I was retained by a small company that had received a letter from one of its most important software vendors. The letter said the company “may have installed on its computers more copies of… software than it is licensed to use.” It then pointed out that unauthorized duplication of proprietary software violates federal copyright law and the applicable license agreement and that “potential remedies… are significant.” [emphasis added] The letter ended by requesting that my client:
- Audit all of its computers for copies of the vendor’s software and provide the audit results within three weeks
- Not destroy any installed software
- Not purchase any more of the vendor’s software until the matter is resolved
The client’s owner was concerned. She did not know of any illegally installed software; even worse, she was suspicious and uneasy about how the vendor could have such information.
The owner gave me background documentation. Right away, I saw that a single copy of the software had been installed on two PCs and registered each time, violating the license agreement (even though the software on the second PC had not been used) and bringing the violation to the vendor’s attention.
An audit by the company’s outside IT consultant revealed further problems: installation of the software on two more PCs (without registration), and failure to remove two older versions of the software. So, in total, my client had six copies of the software, even though it had licensed only one – but the owner had no idea why the extra copies had been installed, because the employee who managed IT resources was no longer with the company.
I warned the client that there could be substantial exposure. Vendors often demand three times the license fee for each unauthorized copy. In my client’s case, five unauthorized copies and a list price of approximately $4,000 would mean a penalty of $60,000!
It was time to negotiate. I forwarded the audit results to the vendor’s attorney. Three weeks later, he responded with an offer letter. Although the vendor normally would demand more than $60,000 to settle a matter of this magnitude, it was making “a very generous settlement offer” of a little under $40,000.
For a four-person company, this “generous” offer was far too costly. During the next two months, the vendor’s attorney and I had a series of telephone conversations and we exchanged correspondence. I presented logical arguments (none of the extra copies had been used) and emotional appeals (my client was small, did not have a lot of money, and devoted significant resources to assisting a nearby disadvantaged community).
The parties ultimately settled for $17,000, which included an upgrade of the software to the latest version – something the client had wanted all along. Given the circumstances, my client was pleased with the outcome, especially because my fees were only a fraction of the savings that we achieved.
This story illustrates why all companies should maintain tight control over the software that they use. Unauthorized use, whether intentional or inadvertent, can cost a lot of time and money and produce a lot of grief.
Related post: You May Be a Content Pirate and Not Even Know It
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.