Author: Zhong Yi, Liu Jiayin [Shanghai Runhe Law Firm]

In the trial of the case of software copyright infringement, how to determine the amount of damages in the event that the software involved in the case has been taken off the market? Will it affect the determination of the infringement and the amount of compensation if the infringer purchases the upgrade version of the software involved in the case after the litigation procedure begins? The following restatement of the Case will discuss such issues.

Part 1. Brief Introduction to the Case of the First Instance

The Plaintiff alleged: The Plaintiff is the copyright holder of the software involved in the Case. One day in 2008, the Copyright Bureau of Z Province inspected the Defendant's business place and found 2 computers in which each installed one software involved in the Case. The Defendant's copy and commercial use of the software of which the Plaintiff holds copyright without the Plaintiff's authorization infringe upon the legitimate rights and interests of the Plaintiff. The Plaintiff requests the Court to decree that the Defendant should (1) immediately cease the infringement; (2) compensate the Plaintiff for the losses; (3) be given a civil sanction; and (4) bear the litigation costs of the Case.

The Defendant argued: The Defendant bought a software involved in the Case in 2003[1], and it was not used for the change of the business scope of the Defendant's company. The Defendant bought the upgrade version of the above-mentioned software during the trial of this Case whose price is much lower than the Plaintiff's claims. Even if the Defendant's activities constitute infringement, the liability for damages should be limited to the price of the upgrade version the software of that the Defendant bought. The Defendant requests the Court to overrule all the Plaintiff's claims.

The issues of the Case of the first instance: 1. whether the infringement the Plaintiff alleged could be established; 2. how does the Defendant bear the civil liabilities.

Upon hearing the Case, the Court of the first instance verified that: The software involved in the Case is the software work developed and finished by the Plaintiff, and it was registered at the US Copyright Office one day in 2004. One day in 2008, the Copyright Bureau of Z Province jointly with the Copyright Bureau of Y City inspected the software installed in the computers used in the Defendant's company and found there were 2 computers in which each installed 1 software involved in the Case. One day in 2008, the Defendant bought the upgrade version of the software bought in the early days from Company C (the sales agent of the Plaintiff's products).

The Court of the first instance held that: 1. The Plaintiff enjoys the copyright of the software involved in the Case. The Defendant failed to prove the legal sources of the software involved in the Case or the legal authorization from the Plaintiff. The Defendant, a design and manufacture company of a kind of product installed the software involved in the Case (a professional design software) in the computers in its business place, which is the commercial use of the software involved in the Case. The Defendant infringed upon the software copyright of the Plaintiff and should bear the compensation liability.

2. The damages of the copyright holder of the software may be equal to the market price of the software normally licensed or sold. However, the market price of the computer software gradually declines with the upgrade of software version and the software will finally be taken off the market. In addition, the upgrade version of the software involved in the Case that the Defendant bought during the trial of the Case was only a small part of the data packet of the software involved in the Case. The compensation amount the Defendant should bear will be comprehensively determined according to the above-mentioned factors.[2]

3. The Defendant had deleted the related infringing copies of the software. The Plaintiff's claim of ceasing infringement should not be supported.

4. For that the Defendant's infringing act was not serious in nature and it had ceased infringement and continued to buy the software of the Plaintiff, the decree for compensation is enough to make up for the Plaintiff's losses. Therefore, the Plaintiff's claim of giving a civil sanction to the Defendant should not be supported.

In a word, the Court of the first instance rendered a judgment that the Defendant should compensate the Plaintiff's losses and rejected other claims of the Plaintiff. The Defendant should bear the legal costs of the first instance.

Part 2. Brief Introduction to the Second Instance of the Case

The Appellant didn't agree with the judgment of the first instance and appealed to the Higher People's Court of Z Province.

The Appellant (the Defendant of the first instance) alleged that: 1. The software involved in the Case was used by the intern for personal study. The Appellant had never used it for commercial purposes and didn't infringe upon the Appellee's copyright. 2. The compensation amount of the first instance was too high. The Appellant requests the Court to abrogate the judgment of first instance and reject the claims of the Appellee.

