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In Bitmanagement Software GMBH v. United States, Case No. 23-1506 (Fed. Cir. Jan. 7, 2025), the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) denied the appeal of Bitmanagement Software Gmbh (Bitmanagement) challenging the Court of Federal Claims’ (COFC) $154,400 damages award, and denying its demand for $85 million in damages resulting from the Navy’s infringement of Bitmanagement’s software copyright.  The Federal Circuit affirmed the COFC’s (1) use of a hypothetical negotiation approach to compute damages; and (2) decision to award damages using a “per use” rather than a “per copy” approach.

The Navy licensed a three-dimensional software product from Bitmanagement titled “BS Contact Geo” under a “floating license” that permitted a wide range of computers to access the software.  But the Navy was required and agreed to use a tracking application called “Flexera” to restrict the number of simultaneous users, in this case, to 33.  However, Flexera did not operate as intended and did not restrict the number of users.  Ultimately, BS Contact Geo was accessible by 429,000 computers. 

Bitmanagement sued the government in the COFC for copyright infringement under 28 U.S.C. § 1498.  Although the COFC denied the claim, the Federal Circuit reversed, finding that the Navy infringed Bitmanagement’s copyright and remanding the case to the COFC for a calculation of damages.  On remand, Bitmanagement argued that it should receive a license fee for all 429,567 copies of the software that the Navy made, which, Bitmanagement argued, amounted to $85,913,400.

The COFC and the Federal Circuit disagreed.  The COFC awarded damages “based on the number of copies of BS Contact Geo that were used by the Navy, rather than every copy of the software the Navy made,” and the Federal Circuit affirmed that approach.  The Federal Circuit noted that (1) there is no legal requirement to award copyright infringement damages on a per copy basis; and (2) there is legal authority supporting the position that calculation of damages on a usage basis is permitted.  Moreover, there were certain factual determinations made in the first COFC decision that were not previously challenged, including (1) Bitmanagement’s course of conduct in other negotiations; and (2) Bitmanagement’s precarious financial condition at the time the hypothetical negotiations would have taken place.

Finally, the Federal Circuit addressed the burden of proof with respect to the issue of usage.  Because the software failed to limit usage as intended, the evidentiary record on how many copies were actually used was spotty, and the COFC seemed to rely on some available usage logs and witness testimony.  Bitmanagement argued that the burden of proof should be on the Navy because it was the infringer.  The Federal Circuit stated that the COFC did place the burden of proof on the Navy, but that “if actual damages can not be ascertained with precision because the evidence available from the infringer is inadequate, damages may be estimated on the best available evidence, taking cognizance of the reason for the inadequacy of proof and resolving doubt against the infringer.”  Id. at 20 (emphasis in original) (citing Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1572 (Fed. Cir. 1996)).  The Federal Circuit observed that:

The trial court proceeded in a manner consistent with this directive, which permitted it, in its role as factfinder, to credit the government’s best available evidence over Bitmanagement’s failure to offer contrary evidence.

Id.  at 20-21.

Because Bitmanagement had no insight into the Navy’s actual usage, it is unclear how it could have presented additional evidence of usage.  Nevertheless, in the end, the Federal Circuit found no basis to reverse the COFC.

At bottom, Bitmanagement serves as a lesson to contractors that provide software to the Government that they should consider negotiating standard license terms that calculate fees based on copies, and that establish audit or similar rights that allow for the tracking or reporting of copies made and used.

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Photo of John E. McCarthy Jr. John E. McCarthy Jr.

John E. McCarthy, Jr. is a partner in the Washington, D.C. office of Crowell & Moring and member of the firm’s Government Contracts Group. John has spent more than thirty years litigating all forms of government contracts cases for both large and small…

John E. McCarthy, Jr. is a partner in the Washington, D.C. office of Crowell & Moring and member of the firm’s Government Contracts Group. John has spent more than thirty years litigating all forms of government contracts cases for both large and small government contractors, with a particular emphasis on bid protests. Because of John’s strong engineering background, he has particular experience in technology related issues, including litigation regarding complex technology and data rights, patent and other intellectual property issues.

Photo of Jonathan M. Baker Jonathan M. Baker

Jonathan M. Baker is a partner in Crowell & Moring’s Washington, D.C. office. He practices in the Government Contracts Group.

