As a company director, last year you had the unpleasant task of making three employees redundant. Six months later, a solicitor’s letter lands on your desk threatening legal action for software infringement by your company. The two events are unconnected, right?

Wrong! The Business Software Alliance (BSA) web site offers a 24×7 whistle-blowing service open to all. Anyone from disgruntled former employees to unscrupulous competitors can allege software infringement by your company on a strictly confidential, no-strings basis. Informants may even be able to claim a financial reward.

Palms sweating slightly, you examine the newly arrived letter more closely. It says that the BSA has been provided with information suggesting that your company may be using software in a manner that exceeds the number of legal copies you are authorised to use on your computers. It requires you to carry out an audit of all software used by your company. You are to send full details of all software products, the number of licences held and the number of copies in use. There is a deadline for compliance, coupled with a thinly veiled threat of legal action should you fail to respond.

From this letter or from the general press, you may have the impression that the BSA is an independent regulatory body. Wrong again! As a search of its web site reveals, the BSA is, in fact, a private organisation funded by its membership, which includes many of the major software houses.

The BSA’s mission statement includes education and IT policy issues, but software piracy is, in reality, top of its agenda – and with good cause. Industry figures suggest that losses due to illegal software use run into billions of pounds a year in the UK alone.

The IT industry press periodically reports large pay-outs by well-known companies who have failed to comply with software licence terms. From these you may also have the impression that the BSA imposes fines on offenders. Well, no. In fact, the BSA has no power to impose a fine on any organisation and, indeed, no other independent powers.

As its name suggests, it is no more than an alliance between member organisations. The BSA has no legal status independent of its individual members, and enforcement proceedings will be brought in the members’ names. What it can do, however, is rigorously promote on behalf of member organisations the rights and remedies that would otherwise be available to them individually under the general law. So, what are those rights?

Legal remedies

As a company director, you are unlikely to see yourself as a ‘software pirate’. However, unlicensed duplicates of software used by your company are infringing items. As such, they give rise to a claim in damages and legal fees by the company that wrote the software. Inadvertent copying – and ignorance of it – are no defence to such claims. However, back-up copies necessary for the lawful use of software are permitted.

Copyright infringement can also constitute a criminal offence and, as a director, you may be held criminally liable for any offence committed by your company that you have aided or procured.

Possession of an infringing copy in the course of a business with a view to committing an infringing act (for example, further copying) carries possible penalties of a fine of up to £5,000 or 6 months’ imprisonment, or both. Other offences carry greater penalties. However, these offences generally relate to infringements carried out for an obvious commercial purpose (for example, copying software and selling the infringing copies) and an element of intention is required.

Evidence

As with any other legal proceedings, evidence is necessary for a claim of software infringement to succeed.

Under the general civil law, it may be possible to search premises where there is a real danger that evidence relating to a claim for software infringement is likely to be destroyed. There is also the possibility that infringing items will have to be handed over. However, a court application is necessary to carry out such a search; the BSA has no intrinsic powers to enter premises and seize evidence.

Recent amendments to the Copyright Designs and Patents Act 1988 do now make a search warrant available to enter a company’s premises and seize evidence of the offence of ‘possession of infringing copies with a view to committing any infringing act’.

However, this warrant is only exercisable by the police on application to the magistrate, not by the BSA. Also, as mentioned above, an element of intention is required – the mere existence of infringing copies on a company’s premises is not considered sufficient evidence.

Audit rights

Which brings us back to that letter from the BSA that has landed on your desk – and its demand for a software audit.

Clearly, it makes no sense commercially to make admissions to an opposing party who will then hold you to ransom when it comes to negotiating a resolution. The BSA and its members are no exception to this basic rule.

It is worth remembering that the BSA has no intrinsic power to carry out, or require you to carry out, an audit of software in use by your company. The question of whether its members have a right to such an audit will depend on whether the software licence for each individual product complained about expressly gives it such a right, in respect of that particular product.

If it does not, what better way for the BSA to obtain evidence in support of an infringement claim against your company than for it to write you a letter, asking you to carry out an audit yourself and provide it with the details? As a responsible officer, your immediate impulse on receiving a letter like this will no doubt be to co-operate with the demands made and to uncover whether there is any substance to the allegations made in the letter. You will no doubt wish to rectify any problems that exist and get your house in order as soon as possible.

However, while getting it off your chest may appear attractive at the time, the results will not look so attractive when incorporated into a demand for compensation or a claim form landing on your desk shortly afterwards.

To cap it all, despite your willingness to co-operate, you could be named and shamed as an infringer.

Be aware that many companies who have ‘come clean’ and admitted they were indeed at fault in possessing more copies of software products than their licences permitted have subsequently found themselves still being pursued and having to make significant pay-outs in negotiated settlements, regardless of their honesty. This is not the same thing as a ‘fine’, though these payments are often rather euphemistically referred to as such in the reports we have all seen.

Many software licences contain provisions that permit the software house to terminate all your existing licences in the event of such a breach. This threat may pose a significant risk to your business, in terms of acquiring replacement licences. These are likely to be available only at a higher-than-replacement cost.

At the very least, this threat is a substantial bargaining chip in the hands of the software owner. On the other hand, from a negotiation point of view, it is generally difficult to see what further significant loss the software house can have suffered to justify termination or put forward a demand for further compensation where additional licences have already been purchased.

Practical steps

Here are a number of practical steps you can take to deal with the letter and avoid problems in the future: