Scott Technology Attorneys

In various types of technology contracts, you often have change orders or separate scope of work agreements (“SOW”), which ultimately refer to or amend some sort of Master Service Agreement (“MSA”). These documents are typically “contracts” however they are often limited in scope and detail as they generally just pertain to the discreet, specific project at hand. Much of the legal verbiage regarding the actual rights and obligations of the parties to the contract are contained in the MSA.

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Hosting services customers often want to use licenses that they have acquired to deploy Microsoft software on a service provider’s servers. Those customers need to be wary about such deployments, as applicable license terms may restrict their ability to deploy the products offsite. However, the service provider needs to be doubly cautious. After all, the software is sitting on the provider’s servers – not the customer’s – so the risk of exposure associated with improper licensing is higher.

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The Business Software Alliance (“BSA”) commented on a White House announcement indicating its intent to negotiate a new trade agreement with the European Union. The press release quoted former BSA CEO Robert Holleyman as saying “It is also encouraging that the goals include expanding access to government procurement markets and state-owned enterprises, and affirming the shared US-EU objective of high-level IPR protection and enforcement.”

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Recently, Google received substantial press related to the Terms of Service associated with its new “Google Glass” product offering. For the uninitiated, Google Glass is a $1,500 fashion-challenged eyeglass frame that incorporates a tiny, electronic display screen, visible only to the wearer, beaming texts, search results, maps, and assorted other digital content straight to that wearer’s right eyeball. Google is convinced that it is the next New Thing, so much so that the Terms of Service all eager, early Glass adopters must accept incorporate what may be the next New Thing in tangible product sales – restrictive covenants.

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Over the past few years, there has been a large increase in the number of publisher-initiated software audits.  The authority for these audits is often a provision in the end user license agreement which entitles the publisher to audit companies’ installations of the software.  Audited companies often spend tens of thousands of dollars responding to the audits. With such costly (and often un-accrued for) liabilities a distinct possibility, the question that is begged to be asked is where does it make sense to apportion this responsibility. In other words, whose job is it to manage audit risk?

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One of the first steps we typically recommend to businesses facing software audits from any source is to try to estimate the financial exposure related to those audits. Doing so allows a company to allocate its resources more efficiently and to set aside reserves or make other financial preparations in advance of settlement, when auditors often demand quick action in order to secure more favorable terms.

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In a past entry, I mentioned the SPLA Qualification Road Map as a helpful document for companies to use when trying to determine the appropriate license model for Microsoft products deployed in connection with hosted services. Again, the road map takes the form of a flowchart, with each step consisting of a question that is relevant to the “commercial hosting” analysis.

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Many businesses contact Scott & Scott, LLP regarding Services Provider License Agreement (SPLA) audits after providing extensive information to Microsoft’s auditors and receiving compliance demands that would be ruinous for their bottom lines, if paid in full. At that stage, it might be difficult to “un-ring the bell” with respect to the data allegedly underlying the compliance calculations, forcing an audited business to consider other options – including litigation – for reaching a resolution.

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When companies contract out to vendors for services, it is commonplace for the vendor to provide at least an initial draft of the agreement under which the services are to be performed. In most cases, these agreements are slanted to protect the interests of the vendor. This often creates a problem when the services contracted for are artistic or creative in nature (including software development).

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We write extensively at this site about some of the finer points pertaining to licensing software under Microsoft’s Services Provider License Agreement (SPLA). However, some businesses new to the model often ask us much more basic questions, like: What is SPLA, and is it right for me?

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In a report released by the Federal Trade Commission (“FTC”) in February 2013, the FTC makes recommendations for best practices concerning privacy disclosures in the hope of making them more effective. While noting the proliferation of smart phone usage and accessibility of apps, as well as the increasing amount of transparent personal data being shared across platforms, the report’s focus with regard to its recommendations is disclosure.

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Companies react in different ways after receiving a letter from the Business Software Alliance (BSA) or the Software & Information Industry Association (SIIA) demanding a software audit. Some ignore the letter, assuming it to be some kind of spam or marketing ploy. This is not advisable. Audit demands from the BSA and SIIA generally are very serious matters, and they can result in federal court litigation if they are neglected or if the auditors determine that a company is not cooperating in good faith.

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With the release of the 2013 versions of Exchange Server, Lync Server and SharePoint Server, Microsoft is dispensing with the requirement that companies purchase client licensing for “external users.” External users are defined as “users that are not either your or your affiliates’ employees, or your or your affiliates’ onsite contractors or onsite agents.”

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Businesses that have endured audits initiated by Microsoft in connection with Services Provider License Agreements (SPLAs) are all too aware that Microsoft’s auditors spare no effort in identifying opportunities to increase the total amount of the compliance purchases demanded to resolve licensing discrepancies. For serviceproviders that have licensed Windows Server operating systems under SPLA for some time, one of the tactics used by Microsoft stems from  the confusing, bifurcated licensing regime that Microsoft previously applied to that product.

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Most businesses that try to plan for software audits and to estimate the potential exposure they could incur in the event of those audits know that the primary cost components of that exposure typically are the prices associated with any licenses they may have failed to acquire. For example, if a company determines it has ten installations of Adobe Acrobat Professional for which it does not own licenses, then the exposure associated with those installations may be estimated as the price of ten licenses for Adobe Acrobat Professional.

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On January 29, Microsoft announced the full release of its new, hosted, “Office 365 Home Premium,” service, which makes its popular suite of Office productivity products available to users over the Internet in return for a recurring subscription fee. Other editions in the Office 365 series also are available under “preview releases.”

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The Business Software Alliance (BSA) recently announced that IBM has joined the software-industry organization as a new member. It remains unclear at this stage whether the new relationship will have an impact on future BSA software audits. Many BSA members tend not to play very prominent roles in the organization’s license-enforcement efforts and instead work with the BSA mostly on efforts to promote the industry.

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Independent software vendors and other companies that distribute third-party software products as part of their proprietary solutions often are predictably good at capturing core business terms in their customer agreements, carefully defining the products and scope of services to be delivered. Unfortunately, far fewer are as reliable about including required, third-party license terms in those agreements, which can make an audit particularly uncomfortable if one of those third parties wants to know about software deployed on end users’ computers. And far fewer still include adequate terms in those agreements to address what happens if an auditor finds licensing discrepancies affecting end-user installations.

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According to a recent article published by Inman News, multiple listing service (MLS) companies – providers of real-estate listing information for brokers and their agents – may be contemplating the formation of an industry group to enforce the owners’ perceived intellectual property rights against third parties who acquire their data and make it available to others without the MLS providers’ permission. The issue apparently is a long-standing one for MLS providers, and it recently has gained more public attention due to copyright lawsuits filed by two regional providers (one from Maryland and one from Minnesota) against the operator of NeighborCity.com, which allegedly used the plaintiffs’ data in the creation of its real estate agent ratings and referrals site.

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BSA | The Software Alliance recently announced that Oracle had joined the software-industry organization as a new member. It remains unclear at this stage whether the new relationship will have an impact on future BSA software audits. Many BSA members tend not to play very prominent roles in the organization’s license-enforcement efforts and instead work with the BSA mostly on efforts to promote the industry.

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The Center for Copyright Information (“CCI”) and its partners, the Recording Industry Association of America (“RIAA”), Motion Picture Association of America (“MPAA”), and leading U.S. Internet Service Providers (“ISPs”) soon will implement a system designed to reduce illegal file sharing of copyrighted works. The Copyright Alert System (“CAS”), also referred to as the “Six Strikes” system, is a subscriber notice system in which the ISPs will monitor Internet traffic to identify illegal downloads of copyrighted works.

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Many businesses develop their own software products, and they understandably want to save on the licensing costs associated with using third-party tools or products in their development environments. However, not all publishers treat development licensing in the same way, and companies that are familiar with one publisher’s practices may end up in hot water if they assume those practices represent some kind of industry standard.

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Last month, California Governor Jerry Brown signed Assembly Bill 1844 into law, making California the third state, behind Maryland and Illinois, to create statutory privacy protections for social media users from their employers. Senate Bill 1349 applies the same prohibitions on the state’s colleges and universities.

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A flurry of attention surrounded the recent legal saga of Timothy Vernor and his protracted fight against Autodesk to re-sell software via eBay. In the end, it was decided by the Ninth Circuit Court of Appeals that the “first sale” doctrine applicable to other kinds of copyrighted works does not apply to software licenses and that software publishers may use copyright law to prevent the development of a market in second-hand software packages. (More information on the Vernor outcome is available here.)

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While data privacy and compliance professionals clamor for a single, Federal data breach notification statute, states have continued to establish and amend their own medley of breach notification statutes. As of September, 2012, 46 states and the District of Columbia have enacted some version of consumer data breach notification requirements. This disparate environment makes compliance under these evolving and sometimes divergent state notification frameworks both technically and logically challenging for organizations that find themselves cleaning up after a data breach.

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In the past, when deploying IBM software licensed on a Processor Value Unit (PVU) basis on servers that are configured in clusters for fail-over or load-balancing reasons, it generally has been necessary to license all servers in the cluster for that product. (Read more here.) Thus, for example, though a business may only be deriving limited functionality from an installation of DB2 Enterprise on one server, if that server is in an 8-unit cluster where each of the physical servers is identical to the one where DB2 is installed, the IBM customer could incur a DB2 Enterprise licensing charge equal to 8 times the amount to license the single host machine.

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Businesses wanting to license Microsoft products for use in connection with solutions delivered to customers over the Internet need to remember proper licensing involves answering two questions:• Are users “accessing” the software?• Is that access “commercial hosting”?Many companies skip to question two, but the answer to question one may keep you from having to address it at all.

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The Software & Information Industry Association (“SIIA”) is an organization that pursues copyright infringement claims on behalf of many software publishers against companies it accuses of violating its members’ software license agreements. Although many companies have properly licensed software, many are unable to produce the receipts from software purchased years prior to the audit. In many instances, it is better for innocent companies to settle the SIIA’s claims instead of litigating them.  Because a settlement may be misconstrued to reflect misconduct on the part of a company, many companies insist on a confidentiality provision to keep the existence and terms of settlement confidential. Without a confidentiality provision in the settlement agreement, the SIIA generally is free issue to a press release or publish on its web site details of the terms of settlement and name of the company. It is beneficial to seek counsel from an attorney familiar with the SIIA process to provide proper guidance for the implications regarding a confidentiality provision.

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Legal fees and expenses can quickly add up defending against a Software & Information Industry Association (“SIIA”) audit and potential software copyright infringement claims. The SIIA typically demands a penalty based on some multiple of the MSRP of each product alleged to have been infringed, in addition to the SIIA’s attorney’s fees and a sometimes requests an additional payment to keep the existence and terms of the settlement confidential. By the time settlement is reached, it may be difficult for a company to pay a large settlement fee related to the alleged copyright infringement.  

