## Facts

- William Krause, a software developer doing business as Special‑T Software, performed computer and communications work for Titleserv and wrote more than thirty-five programs for it.
- The dispute concerned eight programs designed to track and report on Titleserv’s client requests and internal operations; executable versions were installed on Titleserv’s network and used by its employees.
- Krause wrote the programs in a DOS-based language (Clipper); source code could be compiled into executable (object) code.
- In 1996, the parties negotiated for Krause to assign copyrights in exchange for a multi-year consulting arrangement, but they did not reach an agreement.
- Krause terminated the relationship and took his notebook computer, which contained the only copies of the programs’ source code.
- Krause left executable versions on Titleserv’s computers but implemented a lock intended to prevent conversion from executable code back into source code.
- Krause told Titleserv it could continue using the programs but could not modify them.
- Titleserv bypassed the lock, obtained access to source code, and modified the programs to fix problems and keep them working with changing business needs and computer systems.
- Krause sued for copyright infringement based on Titleserv’s decompilation and modifications; Titleserv asserted the affirmative defense in 17 U.S.C. § 117(a)(1).

## Issues

1. Whether Titleserv “own[ed] a copy” of the computer programs for purposes of 17 U.S.C. § 117(a)(1), even though Krause claimed the copyrights.
2. Whether Titleserv’s code changes were protected “adaptation[s]” made “as an essential step in the utilization” of the programs “in conjunction with a machine,” and “used in no other manner.”

## Decision

- The Second Circuit affirmed summary judgment for Titleserv.
- The court held Titleserv owned the relevant copies of the programs within the meaning of § 117(a)(1).
- The court held Titleserv’s modifications were permissible adaptations made as essential steps in continued utilization of the programs, and the adapted programs were used in no other manner.
- The court rejected Krause’s proposed narrow reading that § 117(a)(1) covers only modifications strictly necessary to make a program run at all.

## Legal Principles

- 17 U.S.C. § 117(a)(1) provides an affirmative defense to infringement when the defendant (1) owns a copy of a computer program, (2) makes an adaptation as an essential step in utilizing the program with a machine, and (3) uses the adapted program in no other manner.
- “Ownership” under § 117(a)(1) focuses on ownership of the copy in context and may be shown by economic realities such as the user’s payment for development, possession of the installed executable copies, and an indefinite right to use them, even without transfer of the copyright.
- “Essential step in the utilization” includes reasonable maintenance and modifications (e.g., bug fixes and adjustments to new systems or operational requirements) needed to keep software functional for its intended internal purpose.
- “Used in no other manner” is satisfied when the adaptations and deployment remain consistent with the programs’ original purpose, rather than constituting a qualitatively different use.

## Conclusion

The Second Circuit held that Titleserv, as the owner of copies of Krause’s programs, could bypass access restrictions and modify the programs to maintain functionality for the same operational purpose without infringing, because § 117(a)(1) protects such essential-utilization adaptations when used in no other manner.


Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005)