You would be hard-pressed to find a business today that does not depend on software, in one way or another, for business-critical purposes. From common functionality, like word processing and data entry, to highly specialized tasks, like 3D modelling, there is software for nearly any business need. The developers of this software own valuable intellectual property (IP) rights in it and they are increasingly vigilant about enforcing those rights. It is important for businesses to obtain and maintain valid licenses for the software they use in order to avoid liability for copyright infringement. It is equally important to know how to respond when they are accused of using software without a license or in an unlicensed manner.
While software is generally protectable under the Canadian Copyright Act, and installing or using unlicensed software may constitute copyright infringement, each case is unique. If your business finds itself in a copyright dispute, it is best to retain experienced IP counsel to assess and address the issues at play. Here we discuss some proactive and reactive considerations that can assist in remedying – or, ideally, avoiding – commercial software disputes. However, legal counsel will generally be required to determine what is necessary and appropriate in the unique circumstances of each case.
Proactive: pre-empting allegations of infringement
The best way to avoid a software dispute is to ensure your business obtains and maintains valid licenses for each software it uses. This often involves engaging with a software developer's sales team directly, or else a third-party software reseller. A salesperson will evaluate your business needs and provide information on various licensing models, which may differ from one developer or reseller to the next. For example, some developers provide their software on a "subscription" basis, where a license fee is paid annually or monthly for each individual employee who requires access to the particular software. In other instances, you might obtain a "perpetual" license that is tied to a specific hardware key (like a USB stick), which would allow a single licensed copy to be used on multiple computers.
In addition to obtaining and maintaining valid licenses, it is beneficial for businesses to implement controls and safeguards for company computers and IT infrastructure. For example, putting in place policies governing how employees may use computers they have access to. Similarly, putting in place network administration controls that prevent employees from downloading and installing software from the internet can help prevent unlicensed software usage. In the event an employee circumvents these safeguards to obtain pirated software, the existence of such controls may help establish that the employee was acting outside the scope of their employment which will significantly limit or avoid liability for the employer.
Software audits are another way to ensure that: (a) individual employees have not obtained and are not using unlicensed software for their own purposes; and (b) your business' legitimate software needs are actually being met.
Reactive: responding to allegations of infringement
If your business has received a demand letter from a law firm representing a software developer, or directly from a software company's compliance team, then there are a number of considerations to keep in mind.
First and foremost, it is generally advisable to retain legal counsel early in the process – particularly if you are unaware or uncertain of the allegations against you or your business. It is not uncommon for clients to believe that the letter they have received demanding payment for unlicensed software usage is a fraud or scam attempt. Experienced legal counsel can help assess the legitimacy of any correspondence you receive and provide advice on how to respond. In some instances, it may be preferable to have counsel handle all correspondence on your behalf.
Second, it is best not to ignore any correspondence you receive. Assuming that you have received a legitimate demand letter, or been served with a statement of claim, then acting promptly can help promote a time and cost-effective resolution. In some instances, a software developer may simply be seeking to have you take out a license for the software used by your business. In which case, acting quickly can ensure there is no disruption to your business' day-to-day operations. On the other hand, if you have been served with a statement of claim, then you may have a deadline to respond and failure to respond in a timely manner may result in a default judgment being issued against you.
Third, you or an IT service provider retained by you may wish to conduct an informal internal investigation to determine if, in fact, unlicensed software is present on any company computers. If you discover what you believe to me unlicensed, unauthorized, or pirated software on your computer, or your business' IT infrastructure, then it is best practice to "quarantine" the software – so that it may not be used going forward, but so that it is also not deleted. Even unintentional deletion of pirated software could constitute spoliation of evidence and so care is required when conducting an internal investigation. Notes and documents you create in the course of such an internal investigation may also be producible in a court action.
Finally, if you or your business have received a demand letter or been served with a statement of claim, you may be wondering how your activities came to the software developer's attention. In many instances, software developers incorporate "phone-home" technology in their software, which collects data about the computer on which unlicensed software is installed and/or used – such as IP or MAC address. This data is then sent back to the software developer's compliance team for assessment and follow-up. In many instances, a demand letter or statement of claim may contain some or all of the software developer's data regarding you or your business' alleged unlicensed software use. This information can be useful in your own investigation into the legitimacy of the allegations against you or your business. It can also help determine whether you are, in fact, responsible for the allegedly unauthorized use.
As all four of the above considerations demonstrate, unlicensed software disputes are serious matters that require care and diligence in addressing. Experienced IP counsel can assist you or your business in navigating the issues in your particular case and help develop a strategy for responding. In some instances, this may be negotiating the purchase of licenses in order to resolve the dispute. In others, where the allegations may be unfounded, it may be necessary to invest in defending against an unmeritorious action for copyright infringement. If you are a student, and have not engaged in commercial use of unlicensed software, your use may constitute fair dealing under Canada's Copyright Act. Or if you purchased what you believed to be legitimate software from a third-party that sold you pirated software, then you may have a claim against the third-party. Every case is different.
If you are involved in a software dispute or are interested in pursuing proactive measures to prevent a dispute in the future, please do not hesitate to contact us at Shift Law. We have experience enforcing copyright on behalf of software developers, negotiating licenses for software purchases, defending against allegations of infringement, and preparing internal policies for preventing improper computer and IT infrastructure access and use.
Originally published 04 Oct 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.