Court Orders U.S. Navy to Pay $154,400 in Software Piracy Damages

Six years ago, the US Navy was sued for mass copyright infringement and accused of causing hundreds of millions of dollars in damages.

The lawsuit was filed by German company Bitmanagement. It wasn’t a typical piracy case where software was downloaded from shady sources, but the end result was the same.

It all started in 2011 when the US Navy began testing Bitmanagement’s 3D virtual reality application ‘BS Contact Geo’. The Navy subsequently installed the software across its network, assuming that it had permission to do so.

This turned out to be a crucial misunderstanding. Bitmanagement said it never authorized this type of use and when it discovered that the Navy had installed the software on hundreds of thousands of computers, the company took legal action.

Bitmanagement Wins Appeal

In a complaint filed at the United States Court of Federal Claims in 2016, the German company accused the US Navy of mass copyright infringement and demanded damages totaling hundreds of millions of dollars.

The Court initially dismissed the complaint so Bitmanagement appealed. Last year, the Court of Appeals for the Federal Circuit sided with the German software company, concluding that the US Government was indeed liable.

The matter was reverted back to the Federal Claims court, to determine the appropriate damages amount through a ‘hypothetical negotiation’ process at a behind-closed-doors trial.

Millions or Thousands in Damages?

Over the past several months, the court heard both sides and a crucial expert witness. The goal was to establish what the Navy would have paid for the software licenses if an agreement had been reached.

The court also had to decide how many copies the Navy should pay compensation for. Bitmanagement claimed that over 600,000 copies were installed but the Court of Appeals specified that damages should be based on “actual usage” of the software.

To reach its final verdict the Federal Claims Court relied in part on testimony from the Navy’s expert witness, David Kennedy, who has vast experience with establishing damages claims.

After reviewing various log files, Mr. Kennedy concluded that the software was used by a few hundred unique users at most. In addition, he believes that it’s reasonable that Bitmanagement would have agreed to a price of up to $200 per license.

This figure is lower than the $370 per install that was negotiated earlier. However, the expert witness believes that this is warranted due to the large volume of the deal and the fact that the software company’s cash position was rather low at the time.

Court Awards $154,400

Federal Claims Court Judge Edward J. Damich largely agrees with this expert opinion. In his order, he awards $154,400 in total damages.

The damages figure is based on 635 unique users and a license fee of $200. The court also awards an additional $350 for each of the 100 simultaneous-use licenses the Navy would have agreed to.

Judge Damich notes that these conclusions are supported by “objective considerations”, adding that the damages amount is “fair and reasonable”.

Whether Bitmanagement agrees with this conclusion has yet to be seen. The company requested $155 million in damages, arguing that the Navy has installed 600,000 copies of its software, for which it should have paid ~$259 a piece.

The $154,400 in compensation represents a tiny fraction of the claim, even if we add an award for delayed compensation, which will be established later.

—

A copy of the Federal Claims Court’s order, granting Bitmanagement $154,400 in copyright infringement damages is available here (pdf)