Do Not Count On Beating Goliath: Implement A Management Plan To Avoid Software Licensing Problems

This month’s business technology tip arises from the recent David v. Goliath story reported on by Douglas Malan of the Connecticut Law Tribune.  Kent Johnson, the owner of a small computer repair shop in Connecticut was sued by the software Goliath Microsoft for allegedly selling one improperly licensed version of Microsoft Office. Microsoft put 15 people on the case and sued Mr. Johnson in federal court for copyright infringement.  

Mr. Johnson represented himself against Microsoft and reportedly reached a favorable settlement.   Mr. Johnson has a website that provides all the details of the case form the very beginning.   As much as Mr. Johnson’s apparent success against Microsoft was unusual, the notion of Microsoft going after business owners for copyright infringement is not. 

Microsoft, and other software publishers, might pursue an infringement case directly or through enforcement groups such as the Business Software Alliance (BSA) and the Software & Information Industry Association (SSIA).  These groups estimate that piracy costs software publishers seven billion dollars annually.

When you purchase software for your business, the software comes with a license that restricts your use of the software.  If you violate the restrictions in the license by copying or distribution, software publishers consider it piracy.  For example, typically you cannot install a software program for several users on multiple computers without purchasing additional licenses.  Also, you generally cannot install a program on a network server and let multiple users have access to it without the proper number of licenses.

Violation of a software license or copyright can implicate significant civil (and potential criminal penalties) in piracy cases.  Penalties can range up to $150,000 per offense for copyright infringement and there may be additional damages for lost profits. Many of these cases result in significant financial settlements in favor of the software publisher. 

You might be wondering how Microsoft finds out about a small company violating its software license.   Typically, an anonymous informant (an employee or IT consultant) reports the company to the software publisher, BSA, or SSIA in hopes of recovering a reward.  These groups openly advertise rewards of up to a million dollars for anonymous tips that lead to successful enforcement  actions. 

Many times businesses can inadvertently run afoul of licensing restrictions without realizing it.  Violations can occur when trying to cut costs, relying on bad advice from IT professionals,  or an employee’s improper downloading of software.  When groups like the BSA become aware of allegations of software piracy, they usually issue a software audit letter to the business or initiate a lawsuit in federal court.  The BSA will request proof of proper licensing from the business.

After receiving an audit letter a business will have to decide to either fight it in court or cooperate.  Facing Microsoft or the BSA in court can be risky financially and many businesses chose to cooperate.  Problems often arise for businesses that cooperate because they cannot establish sufficient proof of licensing or the business is not aware of the extent of the infringement. 

The best way to prevent problems with software licensing or an audit is to implement a software asset management plan.  Ideally, the plan would include at a minimum a written policy covering: (a) terms for copying, use,and transfer of company software; (b)  the risks or improper use of software and piracy; and (c) disciplinary action for employee misuse.  The plan should also include software management including a system for record keeping of all receipts, licenses, and original copies of the software.  The plan should further include regular self-audits of company computer systems to verify proper licensing.

With a good software management plan in place, a business will be better equipped to defend a software audit or avoid it in the first place.  In either case, if your business is facing an audit or other enforcement action, you should seek legal advice.  If you face Goliath alone, do not count on obtaining the same success as Mr. Johnson.

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