Last month, in an unpublished memorandum disposition, the U.S. Court of Appeals for the Ninth Circuit affirmed a significant district court decision granting summary judgment, on fair use grounds, to a software company that had copied portions of its competitor’s copyrighted computer code. Teradyne v. Astronics, 9th Cir. No. 24-239, C.D. Cal. No. CV 20-2713. The decision illustrates the potential strength of the fair use defense in software cases, even in those involving direct competitors.
The Expanding Fair Use Defense in Software Copyright Cases
The legal landscape of the fair use defense has evolved rapidly since the U.S. Supreme Court’s watershed decision in Google v. Oracle. 534 U.S. 1 (2021). In Google, the Supreme Court held that Google’s copying of 11,500 lines of Oracle’s Java code for use in its nascent Android operating system was a fair use. Google represented the Supreme Court’s first application of the fair use factors from the Copyright Act to modern computer software. Those factors are:
- “The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.”
- “The nature of the copyrighted work.”
- “The amount and substantiality of the portion used in relation to the copyrighted work as a whole.”
- “The effect of the use upon the potential market for or value of the copyrighted works.” (17 U.S.C. § 107)
The Supreme Court held that Google’s copying of a relatively small amount of Java API “declaring code,” which provided the names, inputs, and locations of tasks the API could perform, was a “transformative use” because it enabled programmers to use their historical Java knowledge in an entirely new field—smartphones—in which Oracle was not otherwise competing.
Three years post-Google, we are witnessing further expansion of the fair use defense, even to software cases where the copying was more extensive or the defendant’s use was more competitive. For example, the Eleventh Circuit’s decision in Apple v. Corellium, 2023 WL 3295671 (11th Cir. May 8, 2023), held that the copying of Apple’s iOS operating system for use in security virtualization software was a fair use. Although Corellium copied the entirety of iOS for a commercial use, selling its software, Corellium was not offering an iPhone or iOS replacement. Rather, the copying was for the distinct purpose of allowing researchers in the security testing market to better understand iOS’s security capabilities and vulnerabilities.
'Teradyne' Applies 'Google' to a Direct Competitor Dispute
In Teradyne, the district court went a step further, applying the Google framework to find fair use in a software copyright dispute between two direct competitors. Astronics and Teradyne both produce testing equipment for military equipment and communications systems. Astronics copied software code from Teradyne to enable Astronics’ customers to continue to run their test programs originally configured for Teradyne’s legacy testing equipment on Astronics’ equipment. Teradyne sued Astronics for copyright infringement.
The Ninth Circuit affirmed the district court’s order granting summary judgment to Astronics, finding that all four fair use factors favored Astronics.
The district court held that the first factor, the purpose and character of the use, narrowly favored fair use. Astronics’ use of Teradyne’s copyrighted code was “modestly transformative” because it ensured compatibility between customers’ test sets built for old Teradyne systems and Astronics’ newer systems. Although Astronics had a commercial purpose in copying the code (a fact weighing against fair use for this factor), the modestly transformative use of the copyrighted code on balance favored a fair use finding.
The second factor—the nature of the copyrighted work—also favored fair use. The district court found that the copied code (function names and parameters, constants and data type definitions) was fairly characterized as “declaring code,” or at least similar in nature to what the Supreme Court considered “declaring code” in Google. Google held that declaring code, if copyrightable at all, is further from the “core of copyright” than the more expressive “implementing code,” which details how functions are to be carried out.
The amount copied in relation to the whole of the work—the third factor—similarly favored fair use. While the parties in Teradyne disagreed on the precise amount or proportion of code copied, the court noted that, even if it adopted Teradyne’s calculations, both the total amount and the proportion of the code copied (as compared to the entire body of Teradyne’s copyrighted code) were lower than the copying found to be a fair use in Google (11,500 lines, or 0.4% of the Java code base).
