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By | OUT-LAW.COM 10th November 2005 09:48

Supremes won't review freelancer's source code defeat

Consultant wasn't consulted

The US Supreme Court has refused to hear an appeal against a ruling that said a company could modify programs written by an independent consultant, without his consent. The case serves as a reminder of the need to have written agreements in place with freelancers.

The case dates back to 1996, when consultant programmer William Krause parted company with title insurance firm Titleserv after 10 years of service. During that period he had written over 35 programs for the firm, eight of which became the subject of a lawsuit.

Unfortunately for Titleserv, the question of ownership and copyright in the programs had never been fully agreed, and on his departure, according to court papers, Krause took with him the only copies of the source code for two of the disputed programs, leaving copies of the other six.

Working versions of all eight programs were installed on the Titleserv’s servers, but had been locked, so that the source code behind them was inaccessible. Krause told Titleserv that they could continue to use the programs, but had no right to modify the source code.

Titleserv sued in July 1996, alleging misappropriation of its property.

In the meantime, Titleserv staff managed to access the source code, and modified it slightly, in order to keep things running smoothly until the firm could develop a newer system. Krause then filed his own suit, alleging copyright infringement.

The District Court ruled against him, finding that Titleserv’s use and modification was protected under the US Copyright Act. This Act gives a defence to anyone who owns a physical copy of a computer program, adapts it as “an essential step in the utilisation of the computer program in conjunction with a machine,” and does not use it in any other manner.

Krause appealed, but lost his case in March this year when the US Appeal Court for the Second Circuit upheld the lower court ruling.

In effect, the case hinged on the question of ownership – the ownership of copies of the disputed program.

According to the Appeal Court, “formal title in a program copy is not an absolute prerequisite to qualifying for [the Act’s] affirmative defense.” In its opinion, the question was:

“whether the party exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of [the Act]. The presence or absence of formal title may of course be a factor in this inquiry, but the absence of formal title may be outweighed by evidence that the possessor of the copy enjoys sufficiently broad rights over it to be sensibly considered its owner.”

On this occasion, said the Court, Teleserv had paid a considerable price for the programs, which had been customised for its needs. Krause had not reserved any rights to take the programs back, said the Court.

According to CNET, the Supreme Court has now refused to take the case further.

See: Appeal Court ruling (21-page / 101KB PDF)

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OUT-LAW.COM is part of international law firm Pinsent Masons.

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