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Intellectual Property and Technology

Illegal Software Use Has Serious Consequences

New Hampshire High Tech Council

Tuesday, September 30, 2003

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Computer software, like sound recordings, is intellectual property protected by federal copyright law from the moment it is created. Under U.S. copyright laws, the owner of the copyright has the exclusive rights to reproduce the copyrighted work and to distribute copies of that work. Without the express permission of the copyright owner, or licensed distributor of the software, it is illegal to use software, no matter how it was acquired. The necessary permission usually takes the form of a license accompanying authorized copies of the software when purchased. Rather than owning the software, limited rights to use the software in accordance with the terms of the license are acquired. The terms usually appear during the installation of the software and must be "agreed to" or "accepted" before the installation process is completed.

Generally, a licensed software program can be installed and used on only one computer at a time, although the terms of the license often allow for the making of a backup copy for archival or disaster recovery purposes. A failure to comply with the terms of the license by, among other things, installing a copy of a single-user program on several computers can subject a company to civil and/or criminal liability. The law also prohibits the downloading, uploading, or transmitting unauthorized copies of software over the Internet. Moreover, an employee's use of the company's computer system to copy, run and/or distribute unlicensed software can expose the company to potential liability for copyright infringement, even if such an action goes unnoticed by the company. Ignorance is not a defense to a copyright infringement claim.

Even though copying would be difficult to discover by one outside the company, a former disgruntled employee can easily create a problem for his or her former employer by contacting one of the software industry hotlines or web sites for reporting illegal software copying. Indeed, the major source of information of the Business Software Alliance (a non-profit corporation funded by industry membership dues and by the penalties and fines that it imposes) is information from former employees and outside personnel. The consequences range from public embarrassment through adverse publicity to significant civil damages (damages suffered by the copyright owner, plus any of the company's profits that are attributable to the copying or statutory damages of up to $100,000 for work infringed), criminal fines, and imprisonment (if the copying was done "willfully and for purposes of commercial advantage or private financial gain," criminal penalties include fines up to $250,000 and jail terms of up to five (5) years). 

Because software can be readily copied, it is easy for a company to become careless about software licensing when running a computer network. As the company grows, or employees request the installation of a particular software on their computer on an as-needed basis, the software is generally installed without auditing the licenses to determine if these additional copies are permitted. The company must have a license for each computer onto which the software is loaded, unless the license accompanying the software permits otherwise or specific permission is obtained from the copyright owner. Accordingly, if the company has 25 computers on which the software program is running, 25 licenses will be needed to do so in order not to violate the rights of the copyright owner.

It may be the case, however, that the company does not need to have every computer running the software simultaneously. If that is the case, the company may be able to purchase "concurring use licenses", which essentially allow a specific number of employees to use the software simultaneously. The cost of such licenses is based on the number of employees using the software simultaneously and not in the number of computers owned by the company. So, if the company owns 25 computers, but never has more than 10 employees using the software simultaneously, the company would only need to acquire 10 not 25 concurrent use licenses. There are a number of other types of software licenses to be considered by businesses today, such as "site licenses" (authorizing unlimited use at a single site/facility, and "enterprise licenses" (authorizing unlimited use in a single organization). 

In an effort to minimize its exposure to liability for copyright infringement, the company should have well-defined written policies and procedures in place regarding the copying, downloading and uploading of software by employees, and should ensure that such policies and procedures are in fact communicated to all of its employees. To simply inform employees that policies and procedures exist and leave the burden to them to find out and adjust to such policies and procedures is not enough. In addition, periodic software audits of all of the company's computers should be conducted to ensure that the company is in compliance with all software licenses and that no unauthorized copies of software have been installed. Any unauthorized or unlicensed software discovered should be immediately deleted.

The consequences of illegal software use are serious and often expensive. Clear policies and procedures regarding the use of software coupled with an audit procedure, will substantially limit a company's exposure to liability for copyright infringement.

This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice. Your receipt of Good Company or any of its individual articles does not create an attorney-client relationship between you and Sheehan Phinney Bass + Green or the Sheehan Phinney Capitol Group. The opinions expressed in Good Company are those of the authors of the specific articles.