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Once the Software & Information Industry Association (“SIIA”) sends a letter to a company questioning the authenticity of software licensing status and demanding a self audit, it is very important to have proofs of purchase for the licenses in question. Unless a company is able to provide sufficient documentation proving all of the SIIA-member software installed was legally purchased, the SIIA will assume that the SIIA-member software installations are unlicensed and will demand that the company pay a penalty to resolve claims of alleged copyright infringement.

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After receiving a request from the Software & Information Industry Association (“SIIA”), many companies choose to conduct an internal audit of software installed on their networks. There are multiple considerations regarding the strategy for conducting an audit, including, but not limited to, the nature of the company’s record-keeping, the size of the company, the size of the network, the type of software at issue, and the IT support.

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In August of 2012, the Sixth Circuit ruled on a case that determined who is responsible for the costs associated with loss of data arising from a hacking incident in Retailer Ventures, Inc. v. Nat’l Union Fire Ins. Co., -- F.3d --, 2012 WL 3608432 (6th Cir. Aug. 23, 2012). In this matter, DSW Shoe Warehouse was targeted by computer hackers who successfully accessed their systems and harvested the credit card and checking account information for more than 1.4 million DSW customers. In its efforts to conduct thorough investigations into the incident and comply with the numerous state and federal data breach notification requirements, DSW incurred expenses of more than $5M.

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Most software license agreements used by major publishers like Microsoft and IBM are in many ways vague with respect to license restrictions and metrics. This leaves licensees in the position of having to interpret the agreements based on whatever guidance may be available from the publisher or, often, simply based on the licensees’ own experience and understanding. Unfortunately, that often lands companies in trouble in the context of an audit.

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The Business Software Alliance recently issued a breathless press release touting what it characterizes as a “recent wave of high-value unlicensed software cases.” The release goes on to describe eight recent software-audit settlements ranging in amounts from $120,000 to $625,000, with some settling businesses identified by name and others identified only by industry (likely to avoid breaching confidentiality clauses in the corresponding settlement agreements). The implication of the release appears to be that the “significant uptick in high-value cases of unlicensed software” correlates to some increase in the actual incidence rate of “piracy.” 

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In a blog post on August 10th, Google announced that it will add a new ranking parameter, or “signal,” to its ever evolving search ranking algorithm: the number of valid copyright removal notices it receives for a given site. Google says that websites with high numbers of “valid copyright removal notices” may result in a lower ranking within search results. Google specifically refers to copyright owners such as NPR, Hulu, and Spotify, when it claims that the new results should benefit legitimate media companies by raising their potential ranking in search results.

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Using third-party software as components of business solutions delivered to customers over the Internet can be risky. Almost all major software publishers include terms in their license agreements prohibitions or restricting the use of their products for “hosting services” or in connection with “hosted environments.” However, what is level of exposure associated with violating the anti-hosting terms in a software license.

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At the conclusion of software audits where it appears that software products were installed and used without adequate licensing, many companies find themselves confronting two challenges. First, there is the fact that the software publisher likely is demanding that the company pay penalties or otherwise steep rates to obtain the previously un-purchased licenses, upon threat of license termination. In addition, however, in most cases the publisher also will bellow that its intellectual property rights have been violated and will threaten the company with copyright-infringement exposure. Both can be serious threats for most companies.

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Fans of Star Trek likely are familiar with the dreaded Borg – an alien race of cyborgs that survives and swells its ranks primarily by conquering other races and then absorbing them into the collective through brainwashing and physically altering them with Borg-y bionic body parts. Their creepy, trademark greeting to new races is always: “You will be assimilated.”  And so it goes with IBM software. Big Blue grows its business lines as an organization just as much (if not more) through acquiring other companies as it does through originating its own products internally.

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For many small to medium-sized businesses, software license procurement may involve little more than an Internet search for the lowest price. Budgeting constraints often demand it, and especially in the wake of costly software audits by organizations like the Business Software Alliance (BSA) or the Software & Information Industry Association (SIIA), companies may be bordering on desperate to find the best deal available. Unfortunately, that impulse can lead to trouble if the company ends up giving its money to a vendor that is not authorized to resell valid licenses.

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On June 15, 2012, Connecticut amended the state’s security breach notification law. The amendment will go into effect on October 1, 2012, and requires businesses to notify the state Attorney General when notice of a security breach is provided to state residents—with such notice to affected residents to be provided “without unreasonable delay.” Connecticut follows Vermont as the second state this summer to amend its data breach statute to require notice to be given to the state’s Attorney General.

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Most companies with more than a handful of computers in their IT environments rely on the results of network-inventory tools to gather the deployment data needed for accurate software audits. Without the tools, a business would be required to assign valuable resources to manually looking at the titles installed on each machine. Therefore, it should not be surprising when a vendor requesting an audit suggests or even requires the use of an automated tool to assist with the discovery process

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On June 26th, the Office for Civil Rights (OCR),the federal agency that enforces the privacy and security regulations underHIPAA, published theprotocol it uses to conduct the audits required by the 2009 HITECH Act. Accordingto OCR, the protocol is designed to analyze the “processes, controls, andpolicies” of covered entities in an effort to measure compliance under theHIPAA mandate. OCR set out three different areas that will be analyzed underthis audit protocol: 1) privacy; 2) security; and 3) breach notification.

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I previously have discussed what “commercial hosting” means when it comes to Microsoft software, but the universe of problems created by the “hosting” ambiguity obviously is bigger than just Microsoft. Almost all software publishers restrict or prohibit – to varying degrees – their customers’ ability to use the software products they license in connection with solutions delivered to end users over the Internet.

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The form and structure of software licenses and use agreements have changed substantially over the past ten years. From the advent of estate or enterprise-based licensing models to software-as-a-service (SaaS), licenses and agreements come in a variety of forms to address a wide range of circumstances. Although the terms and forms change for these agreements, the following key provisions remain more-or-less consistent across all types:

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Most software publishers put limits on (or under some circumstances simply prohibit) the use of their products in connection with solutions delivered over the Internet to third-party end users. The license terms imposing such restrictions often can be difficult to interpret (as discussed previously). However, even in cases where the controlling language is relatively clear, it can remain difficult for CIOs to determine how to accurately and correctly track "hosted" deployments and "non-hosted" deployments for licensing purposes. 

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Negotiation of product and services contracts should include more than just the business terms, but many times the "standard terms and conditions" or "boilerplate" is glossed over by the vendor and ignored by the procurement team. For IT-related products and services, it is the language in these "boilerplate" provisions that often control which party shoulders the principal risks associated with the transaction-particularly the data privacy and security, intellectual property infringement, and confidentiality risks-so negotiation of all of the language contained in the vendor's contracts is critical.  

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Conducting a self-audit while facing potential copyright infringement claims from Autodesk or any other software publisher often is complicated and time-consuming. Nevertheless, it is critical to choose an appropriate method to ensure the audit results are accurate.

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It is standard practice for software vendors to include clauses in their license agreements giving the vendors the right to invoke audits or some other mechanisms to ensure that the licensed products are used in a way that is consistent with agreed licensing restrictions. Most software consumers would agree – perhaps grudgingly – that such provisions make sense. After all, a software vendor’s life blood is its products, and if it allows those products to be used without adequate licensing, it risks both financial loss and damage to the value of its intellectual property.

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Software license compliance is a task that typicallyrequires constant vigilance. Despite a CIO’s best efforts, it is almost inevitablethat software will be deployed on a company’s computers at some point withouthaving the necessary licenses to permit such use. For most software, theresponse to such a discovery will be to simply remove any unlicensed, unneededproducts and to purchase licenses for whatever is left. However, with IBMsoftware, that solution may not resolve all liability associated with theunlicensed deployments. 

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Many companies using Microsoft products to deliver services to their customers are familiar with the “commercial hosting” prohibition included in most Microsoft license agreements:You may not host the products for commercial hosting services.Most CIOs reading that prohibition also are familiar with the feeling of deep confusion that can arise when they notice that Microsoft has utterly failed to include any definitions or guidance in its license agreements regarding what “host” or “commercial hosting services” means.

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On April 26, 2012, the U.S. House of Representatives passed the Cyber Intelligence Sharing and Protection Act (CISPA). According to the bill sponsors, CISPA is an essential update to the National Security Act of 1947 that adds provisions allowing for information about “cyber threats” to be shared between the government and private industry.

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In April 2012, IBM announced that it had reached an agreement to acquire Varicent Software, Inc., an Ontario-based publisher of analytics software for compensation and sales performance management. According to the announcement, Varicent’s customers include Starwood Hotels, Covidien, Dex One, Manpower, Hertz, Office Depot and Farmers.

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The Business Software Alliance announced in a press release late last week that they are reorganizing the organization into two operating units: one focused on increasing its focus on software anti-piracy and the other on global advocacy around key emerging issues for the technology industry including privacy and security and intellectual property protection.

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IBM software is expensive. In some cases, very expensive. While this may represent a necessary cost of doing business for many companies with mission-critical software solutions developed on or using IBM applications, all IBM customers clearly are incentivized to maximize the value of their software expenditures with Big Blue.

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An increasing number of enterprises are considering the value of Microsoft’s enterprise-level licensing models. The model with which companies are most familiar likely is the Enterprise Agreement (“EA”), under which a business licenses all of its desktops for Windows, Office and/or client access licenses, with the cost of those licenses being payable in three installments over the term of an EA enrollment (usually three years). During that term, the company can upgrade to the most current version of the licensed software and can deploy additional desktops without first purchasing licenses in advance, all subject to annual true-up orders.

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In late February 2012, the White House outlined a consumer data privacy framework that includes a “Consumer Privacy Bill of Rights” in a report entitled “Consumer Data Privacy in a Networked World: A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy.” In it, the administration sets out a plan for a four-element approach to protection of consumer privacy: 1) enumerate the consumer privacy rights; 2) encourage industry developed of codes of conduct; 3) strengthen FTC enforcement power; and 4) ensure interoperability with international privacy rules and regulations.

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In defending against software audits initiated by publishers such as Microsoft or IBM, many businesses make the mistake of assuming that those publishers or their designated auditors know what they are talking about when it comes to determining what licenses need to be purchased in order to achieve compliance. After all, the companies that wrote the license rules certainly know how and intend to apply them fairly, right?

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In defending against software audits initiated by publishers such as Microsoft or IBM, many businesses make the mistake of assuming that those publishers or their designated auditors know what they are talking about when it comes to determining what licenses need to be purchased in order to achieve compliance. After all, the companies that wrote the license rules certainly know how and intend to apply them fairly, right?

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One of the major changes in the latest version of IBM’s Passport Advantage Agreement is the requirement that customers maintain subscription and support (S&S) on either all of the licenses that are installed and in service or none of the licenses. Customers can no longer maintain subscription and support on only some of the licenses in use.

