Software Company Still Fighting US Navy Over Millions in Hacking Damages *TorrentFreak

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The battle against software piracy between the US Navy and German software company Bitmanagement is coming to an end. After a long fight in the United States Federal Court of Claims, only the extent of the damage remains to be determined. After a recent closed-door hearing, the final figure could be between $115,000 and $155,400,000.

The US government routinely goes after companies and individuals who infringe copyright, both at home and abroad.

That doesn’t mean there aren’t copyright issues within its own ranks.

Six years ago, the US Navy was sued for massive copyright infringement by German software provider Bitmanagement, which sought hundreds of millions of dollars in damages.

Software company sues US Navy

The lawsuit is not a typical hacking case in the sense that naval officers downloaded software from shady sources, but the end result is the same.

It all started in 2011 when the US Navy started testing Bitmanagement’s 3D virtual reality application “BS Contact Geo”. After some testing, the Navy installed the software on its network, assuming it had permission to do so.

bs contact geo

This turned out to be a crucial misunderstanding. Bitmanagement said it never authorized such use and when it learned that the Navy had installed the software on 558,466 computers, the company took legal action.

Bitmanagement wins appeal

In the US Federal Court of Claims, the German company accused the US Navy of massive copyright infringement. The Court initially dismissed the complaint but Bitmanagement successfully appealed.

Last year, the Court of Appeals for the Federal Circuit sided with the software company, finding that the US government was indeed responsible.

This meant that the case was sent back to the Federal Court of Claims, to determine the appropriate amount of damages. This has resulted in a legal back-and-forth and after a trial, held behind closed doors earlier this year, the case is close to a conclusion.

600,000 “counterfeit” copies

Unfortunately, most legal documents are sealed. However, a redacted “post-trial” brief submitted by Bitmanagement a few days ago highlights the main remaining disagreements.

According to the software publisher, the court’s task is quite simple. It’s a simple calculation that should lead to multi-million dollar damages. This is based on the copies installed and the price that the two parties would have reached in a “fictitious” negotiation.

“Before the Court, it is a simple question of arithmetic. The Court should find that the Navy made 600,000 infringing copies of BS Contact Geo, and that the parties would have agreed to a price of $259 per copy, for a total of $155,400,000 in damages,” writes the society.

bitmanagement-damage

This trade, which never took place, includes a volume discount of 30%. That’s a reasonable percentage, Bitmanagement claims, because it’s based on an AutoCAD software contract that actually took place.

“The best estimate for this volume discount is 30%, based on a similar software purchase agreement from the Department of Defense for AutoCAD, a computer-aided design program that allows the creation of drawings in two and three dimensions.

579 “counterfeit” copies

The official position of the US government is not public, but the plaintiff’s record shows that he is seeking a significantly lower amount of damages. A few weeks ago, the court opened the trial file to hear Mr. Kennedy, a government witness whose testimony had previously been excluded.

According to Mr. Kennedy, the hypothetical negotiation between the Navy and Bitmanagement would have resulted in a price of up to $200 per license for only 579 licenses. These would reflect “actual uses” of BS Contact Geo instead of number of installs.

This estimate would result in “only” $115,000 in damages, which is far from the $155,400,000 estimated by the German software publisher.

Needless to say, Bitmanagement disagrees. The company says Mr. Kennedy’s testimony should not be part of the case and calls its approach to damages legally inappropriate and unreliable. However, since it is now in the record, the Court will take it into account.

The post-trial brief lists various reasons why the “actual uses” argument is not valid. On the one hand, it is not known how many copies the US Navy actually used because Mr. Kennedy’s calculation is based on incomplete data.

Additionally, Bitmanagement notes that the Court has previously made it clear that the royalty basis should be tied to the number of copies made by the Navy, not the frequency with which they were used.

Even without reading the official government position, it is clear that the United States Federal Claims Court has a rather important decision to make. For a relatively small company such as Bitmanagement, this will be a historic decision.

A copy of Bitmanagement’s post-trial brief is available here (pdf)