GPLv2 'web-app loophole'

[Abraham Ingersoll]

We (Dajoba, LLC) publish web-based software under the GPL. We recently
came across a company who has taken our GPL'd code, modified it and
actively resells access to (use of) the renamed application. They say
absolutely nothing of the GPL-origins of the software on their website
nor have they contributed anything back to the original GPL'd project.
They do not distribute the modified software in the conventional sense of
software distribution, but if one can reasonably conclude that the web
pages generated by our software constitue derivative works, we may have a
case.

We have spoken to Bradley Kuhn at the FSF regarding this situation and are
eagerly awaiting a reply now that they're privy to the details of our
situation. We have yet to speak to the company who has taken our code and
not followed the spirit of the GPL, besides calling them to sign up for
the service they offer via our software. (We aim to ascertain as much
information about their use and redistribution of our copyrighted
work as possible before proceeding with formal accusations, if any.)

In leiu of the FSF's expert advice, does anyone here have a qualified
opinion about this 'web-app loophole' and possible remedies we should
entertain? Specifically -- what exactly consitutes a derivative work of
software under US copyright law? Are there any existing legal precedents
regarding the copyright status of HTML display code generated by
copyrighted software?

All of this obviously falls within the domain of intelectual property
lawyers and the FSF, so my apologies in advance for being a bit off topic.
In raising the issue here, we simply want to feel out people's attitudes
regarding this 'web-app loophole' and perhaps see what alternative
licensing solutions exist should the GPLv2 prove to be ineffective for
open sourcing web-based applications. (We know GPLv3 is supposed to
address these issues, but the timeline for it's release doesn't fit our
immediate need very well at all.)

If anyone wants to take a look at the project/code in question, see
http://dajoba.com/projects/mysqltool.

Thanks!

- Abraham Ingersoll <abe at dajoba.com>