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Businesses often have close relationshipswith software vendors, and that close-ness usually is in direct proportion tothe extent and importance of those vendors’ software products in thebusinesses’ network environments. However, despite their best marketingefforts, software vendors’ interests always will remain aligned primarily withtheir own bottom line, and that often means that information shared with themcan and will be used against licensees in future transactions or, worse, in thecontext of an audit.

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Business software buyers increasingly are aware of the significant changes that Microsoft will be implementing to the license metrics for SQL Server when version 2012 of the popular database solution is released this April. However, of potentially equal or even greater significance for some companies is the fact that Microsoft also is planning big changes for the license rules applicable to System Center when version 2012 of the network-management line of products is released, likely in April alongside SQL Server.

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On February 6, 2012, a judge for the U.S. District Court for the Southern District of New York ruled that ReDigi – an upstart, online marketplace for “used” MP3 files – can continue operating pending the outcome of copyright-infringement litigation initiated by Capitol Records. ReDigi went live in October 2011 with a business model that uses proprietary technology to verify, transfer and delete instances of digital music content from a user’s computer for inclusion in an online library of MP3 files available for download by others.

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Licensing under Microsoft’s Service Provider License Agreement (SPLA) often is not a simple process. There are monthly true-ups to process, user management policies to follow, and the specter of increasingly frequent audits looming large. To complicate things further, licensing rules for Microsoft server products vary significantly. Some products, such as Exchange, can only be licensed on a per user basis, while other products give the partner the choice of whether to license using a per-user or per-processor modelWindows Server Licensing Under SPLA

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Although technology spending has made up a significant chunk of company’s yearly budgets for some time, many organizations have been slow to develop the expertise necessary to review and negotiate the associated technology agreements—and I’m talking about both the customers and the vendors. Many of these agreements appear to be based on outdated templates that were customized by someone with an incomplete understanding of the unique risks associated with the technology, the industry trends with respect to specific provisions, or the law.

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The Business Software Alliance (BSA) announced on February 6, 2012 that it has signed a settlement with PCS-CTS, a Houston-based company providing supply-chain software solutions. Under the settlement, PCS-CTS agreed to pay the BSA a total settlement of $500,000.00 to settle claims that the company had unlicensed copies of Adobe, Filemaker, Microsoft, and Symantec software installed on its computers. The BSA’s announcement indicates that the amount of the settlement is the largest ever reached with a Texas-based business.

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There are a number of ways to protect the intellectual property in software, but by far, the most commonly used method for protecting software IP is to register the software code as a literary work with the Copyright Office. The process is generally pretty straightforward: gather the code, print it to PDF, and send it off to the copyright office with a note that you would like to register the code as a literary work. While there are some specific instructions regarding the deposit and how to protect any portions of the code that may be trade secrets (hint, stock up on markers), the process typically is not much more complicated than that.

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On January 12, 2012, the D.C. Court of Appeals held that the Software & Information Industry Association (SIIA) would not be required to disclose the name of one of its confidential informants in a civil case for defamation. Solers, Inc. had filed its lawsuit against a John Doe defendant for defamation after it resolved a software-audit investigation initiated by the SIIA. The SIIA had alleged, based on information that it previously had received from the anonymous defendant, that Solers was using a number of copies of SIIA-member software products in excess of the number of licenses it had purchased for that software. Solers had attempted to force the SIIA to disclose the name of its informant in order to proceed with the defamation action.

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The “off-the-shelf” Microsoft Enterprise Agreement provides considerable flexibility for both Microsoft and its customers to construct a deal that is a good fit for both parties. That being said, there are some fundamental limitations at the core of the agreement that may prevent the customer from extracting maximum value from the EA. Below is a list of five important revisions to make to the contractual language in the EA in order to unlock the potential value stored within its pages.

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A very significant portion of Internet commerce today depends on the use and enforceability of “click-wrap” license and service agreements – legal terms that typically are presented to a customer during the service-ordering or software-installation process and that usually do not allow for any negotiation or modifications by the customer. Click-wrap agreements represent the evolution of “shrink-wrap” agreements, which for many years have been attached to the packaging of software products purchased in stores. As with shrink-wrap terms, the use of click-wrap agreements is not surprising, given the fact that most consumers of software or other products and services delivered over the Internet do not want or expect to sign more traditional contracts in order to use those products and services.

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In a previous post, I introduced the concept of post-settlement compliance following the settlement of audits initiated by the Business Software Alliance (BSA) and the Software & Information Industry Association (SIIA). As noted before, the first step to completing the compliance review process is setting a baseline to determine what software is installed compared to what licenses are owned by the business.

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Your business has just finished spending the last year of its corporate life responding to a software audit demanded by the Business Software Alliance (BSA) or the Software &Information Industry Association (SIIA). It has devoted substantial time and internal resources in an effort to gather an accurate inventory of software installations, together with all available documentation of license purchases. It also has incurred legal fees in order to obtain counsel regarding the audit process and to protect its rights during settlement negotiations. Management understandably is ready to move on.

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Any Microsoft Enterprise Agreement (EA) negotiation should involve not only the organization’s IT budgeting, compliance, and forecasting groups, but also in-house or outside counsel for analysis of the legal and business risks that are not necessarily front-and-center during the negotiation process. A significant obstacle in the way of fully understanding the applicable rights and obligations under the EA is knowing which agreements apply, and in which order. Many times, decision makers review only a portion of the agreements during an EA negotiation and do not appreciate how the entire document set integrates to establish the parties’ respective rights and obligations.

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Increasingly, software publishers are looking for new tools and processes to assist them in their license-enforcement programs. While such efforts are understandable to a degree, they sometimes can include methods that are somewhat dubious at least from a customer-relations perspective, if not from a legal perspective. One provision from Adobe’s most recent end-user license terms provides a good example. (The full EULA is available here

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Obvious though it may sound, in almost every software audit the most crucial element contributing to a positive outcome is an accurate inventory of what software is deployed. Unfortunately, far too many businesses faced with an audit end up receiving grossly overinflated compliance-purchase demands, because the inventory data received by the auditors and used to calculate a license position is faulty. Here are three top tips for taming the inventory beast:

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The number of software audits requested by software publishers and their trade groups including the Business Software Association (BSA) and Software & Information Industry Association (SIIA) will increase dramatically in 2012.

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The Business Software Alliance (BSA), the enforcement and lobbying arm of a private trade organization of approximately 100 members including Adobe, Autodesk, IBM, Microsoft, and Symantec, recently introduced the BSA Anti-Piracy Lead Generation Drawing offering a chance to win $1,000 cash for making anonymous reports of software piracy. As part of its new No Piracy Campaign, the BSA has established a web site Report Piracy Now that includes a recorded interview with an actual BSA informant—an IT consultant who reported a client’s alleged software piracy.

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Kaspersky Lab, a past member of theBusiness Software Alliance (“BSA”), which enforces copyrights on behalf ofsoftware publishers, announced recently that it has disassociated itself from theBSA in opposition of the BSA’s support for the controversial “Stop OnlinePiracy Act” (“SOPA”).

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We have previously examined the Enrollment for Core Infrastructure (ECI) program, a relatively recent “add-on” under the Microsoft Enterprise Agreement. ECI provides for volume licensing of Core Infrastructure Server Suite (CIS Suite), a server operating systems and management software bundle. ECI offers three flavors of the CIS on a per-processor basis: Standard, Enterprise, and Datacenter. The main benefit of the ECI aside from its potential costs savings is the simplification of server licensing for virtualization.

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Microsoftaudits – especially for larger companies – often are resource-intensive andexhausting undertakings even for the most well prepared IT teams. However,certain aspects of such audits often present more challenges than others. Inour experience, the most difficult data to inventory and analyze accuratelyusually are those related to server clients.

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The Microsoft Services Provider License Agreement (SPLA), together with the Business Agreement (MBA) or Businesses and Services Agreement (MBSA) to which it almost always is attached, is a complex set of legal documents that demand careful consideration in order to avoid unnecessary licensing exposure. However, many businesses that license Microsoft products under a SPLA (typically in order to provide hosted software services to their customers over the Internet) often do not pay adequate attention to all of the restrictions and obligations contained in those agreements. All too often, in the event of an audit, such past inattention to these issues can result in substantial penalties for non-compliance.

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We have covered Microsoft enterprise licensing options in detail, but have yet to discuss the changes that Microsoft has made to the server-side of the Enterprise Agreement. The traditional Microsoft Enterprise Agreement focuses on enterprise-wide desktop deployments and does not address server platform licenses as comprehensively. To account for this, Microsoft introduced the Enrollment for Core Infrastructure (ECI) addition to the standard EA that provides customers with the flexibility available under the EA to deploy core server platform software across their organizations.

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The Business Software Alliance ("BSA"), an organization that represents software publishers in efforts to combat software piracy and copyright infringement, voiced concerns in a November 21 blog entry regarding the current Stop Online Piracy Act ("SOPA") pending before a House of Representatives committee.

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As we’ve discussed herebefore, Microsoft Enterprise Agreements ("EA") can offer significant opportunities for large companies to enjoy both IT asset and management cost savings. However, many enterprise-level customers that fit into the target market for an EA have complex corporate environments that make a single one-size-fits-all agreement difficult to squeeze into. One of the tightest fits that complex corporate customers experience is when attempting to apply the standard EA definitions of Qualified Devices and Industry Devices (also referred to as Line-of-Business Devices) to their organizations. Essentially, the standard EA requires a business to purchase the same licenses for every desktop computer in the organization, unless that desktop computer meets the narrow definition of an Industry Device.

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Today, businesses have more options and more flexibility in acquiring licensing to accommodate their software needs. However, with that flexibility often come complex software asset management (SAM) obligations, the neglect of which can prove to be extremely costly.

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Like most software publishers, Microsoft includes terms in its standard license agreements to restrict a licensee’s ability to resell or otherwise assign to another party the right to install or use software. Increasing the level of difficulty for IT groups trying to manage their software assets, different types of Microsoft licenses come with different transfer restrictions. For retail off-the-shelf products, known as "full packaged product" or "FPP," and pre-installed software, called "original equipment manufacturer" or "OEM," licenses usually may be transferred without Microsoft’s consent, but these transfers are subject to limitations on the number of transfers (usually just one) and requirements that the transfer must be made along with the hardware on which it was originally installed. However, attempting to assign or transfer Microsoft software purchased under a volume license agreement often is considerably more difficult.

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The basic model for licensing Microsoft server software – both for operating systems and for applications – is to purchase a license permitting the installation of the software on a server and a number of client-access licenses (CALs) equal to the number of users or devices that will be accessing that software over a network. Most IT teams are familiar with the basic server + CAL model. However, there are a number of complicating factors to keep in mind when analyzing licensing needs for these products in order to ensure that licensing requirements are met without overspending.

