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By Paul W. Berning
Thelen Reid Brown Raysman & Steiner LLP
Private monitoring organizations, formed by software companies such as Microsoft, Autodesk, Adobe, IBM, Intel and Macromedia, can gain access to business premises to learn whether computer programs such as AutoCad and Microsoft Word have been illegally copied or "pirated."
One of the monitoring organizations, the Business Software Alliance (BSA), defines software piracy as "the copying, distribution or downloading of unauthorized copies of software." BSA said that two of the most common forms of software piracy are:
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"End-user
copying: Organizations installing software on more computers than are licensed
or friends loaning disks to each other" and
"Distribution: Duplication and distribution of illegally copies software, including counterfeit products."
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The first category of violation often involves unintentional conduct, such as failure to pay adequate attention to software license restrictions, while the second category involves intentional misconduct, according to BSA.
Armed with the power to enforce their members' software copyrights, these monitoring organizations set up telephone hotlines and Web sites where people (often disgruntled employees) can report purported software license violations anonymously. BSA has even sought informants by placing large advertising posters in airport concourses.
The monitoring organizations screen and evaluate tips and conduct preliminary investigations. These include checking user registration records with software companies. If potential violations are found, the target usually is given a chance to co-operate in the investigation and to pay penalties based on the number of illegal copies of software programs installed on the target's computers.
"If a company is being contacted by the BSA either directly or through our lawyers, it's usually too late for the company to simply get into compliance; it's too late to do what they should've done in the first place," Robert Kruger, BSA's vice president for enforcement, said.
Enforcement Tools
If
an audited company chooses not to settle, the monitoring organizations likely
will pursue a copyright infringement lawsuit on behalf of the company whose
software was copied. As part of such a civil enforcement action, the monitoring
organization may seek a preliminary injunction or temporary restraining order
enabling it to physically enter company premises, conduct audits of the software
installed on company computers and impound all illegal versions of copyrighted
software. Federal Rules of Civil Procedure Rule 65; 17 USC §503. Some
licenses even give software companies the right to enter a licensee's premises
to perform an audit when they suspect a violation.
Although
the test may vary a bit depending on the jurisdiction, to obtain a preliminary
injunction compelling an audit the monitoring organization generally must
establish "either (1) a combination of probable success on the merits and
the possibility of irreparable harm; or (2) that serious questions are raised
and the balance of hardships tips in [the proponent's] favor." Prudential
Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874 (9th
Cir. 2000).
To obtain an ex-parte temporary restraining order for an audit, the monitoring organization must establish that 1) "it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party's attorney can be heard in opposition, and 2) the applicant's attorney certifies to the court in writing the efforts, if any," to notify the adverse party. Federal Rules of Civil Procedure Rule 65.
Computer software is protected by the U.S. Copyright Act. 17 USC §102 (a) (1); 1 Nimmer on Copyright, Subject Matter of Copyright, §2.0 [C], p. 2-51 (2003). The Copyright Act provides for damages, civil penalties and attorney fees for copyright infringement. An infringer is liable for either the copyright owner's actual damages and any profits of the infringer or statutory damages of $750 to $30,000 for each work infringed. 17 USC §504 (a), (c) (1). To recover statutory damages in most cases, the infringed work must have been registered with the Copyright Office before the infringement. 17 USC §412.
If the copyright owner can prove that the infringement was willful, the court has discretion to increase the statutory damages to $150,000 per work. 17 USC §504 (c) (2). The court also has discretion to impound all allegedly infringing copies of the work at any time while the action is pending. 17 USC §503 (a). As part of a final judgment or decree, the court has discretion to order destruction of all infringing copies. 17 USC §503 (b).
Court also have discretion to award the prevailing party its costs of suit. And, if the work was registered with the Copyright Office before infringement, the prevailing party may be awarded its attorney fees. 17 USC §§412, 505.
