granted use by the customer for its own internal processing. Running the same software by an outside contractor was outside the grant.[1] Later disputes over third-party maintenance of vendor software, such as Avaya v. Telecom Labs, were decided on the wording of each licence generation.
- The court’s treatment of RAM copies was influential. The Federal Circuit cited it in 2005 and also noted that the machine maintenance and repair provision in section 117(c) had not previously been construed by any court of appeals. See StorageTek v. Custom Hardware Engineering.[2]
- Unlicensed systems at the service provider. A maintainer running vendor software on its own equipment needs its own licence for each system.[1]
Lessons learned
- Check whether the licence lets contractors act for the licensee. The MAI licence limited use to the customer’s own processing, and the court treated Peak’s use as outside it.[1]
- Treat starting a licensed system as use. Loading software into memory was held to be copying.[1]
- Know your status. The court held that licensing, as opposed to selling, the software meant customers were not owners for the section 117 defence.[1]
- Check current law. Section 117(c) was considered by the Federal Circuit in 2005, so a maintainer’s position today depends on the statute as well as on this decision.[2]
Out of scope
This article does not cover the trademark and false advertising rulings in detail, the proceedings after the 1993 decision, or other jurisdictions’ treatment of temporary copies.