By David M. Nadler and Jon D. Grossman
I. INTRODUCTION
Much has been said about the need to repair software that is not Year 2000 compliant. However, there can be significant consequences for third party vendors that endeavor to repair software when that party does not have the right to copy and modify the software. As the copyright owner typically possesses these rights, unauthorized repair efforts could give rise to a claim of copyright infringement. The issue then arises whether the "fair use" doctrine is an effective defense to copyright infringement when the owner of the software is unable or unwilling to renovate the software.
When software is licensed, the rights of the owner and licensee are defined in the license agreement which normally contains restrictions on the use of the software. Typically, a licensee may make one copy of the software for archival purposes and is restricted from making derivative works or modifications even for repair purposes. In other words, the licensee is expected to return the software to the original vendor for all program fixes.
When repair issues arise, the licensee may be confronted with several possible scenarios. First, the original vendor may be unavailable to make the Year 2000 renovations. For example, the software may be old and the original vendor may no longer exist, or if it does, it may no longer service the software. A second scenario is one in which the vendor is unable to make the Year 2000 renovations. In this scenario, the vendor is either out of the service business or the renovation effort is proceeding too slowly or is otherwise unsatisfactory. A third scenario is one in which the vendor is unwilling to make the Year 2000 renovations. The fourth scenario is one in which the licensee simply does not wish to utilize the licensor's Year 2000 capabilities, preferring to make the renovations itself or through a third party.
This article explores the viability of the "fair use" defense to copyright infringement in the context of Year 2000 renovations and the four scenarios described above.
II. THE FAIR USE DEFENSE
While U.S. Copyright Law confers upon the copyright owner certain exclusive rights to make copies and prepare derivative works of the copyrighted work, 17 U.S.C. § 106 et seq., it also permits uses in certain circumstances that would otherwise constitute an infringement. Courts look at four factors to determine if a use is "fair use": (1) the nature and character of the use, whether for commercial or non-profit educational uses; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the whole work; and, (4) the effect of the use on the potential market for or value of the copyrighted work. 17 U.S.C. § 107.
While these factors are not dispositive, courts rely on them for guidance in determining if a use has overcome the presumption that the defendant's use is not a "fair use." In other words, because the fair use exception to copyright law is an affirmative defense to a copyright infringement, the party asserting the exception bears the burden of proof to show that the defense is applicable to its particular situation. Courts that have directly addressed the issue of software repair have held that copying and modifying software for the purposes of service or repair is not a "fair use." Allen-Myland v. IBM, 746 F. Supp. 520, 534 (E.D. Pa 1990); Advanced Computer Services of Michigan, Inc. v. MAI Systems Corp., 845 F. Supp. 356, 364-66 (E.D. Va. 1996); Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1335-37 (9th Cir. 1995); Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 843-45 (11th Cir. 1990). Therefore, the Year 2000 renovator is fighting an uphill battle to establish that Year 2000 repair work is a fair use.
III. THE FAIR USE FACTORS APPLIED TO THE YEAR 2000
A. The Purpose and Character of the Use
The purpose inquiry determines whether the use has a commercial profit making or non-profit educational purpose. The nature of the use also inquires whether the use is for criticism, comment, news reporting, teaching, scholarship, research or some other use. The courts must balance the commercial and non-commercial purposes of a use to determine if this factor weighs for or against a finding of fair use. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584-85 (1994). In Campbell, the U.S. Supreme Court held that while a commercial purpose militates against a finding of fair use, it is only one element of the first factor inquiry. Campbell, 510 U.S. at 584. Similarly, while a non-profit educational purpose will usually weigh in favor of fair use, such a use does not necessarily avoid a finding of infringement. Id. Additionally, courts have considered the public benefits of the use such as "the development of art, science, and industry," or enhancing competition and other market factors. Advanced, 845 F. Supp. at 365. This balancing should weigh in favor of a Year 2000 fix.
While copying for a commercial purpose weighs against a finding of fair use, the commercial nature of a use is looked at by courts as a matter of degree. Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539, 562 (1985). Sometimes a use may be only intermediate in its commercial character, and thus any commercial "exploitation" may be an indirect result of what is primarily a non-commercial use. The U.S. Court of Appeals for the Ninth Circuit, for example, approved a situation in which a party reverse engineered and produced copies of a copyright holder's software solely to discover the functional requirements and interface specifications of the Sega Genesis console to develop games to run on the console. Sega Enterprises, Ltd. v. Accolade, Inc., 977 F.2d 1510, 1522 (9th Cir. 1992). The court held that this use was fair because once the defendant learned the specifications, it proceeded to invest considerable time and labor to develop its own non-infringing creative games. Moreover, the defendant's identification of the Genesis interface specifications led to an increase in the number of independently designed video game programs offered for use with Genesis. The court considered this to be a significant public benefit. Id.
