CBA Technology and the Law
Forum Committee Update

Computer consultants and programmers are often called on to help refine programs and application software. Although many applications are licensed as prepackaged software, many others are applications designed to use the prepackaged software and are customized to the specific needs of each customer. This would include, for example, specially designed databases or document preparation software.

Microsoft recently set up a program establishing Microsoft Solution Providers, comprised of software developers who create applications using their Office software suite, which includes word-processing, spreadsheets, presentation software and a database. An application can be developed, for example, that would help a company create, maintain and organize travel schedules, including reservations, for all of its employees. Although this might be prepared as a prepackaged program, there would be nuances that would change with each company and would require some specific programming.

Companies and the consultants they hire to perform these tasks are often unaware of potential liability that they may incur from each other. Software piracy, copying of software without permission of the copyright holder, has been rampant since the introduction of the personal computer. Even with the Copyright Amendment Act of 1992, which created additional criminal penalties for unauthorized copying of ten or more copies of a software package, piracy continues to be a major problem. To cope with this problem, organizations of software publishers, such as the Software Publishers Association ("SPA"), have devised an aggressive campaign to identify and prosecute software pirates. This increased vigor in pursuing participants in copyright infringement raises serious questions about the exposure of software consultants and programmers and the companies that hire them. The significant cases in this area relate to print media or the music and entertainment industry, but the same concepts would apply in relation to infringement of software copyrights.

Employment Context

Liability for copyright infringement may be imposed on an individual who is not a direct, primary participant in the infringement of the copyright. The common law doctrine of respondeat superior for the employee-employer relationship is applicable to impose liability on the employer when an employee, acting within the scope of his or her employment, has infringed on a copyright.

Therefore, an employee who uses pirated diagnostic software to analyze a computer malfunction and to assist in his or her work with a client may create liability for his or her employer. An employer will be vicariously liable for an employee's copyright infringement, even if the employer has no actual knowledge and no intent to infringe and even if the employee has been directly told by the employer not to engage in the activity.¹

Independent Contractors

A person who engages independent contractors may be liable for the independent contractor's copyright infringement even though the contract excludes the employer from having any right to control the independent contractor's actions. Thus, a company that hires a computer consultant who installs pirated software on the company's system or who uses pirated software in performing/asks for the company may incur liability for copyright infringement.

In both Harms v. Cohen² and M. Witmark and Sons v. Pastime Amusement Co.,³ a theater owner contracted with a musician to entertain theater patrons, but the theater owner retained no control of the musician's selection of pieces to perform. The court held that since the theater owner had given the musician the authority to determine what would be played without the owner making inquiry as to what the musician intended to play, the theater owner must be deemed to have taken part and to have given her general authority to perform copyrighted materials. This would be analogous to a company hiring a programmer to create an application when the programmer uses pirated development software for his or her work.

Right to Supervise/ Direct Financial Interest

Vicarious liability may be imposed even when no "employer-employee" or employer-independent contractor" relationship exists, as long as an individual has the right to supervise the infringer's activities and has a direct financial interest in the infringer's activity. There is no requirement that the supervisor have either intent or knowledge that the infringement is occurring.

The court in Shapiro, Bernstein & Co. v. H. L. Green Co. ⁴ held that a store owner who hat a contract concessionaire who sold records was vicariously liable for the concessionaire's copyright infringement because the store owner had retained the right to supervise the concessionaire's conduct and the store owner received a percentage of the gross receipts. This decision is of special concern to software consultants who, for example, may participate in a data processing department of a company and assume the role of supervising some of a company's personnel to solve a software problem. Applying the same standard, a lessor will not have vicarious liability for the actions of a lessee when the lessor lacks knowledge of the infringement, has absolutely no control over the lessee's conduct, charges a fixed rent and thus derives no benefit from the infringement.⁵

Individuals who employ musicians or other types of entertainers to perform at their establishments will be liable for copyright infringement by the performers even when the employer has no control over or input into the performer's material. The employer will be gaining a financial benefit from the performance and therefore will be held liable for the infringement. Even when the owner does not pay the performer, the owner will be liable for the infringement. ⁶ In Fourth Floor Music, Inc. v. Der Pace, Inc., ⁷ a Nebraska court concluded that an operator / manager of an establishment may have sufficient control over the premises where the copyright infringement occurs to be held jointly and personally liable along with the corporation.

Contributory Infringement

Contributory infringement will be imposed on a person who knowingly aids, induces or contributes to the copyright infringement, even though that person does not commit or participate directly in infringing on the copyright. A contributory infringer is jointly and severally liable along with the direct infringer. For example, corporate officers may be held jointly and severally liable as "contributory" infringers when the officers have the right and liability to supervise activities of the corporation and they have a direct financial interest in the offending corporation. ⁸

Contributory infringement also has been upheld to create liability for a company where customers copied software using equipment provided by the company.⁹

Tips for the Practitioner

As illustrated in this article, every time a client or client's company works with another in any joint activity -- as an employee, employer, independent contractor or other cooperative effort -- there is some exposure for vicarious liability for copyright infringement, which would include software piracy. It is important to advise clients to establish procedures to minimize the risk. Here are some suggested procedures for reducing the exposure to vicarious liability for software piracy:

1) adopt a statement of policy that prohibits software piracy, and actively inform all employees of the policy;

2) incorporate similar prohibitions in all contracts with computer vendors and contractors who furnish computer services to your company; and

3) incorporate indemnification provisions for losses incurred as a result of infringement by a computer vendor or contractor in all contracts with computer vendors and contractors who furnish computer services to your company.