Thoroughbred Software v. Dice is a 2007 decision of the Sixth Circuit about what a software vendor can recover when an audit of a customer finds copies installed without payment. Thoroughbred Software International, a New Jersey business accounting software developer, sued its customer Dice Corporation for copyright infringement. The Sixth Circuit held that Dice owed Thoroughbred the licence fee for every unauthorized copy, including copies that Dice’s own customers could not access.[1]
Background
Thoroughbred licensed its Solution-IV accounting software and related products such as OPENworkshop. The court described the licensing model: a licence was required for each copy except one backup copy, and to install the software the user had to contact Thoroughbred for an authorization code. The licence fee ranged from $500 to $30,000 depending on the number of modules and users.[1]
Dice Corporation, a Michigan company supplying hardware with pre-installed software to security and alarm monitoring businesses, had been a Thoroughbred customer since 1986. It installed Thoroughbred’s software on computers and rented the computers to its customers for a monthly fee, with no separate charge for the software. In 2001 the parties signed a Dealer Agreement that appointed Dice a non-exclusive dealer and incorporated Thoroughbred’s standard Software License Agreement; it required Dice to pay the end-user module fee on each licensing or disposition of the software, whether or not Dice charged a fee. The Software License Agreement allowed one backup copy and use only in connection with a single computer.[1]
The dispute
In the fall of 2005 a former Dice employee told Thoroughbred that Dice had a program that let it copy and install the software without obtaining authorization codes. Thoroughbred then audited Dice’s computers, installation records and licences. As described by the Sixth Circuit, the audit showed 33 unauthorized installations of Solution-IV, five customers running unlicensed modules and 31 unauthorized installations of OPENworkshop. Dice disputed how the audit was conducted, but the district court accepted its results. Dice said that the parties had a verbal arrangement allowing it to install an entire software licence and pay only for the modules actually used; the district court held that the 2001 Dealer Agreement superseded any earlier verbal arrangement.[1]
After a bench trial the district court found that Dice had exceeded the scope of its licence and infringed the copyright. It found that 16 unauthorized copies of Solution-IV were used by Dice’s customers, and that 17 unauthorized copies of Solution-IV and 31 of OPENworkshop were not used by Dice or its customers, which Dice said were blocked by a security program it had developed to prevent access without payment. The court awarded actual damages for the used copies and none for the unused ones, awarded no profits and declined to award attorney’s fees. Dice did not appeal on liability.[1]
Decision or outcome
The Sixth Circuit decided three points on 14 June 2007.[1]
Damages for unused copies. The district court had reasoned that unused copies cast doubt on whether Thoroughbred would have made those sales. The Sixth Circuit disagreed: the Dealer Agreement required a licence fee for each copy and barred additional copies, so the causal link between the unused copies and Thoroughbred’s loss was the fee Dice should have paid. Relying on a Second Circuit decision that a reasonable licence fee can be actual damages, it held Dice liable for unpaid fees on all unauthorized copies “regardless of whether these copies were accessible to or used by Dice Corp.’s customers”, and noted that Dice’s access-control program did not change the fact that the copies were made. It directed entry of judgment for $183,794.25: $82,894.75 for the 17 unused Solution-IV installations and $100,899.50 for the 31 unused OPENworkshop installations.
Profits. The court affirmed the denial of Dice’s profits. Thoroughbred had offered its own retail price as a stand-in for Dice’s revenue from the software, and the court agreed with the district court that this was no measure of what Dice charged customers to rent the software. The court observed that Dice’s pricing, which did not allocate any fee to the software, made proof harder, but it still required evidence from which the revenue attributable to the software could be estimated.
Attorney’s fees. The district court had refused fees because no party except one dismissed individual defendant had “prevailed in full”. The Sixth Circuit held that this was the wrong test, since a prevailing party is one who succeeds on a significant issue, found that Thoroughbred had prevailed (its total actual damages were $213,424.50), and vacated the denial and remanded for the court to apply the discretionary factors.
The opinion does not say what the district court later decided on fees, and this article does not report it.
Significance for software licensing and SAM practice
The case is an example of a vendor-led audit that ended in a damages award against a customer, and it fixes how the damages were measured: by the licence fee that should have been paid, copy by copy.[1] The unusual feature is that the infringing copies included ones that were never used. For a licence manager the practical point is that the licence counted installed or authorized copies against fees paid, not only those in active use. Dice’s position that a verbal practice allowed it to install first and pay for what was used was not enough against a signed agreement that said otherwise.
The case also sits within the audit and over-deployment cases in software licensing litigation, alongside Wall Data v. Los Angeles County Sheriff’s Department and Attachmate v. Health Net. It is a decision under United States copyright law and the particular agreements in the case.
Lessons learned
- Unused copies still cost money. The court measured damages by the fee Dice should have paid for each unauthorized copy, whether or not anyone used it.[1]
- The signed agreement controls. The Dealer Agreement superseded the alleged verbal arrangement, so any practice the customer relies on should be written into the licence.[1]
- Blocking access is not authorization. Dice’s program to stop customers using extra copies did not remove its liability for making them.[1]
- Keep your own installation and authorization records. Dice disputed the audit method but the district court accepted the results, so records that can answer an audit count are the customer’s best protection.[1]