Moreover, the courts are free to consider the public benefit resulting from a particular use notwithstanding the fact that the alleged infringer may gain commercially. Sega, 977 F.2d at 1523. Public benefit need not be direct or tangible, but may arise because the challenged use serves a public interest. Id. Under an equitable rule of reason, a commercial use whose effects weigh far more heavily on the side of public benefit than personal gain should be considered fair because such a use promotes the policies underlying the grant of copyright.
The Year 2000 vendor in each of the scenarios described above is seeking to repair the licensee's software for commercial gain is axiomatic. However, given the potential societal impact of the Year 2000 problem, becoming compliant also supports important public policy goals. Consider some of the more extreme possibilities that could result from the Year 2000 bug - computers may ground airlines because their planes are 99 years overdue on maintenance; patients may have deadly doses of medication served to them because the hospital's computers improperly calculated their age; and banks may fail when their computers credit depositors' accounts with 99 years in unpaid interest. There is no doubt that avoiding this Year 2000 parade of horribles benefits the public and advances the constitutional purposes of the Copyright Act, particularly when the copyright owner is unable to effect the renovation in time.
Further, when the owner refuses to fix the Year 2000 problem or is unavailable, the situation is much more like Sega, i.e., there is no other legitimate approach to making the needed repair. In these instances, the renovator's repair is necessary and likely to be characterized as a "fair use."
B. The Nature of the Software
The second factor analyzes the creative character of the work and weighs in favor of fair use if the purpose or character of the work is "informational," "functional," or "factual," rather than "creative." Advanced, 845 F. Supp.at 365; Sega, 977 F2d at 1524. Thus, fictional works are more protected than factually based works such as biographies. Sega, 977 F2d at 1524. Additionally, a substantial investment in the work made in anticipation of a financial return weighs against a finding of fair use. See MCA, Inc. v. Wilson, 677 F.2d 180, 182 (2nd Cir. 1981).
Generally, this factor will weigh in favor of fair use when the software is educational or public interest software, even if it is being repaired by a company for its commercial benefit. If the court's focus is the purpose of the repair itself, it may characterize that repair as having some public benefit. Nonetheless, if the underlying computer programs do not fit in these categories and they involve substantial investment and development expense, the "nature of the software" factor weighs against the renovator in the fair use analysis.
C. The Extent of Copying
The extent of copying is a matter of the quantity copied and the quality or import of the portion copied. Copying an entire work obviously weighs against a finding of fair use as does copying only a portion of the copyrighted work when the copied portion is an essential part of the work. IBM, 746 F. Supp. at 534-44; Advanced, 845 F. Supp. at 366. Whole copying, however, does not necessarily preclude a finding of fair use. See Sony Corp. of America v. Universal City Studios, 464 U.S. at 449-50 (1984). In the Year 2000 context, the renovator must view the entire work to ensure that all occurrences of dates have been upgraded. Thus, almost by definition there is a need for substantial copying. As a result, this factor weighs against the renovator in the fair use analysis.
This conclusion is not altered by the fact that the copying may be transitory. That is, the Year 2000 renovator may only need to copy the source code for a transitory period of time to locate and correct date-sensitive code after which the copies may be destroyed. The courts have held that any copying, even the transitory copying of computer software from a magnetic storage device into a computer's memory constitutes copying for the purposes of copyright infringement. See MAI Systems Corp. v.Peak Computer Inc., 991 F.2d 511 (9th Cir. 1993), cert denied 510 US 1033 (1994) . The courts considering the issue have followed Peak, holding that the very copying of code into RAM is considered an infringing use per se. See Triad Systems Corp. v. Southeastern Express Co., 31 U.S.P.Q.2d 1239, 1994 WL 446049 (N.D. Cal. 1994); Advanced, 845 f. Supp. at 360; Bell Atlantic Business Systems Services, Inc. v. Hitachi Data Systems Corp., 1995 WL 836331, 8 (N.D. Cal. 1995). Nonetheless, the copying may be excused if the purpose is to discover underlying problems, the repair of which serves a valid public purpose. See Sega. Therefore, third party renovators lacking specific authorization from the copyright owners may find that this fair use factor can go either way depending on the purpose of the copying.
Some relief from this factor may come from the Congress. Legislation is pending that addresses the Peak decision. If passed, H.R. 72, "The Computer Maintenance Competition Assurance Act of 1997" will overrule Peak and allow a copy of a computer program to be made in connection with the maintenance or repair of the computer. On the other hand, Peak and its progeny is about an independent computer servicing organizations use of software in connection with the repair of computer hardware. Whether the final wording of H.R. 72 will permit repair of the software itself remains to be seen.
D. The Effect of the Use on the Market for the Copyrighted Work
The fourth factor is "undoubtedly the single most important element of fair use." Harper & Row, 471 U.S. at 566. "A use which does not materially impair the marketability of the copyrighted work will be deemed fair." N.A.D.A. Servs. Corp. v. Business Data of Va., Inc., 651 F. Supp. 44, 48 (E.D. Va. 1986). This inquiry, however, must also account for the impact on the market for derivative works and other forms of exploitation of the w