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Most business managers looking to license software in a large organization are interested in two key goals: cost reduction and flexibility. Cost reduction is an obvious goal. Flexibility is another matter, however. Retail licensing for large enterprises usually is a non-starter – retail licenses generally are more expensive per seat, are more difficult to track against software installations, and require a company to accurately forecast its software needs into the future, with a large up-front capital expenditure. Therefore, at a certain size, many companies start looking for alternatives, and those alternatives (for Microsoft products, at least) often take the form of either an Enterprise Agreement (EA) or a "self-hosting" solution under a Services Provider License Agreement (SPLA). Here are some of the most important things to keep in mind when trying to decide between them:

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On November 8, the Office for Civil Rights (OCR) at the U.S. Department of Health & Human Services notified members of its HIPAA Privacy Rule listserv that it will begin conducting a pilot program of the audit requirement under Section 13411 of the HITECH Act. In the communication, OCR indicated that it will perform approximately 150 audits of covered entities in order to assess the protocols established for conducting the audits as well as to uncover any additional risks or vulnerabilities in the privacy and security rules themselves. The targeted covered entities will be notified of the request for their participation sometime this month, with OCR’s goal to conclude these pilot program audits by the end of next year.

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Most businesses seeking to license Microsoft software for the purpose of delivering hosted software solutions over the Internet turn first to the company’s Services Provider License Agreement (SPLA). SPLA is Microsoft’s flagship licensing model for commercial hosting services, and it offers the primary benefit of permitting a licensed hosting company to pay on a month-to-month basis only for the products ordered by its customers. For many businesses, that model may work fine, but others may not want to undertake the expense or hassle of entering into yet another contractual relationship with Microsoft. In those cases, businesses may want to consider the Self-Hosted Applications (SHA) rights that are available for certain products licensed under one of Microsoft’s several other, volume-licensing models (e.g., Open, Select, Enterprise). Some of the notable differences between SHA and SPLA include:

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The basics of Microsoft Enterprise Agreements have been covered here many times before, but in order to understand the subject of post-EA acquisitions, it is helpful to revisit the most fundamental of EA basics: under the Microsoft EA, an organization is required to license a specific desktop bundle across all Qualified Users or Desktops in the Enterprise. So, during the term of an EA, the Enrolled Affiliate is required to pay for a license for all new Qualified Desktops or Users added to the Enterprise. For some companies, increases in Qualified Users or Desktops are due simply to workforce growth. However, for enterprise-level organizations, many increases in Qualified Users or Desktops may come from business-unit or entity acquisitions.

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The U.S. House Judiciary Committee will consider the Stop Online Piracy Act ("SOPA") on November 16, a bill designed to complement the proposed PROTECT IP Act in the Senate in efforts to fight online piracy and copyright infringement.

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Many organizations allow their users to access desktop applications like Microsoft Office through Citrix, which is often used to control the number of users who can access the software at any one time. These organizations need to carefully evaluate whether they are legally able to install applications on their network for remote-user access and also need to evaluate how many application licenses are required to ensure that all such access through Citrix is proper.

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Many businesses use the rights granted under a Services Provider License Agreement (SPLA) to deliver hosted software solutions or, optionally, rental hardware to their customers. Many other businesses also would like to use a base licensing agreement with Microsoft – like a SPLA – in order to equip resellers or other business partners in a supply chain to deliver hosted solutions or other services to customers with whom those partners have the primary business relationship. SPLA can work under those circumstances, but there are a few very important points to keep in mind:

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The Microsoft Enterprise Agreement (EA) provides large organizations with significant licensing and administrative cost savings over traditional off-the-shelf or OEM licenses. Under an EA, a company that has 250 or more desktops can license a standard image (or images, if you know what to ask for), that includes an operating system and productivity suite for every computer in the organization as well as server operating systems, databases, and other software platforms. One of the primary, administrative cost savings under an EA is the yearly true-up process for purchasing new licenses. The true-up process is intended to make it easy to deploy new software over the course of a year without the burden of purchasing the software as it is installed. However, there are differences in the timing of the true up that can complicate the process somewhat

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Copyright remedies can hurt. A copyright owner can force an infringer to pay damages equal to lost licensing fees and profits derived from infringing activities, or it can opt for an award of statutory damages up to $150,000 per copyrighted work, if the infringement is found to be willful. For many businesses, though, much worse than any of that is the threat of an injunction barring use of a software product, or, outside the context of litigation, simply the loss of a license for software deployed for business-critical purposes. If, for example, your business depends on IBM operating systems, middleware (like WebSphere) and database software (like DB2 or Informix) to deliver your products and services to customers, your loss of licensing for that software can cause a severe disruption to your business, if not the end of your business altogether. IBM in particular knows this, and it will not hesitate to use this fact as leverage in the event of an audit.

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Although cloud computing often delivers reduced costs and increased flexibility, cloud customers now find themselves storing potentially sensitive data via someone else’s applications, on someone else’s databases, located at someone else’s facilities. What used to be locked up in a filing cabinet in the basement is now…well…who knows where? And this loss of logistical control over company information can be troubling—especially for that most tenuous form of intellectual property: the trade secret.

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Many businesses struggle with the task of determining what kinds and quantities of licenses are needed in order to deploy Microsoft operating systems and client-accessed applications on their servers. The first step in that process often is the most difficult: deciding whether to use “traditional” server + client access licenses (CALs), processor licenses or External Connector licenses (where available), or an appropriate licensing metric under a Services Provider License Agreement (SPLA). Here are some analytical questions to ask when seeking a solution to that question:

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Many organizations take advantage of the volume discounts offered by software vendors in return for a commitment to purchase a pre-determined number of licenses. Microsoft typically offers these discounts through a number of different licensing programs, including Enterprise Agreement (EA), Enterprise Subscription (EAS), Select, and Services Provider License Agreements (SPLAs). The deepest discounts generally are available for those organizations that qualify for the EA and that and are willing to undertake the true-up requirements of that program. The EA also requires the licensee to maintain licenses at a minimum count regardless of need.

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Most business owners are familiar with the “traditional” server-plus-client licensing scheme for many Microsoft server software products, such as Windows Server operating systems, Exchange messaging software and SQL Server database software. That is, you purchase one license permitting the installation and operation of the software on a server, and then, in addition, you purchase client access licenses (CALs) in sufficient quantity to allow devices or users on the network to access and use that software. Many business owners also are familiar with the processor-based licensing option for SQL Server, where you purchase a (much more expensive) license for each physical processor running on the server where the software is installed, but then acquire the right to have an unlimited number of users or devices access and use the software. However, determining when it makes sense to move from server + CAL to processor-based licensing is no easy trick, especially as IT environments start increasing in size.

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I am an intellectual property attorney specializing in defending end-users in software audit matters including those initiated by IBM.  We get hired by targets of IBM audits to facilitate the flow of information and protect the client's interest in the audit process.  The most significant compliance claims we have encountered arise under Virtualization Capacity (Sub-Capacity) License terms in IBM's Passport Advantage Licensing offering.  According to IBM, Sub-Capacity licensing "allows flexible software licensing using advanced virtualization capabilities such as shared processor pools, micro-partitioning, virtual machines and dynamic reallocation of resources."  Sub Capacity Licensing is very attractive in data center environments because "it enables customers to license software for only the processor core capacity available to the partition hosting the IBM software."   Although very attractive, Sub-Capacity licensing can create very significant legal liability under two common fact patterns.

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On October 3, 2011, the U.S. Supreme Court declined a request to grant certiorari in the case of Vernor v. Autodesk, in which the Ninth Circuit found that Autodesk could use copyright law to prevent an eBay user from re-selling its software products via the popular auction site. The Supreme Court’s refusal to hear the case means that, at least in the Ninth Circuit, software publishers like Autodesk may continue to seek injunctions and other remedies against those who attempt to distribute copies of a copyrighted software product without a license.

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On October 3, 2011, the U.S. Supreme Court declined a request to grant certiorari in the case of Vernor v. Autodesk, in which the Ninth Circuit found that Autodesk could use copyright law to prevent an eBay user from re-selling its software products via the popular auction site. The Supreme Court’s refusal to hear the case means that, at least in the Ninth Circuit, software publishers like Autodesk may continue to seek injunctions and other remedies against those who attempt to distribute copies of a copyrighted software product without a license.

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Microsoft offers a number of volume license programs designed for use by organizations with more than 250 desktops. The Microsoft Enterprise Agreement (EA) and Enterprise Subscription (EAS) agreements are for organizations licensing products for internal use only. For companies that have the need to license software for use by their customers – say, for companies offering hosting services – Microsoft developed the Service Provider License Agreement, or SPLA. With the SPLA, organizations that are Microsoft Partners can provide access to Microsoft software by purchasing either Per-Processor or Subscriber-Access Licenses for a number of Microsoft titles. In addition, however, the SPLA also permits these Partners to deploy the software licensed under the SPLA for internal use.

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When first contacted by IBM for a “compliance review” (read: software audit), many business owners simply assume that the scope of the requested audit is within IBM’s rights under applicable licensing agreements. Alternatively, if they do request that IBM identify the basis for the audit demand, they take it at its word that those rights are described accurately in the current, standard-form license agreements. This is a mistake.

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The Software & Information Industry Association (SIIA) is well known for contacting businesses regarding claims of copyright infringement based un unlicensed use of its members’ software. The audit process associated with those matters can be arduous, and fines payable to the SIIA at the conclusion of an audit can be, in some cases, crippling to a company’s bottom line. However, the SIIA does not limit itself to copyright claims related to software.

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Microsoft has long offered the Enterprise Agreement (or, “EA”), a licensing scheme for organizations with 250 or more desktops that consists of a three-year term providing free software upgrades during the term of the agreement and a perpetual license for the software at the expiration of the agreement. In the past few years, Microsoft has added an additional licensing scheme – called the Enterprise Subscription – for organizations that do not necessarily need perpetual licenses. This agreement also has a three-year term and software upgrades, but includes a non-perpetual license that expires at the end of the term.

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Microsoft offers its employees an opportunity to buy discounted software if they agree to restrictive usage terms when purchasing from the Microsoft Company Store. In addition to the online Microsoft Company Store, employees may go to one of a few different physical locations, including one near the Microsoft campus visitor center. The Microsoft Company Store is separate and distinct from the online Microsoft Store, which is aimed at the general public.

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In the past, I have covered some of the most problematic aspects of standard IBM software license agreements. However, IBM software licensing can be a recurring nightmare for procurement teams and IT administrators for reasons that extend beyond the four corners of those agreements. Three of the more “global” challenges associated with correct licensing of IBM software products include the following:

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Software licensing for medium to large companies is complicated. Not only are the software license agreements often hard to read and understand, but the terms frequently change with little notification to the user. Deploying software across an entire enterprise, therefore, can be exceedingly complex, and it requires both technical expertise and a thorough understanding of the practical application of the terms and conditions of the licenses. Many organizations, relying on their senior IT professional to make software purchasing recommendations, fail to submit the licensing agreements to legal review. For those that do submit the licenses to legal, the lawyers reading the agreements often will understand the typical contract language—the indemnities and limitations of liabilities of the world—but they often will not fully appreciate the practical effect of the license on implementation, deployment, and compliance.

