The dispute centers on the government’s use of TETRA® software, developed by 4DD Holdings, LLC. The Department of Defense and Department of Veterans Affairs sought to improve data interoperability for healthcare records and decided to purchase commercial software. After a competitive process, Systems Made Simple (SMS), the government’s contractor, selected TETRA. The government acquired licenses for specific numbers of TETRA’s components through an authorized reseller, Immix Technology, Inc., with explicit restrictions on copying. However, SMS exceeded license limits by making thousands of unauthorized copies during development and testing. 4DD discovered these excess copies and initiated negotiations, ultimately settling for payment for additional cores at the previously agreed license rate. The government later ended its use of TETRA.

The United States Court of Federal Claims reviewed the case after 4DD filed suit for copyright infringement. During discovery, evidence destruction by the government led to sanctions. Following a bench trial, the court found the government had significantly exceeded its licenses and assessed damages using a hypothetical negotiation approach, considering factors like the existence of alternative software and the nature of the use, instead of defaulting to the rates in the licensing agreements. The court awarded $12,683,065.86 in damages, including compensatory and non-compensatory (statutory) damages.

The United States Court of Appeals for the Federal Circuit examined whether damages should be calculated by reference to the license rates or through a hypothetical negotiation. The court held that neither statute nor precedent compels using the license agreement rates for damages; courts may use hypothetical negotiations when material differences exist between licensed and infringing uses. However, the trial court erred by considering unforeseeable future events (like TETRA’s cancellation) in its damages analysis and by awarding non-compensatory statutory damages against the government. The Federal Circuit affirmed in part, vacated in part, and remanded for further proceedings. View “4DD HOLDINGS, LLC v. US ” on Justia Law