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The Financial Consequences of Using Unlicensed Software

Almost every business relies on software products to increase productivity. Unfortunately, it is relatively easy for companies to acquire unlicensed software. Many employees inadvertently use software products that have not been licensed and some employees do not know that it is improper to copy and use software that the company has not paid to license.

Violating software license agreements, known as End User License Agreements (EULAs), can result in significant liability for the company and its officers and directors. The most powerful law available to enforce EULAs may be the Copyright Act of the United States (the “Act”). This Act identifies various damages that can be imposed for the use of unlicensed computer software, including actual damages and attorneys’ fees and costs. Some, but not all, of these monetary damages are discussed here.
 
An infringer can be found liable for very significant damages
 
Under the Act, the copyright owner is entitled to recover the actual damages suffered from the infringing conduct plus the infringer’s profits attributable to the infringement, as long as these damages are not duplicative. See, United States Code, Title 17, Section 504. Actual damages are, typically, the cost to purchase the software. These damages may be awarded even if the unlicensed software was never used. To recover the infringer’s profits, the copyright owner need only present evidence of the infringer’s gross revenue. The burden then shifts to the infringer to prove expenses that should be deducted and whether the profits claimed to be attributable to the software are attributable elsewhere.
 
The copyright owner may elect to waive actual damages and profits in favor of seeking an award of statutory damages that range from $750 to $30,000 per copyrighted work. If the court finds that the copyright infringement was willful, it can increase the statutory damages to up to $150,000. In sum, an infringer can be found liable for very significant damages, as well as attorneys’ fees and costs.
 
Accidental license violations can be expensive
 
Not only does use of unlicensed software place the infringing company at financial risk, but copyright holders can also seek to impose personal liability against officers and directors of infringing companies when those officers and directors knew of, or encouraged the use of, unlicensed software.
 
In light of the significant financial risks to a company and its officers and directors, it is critical to have a policy in place that prohibits the use of unlicensed software. The company should review this policy frequently to remind all necessary personnel of the company’s stance on software licensing.
 
While many companies may already have policies in place that prohibit the use of unlicensed software, those same companies may unknowingly be violating software licensing agreements that apply to socalled “trialware.” Trialware programs allow a user to install a program for a limited period of time, after which the user must either purchase a license for that product or uninstall that product from the computer. These products can result in accidental license violations if there is no follow-up to determine whether a license has been purchased for that product or whether it has been uninstalled. For example, commonly used compression software allows the user to download, install, and use the program for free for 45 days, after which time the user must purchase a license or uninstall it. If the company does not have a policy of tracking software installations and following-up on licensure, that “trialware” software could cause one to accidentally violate the Act.
 
Implement comprehensive software policies and procedures
 
A simple way to minimize risk is to have comprehensive policies in place to govern software installation, including who is authorized to do so. The software policies should set forth the clear lines of responsibility for installing software, what software may be installed on the computer, and what follow-up must be done.
 
If a company is concerned that it may have unlicensed software, there are a variety of programs it can use to audit the software installed on computers to help verify that there is no unlicensed software installed on a computer. Alternatively, a company can hire a private service to perform the audit. Any expenses incurred in connection with any such audit are small in comparison to the cost and inconvenience that could arise if a software company or industry association demands an audit and discovers violations on company computers.

 

©2022 Clark & Trevithick. A Professional Corporation. All Rights Reserved.National Law Review, Volume , Number 147
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About this Author

Steven Hyam, Clark and Trevithick Law firm, Defense Litigation Attorney

Stephen E. Hyam joined Clark & Trevithick's litigation department at the end of 2004, having practiced five years of defense litigation in the Los Angeles area for a variety of clients ranging from family owned businesses to large corporations and government entities. His expertise is in general liability, business and employment litigation.

Stephen earned a Bachelor of Science degree in Business from California State University Northridge in 1995. In 1998, he graduated from Pepperdine University School of Law and was admitted to the California State Bar. Licensed to practice in...

213-629-5700
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