How much money with the Software Alliance demand after the licensing compliance audit?

Introduction

If you got to this page by reading our blog on the Eight Floor Promotions vs. The Cincinnati Insurance Company case here is the demand letter that the BSA sent Eight Floor following them submitting audit results (which showed a licensing shortage).  This letter is typical of what you might receive in your case, which is why we have discussed how you can handle a software audit without a lawyer, but you should be prepared to respond to a letter like this.  We have experience handling these types of claims and demands and negotiating deals.

The BSA response and demand letter in the Eight Floor case

“Dear Mr. Barnett:

“Thank you for investigating the installation and licensing of certain computer software products at [Eighth Floor]. [The] BSA appreciates Eighth Floor's cooperation in this matter. As you may know, unauthorized duplication of computer software products constitutes copyright infringement for which the Federal Copyright Act, specifically 17 U.S.C. § 504(c), allows the recovery of statutory damages ranging up to $150,000 per product for willful conduct. Even if willful conduct cannot conclusively be established, Section 504 permits the copyright owner to elect an award of nonwillful statutory damages of as much as $30,000 for each work infringed without the necessity of demonstrating actual damages.”

“Additionally, 17 U.S.C. § 505 permits the court to award to the prevailing party its costs and reasonable attorneys' fees. Often when the BSA investigates [sic] company for copyright infringement and discovers unauthorized activity, [the] BSA will seek in settlement an amount equal to several times the full retail value of all unauthorized copies of software products published by the software companies whose interests are represented by [the] BSA. In this case, however, [the] BSA member companies believe that it is the best interest of all parties to resolve this matter short of litigation. To that end, we have formulated a settlement proposal which takes into account the manufacturer's suggested retail price (“MSRP”) of the unlicensed installations, the cooperation Eighth Floor has exhibited, and all underlying facts.

While the amount to be derived from the BSA falls well below Eighth Floor's maximum exposure as set out above, [the] BSA's approach does serve a similar purpose – to deter infringement. After all, if it were possible simply to become compliant once infringement was discovered, there would be no reason to obey the copyright laws in the first place. To the contrary, such a system would create substantial incentive to copy software. Accordingly, I have been authorized to extend a settlement offer on the following terms, which are documented in the attached Settlement Agreement:

Eighth Floor will certify through one of its corporate officers, that (a) the software inventory report(s) provided during the negotiation of this settlement is true and accurate and contains a complete and accurate list of all copies of all Computer Software Products installed on its computers as of May 11, 2011;

(b) all Computer Software Products installed on Eighth Floor's computers for which it does not have a license have been destroyed;

(c) a sufficient number of licenses for the remaining Computer Software Programs have been purchased to ensure legal use; and

(d) only licensed copies of the Computer Software Products are now and will in the future be installed on Eighth Floor's computers. Documentation of compliance with these provisions will be provided along with the certificate described above.

2. Eighth Floor will agree to execute a Software Code of Ethics and to circulate it to all employees, personnel and affiliated companies.

3. Eighth Floor will agree to permit the BSA to conduct two inspections per year for three years of Eighth Floor's computers to confirm the absence of copyright infringement. The inspections will be at the BSA's option and expense absent any discovery of infringement, and at Eighth Floor's expense if infringement is found to any Computer Software Product.

4. Eighth Floor will make a payment to the BSA in the amount of $179,393.48, a three-time multiplier of the MSRP owed plus attorney's fees.

This payment is to resolve Eighth Floor's potential liability for copyright infringement and is in addition to any costs incurred by Eight Floor in complying with item 1 above.

5. The BSA member companies will forego the filing any lawsuit against Eighth Floor and will release Eighth Floor from any liability related to past infringement of the copyrights in the software products listed below due to Eighth Floor's use and/or installation of those products on Eighth Floor's computers.

This offer is made with the assumption that this case will settle quickly. If it does not, costs will only increase and the potential for a non-litigation resolution will decrease. The remaining terms of [the] BSA's settlement offer are set out in the enclosed settlement agreement.

Sincerely, [Troutman Sanders]

Are BSA demands negotiable?

Usually yes.  It depends on the willfulness of the copyright infringement.  Some cases are worse than others, and in some cases I have been told by copyright counsel for the BSA that “all eyes are on this case.”  This can mean that litigation may be a potentially attractive option given the types of damages that can be recovered under the copyright laws.  At any rate, in my experience some of the factors the BSA, SIIA, Autodesk, Microsoft and other software vendors and publishers typically take into consideration when fixing a penalty for unlicensed software are the following:

1. Level of cooperation (did you comply and turn in audit results quickly)?
2. How much time did their attorneys have to put into the case?
3. How long has the infringement been going on? (has the company made substantial profits off use of the software, ec. Microsoft Office products, or Autodesk Revit or Autocad)?
4. What were the reasons for infringement?  (was the company growing too fast?  Was there a recent merger?)
5. Are there any defenses to copyright infringement or mitigating factors?
6. Does the company have any financial hardships (could a 3x multiplier and unbundling MS Office products cause a bankruptcy)?
7. Degree and extent of the infringement (if you have evidence of some purchases as opposed to NO DATED PROOFS for anything, this could work against you)

These are some of the main things their copyright attorneys will look for when it comes time to talk settlement

Watch Attorney Steve explain “Unbundling” Office Products Damages

To learn more about copyright infringement damages watch this video

VIDEO:  Click on the picture above to watch our video discussing the complex area of copyright infringement damages.  This is a helpful video if you are facing infringement claims over illegal software, music, videos, films, games, comics, photographs and other copyrighted content. Make sure to SUBSCRIBE to our popular legal channel by clicking on the Red “V” for Victory.  We are now closing in on 2,500 subscribers and 350,000 video views!  Thank you for your continued support.

Software Audit Resources

Click on some of these links to get more information about licensing compliance issues many companies encounter.

1.  Our software compliance Supersite
2.  Sample software settlements
3.  Vondran federal court experience
5. How to handle a software audit WITHOUT hiring a copyright attorney

For a NO COST initial consultation call to speak with a Software Attorney

Our copyright defense law firm is a recognized leader in the field of software audits.  Click here to see our Avvo reviews.  We offer low flat rate legal fees (unlike our competition that will likely charge a large retainer fee and put one or more attorneys on your case “billing” you for all time spent on the case) which provides an incentive to drag the case on for months leaving you frustrated with a large legal bill.  We do not work that way.  We offer a predictable and affordable flat rate fee.  Call us at (877) 276-5084.  We accept federal copyright software infringement cases from clients all over the United States.