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In Brasher’s Idaho Auto Auction vs. Software & Information Industry Association, Adobe Systems, Corel, McAfee, Symantec, Idaho Auto Auction, ADP, and Robert William Gillespie filed in U.S. District court for the District of Idaho (Case #1:11-cv-00310-REB), the plaintiff, a target of an SIIA audit, is asking the court to determine who is legally responsible for the unlicensed software found on its computers during the audit.

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When it comes to Microsoft licensing, we are frequently asked how to license for a situation where a Microsoft server resource is to be accessed both by internal company employees and external non-employee affiliates. Our typical legalese answer to this perfectly reasonable question: “It depends.” The correct answer (read: most-cost-effective-while-still-being-compliant answer) requires an examination of the circumstances surrounding the required access (number of users, manner of access, specific server products implicated) and a grasp of company’s current licensing environment with Microsoft.

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Correct licensing for Microsoft SQL Server database software can be a complex undertaking, and in light of the prices charged for certain kinds of SQL Server licenses, it also is an undertaking where mistakes can be extremely costly.

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Starting on September 1, 2012, businesses handling electronic protected health information (ePHI) in Texas will be subject to more stringent data privacy and security regulations and harsher penalties than those imposed by federal HIPAA regulations. Among other things, the new bill, signed into law in June 2011 by Governor Rick Perry, expands on the HIPAA definition of a “covered entity.”

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Arguably as a result of the Obama administration’s call for federal data privacy and security legislation, a number of bills have been introduced this year in both the House and Senate to address consumer-data privacy issues. Introduced earlier this spring were the Do Not Track Online Act, discussed here previously, and the comprehensive, Commercial Privacy Bill of Rights Act sponsored by political heavyweights Senators John Kerry and John McCain. A new crop of bills introduced this summer focuses on data-protection procedures and breach-notification requirements. Highlights from these entries, by Senators Leahy and Pryor and Representative Bono Mack, are outlined below.

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Software-license compliance can be a difficult task, and understanding the standard Autodesk Software License Agreement may present challenges. Here are four of the most important terms in that agreement to remember for compliance purposes:

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Businesses understandably want to reduce both the time spent shopping for software licenses and the amount to be paid to acquire those licenses. However, efforts to minimize license spends online can have negative unintended consequences. If you are shopping at a software publisher’s own online marketplace (such as Adobe’s or Autodesk’s stores), then you usually can rest assured that you at least have the tools available to purchase the correct kind and quantity of genuine licenses. However, the pricing available at those stores often is higher than the pricing available through third-party resellers.

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A recent Northern District of Idaho case should shed some light on how to apportion legal liability for copyright infringement damages related to business software usage. In Brasher’s vs. The Software & Information Industry Association, Adobe, Corel, McAfee, Symantec, Idaho Auto Auction, ADP, and Robert Gillespie, plaintiff Brasher’s, the target of an SIIA software audit, filed suit asking the court to determine who is legally responsible for unlicensed software found on its computers during the audit.

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IBM software licensing can present an array of interpretive and compliance challenges for even the most sophisticated licensees. Here are three of the most important things to keep in mind when planning to license IBM products under the company’s standard-form agreements (which, for the vast majority of IBM customers, are essentially the company’s only agreements, since IBM generally is loathe to deviate from them).

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The Business Software Alliance (“BSA”) and Software Industry & Information Association (“SIIA”) work on behalf of their members (the lists of which include Microsoft (for the BSA), Adobe, and Autodesk, among others) to enforce copyrights and the terms of end user license agreements (“EULAs”) pertaining to those members’ software products. The BSA and SIIA typically initiate software audits against companies in a stated effort to determine whether the software installed on those companies’ computers is properly licensed according to the terms of the relevant EULAs.

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Many IT-solution providers develop and sell hardware, software or support services (or some combination of all three) intended to reduce costs associated with deploying someone else’s enterprise-level software products in the licensee’s network environment.  For business owners, the high cost of deploying some industry-standard, server-based software deployments can lead to near-desperation in efforts to remain competitive while keeping associated costs from breaking the bank. In many cases, third-party solutions designed to achieve those ends can seem too good to be true. However, in those cases, a prudent business owner will start with the assumption that they are, in fact, too good to be true, and he or she will conduct a thorough level of due diligence before (1) obligating the company to contractual obligations with a provider that can’t deliver on its promises and, possibly, (2) exposing the company to legal liability.

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Independent software vendors (ISVs) constitute a diverse group of businesses whose core business model typically consists of utilizing third-party software infrastructure and development platforms (such as Microsoft SQL Server or IBM WebSphere Application Server) to create targeted solutions for their customers. ISVs have become a fixture in today’s marketplace for information technology solutions, and most large software companies have programs and licensing models specifically intended for use by ISVs. However, while the return on investment for ISV-delivered solutions is very high in many cases, it is critical for potential ISV customers to be aware of opportunities for legal exposure that can arise when one company’s software products are licensed through in independent vendor.

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Autodesk routinely sends letters to businesses that it suspects may be using Autodesk software products without adequate licensing, both in order to confirm those suspicions as well as to address any license-compliance discrepancies. Typically under threat of a federal lawsuit for copyright infringement, Autodesk requires targeted businesses to respond to detailed questions about the Autodesk software installations on company computers, the employees who use those installations, and the licenses owned for those installations. It is Autodesk’s position that unlicensed software installations constitute copyright infringement, and businesses that are unable to show full compliance typically face significant penalties on order to obtain Autodesk’s release from liability for the alleged infringement.

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The Microsoft Enterprise Agreement renewal process can be a difficult time for many large organizations. The process generally begins with a count of software products, processor cores, and virtualizations. All of these elements are necessary for a thorough evaluation of an organization’s true-up obligations under the EA. Next up is the process of evaluating future needs in order to determine whether the perpetual use rights associated with the licenses purchased under the original EA will satisfy the organization’s needs moving forward. Finally, all of these activities must be conducted under the looming specter of the EA’s expiration date and the associated non-stop communications from the company’s Microsoft account representative.

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Many businesses are realizing the processing and failover benefits of incorporating clustered servers in their IT environments. Having groups of servers whose processing resources are shared and centrally allocated means that server malfunctions can be remedied without compromising business functions that otherwise might need to be suspended until the appropriate fix can be applied. It also means that the most mission-critical functions can benefit from prioritized allocation of processing power from multiple machines, often resulting in improved overall performance.

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Negotiating a settlement with the Business Software Alliance (“BSA”) to resolve a copyright infringement dispute over allegedly unlicensed software can be arduous and costly. The BSA typically demands a penalty based on some multiple of the MSRP of each product alleged to have been infringed, in addition to the BSA’s attorney’s fees and, usually, a premium for confidentiality if the targeted business wants to avoid unflattering press releases regarding the settlement.

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As with many software publishers, Oracle seems to be making a push to audit their customer base in search of revenue streams arising from licensing deficiencies. However, Oracle usually does not like to use the word “audit” and instead tends to ask its customers to engage in a “license review,” courtesy of the Oracle License Management Services (LMS) division.  LMS generally requests that a customer fill out a Server Worksheet, which is essentially an overview of the company’s Oracle deployments.

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A processor value unit (PVU) is a unit of measurement that IBM uses to determine licensing costs based on the kinds of processors deployed on servers where IBM software is installed. A server’s PVU count is defined by the brand, model and number of physical processors running in the server and the number of core chips per processor. In order to calculate the number of PVUs, it also is necessary to refer to IBM’s PVU-per-core ratings for current processor technologies, which are updated on IBM’s website here.

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Autodesk routinely conducts software audits to determine whether businesses have unlicensed copies of its software installed on their computers. Architecture firms typically represent a significant portion of the targets of such audits – many such firms are heavily reliant on Autodesk software due to Autodesk’s dominance in the market for computer-aided design software and due to file-format compatibility requirements for architecture bids and client projects.

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Depending on the size of your organization, Microsoft SQL Server licensing costs easily can be one of the biggest yearly expenditures for an IT department. As multi-core and virtualization technologies have taken hold in nearly every datacenter across the globe, SQL Server spends often consist not only of licensing the SQL Server instances, but also, in many cases, of over-licensing due to a lack of clear understanding of SQL Server licensing models and associated options. Proper licensing of SQL Server depends on, among other things, SQL Server use characterization, access characterization, and developer needs.

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In the universe of software-copyright enforcement programs, Autodesk’s may be the most active and vigorous. All businesses – even those not running Autodesk software – should take steps early and regularly to identify and eliminate any software-compliance gaps associated with Autodesk and other software installations. It is common for businesses owners to be surprised by the presence of software on their company computers that not only was unauthorized by company management but also unused for company business purposes. Regular, internal software audits can help to avoid those surprises, and in the case of Autodesk software, product serial numbers represent a valuable tool to help determine whether a software installation is licensed.

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For organizations experiencing the resource drain that is the impending expiration of a Microsoft Enterprise Agreement (“EA”), the decision of whether to move forward with renewal is critical. These renewals easily can impart a seven-figure hit on an organization’s IT expenditure, and it is important to understand the full spectrum of the costs and benefits of renewal. Key factors to consider when making an EA renewal decision include the following:

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The Business Software Alliance (BSA) announced on March 28 that it had reached a $100,000 settlement with an advertising agency in Melbourne, Australia, based on the firm’s allegedly unlicensed use of BSA-member software products. However, unlike the majority of BSA settlements, which typically involve claims that a business has more installations of a particular product than its documented licenses permit, this case apparently included allegations that the company “was insufficiently licensed for its development environment and not properly licensed to provide hosting services for its customers.”

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Businesses seeking to license older versions of Microsoft products may encounter challenges acquiring valid licenses.  This is a particular concern for some companies that utilize Microsoft products as the basis for their IT infrastructure and that want to avoid a costly migration to new software versions.

