SFC v. Vizio survives motion for summary judgment on third-party beneficiary issue

Introduction

On December 29, 2023, the Superior Court of California in Orange County issued an order (1) holding that Software Freedom Conservancy, Inc. (SFC)’s breach of contract claim was not preempted by the Copyright Act and (2) denying the Vizio’s motion for summary judgment. The court’s denial of the motion for summary judgment is notable because court is allowing the case to move forward and potentially resolve the issue of whether SFC is a third-party beneficiary under the GNU General Public License (GPLv2) and the GNU Lesser General Public License (LGPLv2.1 and collectively with the GPLv2, the GPL Licenses).[1]

The case is set to begin in the first quarter of 2024. If SFC is found to be a third-party beneficiary entitled to enforce the source code provision requirements of the GPL Licenses, the case could open the door for any other end user to also bring claims to enforce such provisions – dramatically increasing the potential liability for noncompliance with open-source licenses.

Understanding the order

Background:

On October 19, 2021, SFC filed suit against Vizio, demanding, among other things, that Vizio specifically perform the obligation to provide the source code under the GPL Licenses governing certain code upon which Vizio’s smart-TV software (SmartCast) is built. Both of the GPL Licenses require any distributions of the licensed software to be accompanied by either a copy of the complete corresponding source code of the software or an offer to provide such source code. Depending on the manner in which Vizio used the open-source code, this obligation may require Vizio to provide the source code to proprietary portions of SmartCast.

SFC filed its lawsuit after Vizio allegedly refused to provide the relevant source code after multiple requests. Unlike previous US cases involving the GPL Licenses – which have all been brought by the copyright holders – this is “the first case that focuses on the rights of individual consumers as third-party beneficiaries of the GPL.”[2]

The case was previously removed by Vizio to the Central District of California and later remanded back to state court following a holding that the Copyright Act did not preempt SFC’s breach of contract claim.

Third-party beneficiary: A triable issue exists

In the order denying Vizio’s motion for summary judgment on whether SFC is an intended third-party beneficiary under the GPL Licenses, the court applied a three-part test for determining third-party beneficiary status. Established in Goodewardene v. ADP, LLC:

To show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (1) “the third party would in fact benefit from the contract”; (2) “a motivating purpose of the contracting parties was to provide a benefit to the third party”; and (3) permitting the third party to enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.”[3]

Vizio’s motion disputed the third element of Goodewardene v. ADP, LLC: “that third party standing is inconsistent with the reasonable expectations of the contracting parties as well as those of the GPLs creator.”[4]

The court’s findings

First, the court noted that Vizio failed to provide admissible evidence in support of its motion “suggest[ing] that the intent of [the drafters of licenses] was to preclude recipients of the source code as beneficiaries to the GPLs.”[5]

Second, based on language from GPLv2’s preamble, the licensee “must make sure that [recipients of the licensee’s derivative works] . . . receive or can get the source code” and from the source code provision that “distributors of GPL-licensed programs must provide the source code for such programs or ‘a written offer . . . to give any third party . . . a complete machine-readable copy of the corresponding source code,’” the court found that allowing third parties “to enforce their rights to receive source code is not only consistent with the GPLs’ objectives; it is both essential and necessary to achieve these objectives.”[6]

Third, the court rejected Vizio’s argument that copyright holders are capable of enforcing the source code provision without the need for third-party beneficiary rights. The court reasoned that recipients of GPL-licensed software “will be assured of their right to receive source code only if they have standing to enforce the right. . . . [T]he copyright holders would have no economic incentive to enforce the source code provision in the GPLs because they would bear all the enforcement costs with no real benefit themselves.”[7]

Key takeaways

Given the potential increase in litigation risk from noncompliance with open-source licenses, if the court finds that recipients of open-source software can enforce the obligations of open-source licenses, even if they are not the copyright holders, users of open source software are advised to take the following precautions:

• Document open-source usage: In order to minimize the risk of liability from noncompliance, organizations must maintain a current and accurate inventory of all the open-source components that their software incorporates, particularly any components that are subject to copyleft licenses.
• Understand open-source license obligations and ensure compliance: Before incorporating any open-source code into their products, it is important for organizations to understand the requirements of the licenses that govern the use of such software. The GPL Licenses are not the only open-source licenses that require the provision of source code, so organizations are urged to understand the licenses to ensure that their use of open-source software does not trigger the obligation to disclose their source code of their proprietary software to end users.

Next steps

We will be monitoring developments in this case with interest. In the meantime, DLA Piper’s Technology Transactions and Commercial Contracts practice includes several experienced lawyers to help you comply with open-source licenses, understand the risks and benefits of utilizing open-source software, and conduct any necessary due diligence to identify open-source issues.

For further information or if you have any questions, please contact any of the authors.

^{[1] Order Denying Defendant’s Motion for Summary Judgment, Software Freedom Conservancy, Inc. v. Vizio, Inc., No. 30-2021-01226723-CU-BC-CJC (Super. Ct. Cal. Orange Cnty, Oct. 19, 2021).
[2] Software Freedom Conservancy, Vizio Lawsuit Q&A, SFC.
[3] Order at 8 (quoting 6 Cal.5th 817, 830 (2019)).
[4] Order at 8. Judge Sandy Leal disagreed.
[5] Id.
[6] Id. at 9 (quoting GPLv2 Preamble, § 3).
[7] Id. at 9.}