Background
The Department of Defense and the Department of Veterans Affairs sought to improve data interoperability through the Defense Medical Information Exchange program. They licensed TETRA software from 4DD Holdings, LLC, through a reseller, with strict limits on copying. The government’s contractor, Systems Made Simple, made thousands of unauthorized copies during development. After the government ended the project, 4DD sued for copyright infringement, seeking over five billion dollars. The Court of Federal Claims awarded approximately twelve million dollars using a hypothetical negotiation framework.
The court’s reasoning
The Federal Circuit held that while past license rates are evidence, they do not legally control damages when the infringing use is not analogous to the licensed use. The court affirmed the use of a hypothetical negotiation to determine reasonable compensation. However, the court found legal error in the trial court’s application of the book of wisdom doctrine. The trial court improperly considered the government’s future decision to cancel the project, which was unforeseeable at the time of the hypothetical negotiation, to weaken 4DD’s bargaining position. The court also found error in awarding increased statutory damages for willful infringement, as Section fourteen ninety-eight of title twenty-eight limits recovery to compensatory damages.
What it means going forward
The case establishes that hypothetical negotiations remain the proper method for calculating damages when license terms do not match the scope of infringement. It clarifies that the book of wisdom cannot be used to penalize an infringer for events that were not foreseeable at the time of infringement. It also reinforces that sovereign immunity waivers for copyright infringement do not extend to punitive damages.