## Facts

- Lasercomb America, Inc. developed “Interact,” CAD/CAM software used to design templates and direct production of steel rule dies for packaging.
- Lasercomb licensed four prerelease copies of Interact to competitor Holiday Steel Rule Die Corp. under pricing that contemplated additional paid copies.
- Lasercomb’s standard form license (not executed by Holiday Steel) prohibited licensees and their officers, directors, and employees from developing or selling any competing computer-assisted die-making software for 99 years.
- Holiday Steel circumvented Interact’s copy protection and made three unauthorized copies for its internal use.
- Holiday Steel, through Larry Holliday and programmer Job Reynolds, developed and marketed “PDS-1000,” which was found to be nearly a direct copy of Interact, and took steps to conceal the copying.
- The district court held Holliday and Reynolds liable for copyright infringement and fraud, entered injunctive relief on infringement, and awarded compensatory and punitive damages.

## Issues

1. Whether Lasercomb’s standard form license provisions constituted copyright misuse that barred infringement remedies, even though Holiday Steel did not sign the license.
2. Whether the district court properly found Holliday and Reynolds liable for fraud.
3. Whether compensatory and punitive damages were properly calculated, including whether damages reflected Lasercomb’s actual loss.

## Decision

- The Fourth Circuit recognized copyright misuse as an equitable defense analogous to patent misuse.
- The court held Lasercomb’s 99-year, broad noncompetition restrictions were anticompetitive misuse that rendered the copyright temporarily unenforceable for infringement remedies.
- The court reversed the infringement-based relief, including the injunction and infringement damages.
- The court affirmed the fraud finding, concluding the fraud issue was tried by implied consent and supported by evidence of deceptive conduct and injury.
- The court remanded for recomputation of damages consistent with limiting recovery to non-misuse-barred theories and proper measurement of actual loss.

## Legal Principles

- Copyright misuse is an equitable defense that bars a copyright holder from obtaining infringement relief while the misuse persists; it does not invalidate the copyright.
- Misuse occurs when a copyright holder attempts to extend the copyright monopoly beyond protected expression to restrain competition in other works or uncopyrighted subject matter.
- A defendant need not have agreed to the challenged license terms; the copyright owner’s attempt to impose anticompetitive restrictions through its licensing policy can establish misuse.
- Misuse barring copyright remedies does not automatically preclude recovery on independent state-law claims such as fraud.
- Compensatory damages must be tied to actual economic loss; in this context, a proper measure may include the license fees that would have been paid for lawful copies.

## Conclusion

The Fourth Circuit held that Lasercomb’s sweeping, long-term noncompetition licensing terms constituted copyright misuse, preventing enforcement of infringement remedies until the misuse is purged, but it upheld fraud liability and remanded for recalculation of damages based on a proper measure of loss and permissible theories of recovery.


Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990)