The Appellee (the Plaintiff of the first instance) argued that: The facts were clearly ascertained and the evidences were sufficient. The law applied was correct, and the Appellee requests the Court to affirm the judgment of the first instance.

The Court of the second instance held that: The Appellant infringed upon the Appellee's copyright of the software involved in the Case, and the compensation amount determined in the first instance is correct.

In a word, the Court of the second instance dismissed the appeal and affirmed the original judgment.

Part 3. The Restatement of the Key Points of the Trial

1. If the software involved in the Case has been taken off the market, how to determine the damages?

In general, the damages of the copyright holder of the software may be equal to the market price of the software normally licensed or sold. Since the software involved in the Case has been off the market, the damages determined directly according to the market price at the same period of the software involved in the Case or the current market price of the upgrade software cannot accurately reflect the actual losses of the right holder. The judges of the Case reduced the market price at the same period of the software infringed so as to determine the compensation amount, comprehensively taking into consideration the market price at the same period of the software, the current market price at which the related software was bought, the nature of the infringement, the general rule of selling commercial software and etc.

2. Will it affect the determination of the infringement and the damages if the infringer buys the upgrade version of the software involved in the case after the litigation procedure begins?

It is the subsequent remedy that the infringer buys the upgrade version of the software involved in the case after the litigation procedure begins, which does not affect the determination of the infringement. Whether it would affect the compensation amount, it should, in our opinion, be treated distinctively according to the following conditions:

Suppose that: R1, R2 and R3 are all the software of the right holder, and R2 and R3 are upgrade versions of R1.

Condition 1: In the event that the infringer uses R2 without permission after he/it buys R1 and he/it buys the upgrade service and gets the authorization of R3 after the litigation procedure begins;

If the infringer only takes the upgrade price as the evidence to calculate the compensation of the software involved in the case, it may not be supported by the judges (the judges of both the first instance and the second instance did not support such defense).

If the infringer takes the upgrade price that he/it has bought as the evidence to request the court to balance out or deduct such amount when the court determines the compensation amount, in our opinion, the following further analysis should be made to decide whether it would be supported by the judges:

Condition 2: If the infringer uses R2 without permission after he/it buys R1, and he/it buys the upgrade service and gets the authorization of R3 based on R2 after the litigation procedure begins;

In our opinion, for that the infringer does not have legal authorization of R2, he/it is not entitled to upgrade R2 to R3. Therefore, such buying behavior does not have substantial influence on the determination of compensation amount.

Condition 3: If the infringer uses R2 without permission after he/it buys R1, and he/it buys the upgrade service and gets the authorization of R3 based on R1 after the litigation procedure begins; if the price of the upgrade from R1 to R2 is roughly equivalent to the price of the upgrade from R1 to R3, the infringer takes the buying of the upgrade software as the evidence to request the court to balance out the amount or to directly exempt the compensation liability when the court determines the compensation amount;

In our opinion, the judges may consider to accept the above-mentioned defenses of the infringer. According to relevant laws and judicial interpretations[3], the principle of the IPR compensation system of our country is to compensate the actual losses. If the subsequent remedies of the infringer recovers the actual losses of the right holder, it would lack the bases upon law to request the infringer to continue to bear the compensation liability (the factors should be discussed separately and are not included in the consideration of this article, such as the reasonable expenses the right holder spends to prevent the infringement, the illegal gains of the infringer which are apparently higher than the market price of the software, the civil sanction and etc.).

In addition, in cases of the infringement upon software copyrights, the infringer sued may usually make a defense that it is the reasonable use of the software involved in the case or it is the infringement of the staff individually. In the event that the infringer indeed needs to use the software involved in the case for its business, and he/it cannot offer the evidences to prove that it is the reasonable use of the software involved in the case or is the infringement of the staff individually or to prove that he/it has the legal authorization from the copyright holder or has the legal sources of the product involved in the case, usually the court will not accept such defenses of the infringer.