A recent decision by the U.S. Court of Appeals for the Federal Circuit sheds new light on the calculation of “fair and full compensation” under 28 USC § 1498(b) when the government infringes a copyright by exceeding the scope of a commercial software license. In 4DD Holdings, LLC v. United StatesNo. 24-1996 (Fed. Cir. July 16, 2026), the Federal Circuit affirmed in part and reversed in part an earlier federal court award of $12.7 million to software developer 4DD Holdings, LLC (4DD) for the government’s infringement of its copyrighted TETRA software. Although the Federal Circuit found that the trial court had properly calculated damages based on a hypothetical negotiation rather than the parties’ actual royalties, the court reversed the award because the trial court: (1) erroneously relied on the “Book of Wisdom” doctrine to account for the government’s subsequent, unforeseeable termination of the TETRA program; and (2) erroneously awarded increased statutory damages for intentional injury to which the government was not entitled under Section 1498(b).
background
As we discussed in our December 2023 Customer Alert, 4DD licensed 64 Federator cores and 50 studio seats of its TETRA software to the U.S. Department of Defense (DOD) in 2013 through an authorized reseller. The license only allowed a single backup copy, and since TETRA’s built-in copy detection tools were disabled for security reasons, the government was left to monitor compliance itself, but did not do so.
When adapting TETRA to government networks, the main contractor made “thousands” of unauthorized copies. After 4DD notified the government, the parties negotiated a “true-up” in which the government paid approximately $1.7 million for 168 cores at the negotiated price. However, while these negotiations were ongoing, a government official ordered the deletion of all copies of TETRA in the government’s possession, even though the government had not acknowledged the existence of the copies during the true-up process. After a change in leadership, DOD terminated its work with TETRA before final implementation.
In 2015, 4DD sued for copyright infringement under 28 USC § 1498(b), seeking more than $5 billion in damages. The Federal Court imposed a sanction of approximately $1.1 million on the government for expropriating the destroyed TETRA copies, finding that the government had exceeded its license by more than 290,000 cores and 171,000 studio seats. Based on a hypothetical trial, the court awarded 4DD $12.7 million, a small fraction of the $5 billion 4DD sought using its established rates.
The Federal Circuit’s decision
4DD appealed, alleging that the Court of Federal Claims erred by (1) assessing damages based on a hypothetical negotiation rather than the pricing in the parties’ license agreement; and (2) alternatively, if a hypothetical negotiation was permissible, the negotiation was misconstructed. The Federal Circuit’s opinion contained three important findings clarifying how copyright damages against the government would be assessed under 28 USC § 1498(b).
First, It rejected 4DD’s claim that previously agreed rates would prevail if the same parties later litigated for copyright infringement of the same software. The Federal Circuit explained that no law or precedent compels courts to automatically adopt negotiated rates. Instead, their relevance depends on how closely the agreements track the infringing activity. And if the infringing use differs from the licensed use, a court may resort to a hypothetical trial instead.
Second, the court limited the application of the “Book of Wisdom” doctrine, which allows courts to consider post-trial events when evaluating a patent or copyright at an earlier date, noting that while the doctrine allows courts to use subsequent evidence to determine value existing at the time of trial, it is not unlimited. In particular, it does not allow courts to assume knowledge of subsequent events that were unforeseeable at the time of negotiations (in this case, the change in government leadership and the decision to abandon TETRA before implementation). Because the Court of Federal Claims considered this cancellation to be the fact “the most “Detrimental” to 4DD’s position, and this error could not be separated from the conclusion that the government held a “substantially superior” bargaining position, the Federal Circuit vacated and remanded.
Third, the court held that the federal court erred in awarding $150,000 for the studio copies, an amount tied to statutory damages under the Copyright Act. Section 1498(b) contains only “the minimum statutory damages pursuant to Section 504(c) of Title 17.” Given Section 1498’s significant eminent domain roots, non-compensatory damages, including enhanced statutory damages for willful infringement, are not available against the government.
Impact on software licensors
For software licensors: 4DD reiterates lessons learned from our previous reporting on government software licensing disputes. Above all: Even massive overcopying by the government does not automatically lead to compensation at contract prices. Contractors could instead face hypothetical negotiations where government influence and other unpredictable factors could severely impact recovery.
The decision also limits the government’s ability to negotiate after the fact. On remand, the Federal Circuit ordered the Court of Federal Claims to reevaluate the parties’ relative positions as of the trial date, disregarding the government’s subsequent abandonment of the program – a correction that could significantly increase 4DD’s recovery unless the remaining evidence independently supports the same result. Either way, 4DD is a stark reminder that a licensor’s path from infringement headlines to actual compensation is via a hypothetical negotiation that the government often has a good chance of winning.
Wiley Government Contracts and Intellectual Property attorneys are available to assist you in evaluating and advising on intellectual property issues, including negotiating data rights and technology licenses.
https://www.wiley.law/alert-Federal-Circuit-Vacate-12-7M-Software-Infringement-Award-Against-Government-Places-Limits-on-the-Book-of-Wisdom
