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.
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
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
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
The court in Shapiro, Bernstein & Co. v. H. L. Green Co.
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
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.
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 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.
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
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.
1. M. Witmark & Sons v Calloway, 22 F.2d 412 (D. Tenn.
1927); Shapiro, Bernstein & Co. v Veltin, 47 F.Supp.648
(D.La. 1942); Fermata International Melodies, Inc. v. Champions
Golf Club, Inc., 712 F.Supp. 1257 (S.D. Tex. 1989); Swallow
Turn Music v. Wilson, 831 F.Supp.575, 579 (E.D. Tex. 1993);
1993); Cass County Music Co. v. Kobasic, 635 F.Supp.7 (N.W.
D. Mich. 1984).
2. 279 F.276 (D.Pa. 1922).
3. 298 F.470 (D.S.C. 1924, aff'd 2 F.2d 1020).
4. 316 F.2d 304 (2d Cir.1963).
5. Deutsh v. Arnold, 98 F.2d 686 (2d Cir. 1938); Fromont
v. Aeolian Co., 254 F.592 (D.N.Y.1918).
6. Harm's, Inc. v. Theodosiades, 246 F. Supp.799 (D. Tenn.
7. 572 F.Supp.41 (D.Neb.1983).
8. Southern Mississippi Planning and Dev. Dist., Inc. v. Robertson,
660 F.Supp.1057 (S.D.Miss. 1986).
9. Telenate Systems, Inc. v. Caro, 689 F.Supp. 221 (S.D.N.Y.1988).