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Nokia announced on March 29 that it was filing a new round of patent-infringement complaints against Apple for allegedly infringing on patents incorporated in the majority of Apple's cellular phones, portable music players, tablets, and computers. These new complaints follow a string of similar actions filed against Apple in U.S. federal court and in the United States International Trade Commission related to dozens of patents held by Nokia for technologies use in mobile communications devices. It also follows a March 25 ruling by the ITC that Apple had not infringed other patents in claims previously brought to its attention. According to Keli Johnson, an attorney with Scott & Scott, LLP: "While it seems to be busy throwing every available claim at the wall to see what sticks, it is important to keep in mind the fact that the stakes here are very high. Apple and Nokia currently are closely matched in the marketplace, and if Nokia successfully proves patent infringement and wins an injunction preventing Apple from using the technologies at issue, Nokia may see significantly increased market share as a result of the competitive edge." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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Speaking before the U.S. Senate Committee on Commerce, Science and Transportation on March 16, Department of Commerce Assistant Secretary for Communications and Information Lawrence Strickling reiterated the need for Congress to enact a "Privacy Bill of Rights." Stricking's prepared remarks called for key elements of the legislation to include implementation of a Code of Conduct for online businesses and to empower the FTC to enforce the legislation. "This administration continues to make it clear that online privacy is one of its top concerns to be addressed this year," says Andrew Martin, an attorney with the technology law firm Scott & Scott, LLP. "The high priority given to addressing online privacy is overdue-innumerable people are now living their lives online, but in many ways, the current state of online living resembles the lawlessness of the Wild West." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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On Tuesday, March 15, the FTC announced the settlement of a complaint against online marketing firm Chitika stemming from allegations that the company deceived consumers by structuring its opt-out mechanism to be effective for a short, ten-day period. In the settlement, the FTC requires Chitika's privacy policy to be revised to allow consumers to opt-out for a minimum of 5 years and also requires the company to destroy all consumer data received during the period that the "defective" ten-day policy was in effect. "This settlement, coming on the heels of the Do Not Track Me Online Act introduced by Jackie Speier last month, may indicate how the proposed legislation will be revised as it moves through the legislature," says Andrew Martin, an attorney with technology law firm Scott & Scott, LLP. "As it stands, Congresswoman Speier's legislation endorses no limits on opt-outs-that is, once a consumer opts-out, they are opted-out until they change their mind. Although the FTC's settlement with Chitika is a step in the right direction for consumer privacy online, it ultimately could serve to weaken the Do Not Track Me Online Act." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The Federal Trade Commission (FTC) announced on March 21st a 30-day public comment period regarding the proposed settlement agreement with Legacy Learning Systems, Inc. and Lester Gabriel Smith for violations of the FTC's "Guides Concerning the Use of Endorsements and Testimonials in Advertisement." The settlement includes the first ever monetary component for a violation of the blogger endorsement rules-a payment of $250,000. "The original complaint alleged that Smith posted reviews for the instructional videos offered for sale by Legacy while failing to mention that Smith, as the endorser, receives financial compensation for the sale of Legacy products," says Andrew Martin, an attorney with the technology law firm Scott & Scott, LLP. "This settlement makes clear that failure to stay abreast of, and invoke the necessary internal controls to comply with, changing online marketing and privacy regulations is a risky strategy for any company doing business online." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The U.S. District Court for the District of South Carolina entered judgment on March 14 against a search engine optimization firm based on the company's role in helping to create and host a website used to market counterfeit golf clubs. The plaintiff in the case, Roger Cleveland Golf Company, had alleged that the defendant, Bright Builders, knew or should have known that it was hosting and otherwise helping to market a site (under the not-so-subtle domain copycatclubs.com) that was being used illegally to infringe the plaintiff's trademarks, and that Bright Builders should be held liable for damages even without having received actual notice of infringement. "SEO companies and web hosts need to pay close attention to the outcome in this case," says Christopher Barnett, an attorney with Scott & Scott, LLP. "There is no equivalent under U.S. trademark law to the safe harbor provisions of the DMCA in the copyright arena, which means that aggrieved trademark owners do not have to make ISPs aware of trademark infringements before filing suit. The disparate damages awards in this case ($770,750 against Bright Builders, compared to $28,250 against the site owner) should serve as strong incentive for ISPs to maintain a reasonable level of awareness regarding how their services are being used." For more information, please contact Mr. Barnett at 800-596-6176, or cbarnett@scottandscottllp.com.

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Federal Judge Denny Chin recently rejected the $125 million proposed 2008 settlement between Google and the various book publishers and authors who had alleged that Google's plan to digitize of every book ever published would violate copyright law. Judge Chin cited a multitude of concerns in his opinion rejecting the settlement, while focusing on the underlying anti-trust concerns and copyright infringement issues. "Judge Chin acknowledged that while the public would benefit from the 'creation of a universal digital library,' the proposed agreement went too far," says Andrew Martin, an attorney with the technology law firm Scott & Scott, LLP. "The judge apparently was persuaded by the fact that a significant number of copyright owners opted out of the settlement, a fact that he repeatedly referenced in his opinion. Ultimately, though, Judge Chin reiterated what the Supreme Court already has held: that determinations on how best to pursue and preserve the objectives of the Copyright Clause should be handled by Congress, not by the courts." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The Business Software Alliance ("BSA") and Software & Information Industry Association ("SIIA") represent the interests of large software companies such as Microsoft, Adobe, and Autodesk, among others. Among other industry-advocacy programs, the BSA and SIIA are well known for demanding software audits from companies based on allegations that those companies are using unlicensed software. Businesses that are unable to produce evidence of license ownership (usually in the form of purchase receipts) for software installed on their computers typically resolve such matters in out-of-court settlements involving fines and enhanced license-compliance obligations. Software audits themselves often are expensive undertakings, especially when coupled with the expense of purchasing licenses for software that is needed for business operations. According to Keli Johnson, an attorney with Scott & Scott, LLP: "Businesses can mitigate software-audit exposure by taking a few critical steps:

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On March 24, the Court of Appeals of New York held that New York-based plaintiffs in Internet copyright-infringement lawsuits may, under New York law, sue infringers in federal courts located in New York, rather than resorting to courts located in the infringers' jurisdictions. The federal trial court in the case previously had reached a different conclusion, holding that New York's long-arm jurisdiction statute did not give New York-based courts jurisdiction to hear Penguin Group's complaint over the unauthorized, online distribution of four books by the Oregon-based defendant. However, the Court of appeals - New York's highest court - disagreed, stating that the "intangible and ubiquitous" nature of the Internet complicates traditional analyses into where tortious injuries occur. "This case represents a significant win for content owners and publishers, since it means that state laws may give them the ability to conduct their rights-enforcement activities at home, rather than in infringers' jurisdictions," says Christopher Barnett, an attorney with Scott & Scott, LLP. "However, the Court of Appeals left it to the trial court to determine whether an exercise of jurisdiction over the defendant would satisfy federal law. It will be interesting to see how Penguin is able to use this holding to its advantage in the litigation (and appeals) sure to follow." For more information, please contact Mr. Barnett at 800-596-6176, or cbarnett@scottandscottllp.com.

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A federal judge ruled on March 11 to limit LimeWire's exposure in pending copyright-infringement litigation by allowing one damages award per each infringed copyrighted work in its lawsuit brought by record companies. The record-label plaintiffs had sought an award for each infringement by individual LimeWire users. Although LimeWire previously settled a similar copyright-infringement suit filed by music publishers for claims arising from its music file-sharing service, it is facing up to $1.5 billion in liability for alleged copyright infringement in the still-pending suit with aggrieved record companies. "Each infringed copyrighted work may result in an award of statutory copyright damages typically ranging from $750.00 to $30,000.00," says Keli Johnson, an attorney with Scott & Scott, LLP. "However, if a claimant can prove that a work was infringed willfully, then the statutory-damages limits increases to $150,000.00 per work, meaning that LimeWire's potential exposure in this case remains significant." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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On February 28, the Office of the United States Trade Representative released the first, annual, stand-alone report listing so-called "Notorious Markets" - the most prominent physical and Internet-based markets dealing in pirated or counterfeit goods "that have been the subject of enforcement action or that may merit further investigation for possible intellectual property rights infringements." A copy of the report is available here. The report includes a number of well-known websites in different categories, such as ThePirateBay and torrentz.com in the "Bit Torrent Indexing" category and Baidu - the most visited site in China - in the "Linking" category. According to Christopher Barnett, an attorney with Scott & Scott, LLP: "The Office of the USTR previously published its Notorious Markets list within a larger, annual Special 301 Report, and it made the decision to issue a separate report in order to highlight the problem represented by these Notorious Markets. That action represents one more step in furtherance of the U.S. government's stated interest in curbing IP-rights violations domestically and worldwide." For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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The U.S. Supreme Court granted certiorari on March 7 in the case of Golan v. Holder, which now will be set for hearing to determine whether Congress has the legal authority to restore copyright protection to works long-held in the public domain. The case arose following the 1994 passage and implementation of the Uruguay Round Agreements Act, which purported to restore the copyrights in at least 50,000 foreign works in furtherance of federal trade obligations. Restoration of the copyrights means that included works - such as Prokofiev's Peter and the Wolf, for example, now only may be performed or recorded under licenses that may be cost-prohibitive for many performers. "The outcome of this case will be very interesting to watch," says Keli Johnson, an attorney with Scott & Scott, LLP. "Restoration of the copyrights in question affected not only the ability to perform the covered works in the future, but also the rights of performers who may have created recordings or derivative works based on those covered works in the past. Many performers' rights and livelihoods will hinge on the Supreme Court's decision." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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Twitter reached a settlement on March 14 with the Federal Trade Commission regarding data security breaches that exposed users' information to hackers. The FTC had accused Twitter of failing to safeguard user privacy and of misleading its users about its security practices. The settlement does not include monetary damages. However, it does ban Twitter from misleading its users about security and privacy policies, and it also requires the microblogging site to establish and maintain an information-security program that is to be independently audited every two years. "The FTC's settlement with Twitter sends a clear message to online social networking sites about neglecting to secure users' data and implementing inadequate security practices," says Keli Johnson, an attorney with Scott & Scott, LLP. "However, it is equally important for users to be circumspect about sharing personal information online." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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The House Commerce Subcommittee on Communications and Technology voted on March 9 to overturn the FCC's network neutrality rules adopted in December. The net neutrality rules require broadband service providers to allow their users to access all online content, including content from direct competitors. This vote follows an attempt in February by House Republicans to attach an amendment to a spending bill that would bar government funding of the FCC net neutrality program. "The net neutrality rules are disfavored by service providers and communications companies, which have argued that the FCC is exceeding its power to enact such requirements," says Keli Johnson, an attorney with Scott & Scott, LLP. "In addition, MetroPCS and Verizon have filed suit in a federal court to challenge the rules. It will be interesting to see how the pending litigation and legislative attacks on the rules affect their implementation." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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On March 10, Senators John McCain and John Kerry introduced legislation that would create an "online bill of rights." As it is currently drafted, this law would become the first comprehensive federal privacy law not governing a specific industry, and it is structured as a series of opt-in or opt-out requirements for data collection, storage, and transfer. "This interest from the federal government in online privacy issues is driven in no small part by the rise of social networking sites like Facebook and Twitter," says Andrew Martin, an attorney with Scott & Scott, LLP. "Although young people may have lived their entire lives online, it has taken older generations joining these social media sites in order for lawmakers to take notice of the potential exposure of personal information online." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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On March 3, Courtney Love finalized a settlement agreement with designer Dawn Simorangkir, who had filed a defamation lawsuit against the singer based on a series messages Love had posted to Twitter. Love reportedly agreed to pay Simorangkir $430,000 to settle the case, and many legal watchers are disappointed that this case will not go to trial. "The Love defamation case is the first major celebrity defamation case to be brought based a series of Twitter posts," says Andrew Martin, technology and new media attorney with Scott & Scott, LLP. "The case might have produced guidance on tantalizing legal questions regarding disparaging comments broadcast by influential celebrities on Twitter and how those comments are treated under traditional defamation law. The amount of the settlement seems to speak to uncertainty that both parties felt with respect to the strength of their legal arguments, so it appears these social media questions will remain unanswered for the time being." For more information, contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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Facebook recently relaxed their requirements for running promotions on the social networking site. Companies that previously were effectively priced out of the Facebook promotions market are now taking advantage of the new policy to run their own sweepstakes or giveaways. However, the following legal issues must be addressed in order to run a successful Facebook promotion:

