IP Law Daily, COPYRIGHT—E.D. Wis.: One percent solution: A tiny amount of borrowed source code might be enough to constitute a derivative work, (Apr 17, 2023)

By Matthew Hersh, J.D.

A court refers the question to the Register of Copyrights for her judgment.

The incorporation by a software developer of even 0.33 percent of pre-existing code from a different program might be enough to require the registration of the resulting code as a derivative work, the federal district court for Milwaukee has held. The court, in referring the question of the validity of the registration to the Register of Copyrights, emphasized that the question was “a subtlety on which the Register’s experience would be useful” (PalatiumCare, Inc. v. Notify LLC, April 13, 2023, Stadtmueller, J.).

The opinion arises out of a dispute between two companies that provide software for emergency call systems for senior living facilities. PalatiumCare, Inc., the owner of the software copyright in question, sued its competitor Notify LLC for copyright infringement. The competitor, alleging that the copyright was obtained fraudulently, moved the court for an order referring the matter to the Register of Copyrights. That motion led to this opinion.

Referral to Register. The court granted the motion to refer. Under the Copyright Act, a registration can be invalidated if it turns out to have been granted based on the knowing misrepresentation of an applicant. In any case in which such a knowing misrepresentation is alleged, under the Act, “the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.” The court found that this standard was met—but it required several steps to reach this conclusion.

The court first found, as a threshold issue, that the competitor’s mere allegation of a misrepresentation, without more, was not enough to trigger referral. To be sure, the court noted, Congress did not intend that the moving party prove the existence of a misrepresentation. But under applicable circuit caselaw, the court noted, “something more than a bare, unsubstantiated allegation of an inaccuracy on a copyright registration application is required before a referral will be ordered.” The allegations would therefore have to be examined more rigorously.

But even under that evidentiary standard, the court held, the competitor’s allegation of a misrepresentation warranted referral. The question was whether the copyright holder made a misrepresentation that its software was not a derivative work. The company clearly knew that it had borrowed a small amount of software—0.33 percent of its code to be precise—and it didn’t say so on its application. Was it required to? The company pointed to the Copyright Office’s internal manual, which noted as an example that, if software is made up of one percent code from a prior version, it does not constitute a derivative work. But that example involved the borrowing of software from one’s own prior work. Here, the copyright holder had borrowed code from someone else’s work. The question was “a subtlety on which the Register’s experience would be useful,” the court reasoned.

Moreover, the court noted, the copyright holder had plausibly made one other misrepresentation, this one about the authorship of its code. The code was created by third-party contractors, rather than employees. To be sure, the court noted, the contractors had some sort of work for hire contracts in place—but those agreements did not explicitly identify the specific code as the work being created or that it was being created as a work made for hire, nor were the agreements even signed between the parties. That was enough to warrant referral, the court held.

The case is No. 22-CV-217-JPS.

Attorneys: Daniel T. Flaherty (Godfrey & Kahn SC) and Andrew Ong (Goodwin Procter LLP) for PalatiumCare Inc. a/k/a PalCare. Andrew Muller (Muller Muller and Associates PLLC) and Garet K. Galster (Smith Keane LLP) for Notify LLC and Lucas Narbatovics.

Companies: PalatiumCare Inc. a/k/a PalCare; Notify LLC

Cases: Copyright WisconsinNews