ALP: What is software piracy, and is your company at risk?

March 2006

Software piracy is a term that is frequently used by software manufacturers to describe copyright infringement related to computer software. It is far easier than you might think to unwittingly become a software “pirate,” but a comprehensive review of your company’s software and other IT assets – also known as a software audit -- is an important tool that can save a company thousands of dollars and even protect it from civil and criminal liability.

Computer software is intellectual property that is protected by U.S. copyright laws. When your company “purchases” software, it really is only getting a limited license to use the software per the terms in the license, and you need to understand the license agreement that governs the use of that software. This includes the number of computers the software can be loaded on. Making additional copies, or loading software onto more than one machine may be considered copyright infringement. Other types of copyright infringement can happen when an employee installs work-related software onto his or her home computer, when software is loaded onto a company server and more employees are allowed access to the software than the number of authorized users under the license, or when a company sells hardware (frequently, outdated machines) that has copies of licensed software already loaded on it.

Copyright infringement can carry stiff penalties. Under the Copyright Act, a copyright owner can recover either actual damages and the infringer’s profits resulting from the unauthorized copying, or statutory damages of up to $150,000 per infringed work, and can require the company to destroy all unauthorized copies. In cases of willful infringement, the law allows for maximum criminal penalties of up to $250,000 and five years in prison. However, ignorance is not bliss in the case of software piracy – lack of knowledge or intent is not defense to a charge of copyright infringement.

Because the stakes are so high, more and more companies are conducting software audits. There are several commercial tools available that will perform an initial software audit (i.e., determine what software is running on what machines) but these tools are no substitute for a thorough legal evaluation of your software licenses, a business/IT evaluation of your software needs and the implementation of a clear software use policy. A lawyer that is conversant in copyright law and software licensing can be invaluable in helping your company navigate these treacherous waters, and keep it from becoming a software pirate.