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A federal magistrate for the Northern District of California granted Sony the right to subpoena information from Google, YouTube, and Twitter consisting of the IP addresses of users who visited web pages operated by an alleged hacker of Sony's PlayStation 3 gaming console. Sony claims that George Hotz, a 21 year-old New Jersey resident, has distributed instructions and other files that allow users to gain control over, or jailbreak, their PlayStation 3 consoles. Sony is claiming that the distribution of these materials constitutes a violation of the Digital Millennium Copyright Act. "The subpoenas permitting Sony to collect the account names and IP addresses of every individual that accessed Hotz's jailbreaking files and instructions may raise the eyebrows of many of us concerned with Internet privacy issues, but it is important to understand that this information is to be used by Sony solely to show that Hotz distributed the instructions and that venue for the lawsuit is proper in the court where it was filed," says Andrew Martin, technology and new media attorney with Scott & Scott, LLP. "Sony and the defendant entered into a confidentiality agreement regarding the subpoenas, and that agreement is intended to prevent Sony from using any of the subpoenaed information for any other purposes, such as pursuing legal action against the downloaders." For more information, contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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On March 8, the Ninth Circuit Court of Appeals issued new guidance for cases involving claims of trademark infringement based on the use of registered marks as Internet search keywords. In its opinion (a copy of which is available here), the Ninth Circuit held that trial courts must evaluate such disputes holistically and not based on any rigid set of factors. Earlier in the case, the trial court had applied the so-called "Internet troika" - a set of three analytical factors including (1) the similarity of the competing marks at issue, (2) the relatedness of the competing goods or services at issue, and (3) the competing parties' simultaneous use of the Web as a marketing channel - to find that the defendant's use of the plaintiff's marks as paid search keywords constituted trademark infringement. The Ninth Circuit specifically rejected that approach, holding instead that the appropriate analytical factors will depend on the facts and context of each case. "This is the latest in a series of appellate decisions reflecting the courts' attempts to provide legal guidance on a very dynamic kind of trademark dispute," says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. "Internet marketing in general - and search engine optimization in particular - can carry with it a diverse set of legal risks, the scope of which may be difficult to predict, as this case demonstrates." For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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In a 300-page report issued on March 7, the FTC has undertaken the task of trying to evaluate the effects of patent-enforcement remedies on the IP marketplace, especially the effects of so-called "patent trolls" - companies whose business models center on purchasing patents and then enforcing them against infringers. The report (a copy of which is available here) is based on information gathered during a series of hearings that commenced in December 2008, and it includes a number of recommendations intended to align patent-protection mechanisms with the public's interest in innovation and competition. Those recommendations include:

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On February 14, Senate Judiciary Committee Chairman Patrick Leahy announced the creation of a new subcommittee called Privacy, Technology and the Law, which will be chaired by Senator Al Franken. Among other things, the committee will oversee laws and policies that govern the collection, protection, use and dissemination of commercial information by the private sector. During the announcement, Senator Franken spoke of a desire to ensure Americans can "reap the rewards of new technologies while also protecting Americans' right to privacy." "Privacy legislation and litigation will continue to lead legal news for 2011," says Andrew Martin, a technology and new media attorney with Scott & Scott, LLP. "This new subcommittee is the latest in a series of reactionary measures related to privacy concerns arising as a result of the recent explosion in social media use. It is high time for careful consideration of online privacy issues." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The day before the much-hyped, February 24 launch of its new Xoom tablet, Motorola was sued for trademark infringement by Xoom Corporation - an online payment processor - in the U.S. District Court for the Northern District of California. A copy of the complaint is available here. Xoom is seeking a permanent injunction against Motorola's alleged infringement of the XOOM® trademark along with damages (including treble damages) allegedly incurred as a result of Motorola's activities. "This case appears to involve a calculated risk by Motorola," says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. "Even if it was previously unaware of Xoom's business, Motorola likely knew about Xoom's trademark from an early stage (Xoom owns the www.xoom.com domain name, for example). When Motorola applied to register its XOOM™ trademark with the USPTO, none of Xoom's registrations were identified as obstacles to registration. However, Motorola nevertheless must have been expecting a challenge from Xoom in the form of an opposition proceeding or a lawsuit. It appears to believe that there is sufficient dissimilarity between the products and services associated with the competing marks that its use of the term will be allowed to move forward." For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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In a complaint filed on February 16, the Board of Regents of the University of Texas have alleged that an Austin-area car wash business' replica of the iconic UT tower constitutes an infringement of UT's rights in three trademarks consisting of various depictions of the tower. (A copy of the complaint, with pictures, is available here.) The car wash owner reportedly spent approximately $3 million designing and building his 60-foot replica of the famous 300-foot tower, but he apparently did not expect that undertaking would implicate intellectual property rights held by UT. "This case presents a good example of how trademark disputes can arise from unexpected sources," says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. "High-value projects incorporating pre-existing works in any form need to be accompanied by some measure of due diligence regarding third-party rights. However, UT's likelihood-of-confusion claims seem to be somewhat misplaced, in light of the fact that it is doubtful the defendant is offering educational services at the car wash. It will be interesting to see if the university amends its complaint to emphasize a trademark-dilution theory of liability. For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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In a speech at George Washington University on February 14, Secretary of State Hillary Clinton laid out a new policy on Internet freedom intended to prevent autocratic governments from using Internet technology to repress dissent. In order to help ensure the broadest protection, the policy will back several different technologies representing multiple tools to fight repressive governments. "The State Department's announcement of this new policy has been construed by some to be at odds with their position on other Internet-based 'freedom initiatives,' such as Wikileaks," says Andrew Martin, a technology and new media attorney with Scott & Scott, LLP. "But the real question is how to reconcile this new policy with the so-called Kill Switch Bill which aims to defend U.S. infrastructure from a cyber-terrorist attack."  For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The Maryland Department of Public Safety and Correction Services announced on February 22 that it is suspending its a policy of asking potential employees to reveal their social media site user credentials during the application process. Through a spokesperson, the Department stated that its reason for asking for this information was to screen applicants for gang affiliation. "There is no doubt that the Department can claim a legitimate interest in screening its potential employees for gang affiliation, but a social media policy that asks for applicants' credentials is not a good way to pursue that interest," says Andrew Martin, a technology and new media attorney with Scott & Scott, LLP. "No matter the intentions, a social media policy that is overbroad or overreaching can get employers into trouble-as was evidenced recently in well publicized Facebook firing law suit. Companies cannot ignore social media use in the workplace, but they should consult with experienced counsel when addressing it in a policy for all to see." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The House of Representatives voted on February 17 in favor of an amendment to a spending bill that prohibits the Federal Communications Commission (FCC) from accessing government money to implement its new "net neutrality" rules, which are intended to ensure fair play among Internet service providers and to guarantee that consumers can access Internet content at prices and speeds that are comparable to those now available. Among other things, the new rules require broadband service providers to allow users access to all online content, including content from direct competitors. "The FCC has been on the receiving end of tough criticism over its claim of authority to implement the new net neutrality rules," says Keli Johnson, an attorney with Scott & Scott, LLP. "The House's proposed amendment, if passed in the final bill, likely will add a new wrinkle to that debate and may affect the course of litigation that already has been filed over the issue." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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A federal court in Georgia ruled in favor of the Board of Regents of the University of Georgia on February 24 in a case involving copyright infringement claims filed by a national pharmacy association. The association claimed the Board of Regents distributed questions from the association's licensing exam to students preparing to take its test. The court ruled that sovereign immunity protected the university from damages claims. "In many cases, state government entities may be held liable for damages only to the extent of waivers of sovereign immunity passed by their state legislatures," says Keli Johnson, an attorney with Scott & Scott, LLP. "Absent an appropriate waiver, damages claims may be impossible to prosecute. However, in this case the pharmacy association apparently intends to continue to pursue breach-of-contract and other claims that may not be so narrowly limited." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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The founder of the Drudge Report settled a lawsuit with "copyright troll" Righthaven, LLC, on February 17. Righthaven has become infamous over the past year by filing an estimated 239 lawsuits against various website operators. In those lawsuits, Righthaven has asserted claims of copyright infringement based on the re-posting of copyrighted material in a manner that is common with online media outlets. "Righthaven is considered by many online and new media players to be a scourge on the industry, though it appears from court papers that its process nevertheless may be technically proper," says Andrew Martin, a technology and new media attorney with Scott and Scott, LLP. "However, Righthaven has been filing suit against a large number of "mom and pop" sites, often collecting settlements averaging an estimated $5,000 per suit, using an interpretation of copyright law that does not take into account Internet norms. Essentially, it smells like copyright abuse." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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On February 23, the Media Bloggers Association - a non-profit organization with a mission of promoting the interests of Internet bloggers - filed an amicus curiae brief in a lawsuit filed by Righthaven, LLC, the now-notorious copyright "troll". In its brief to the U.S. District Court for the District of Nevada, the Association alleges that Righthaven's entire business model - which is dependent on "assignments" of the copyrights in works originally created by its newspaper-publishing clients - is fatally defective, because there is no evidence that the assignments encompass full ownership of the articles that are the subject of the lawsuits. "U.S. copyright law limits the ability to sue for copyright infringement only to bona fide owners of the works that are the subject of disputes," says Keli Johnson, an attorney with Scott & Scott, LLP. "Righthaven has sued more than 200 bloggers and web site owners for allegedly posting copyrighted content created by its clients. It will be interesting to see whether the Media Bloggers Association's argument regarding Righthaven's purported copyright assignments gains traction. If it does, Righthaven may have to drastically revise its legal strategies going forward." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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The Software & Information Industry Association (SIIA) announced on February 22 that it had settled an anti-piracy lawsuit previously filed against a German eBay vendor who allegedly sold unauthorized copies of Adobe software. The German defendant's identity was concealed under the terms of the settlement agreement, but the seller agreed to pay a "five-figure sum to cover damages and...to stop selling the unauthorized software." The SIIA had alleged in its lawsuit that the seller had violated German trademark and copyright laws by purchasing Adobe software overseas, importing the software to Germany without authorization from Adobe, and then selling the software on eBay. "The SIIA tends to be aggressive in challenging both offers and purchases of unauthorized SIIA-member software via the Internet," says Christopher Barnett, an attorney with Scott & Scott, LLP. "We regularly counsel our clients to avoid software offered via Internet auction sites, because those transactions often involve counterfeit or otherwise unauthorized software licenses. In the event of an SIIA-initiated audit, purchase records from those transactions typically are rejected as proof of license-ownership, resulting in fines that must be paid by audited businesses in order to reach a settlement." For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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Businesses deploying software published by Attachmate Corporation should strongly consider making an effort now to review their license-compliance status. Attachmate is a major player in markets for various IT-infrastructure software solutions, and it has demonstrated its willingness to pursue litigation in support of its copyright-enforcement interests. For example, in April 2008, Attachmate pursued and reached a $1.1 million settlement with the State of Montana after an audit revealed unlicensed software use on state-owned computers.

