Triad Systems Corp. v. Southeastern Express Co. was a dispute over who may service computers that run licensed software. Triad made computers and licensed software for automotive parts stores. Southeastern was an independent service organisation (ISO) that maintained Triad computers and so competed with Triad for service business. Triad sued in April 1992, alleging that Southeastern infringed its software copyrights when servicing licensees’ systems.[1]
Background
Triad’s copyrighted software included operating system (OS) software and service software, which technicians use to repair Triad software and hardware. Customers held their software under three arrangements.[1]
| Regime | Period | Terms |
|---|---|---|
| 1 | 1976 to 1985 | Software sold outright; customers own their copies |
| 2 | From 1986 | Software licensed; customers may not duplicate it or let third parties use it |
| 3 | From 1991 | As Regime 2, plus a licence transfer fee payable when a licensee sells its computer system |
Because Regime 1 customers owned their software, Triad conceded that Southeastern could not be barred from using it. The dispute concerned Regime 2 and 3 customers.[1] When a Southeastern technician serviced a Triad computer, the OS software and service software already on the customer’s machine were loaded into memory, and Triad argued that each load made a copy. A year into the case, the Ninth Circuit decided MAI Systems v. Peak Computer, which held that loading software into RAM makes a copy under the Copyright Act.[1]
The dispute
After a jury trial on infringement in early 1995, the jury found that Southeastern infringed Triad’s copyrights, and the district court directed verdicts against Southeastern’s fair use defence. It then granted a preliminary injunction that in essence barred Southeastern from servicing Triad systems containing licensed software. The injunction put the burden on Southeastern to determine whether a customer was a Regime 2 or 3 licensee. Triad had to provide the licence agreement on a customer’s written request, and if it did not do so within ten business days Southeastern could service that customer.[1] A panel stayed the injunction pending appeal. Separately, the district court had imposed Rule 11 sanctions on two Triad lawyers over a misleading declaration filed in support of an earlier injunction motion.[1]
Decision or outcome
The Ninth Circuit affirmed the preliminary injunction and reversed the sanctions.[1]
- Fair use. The court distinguished Sega v. Accolade. Southeastern was not reverse engineering for compatibility, but “commandeering its customers’ software” to use it for exactly the purpose for which it was designed. The use was commercial, copied entire programs, and reduced Triad’s licensing and service revenue.[1]
- Copyright misuse. The defence failed because, unlike in Lasercomb, Triad did not try to stop Southeastern or other ISOs from developing their own competing service software.[1]
- Breadth of the injunction. Southeastern argued the injunction would stop it servicing Regime 1 customers. The court held it did not, because the injunction required Southeastern to establish who owned their software and obliged Triad to supply the information, which prevented abuse.[1]
- Sanctions. The court reversed because, under the version of Rule 11 then in force, only the person who signed a court paper could be sanctioned for its contents, and the two lawyers had not signed the declaration.[1]
Significance for software licensing and SAM practice
- Sale versus licence changes who may service the system. A customer that owns its copy of the software has statutory rights to make copies needed to use it. A licensee that agreed not to let third parties use the software does not, so a maintainer’s use may be infringement.[1]
- Transfer terms in licences. Triad’s Regime 3 added a fee on resale of a system, an example of how a vendor can attach conditions to the secondary market for hardware that carries licensed software.[1] This decision did not rule on the validity of the transfer fee.
Lessons learned
- Whether a customer owns or licenses its software decides what outside maintainers may do. Triad conceded Regime 1 customers could let a service company use their software.[1]
- The maintainer must establish each customer’s status. The injunction put that burden on Southeastern and required Triad to supply the agreement on request.[1]
- Copyright misuse did not apply where the vendor left rivals free to write their own service software. The court affirmed summary judgment for Triad on that defence.[1]
Out of scope
This article does not cover the later trial of Southeastern’s antitrust counterclaims, or the later history of the MAI line of cases.