Beijing Wei Chixue Law Firm--Key Points of Evidence for Legitimate Source Defense in Software Copyright Infringement Cases

Bo XING
Chinese Attorney-at-Law
Beijing Wei Chixue Law Firm

We have recently represented a client in a software copyright infringement lawsuit, where the software copyright owner sued our client for using its software without permission, constituting software copyright infringement. In this lawsuit, our litigation strategy was to claim a legitimate source defense.

From the perspective of the alleged infringer, this article briefly analyzes the key points of evidence for a legitimate source defense in software copyright infringement cases.

I. Relevant Legal Provisions

Article 30 of the Regulations on the Protection of Computer Software (2013 Revision) stipulates that a holder of a copy of software who does not know and has no reasonable grounds to know that the software is an infringing copy shall not be liable for compensation; however, such holder shall cease using and destroy the infringing copy. If ceasing use and destroying the infringing copy would cause significant losses to the user of the copy, the user may continue to use the software after paying a reasonable fee to the software copyright owner.

Pursuant to the above provisions, an alleged infringer may claim a legitimate source defense if it can prove that the relevant software was obtained from a third party and that it "did not know and had no reasonable grounds to know that the software was an infringing copy". It should be noted that if the legitimate source defense is established, the alleged infringer shall not be liable for compensation, but the court may order it to bear part of the reasonable expenses incurred by the right holder to stop the infringement.

In judicial practice, to claim a legitimate source defense, the alleged infringer must prove the following:

(1) The software was provided by a third party; the alleged infringer did not know the software was an infringing copy, acted without subjective malice, and has paid reasonable consideration for the relevant software to the third party.

(2) The alleged infringer has ceased using the relevant software upon receiving a cease-and-desist letter or a complaint from the right holder.

II. Key Points of Evidence for Claiming a Legitimate Source Defense in Software Copyright Infringement Cases

1. The software was provided by a third party; the alleged infringer did not know the software was an infringing copy, acted without subjective malice, and has paid reasonable consideration for the relevant software

In litigation, the alleged infringer must provide a contract signed with a third party to prove that the relevant software was provided by the third party. In addition to the contract, the alleged infringer must also provide payment vouchers proving payment of reasonable consideration to demonstrate actual performance of the relevant contract. If the alleged infringer only provides a contract without payment vouchers, the court may reject its claim of legitimate source defense.

In Case No. (2024) Shaanxi Civil Final 49, the court of first instance held that Liangdian Company (the defendant at first instance) argued that the accused infringing software was deployed by Suoshang Company. Based on the submitted Mini Program Source Code Contract and relevant vouchers for service fees paid to Suoshang Company, it could be proven that Liangdian Company was merely the holder and user of the copy of the accused infringing software. There was not sufficient evidence to prove that Liangdian Company and Suoshang Company had a deliberate concerted action regarding the use of the infringing software copy on the accused infringing website, nor was there evidence that Liangdian Company knew or should have known that the accused infringing website contained an infringing software copy incorporating the source code of the plaintiff’s software. Since Liangdian Company had proven that the actual developer of the accused infringing mini program was Suoshang Company and had paid reasonable consideration to Suoshang Company, the court of first instance dismissed the plaintiff’s claims for economic compensation and an apology against Liangdian Company. The court of second instance held that the first-instance judgment’s finding that Liangdian Company’s legitimate source defense was established was correct.

In Case No. (2023) Liao 02 Civil First 982, the defendant HT Company submitted to the court a HQ System Software Sales Contract and relevant payment vouchers. The court held that HT Company entrusted a professional website-building company to construct the website and paid reasonable consideration, and it could reasonably believe that the website-building company had the ability to independently build the website lawfully. There was no evidence that HT Company knew or should have known at that time that the website-building company actually used the alleged software to create the accused infringing website. Therefore, the court rejected the claims for damages and an apology filed by MT Company (the plaintiff) against HT Company.

In Case No. (2021) Jing 73 Civil First 511, the defendant Beijing Beifu Company claimed that the alleged website was built by a third party, and it was only a bona fide user not liable for damages, submitting evidence such as a purchase contract to the court. However, Beijing Beifu Company failed to provide performance evidence such as payment vouchers and delivery records. The court did not uphold Beijing Beifu Company’s legitimate source defense and ordered it to cease the infringement and bear corresponding compensation liability.

