Last week, I met with a longtime client to discuss a pending business transaction. The client owns and operates several manufacturing companies. During our meeting, he mentioned in passing that he was dealing with a demand from a large technology provider that alleged one of his companies had “pirated” its software. It appears that a rogue employee may have downloaded software without a license. Because the software had never been used – and is not even useful to the client’s business operations – my client assumed the demand was a tempest in a teapot not worthy of further discussion. To his surprise and disappointment, he had my full attention. “This is serious,” I said.

If you question the strength of industry lobbyists in Washington, check out the statutory damages for unlawful software infringement. Under the Copyright Act, “willful” infringement of a software copyright carries damages up to $100,000 per infringed work. Imagine the hole you find yourself in if one of your employees – with or without your knowledge or consent – intentionally downloads multiple forms of protected software!

Because of the substantial penalties, a cottage industry has sprouted whereby savvy tech companies seek unwitting copyright infringers in order to extract substantial settlements. Worse, much of the software contains encoded “alarms” that automatically report violations back to the license holder.

Wright Beamer has worked with numerous corporate clients facing these infringement claims. In each instance, the alleged infringement was carried out without senior management’s knowledge or consent and was of no material benefit to the company. Still, because of the stiff penalties contained in the Copyright Act, we had to work carefully toward an agreed resolution with the license holder – one that inevitably included a settlement payment.

So what should you do?

• Develop or reiterate your company’s clear policy prohibiting the downloading or use of unlicensed software;
• Conduct periodic internal audits to ensure that your network is free of pirated software;
• Take demands or inquiries from the IT industry seriously and work with your outside professionals to coordinate a careful response;
• Do not finalize any settlement without first reviewing it with legal counsel to make sure it precludes future claims and prevents sharing of your information within the IT industry.

Bottom line: large, sophisticated IT companies have some very powerful weapons at their disposal to hunt down and punish companies that infringe upon software copyrights or licensing agreements. Know what you are up against, and don’t brave the fight alone.