Software Licensing Law – The Decision to Engage or Not Engage in Contractual of Sales Audits!
One of the tough decisions to make when your company is approached by a software publisher or their intellectual property lawyers is whether or not to engage in the “voluntary” internal software audit. Is your company contractually obligated to go along and open up the books as they say, or is this a “sales audit” designed to try to compel you to purchase more software licenses? This blog will discuss this threshold question that arises in these types of cases that are subtly calling your company a software pirate and with the underlying tone that your company is engaged in copyright infringement. Many times you will see a reference to “you face up to $150,000 per infringed work” so this is not a topic that most companies can afford to take lightly.
What happens when you receive a phone call to engage in an audit?
Sometimes you might get a phone call (as opposed to a letter) from a software company or its legal counsel asking you (in a friendly manner) to agree to submit to a internal “voluntary audit” of your IT infrastructure. They may seem really friendly and encourage you that they are willing to “work with you” to “get you into compliance.” They may cite that they have “valid information that your company has unlicensed software installed on its computer networks.” They may tell you “work with us and we will work with you.” You have to be VERY CAREFUL about agreeing to engage in these situations.
The better response is BEFORE YOU START TALKING TO THEM about your Microsoft, Adobe, or Autodesk software (or it could be another publisher), ask them to PUT THEIR REQUEST IN WRITING. This will force a few important things to happen.
- You will get their name (this will allow you to confirm and make sure this is not some type of internet scam). We have dealt with many of the prominent law firms in this area including Troutman Sanders, Klemchuk, Donahue Fitzgerald, Weir Johnson, and others.
- You will know which software trade group they are working with (ex. Business Software Alliance or SIIA are the two most common). This can provide some insight into what you will be dealing with.
- You will get a hint at what they might be looking for (ex. which software products might be at issue), ex. Rosetta Stone, Symantec, Microsoft Windows, Office, CAL licenses, Adobe, etc. This will provide you with a chance to LIMIT the scope of the audit, which can be important in the case.
- You will get a deadline, so we know when they are looking for a response from you (normally requesting that your company fill out an license verification spreadsheet)
You are already putting your business in a much better position if you are demanding that any oral or verbal request to audit be put into writing so you can review and analyze it and share it with is, as your copyright counsel.
Can we work this out on my own?
It may be possible to handle these audits on your own, and many companies do opt for this approach, however, I cannot emphasize enough the STRENGTH and POWER of the Federal Copyright Laws. For even ONE willful infringement, you could be looking at $150,000 in liability for just ONE unlicensed install and usage of a company’s software, assuming the infringement is willful. This is HUGE given the limited software non-compliance (i.e. using just one unlicensed Autocad on just one computer or server). Obviously, the stakes can be extremely high and with officer and director liability being a common theme, this should highlight the importance of making sure you know what your plan is before you pick up the phone and engage with these types of companies and their representatives.
As we tell many business owners that call us, the IP attorneys for the software companies are experienced in these types of cases and they have undoubtedly settled thousands of these cases, and they are tough. They know the copyright laws and I can tell you unequivocally, the MEAN BUSINESS. They are there to:
(a) get your company into compliance
(b) teach you a lesson by forcing you to pay damages and attorney fees to settle your case.
They know by forcing a settlement out of you that you will tell other people about the need to be properly licensed, and in the long run this benefits them and helps cut down on software piracy which their trade organizations assert are causing billions in losses each year.
The other real downside of trying to work this yourself, is getting mad at the person you are dealing with (whether an attorney or sales rep in a Microsoft SAM audit), and getting into an argument that worsens the relationship and leads you into a potential federal court lawsuit when things cannot be worked out (yes, we do have knowledge that companies such as Microsoft and Autodesk WILL file copyright suits from time to time to enforce their rights). So, you have to be careful when dealing with their trained intellectual property lawyers . In some states, we cannot confirm or deny this, they may be tape recording your phone calls or trying to get you to admit things that they will use against you in the future.
We have seen letters, by the time we get in, where the opposing lawyer is saying “your client has already admitted they are using unlicensed software, please submit your full audit results no later than XXX.” Obviously you have already put your company in a hole that we have to dig out of.
In short, you are MUCH BETTER seeking legal counsel BEFORE you engage in verbal conversations with attorneys that are not on your side. Having copyright counsel represent you is time and money well spent.
Is our business contractually obligated to agree to the audit?
Not all audits are created equal. In my mind, there are basically two types of software audits for a company to be concerned with:
- The contractual audit – this is were your company purchased software and the software came with a license to use it (ex. End User License Agreement or “EULA”).
- The EULA may contain contractual obligations to submit to a audit.
- The audit clause should be reviewed and scrutinized if one exists.
- A contractual audit clause is part of a licensing agreement and and technically gives the holder of the rights the ability to come in an audit your business under reasonable time and circumstances. In many cases we can avoid this visit to your company and simply get it handled over the phone and email.
- The Sales audit – The other type of audit would be what I refer to as the :”software sales audit” (or the “fishing expedition” audit) these are the ones where there is no EULA that compels you to engage in an audit, but for some reason someone believes they have knowledge of a licensing shortage (Click below to see “How did we get on their radar“)
The sales type of audit could be driven by either an “informant” (often motivated by a reward – could be a current or ex-employee or contractor) or a randomly generated letter. Either way, in these types of audits you may be dealing more with “technology sales reps” as opposed to IP copyright lawyers. So while it may be less pressure to your business, there will still be a “copyright infringement carrot” being dangled in front of your nose. The subtle hints are enough to drive most business owners crazy. Again, these audits are not enjoyable, they can be disruptive, intrusive and feel like a shakedown. We can help take the pressure off your back and serve as the main contact to try to get the case resolved.
NOTE: The “software sales audit” may seem like something your business can handle on its own,, through your IT department. However, if you turn over large numbers of missing licenses and admit to that, you have to ask yourself “what if they want to sue us for willful copyright infringement?” This is why some companies decide it is best to be represented by copyright counsel, and NO having an attorney on your team is NOT an admission of guilt, it is an admission that you WANT THIS DONE and CLOSED OUT with CONFIDENTIALITY and full and final RELEASE of all claims and liability.
Contact an intellectual property software compliance law firm
We have helped many companies, both large and small, both national and international protect their business interests in software audits, whether contractual in nature, or a “sales type” of audit. There are also audits driven by the use of “crack codes” which is a third type of audit (you can refer to this as a “legal audit” usually from a law firm). With these types of cases, “lawyering-up” becomes very important and should be run by the board of directors. These are the most serious because they usually involve widespread piracy and can raise potential criminal copyright law issues.
We can help, call us at (877) 276-5084 to speak with a lawyer. There is no cost for the initial consultation.
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