Jon advises clients on a wide array of government contracts legal issues, including both federal and state bid protests, prime-sub disputes, government contracts…

Jonathan M. Baker is a partner in Crowell & Moring’s Washington, D.C. office. He practices in the Government Contracts Group.

Jon advises clients on a wide array of government contracts legal issues, including both federal and state bid protests, prime-sub disputes, government contracts due diligence and transactions, regulatory compliance, and contract terminations. Jon’s practice has a notable emphasis on technology-related issues, including counseling clients in the areas of patent and data rights, responding to government challenges to technical data and computer software rights assertions, and litigating cases involving complex and cutting edge technologies. Jon also provides guidance on national security matters, such as National Industrial Security Program Operating Manual compliance and facility and security clearance matters. In addition, Jon has advised clients on local government contract negotiation, internal and government investigations regarding potential False Claims Act issues, and export violations. Jon is also actively involved in the firm’s pro bono program, having litigated prisoner neglect, parental rights termination, and landlord-tenant matters.

Photo of Nicole Owren-Wiest Nicole Owren-Wiest

Nicole Owren-Wiest is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group in the firm’s Washington, D.C. office. Nicole is nationally ranked by Chambers USA in Government Contracts and a recognized leader in two of the most…

Nicole Owren-Wiest is a partner and member of the Steering Committee of Crowell & Moring’s Government Contracts Group in the firm’s Washington, D.C. office. Nicole is nationally ranked by Chambers USA in Government Contracts and a recognized leader in two of the most complex areas in government contracting: accounting, cost, and pricing, and intellectual property/data rights. With over 20 years’ experience, Nicole has a broad counseling and dispute-resolution practice and leads the Group’s cost accounting practice, which focuses on helping clients navigate the government’s complex cost and pricing rules, including the FAR Part 31 cost principles, the Cost Accounting Standards (CAS), and Truth in Negotiations Act/Truthful Cost or Pricing Data (defective pricing).

Photo of Michael Samuels Michael Samuels

Michael Samuels is a counsel in Crowell & Moring’s Government Contracts Group. His practice involves counseling and representing government contractors on a wide range of issues.

Photo of M.Yuan Zhou M.Yuan Zhou

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to…

M. Yuan Zhou is a counsel in the Washington, D.C. office of Crowell & Moring, where she is a member of the firm’s Government Contracts Group.

Yuan’s practice includes a wide range of investigatory, counseling, and transactional capabilities, including: internal investigations related to the False Claims Act, the Procurement Integrity Act, and other civil and criminal matters; compliance reviews and enhancing contractor compliance programs; representing clients in suspension and debarment proceedings; counseling on data rights issues, challenges, and disputes; mandatory disclosures; and providing government contracts due diligence in transactional matters. As part of the firm’s State and Local Practice, Yuan also counsels clients on state and local procurement issues, ranging from bid protests to contract negotiations with state agencies, and advises prime contractors and subcontractors on a variety of issues including prime/sub contract formation, disputes, and other government contracts issues.

Photo of Christopher D. Garcia Christopher D. Garcia

Christopher Garcia is a counsel in the Washington, D.C. office of Crowell & Moring, where he is a member of the firm’s Government Contracts Group.

As part of his government contracts practice, Chris conducts internal investigations regarding False Claims Act issues and defends…

Christopher Garcia is a counsel in the Washington, D.C. office of Crowell & Moring, where he is a member of the firm’s Government Contracts Group.

As part of his government contracts practice, Chris conducts internal investigations regarding False Claims Act issues and defends against related government inquiries and investigative demands. Chris also assists clients with technology-related issues, including counseling clients in the areas of patents and data rights, and defending against government challenges to technical data and computer software rights assertions. In addition, Chris performs government contracts due diligence for buyers in transactional matters, representing government contractors in a range of industries. As part of the firm’s State and Local Practice, Chris also counsels clients on state and local procurement issues, including reviewing state and local opportunities, and leading negotiations with government customers regarding contractual terms and conditions. Chris also advises contractors on the federal Freedom of Information Act as well as state-level public records laws. He has counseled contractors in numerous reverse-FOIA actions at the federal and state levels.