2. The alleged infringer has ceased using the relevant software upon receiving a cease-and-desist letter or a complaint from the right holder

Article 30 of the Regulations on the Protection of Computer Software (2013 Revision) mentioned above also provides that if the legitimate source defense is established, the alleged infringer shall not be liable for compensation but shall cease using and destroy the infringing copy.

In practice, in most cases, the software copyright owner will first send an infringement cease-and-desist letter. If the parties fail to reach a settlement on the infringement, the right holder may file a software copyright infringement lawsuit with the court.

If the alleged infringer continues to use the accused infringing software after receiving the infringement cease-and-desist letter from the right holder, its use after receiving the letter will be deemed to have subjective malice. The legitimate source defense claim for the use of the accused infringing software after receiving the cease-and-desist letter will hardly be upheld by the court. Therefore, it is recommended that the alleged infringer immediately cease using the relevant software upon receiving the infringement cease-and-desist letter.

In Case No. (2020) Jing 73 Civil First 876, the court held that Pfizer Inc. (the defendant) was aware of the possibility of infringement of the alleged software as of December 2, 2020, when it received the complaint materials and evidence preservation order. As the holder of the copy of the alleged software, it should have promptly and prudently verified whether Aolongxin Company was qualified as an authorized agent of the alleged software and timely decided whether to cease using the alleged software within a reasonable period. However, under the circumstance that the certificate of authorization provided by Aolongxin Company was a copy, Pfizer Inc. only relied on Aolongxin Company’s unilateral guarantee that the alleged software was legal and compliant and the supporting documents were authentic and valid, and continued to use the alleged software in its business operations until May 2022, when it removed the alleged software from its system. Such conduct could hardly be deemed bona fide. Therefore, Pfizer Inc. failed to promptly remove the alleged software and continued to use it in business operations after receiving the litigation materials, having subjective fault for joint infringement with Aolongxin Company and Zhang. Thus, Pfizer Inc.’s conduct at this stage constituted joint infringement of the reproduction right of the alleged software owned by Aichuang Company (the plaintiff) together with Aolongxin Company and Zhang.

In this case, Pfizer Inc.’s use of the alleged software before receiving the litigation materials was without fault because it did not know and had no reasonable grounds to know that the alleged software was an infringing copy, so Pfizer Inc. was not liable for infringement compensation for such use. However, for the infringing conduct of Pfizer Inc. in failing to promptly remove the alleged software and continuing to use it in business operations after receiving the litigation materials, Pfizer Inc. constituted joint infringement of the reproduction right of the alleged software owned by Aichuang Company together with Aolongxin Company and Zhang, and shall bear joint and several compensation liability with Aolongxin Company and Zhang for the damages caused by the infringing conduct at this stage.

In the above case, Pfizer Inc. conducted notarization through screenshots, video recordings and photographs of the status of the computer software running in its factory, and submitted the notarial certificate to the court to prove that it had removed the alleged software from its computer system and replaced it with other software. After ceasing use of the accused infringing software upon receiving the infringement cease-and-desist letter from the software copyright owner, the alleged infringer may follow this practice to conduct notarization of screenshots, video recordings and photographs of the currently used software. If the right holder files a lawsuit subsequently, the alleged infringer may submit the relevant notarial certificate to the court to prove that it has promptly ceased using the accused infringing software upon receiving the infringement warning from the right holder.

Summary

After receiving an infringement warning from the software copyright owner, if the relevant software is obtained from a third party, the alleged infringer may consider claiming a legitimate source defense:

(1) Immediately cease using the relevant software; if conditions permit, conduct notarization of the removal of the software from its computer system and replacement with other software to prepare for possible future litigation.

(2) Contact the third party that provided the software and require it to explain and negotiate with the software copyright owner on relevant matters.

(3) If the third party is reluctant to negotiate with the software copyright owner, provide the third party’s contact information to the right holder so that the right holder may directly contact the third party for settlement.

If the right holder files an infringement lawsuit subsequently, the alleged infringer may submit to the court the contract signed with the third party, payment vouchers for reasonable consideration, evidence of ceasing use of the accused infringing software, evidence of actively coordinating communication between the third party and the right holder, etc., to claim a legitimate source defense.