Year 2000 Copyright Maze

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By Steven L. Hock

Introduction

Now that the staggering costs most companies face to make their computer systems Year 2000 compliant have begun to sink in, smart companies should be conducting a careful legal audit of their licenses and other system-related agreements, as well as the representations that were made when those agreements were entered, to determine their rights vis-a-vis vendors of software and hardware products and services. Depending on what the agreements say and what representations were made, vendors may be obligated to participate in the "fix" or to help defray the costs. Vendors who refuse to recognize their obligations may be subject to lawsuits.

But in conducting the appropriate legal review, companies need to be aware that, like two-edged swords, system-related agreements cut both ways they not only confer rights but impose obligations. With "windows of failure" rapidly approaching and the pressure of time mounting for companies to get moving and keep moving on Year 2000 conversion projects, companies need to be careful not to infringe on the rights of vendors, especially intellectual property rights. One of the more troublesome areas confronting system users is the copyright maze surrounding most Year 2000 software conversion projects.

Infringement Claims By Licensors

Copyright infringement are likely to arise when a company assigns its own employees or outside vendors other than the original licensor to modify licensed software components. Much of the software in most company systems is licensed from third parties who own the software copyright. The license agreement or maintenance agreement may or may not address the licensee company's right to modify the software. If the agreement is silent on this issue or does not grant the licensee the right to do so, and the licensee nevertheless modifies the software, the licensor may claim that the licensee has infringed the licensor's exclusive right to create derivative works under 17 U.S.C. Section 106. A derivative work is broadly defined under 17 U.S.C. Section 101 to include a work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship. While it may be counterintuitive to think of software modifications to make systems Year 2000 compliant as works of "authorship", the case law concerning modifications to software make it clear that significant modifications to a licensor's copyrighted software may constitute copyright infringement, subjecting the party who made the modification to substantial liabilities.

For company facing time pressure to bring its systems Year 2000 compliant, this poses a dilemma. Many vendors are suggesting that Year 2000 compliant updates will be made available to licensees, but the release dates (not to mention the costs) are uncertain. Other vendors are unclear about the availability of Year 2000 compliant updates. Under the circumstances, many licensees may reasonably conclude that, in light of their own time windows of failure, waiting for the update and hoping that it is, indeed, Year 2000 compliant is not an acceptable alternative. They may conclude that the only viable alternative is to implement a "fix" utilizing internal IT personnel and/or outside vendors.

If they undertake such modification without the licensor's written permission, software licensees should anticipate the possibility of copyright infringement claims by licensors and should take steps to avoid them. First, licensees who expect to modify licensed software should review existing license and maintenance agreements to determine whether licensee modifications are permitted. If third party vendors other than the original licensor are going to be involved in making modifications, licensees must make certain that such third party involvement does not run afoul of contractual provisions. If the agreements do not permit modifications or are silent on this issue, the licensee should seek the licensor's permission to modify the software. If the licensor is not cooperative, the licensee should have counsel assist in building a written record designed to minimize liability for copyright infringement. Licensees who do not have the licensor's permission to make modifications should also assess the available defenses to a copyright infringement claim by the licensor.

One defense that may be available to licensees is the "fair use" doctrine. The fair use doctrine permits use of a copyrighted work for purposes that have traditionally included criticism, comment, news reporting, teaching, scholarship, or research, and provides that such use is not an infringement. Under 17 U.S.C. Section 107, the analysis of whether the use of a work is "fair use" includes the following factors: (1) the purpose and character of the use, including whether the use is commercial or for nonprofit educational purposes, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the work as a whole, and (4) the effect of the use upon the potential market for or value of the work. When applied to licensee modifications of software, the first factor may weigh against the licensee if the use of the software and the need for Year 2000 modifications relates to commercial purposes. Under the second factor, the software would be considered a creative work, deserving of strong copyright protection. The third factor may weigh against the licensee because a derivative work by its very nature incorporates a substantial portion of a prior work. Finally, the fourth factor should favor the licensee because the licensee's software modifications would not detract from demand for the licensor's software. The availability of the "fair use" defense will be strengthened if the licensee has built a strong record that the licensor has refused to accept responsibility for participating in the licensee's Year 2000 "fix" and that the licensee cannot depend on Year 2000 compliant upgrades from the licensor to meet the licensee's window(s) of failure.

Licensees may also claim that they may modify the software without infringing the licensor's copyright rights. Under 17 U.S.C. Section 117, the owner of a copy of a computer program does not infringe the copyright holder's rights by making or authorizing the making of another copy or adaptation of the computer program, so long as (1) the new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with that machine and it is used in no other manner, or (2) the new copy or adaptation is for archival purposes only and is not sold or transferred apart from the transfer of all of the copy owner's rights in the program. Under this provision of copyright law, the licensee could claim that the modification to the software is an essential step to fix a Year 2000 problem in the software in connection with a particular machine or machines for which the software is licensed.

Companies who hire outside vendors to correct Year 2000 problems in software developed independently by the company itself should address ownership of the copyright for the modified software. (Companies should also be aware of similar copyright ownership issues when they use their employees or independent contractors to modify licensed software, if the modification do no constitute copyright infringement as discussed above).Under the "work made for hire" doctrine, defined in 17 U.S.C. Section 101, the copyright in works prepared by company employees within the scope of their employment is typically owned by the employer. On the other hand, the copyright in works created by independent contractors hired by the company is presumed to be held by the contractor or vendor and not by the company. Works created by independent contractors qualify for the "work made for hire" doctrine only if the work fits within nine specified categories, and the parties agree in writing that the work is a "work made for hire". Year 2000 software modifications by independent contractors may not qualify for the "work made for hire" doctrine. Accordingly, companies should address copyright ownership in written agreements with Year 2000 "fix it" companies. Specifically, companies who already own the copyright to software created by their employees under the "work made for hire" doctrine should ensure that they own the copyright to any modifications made by outside vendors involved in their Year 2000 project.

Conclusion

Companies seeking to solve Year 2000 software problems face the copyright issues outlined above, as well as others. The issues can become exceedingly complex when the company's systems are the subject of multiple license agreements with several vendors, and where components of the systems are comprised not only of licensed software but software independently developed by the company itself. The issues should be addressed in conjunction with legal counsel as part of the company's complete Year 2000 compliance program.