Finally, the fourth factor—the effect on potential market or value of the work—favored fair use. The district court acknowledged that Astronics competes with Teradyne, and that Astronics’ copying might result in customers moving their business. But the court emphasized that Astronics’ purpose in copying the code was not to piggyback on Teradyne’s creative expression but rather to ensure compatibility with Astronics’ newer testing equipment. Allowing limited copying for this purpose would, in the Ninth Circuit’s words, avoid the “monopolistic lock-in” that fair use law is designed to protect against. That Astronics operates in the aerospace and defense industries added a powerful public-policy gloss to the case as well.
Four Takeaways From 'Teradyne'
Defendants can draw several lessons from Teradyne’s application of the Google fair use principles. First, at least within the Ninth Circuit, copying from a direct competitor operating in the same market does not foreclose a fair use finding. While commercial competition weighs against fair use in factor one, copying for certain purposes like interoperability may be sufficiently transformative to tip this factor neutral or in favor of fair use. This would seem to be a meaningful expansion of the “transformative use” test—and is at least in some tension with the Supreme Court’s Andy Warhol Foundation for the Visual Arts v. Goldsmith, 598 U.S. 508 (2023), decision, which emphasized that Andy Warhol’s images of the artist Prince copied from another photographer’s work were being used for the same commercial purpose (selling magazines) as the original, and thus were inconsistent with fair use.
Second, the fair use test is more forgiving when the copying involves declaring code, rather than implementing code that actually tells the computer what to do. Declaring code may not be copyrightable at all—the Supreme Court in Google assumed so without deciding. Courts have found that copying declaring code may actually spur innovation because it allows for new markets to be created or new software products to be developed with minimal reconfiguration required by existing market participants. The precise boundaries of what qualifies as “declaring code” should be a hotly contested issue in future cases.
Third, Teradyne confirms that when it comes to copying, the denominator matters as much as the numerator. The Supreme Court held that Google’s copying of 11,500 lines of code should properly be measured against the entire Java code base—2.86 million lines of code, including the implementing code that Google indisputably did not copy. Google’s copying was thus only 0.4% of Java’s code base. The Teradyne court treated both the 11,500 lines and the 0.4% proportion as benchmarks. Although Astronics failed to fully develop its argument regarding the proper denominator to use, the Teradyne court found that the small number of lines in question “would all-but-dictate” the result on the third factor, because the proportion was certainly lower than that in Google. Identifying a large denominator—i.e., by broadly defining the code base from which copying occurred—will be critical for success on the third factor.
Finally, defendants should develop robust public policy arguments to strengthen their factor four arguments. As Teradyne shows, use of the copied code for products implicating sensitive or important industries will favor fair use. The district court repeatedly noted the important public “interest in customers—specifically, the U.S. military—avoiding the risk and added expense that would be associated with having to entirely rewrite [or] recompile” their programs for use with new systems. The industry or individuals who stand to benefit can influence whether the copying is allowable as a fair use.
The Ninth Circuit also found persuasive the public benefits of avoiding monopolistic “lock-in.” Enforcing copyright protection, as the district court found, would “present[] [Teradyne] a ‘lock’ to which only it holds a ‘key’”—preventing other companies from entering the market due to the high costs for customers to reconfigure their products for a new market entrant. In the Supreme Court’s formulation in Google, “monopoliz[ation] of the market by making it impossible for others to compete” would “run[] counter to the statutory purpose of promoting creative expression.” Post-Google and Teradyne, defendants would be wise to frame their copying in anti-monopoly terms, as done for the primary purpose of lowering customer switching costs.
Conclusion
Teradyne provides a valuable blueprint for defendants to develop fair use arguments in software copyright cases. Even for direct competitors, the copying of software code in sufficiently small proportions, especially if tailored to a sufficiently important public interest, is on safer fair use ground than ever before.
Warren Braunig is a partner at Keker, Van Nest & Peters in San Francisco. His practice is centered on intellectual property litigation, particularly in the technology and software industries. Spencer McManus is an associate at the firm in San Francisco. He represents clients in complex commercial litigation and class actions.
Reprinted with permission from the March 7, 2025 edition of the “The Recorder” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.