The public needs to know this and know what goes on in the “software infringement trenches.” My firm deals with many different types of software companies including but not limited to Microsoft, Adobe, Bentley, CNC, Autodesk, Siemens, Vero and others. The business model of many software companies is to sell their software (via a “license”) to businesses both large and small, and this will normally be a companies primary goal. However, there is also the “secondary” software licensing business that deals with going after “infringers” and “software pirates” and those who buy “bootleg copies” on online retailer sites such as eBay, Craigslist and others. Recently, cases have popped up where a representative of either the business software alliance (aka “the BSA”) or one of their member companies alleging that my Client (often times a small to medium sized business) “paid too little” for the software such as to constitute “willful copyright infringement.” How can this be? The retail website may hold itself out as an “authorized reseller” or otherwise make it self look like an “ostensible agent” of the software publisher. In these circumstances, is it really federal copyright infringement to buy cheap software? This blog explores this interesting legal topic and present my perspective. According to the copyright lawyers I talk to on a daily basis, it seems “caveat emptor” is the only way they see it – LET THE BUYER BEWARE!!!
Say someone from your purchasing department decides to buy some Microsoft Office or Autodesk Autocad or Revit software online. Say you find the software on a website www.SoftwareForLessClub.com where the products are “75% off everything” and you are able to pick up thousands of dollars in software for literally a couple hundred. In other words, you are paying less than “manufactured suggested retail price” (which naturally is what the main software companies would want you to pay on every purchase, or should I say on every “license you acquire.” Is this legal? Are customers allowed to get a good deal? Should they be forced to call the software publisher and ask them “is this really your software?” Or ask “am I allowed to buy this software for cheap?” Or might they have to ask “is this a legitimate authorized reseller?” According to one IP copyright lawyer I spoke with, YES, that is the affirmative duty of a buyer in the internet marketplace.
However, when I asked for legal citations supporting this affirmative duty placed on software licensees, I was not provided any responses and instead only received a mumbling “I am not going to do the research for you.” Bear in mind, this comes from a experienced software audit lawyer who fired off to my Client a legal demand letter seeking damages for copyright infringement and demanding that my Client engage in a “voluntary audit” of the computers, laptops, servers networks. If course, if you decide NOT to engage in the “voluntary” audit you will have to wonder if you are missing a license on one or more products, and in line with this article, you will have to wonder if you “PAID ENOUGH” in the minds of the software company to license their product, if not, you can expect a heavy-handed approach to be taken. After all, its a game of collections in the secondary software market.
It would be nice if there were a press release put out by the major companies explaining exactly what the “too good to be true” price for software is, so at least there is a guide. I mean, let’s face it, everyone wants a deal on the internet and if someone is selling something at a discount, I don’t go run and call the manufacturer to see if this meets their needs? The concept is silly, but one prestigious law firm recently took this approach with me. I said who on earth would call the manufacturer under these circumstances, the marketplace doesn’t and couldn’t work like that.
To me, the job is on the billion dollar software companies to police the marketplace and send cease and desist or DMCA take down notices to companies that are trying to sell their licensed software (a) too cheap (b) without authority and (c) in a manner which facilitates copyright audit demand letters. Just who should the burden be on? The billionaire global companies, or the new architect or engineering firm looking for a deal on CAD software – which many have said is way to expensive to begin with.
What is the case law in this area?
Again, my question is, what does the law say? What are the legal obligations of the parties? Is the reseller liable for copyright infringement or indemnification? Can you really be a “software pirate” because you buy a product at a discount online? I have tried to scour the case law in the area but have not found much. Opposing counsel’s have not provided me much (although they love to cite me a ton of case law on just about every other topic related to copyright). So its unclear to me what the legal rights and obligations of the parties are, and it may make this an appropriate area to go on the offensive and file a declaratory judgement action.
What is ostensible agency?
If you don’t want to go on the offensive by filing a DJ action (possibly because it costs money to go to court, although you might be able to recover your attorney fees if successful in the DJ action), then another backup plan would be to inform the software legal reps (ex. SIIA or BSA attorneys) that if they file a lawsuit against your company for copyright infringement, that you will cross-sue the third party vendor that sold you the software and seek indemnification or other remedies through them. This may also be in addition to “suing the informant” where the facts appear some is lying and defaming your business in the hopes of obtaining a whistleblower monetary reward (often after they have been terminated by the company, usually for poor performance).
In reviewing any potential rights that may exist against a third party, you have to look at a contractual arrangement or some type of agency relationship. There are many different types of agents including “express” and “implied” agents and “ostensible agents.” Ostensible agents are party’s that appear to act as agent on behalf of another. They give that appearance.