Besides civil enforcement, many monitoring organizations work closely with federal law enforcement agencies. Copyright infringers are subject to criminal penalties. If the infringement was willful and for purposes of commercial advantage or private gain, first-time offenders face up to five years in prison, and subsequent offenders face up to 10 years in prison. 17 USC §506 (a); 18 USC §2319. Individual infringers also face fines of up to $250,000, and infringing organizations, such as corporations, face fines of up to $500,000. 18 USC §3571 (b), (c). These criminal fines can be even higher if the infringer derived a pecuniary gain or the infringement resulted in a pecuniary loss to another. 18 USC §3571 (d).
The Monitors
BSA, the largest of the monitoring organizations, was founded in 1988 and has offices in 65 countries. It seeks to "educate policy makers and eradicate global software piracy." To carry out this mission, BSA compiles data regarding software piracy worldwide, works closely with law enforcement officials in conducting audits against suspected software pirates and lobbies Congress for stronger domestic anti-piracy laws. BSA's Web site (www.bsa.org) contains articles regarding software copyright laws, statistics based on BSA studies and information about legislation that BSA supports.
Another monitoring organization, SPA Anti-Piracy, a division of the Software and Information Industry Association, provides educational outreach to prevent piracy, conducts enforcement actions against software pirates and gathers reports of software piracy through its Web site (www.siia.net/piracy/default.asp) and an 800 telephone number.
According to BSA's Web site, the world software industry lost an estimated $13 billion in revenue in 2002 because of software piracy. In the United States in 2002, BSA estimated, the software industry lost not only $2 billion in revenue but also 105,000 jobs, $5.3 billion in wages and $1.4 billion in federal and state tax revenue.
Carol Bartz, chief executive officer of Autodesk, estimates that five illegal copies are made for every copy of its AutoCAD software that is purchased legally, according to an interview with her in the February 14-20, 2003, San Francisco Business Journal.
BSA conducts an aggressive anti-piracy campaign in the United States. Audit targets have included companies that believed they had purchased software licenses but could not find receipts and companies that had no idea that they were illegally copying software. After U.S. marshals and BSA investigators audited one small medical software company, the owner commented that he was "convinced that the company was fined for software that was legally purchased and licensed, [but that his company] just did not have the documentation to prove it."
Other violations can occur if copies of programs are left on computers when handed down to co-workers who do not even use the programs and if software is installed on both a desktop PC and a laptop (although many licenses permit this).
In August 2002, BSA announced that it had collected $5.8 million in settlements so far that year and had reached 44 new settlements totaling $3.1 million. BSA claims not to have lost a case against an audited company that chose to litigate rather than pay a BSA settlement. SIIA said it had conducted more than 1,000 enforcement actions in the year ending October 2000.
BSA from time to time offers "Software Grace Periods" so that companies in specified cities that are using unlicensed software can come into compliance with the copyright laws. In January 2003, BSA offered a Software Grace Period to companies in Boston, Albuquerque, Chicago, Dallas, Louisville, Seattle and Harrisburg, Pennsylvania. Companies participating in the Grace Period that are later audited by BSA will not be penalized for unauthorized copying that occurred before the last day of the Grace Period so long as they show BSA their Software Grace Period number and software purchase receipts.
On its Web site, BSA offers "Audit Tools" to Grace Period participants. The free program can be used to determine whether a company has installed unlicensed software. Also, there are organizations such as Software Asset Management Services, Inc. (www.samsrv.com) that specialize in helping companies to track their software and licenses and to perform self-audits before they are contacted by a monitoring organization such as BSA. Other such vendors include Express Software Manager from Express Metrix, KeyServer from Sassafras Software, Investor from Altiris, TS.Census from Tally Systems and GASP from Attest Systems.
Companies also can minimize the risk of software audits and enforcement actions by conducting internal audits of software use and license requirements with the assistance of counsel, who can review licenses and advise on how to comply with them. Counsel also can advise how to respond if a monitoring organization seeks to audit a company.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2004 Thelen Reid Brown Raysman & Steiner LLP
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