Shouldn’t the software retailer / reseller be the one the software publisher goes after? Let’s take a look at the concept of “ostensible agent.” This means, if someone looks like they are acting as an agent of another, they can be deemed to be their agent even if they are not in a formal agency contractual relationship. Now, normally copyright law is a federal issue, but let’s take a look at how one State (California), defines ostensible agency through their jury instructions:
California Civil Jury Instructions (CACI)
3709. Ostensible Agent
[Name of plaintiff] claims that [name of defendant] is responsible for [name of agent]’s conduct because [he/she] was [name of defendant]’s apparent [employee/agent]. To establish this claim, [name of plaintiff] must prove all of the following:
1. That [name of defendant] intentionally or carelessly created the impression that [name of agent] was [name of defendant]’s [employee/agent];
2. That [name of plaintiff] reasonably believed that [name of agent] was [name of defendant]’s [employee/agent]; and
3. That [name of plaintiff] was harmed because [he/she] reasonably relied on [his/her] belief.
Here, the theory might be that the software company who sent the audit demand letter carelessly creates the situation by failing to perform a google search, and send a cease and desist take down notice or copyright infringement notice to the reseller that is selling their products for too cheap, or without authority. Who would be in the better position to protect the public and guard against risk? Obviously, it is the software company that could easily do the google search, look up the alleged vendor, and shut them down quick before illegal copies of their software can be sold. In fact, we do have strong indications that one law firm does in fact check social media profiles, and look up firms on job posting websites so they are not new to scouring the internet, its just that they appear to be scouring the internet for potential small businesses instead of disavowing potential ostensible agency. Again, this is not to say this is the winning hand so to speak, but when you are backed into the corner with a software bully sometimes you have to look under every rock for a potential defense to cut down the sometimes outrageous legal demands.
Other Sources and Authority for Ostensible Agency
Civil Code section 2298 provides: “An agency is either actual or ostensible.”
Civil Code section 2300 provides: “An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.”
Civil Code section 2317 provides: “Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.”
“Whether ostensible agency exist[s] is a question of fact and may be implied from [the] circumstances.” (Yanchor v. Kagan (1971) 22 Cal.App.3d 544, 550 [99 Cal.Rptr. 367].)
My [hypothetical response] to an intellectual property lawyer
In one heated battle with a small business owner and rather larger CAD software company I thought about sending the following email that addressed the situation posed in my hypothetical. I have not sent it as we still seek to hopefully negotiate a fair settlement – which currently we are far apart.
If you have an “offer” please send it. Your email proposes having a discussion and we have already done that and in fact tried to reach a resolution on “exceedingly fair terms” as you put it (obviously a standard sales pitch as it turns out). Frankly, it is pure science fiction fantasy to believe consumers will find that link on the bottom your client’s website and call before making a purchase online. This unrealistic and naive position does not reflect the realities of the marketplace or human activity. I have never seen XXXX run a commercial promoting this consumer non-infringement lookup tool, because naturally it would not make any financial or business sense and would also likely disrupt the infringement business model. Some might view this “looking the other way” as a copyright misuse to try to trap more small business owners in the “voluntary audit” net.
Further, I asked you for case law supporting your position that buying software from a company/website that holds itself out as an ostensible agent for your Client’s company (to which they are allowed to continue selling your software/OEM without so much as a cease and desist letter being sent to them, to our knowledge) is against the law simply because the buyer believes what they are purchasing is valid and authorized. To date, you have been unable or unwilling to cite a case for me (like I said, you are the one forcing this “ copyright infringement action” with the “voluntary audit” and I would argue that ethically the burden is on you to explain how the law was violated and to be able to back that up with solid legal support. You stated you were unwilling to provide this information.
As you must know, lawyers must have substantial justification before sending threatening legal demand letters seeking thousands of dollars (and forcing my Client to spend thousands of dollars) and threatening to “expose” a person who will not pay an extra fee for confidentiality. This is your repeated position, but in this case, its not justified. This is my last call for you to justify your aggressive stance with providing a citation to THE LAW and legal authority.
Out of courtesy, I will forward your “proposal to discuss concepts you might be willing to recommend” to my Client for review, but this strong-handed antagonistic approach is not helping the situation and I will not recommend my Client get kicked around like this just because this is your settlement style and he bought what he believed to be valid product from what appeared to be an authorized vendor of your Client.
Our position is our Client has not violated the law by purchasing software through a company holding itself out as legally capable of selling your software, and thus his actions are LAWFUL and not subject to a shakedown regardless of what you might have already shaken out of him while he scared by your tactics and not represented by counsel.
As I have said many times, if you want or are expecting good faith in this “voluntary” audit process, you have to show good faith and explain your position in the language we can all understand and provide your legal grounds.
Obviously common sense would tell you there is a fine line between “buying or receiving stolen goods” and getting a great deal on a product. Just where that line is crossed is anybody’s guess. In the world of software audits, the IP bully law firm will likely push you to buy a new version of the software at MSRP plus try to tag on “attorney fees” and a copyright infringement multiplier. This can add up pretty good. As if that’s not enough, the typical copyright bull counsel may also try to hit “officers and directors” of the business and demand “the profits made” by use of the installation and use of their software which may have been purchased for less than they were hoping to sell it for.
In these cases, rather than sit and listen to the endless blowing of hot air, it might be nice to discuss the law and what it means, and what the real rights and obligations of the parties are. In some cases, you may have to consider filing a declaration judgement action to ascertain the future rights and obligations of the parties, which can be uncertain in the absence of opposing counsel providing even a shred of case law on the topic. To learn more about our software law compliance services, which include representation during intimidating and often hostile “voluntary audits” which can result in hundreds of thousands of dollars in requested fees call (877) 276-5084.
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