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It appears that Congress is taking seriously the mandate from the Obama Administration regarding Internet privacy issues. In February, Senate Judiciary Committee Chairman Patrick Leahy announced the creation of a new subcommittee called Privacy, Technology and the Law, which will oversee laws and policies that govern the “collection, protection, use and dissemination of commercial information by the private sector.” In March, Senators John McCain and John Kerry introduced proposed legislation that would create an “online bill of rights.” The McCain-Kerry law is poised to become the first comprehensive federal privacy law governing data collection, storage, and transfer. While these actions are aimed at addressing privacy issues as they implicate individual consumer rights, there is no limit to how impactful these laws could be in creating additional administrative and procedural requirements for the majority of cloud computing providers.

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On April 4, the Washington state legislature passed a bill making it a violation of the state’s unfair competition laws for a business to sell products in Washington “while using stolen or misappropriated information technology in its business operations,” provided that the business first receives notice of the alleged misappropriation. The law applies regardless of whether the theft or misappropriation takes place inside the state or even inside the USA – if a company based in China engages in software piracy in China, the Washington law still affects the sale of goods inside the state.

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In December of 2010, Facebook relaxed the rules on creating and implementing promotions designed to drive user “Likes” to company Pages. It did so in part due to the marketing industry’s recognition that the value for each Like to a company Facebook page can be calculated in real dollars. For example, Sycapse, a social media management company, conducted a study that calculated the average value of a Facebook Like to be over $70 of extra spending by each user on the company’s goods or services. To capitalize on this interest in the platform, Facebook eased the process to set up a promotion from a technical perspective and no longer requires companies to obtain specific approval from Facebook for each promotion run on its platform. Despite this lowered bar to entry, companies and social media managers should take note that although Facebook relaxed its internal rules, each promotion still should be evaluated carefully in light of various state and federal laws that may be implicated when running this type of promotion.

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In 2010, music-sharing website Limewire shut down amid allegations that it facilitated copyright infringement. Subsequently, a lawsuit brought by more than 30 music publishers was filed and settled under confidential terms. However, Limewire is still facing a lawsuit brought by 13 record companies, including Atlantic, Elektra, Interscope, Motown, Sony BMG, Virgin, and Warner Brothers, which is set for trial in May. (Music publishers and recording companies are able to pursue separate copyright-infringement claims based on the fact that they hold different rights -- the copyright in the composition for the former and the copyright in the actual sound recording for the latter.)

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Last month, California Representative Jackie Speier introduced H.R. 654, the so-called Do Not Track Me Online bill, to Congress. The bill is the first response to the Federal Trade Commission’s December 2010 request for the establishment of a Do Not Track registry for online users that would be similar to the Do Not Call registry for telemarketing calls established in 2003. The Do Not Track Me Online bill calls for the FTC to establish regulations requiring covered entities (defined as companies engaging in interstate commerce that collect or store online data), to allow customers to opt out of online tracking. The bill provides for monetary penalties for violations of the bill, not to exceed $5 million for a related series of events.

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The Obama Administration announced last week that it is considering expediting cloud computing certification for federal agencies by relaxing some of the security requirements issued by the General Services Administration (GSA) in November of 2010. This apparently is a response to comments issued by, among others, the Software and Information Industry Association (SIIA), which argued that the one-size-fits-all approach to cloud security requirements issued by the GSA in November was impractical and outdated. “The SIIA’s point is that the nature of services offered by some cloud platforms is such that they do not require the highest level of security measures, and I tend to agree with them,” says Andrew Martin, technology and new media attorney with Scott & Scott, LLP. “Different sets of requirements for different categories of web-based solutions likely will help to avoid forcing vendors to integrate inefficient and unnecessary functionality into their products. Private-sector organizations should consider a similar service category-based technique when evaluating cloud vendors in order to promote efficiency during negotiations for the service.” For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The Obama Administration announced last week that it is considering expediting cloud computing certification for federal agencies by relaxing some of the security requirements issued by the General Services Administration (GSA) in November of 2010. This apparently is a response to comments issued by, among others, the Software and Information Industry Association (SIIA), which argued that the one-size-fits-all approach to cloud security requirements issued by the GSA in November was impractical and outdated. “The SIIA’s point is that the nature of services offered by some cloud platforms is such that they do not require the highest level of security measures, and I tend to agree with them,” says Andrew Martin, technology and new media attorney with Scott & Scott, LLP. “Different sets of requirements for different categories of web-based solutions likely will help to avoid forcing vendors to integrate inefficient and unnecessary functionality into their products. Private-sector organizations should consider a similar service category-based technique when evaluating cloud vendors in order to promote efficiency during negotiations for the service.” For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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Microsoft recently claimed that the “La Familia” Mexican drug cartel is peddling counterfeit Microsoft Office suite software in Mexico and using the profits of those sales to help fund its drug trade and other illegal activities. Microsoft claims it found the cartel’s “FMM” mark stamped on the counterfeit software packages. “Microsoft may struggle to prevent the duplication of copyrighted software in this instance, because Mexican officials have been engaged in a deadly, ongoing war with the cartels,” says Keli Johnson, an attorney with Scott & Scott, LLP. “Although the Mexican government likely is willing to work with U.S. officials to crack down on software piracy and copyright infringement, such enforcement efforts have taken a back seat to prevention of other criminal activities that have been ripping apart the country.” For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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The annual U.S. Intellectual Property Enforcement Report issued by the Obama administration this month proposes changes to the nation’s copyright laws in an effort to combat Internet piracy and digital copyright infringement. Although no specific proposed language is included in the report, it broadly urges Congress to work from legislative proposals to improve intellectual property enforcement and online piracy prevention. The report will be sent to Congress in an effort to spawn a bill that will supplement the Digital Millennium Copyright Act. “Although the Intellectual Property Enforcement Report does not propose many specifics, previous reports have been used as bases for legislation,” says Keli Johnson, an attorney with Scott & Scott, LLP. “Based on the tenor of the report, any resulting legislation likely will incorporate stricter copyright infringement controls.” For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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U.S. Senator Patrick Leahy has been seeking input from Google and other companies ahead of a Senate hearing on February 16 for the Combating Online Infringement and Counterfeits Act (COICA), a bill proposed late last year. The bill would require Internet service providers to actively participate in preventing online piracy. Senator Leahy invited Google, Visa, Verizon, and other companies to testify at the Senate hearing, but so far only Visa and Verizon have accepted the invitation. In addition to new regulations for Internet service providers, the legislation also would facilitate the government’s ability to shut down web sites linked to online piracy and copyright infringement, in part by giving the Department of Justice the authority to shut down access to overseas sites. “The proposed legislation already has been amended to appease critics concerned with granting the government too much authority over Internet service providers and domains,” says Keli Johnson, an attorney with Scott & Scott, LLP. “The bill has support from copyright owners seeking to protect their work online. However, it may yet be modified further to avoid overly burdensome the requirements for Internet service providers.” For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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All companies understand the value of building and protecting a brand, but most do a poor job of protecting it against the risks posed by the ever-increasing power and influence of new media. Three of the most prevalent ways that new media can be used to tarnish a company’s brand are: 1) establishment of gripe sites; 2) social media use by current employees; and 3) social media use by former employees. Gripe sites are websites erected specifically to complain about or criticize a brand, and typically use URL addresses similar to the brand they are criticizing. Once a gripe site is established, organizations often encounter what may be insurmountable difficulty in shutting the sites down. For employees, both current and former, carefully drafted policies and employment agreements may be helpful in mitigating new-media risks. According to Andrew Martin, an attorney with Scott & Scott, LLP: “Instead of attacking gripe sites after the fact, the better option often is to try to register gripe-oriented domain names to stop others from setting up the negative sites. In addition, organizations should implement acceptable Internet use policies that curb new-media abuses by current employees, and they also should consider the possibility of post-termination incentives to prevent former employees from posting harmful content to the web.” For more information on how to protect your company from online brand attacks, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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On February 2, Red Hat, Verizon, and Hewlett-Packard filed a joint amicus brief in the U.S. Supreme Court in support of Microsoft’s appeal against a patent-infringement injunction won in May 2009 by i4i, Inc. i4i had claimed that an XML feature in Microsoft’s Word software violated its patent rights, and the injunction, which took effect on January 11, 2010, required Microsoft to stop selling copies of Word that included the disputed technology. “The common concern among Microsoft and its supporters is the fact that software patents – like other kinds of patents – often are easier to obtain at the USPTO than they are to attack in litigation,” says Christopher Barnett, an attorney with Scott & Scott, LLP. “Many large, software- and tech-industry stakeholders have their eyes fixed on this case, because it gives the Supreme Court another opportunity to provide meaningful guidance on the proper way for trial courts to assess infringement claims pertaining to software patents.” For more information, contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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On February 3, the Senate Judiciary Committee voted to approve S. 23, the Patent Reform Act of 2011. The bill would include a number of provisions to address the review of patents after they are granted by the U.S. Patent & Trademark Office. The bill does not include any new law related to “business method patents,” which the U.S. Supreme Court refused to invalidate in its 2010 opinion in the Bilski v. Kappos case. However, senators on both sides of the aisle on the committee have voiced strong objections to that kind of patent and have indicated that they are ready to introduce either amendments or new legislation to curb (or prohibit) the availability of such patents. The House has yet to introduce complementary patent-reform legislation. “IP stakeholders and practitioners have been waiting for years for reforms to the nation’s patent laws,” says Christopher Barnett, an attorney with Scott & Scott, LLP. “The patent prosecution process is notoriously slow and cumbersome, and the system is weighted down with claims related to patents that arguably do not relate to the kinds of technologies that should be considered patentable. It will be very interesting to see if both houses of Congress can manage to agree on meaningful legislation that the President is willing to sign.” For more information, please contact Mr. Barnett at 800-596-6178 or cbarnett@scottandscottllp.com.

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Ford Motor Company has filed a trademark-infringement lawsuit against Ferrari North America based on the latter’s promotion of the “F150,” a new Formula 1 race car. In its February 9 complaint, Ford claims that Ferrari’s use of F150 is likely to dilute its well-known F-150® trademark, which it uses in connection with its line of light trucks, and to cause confusion regarding the source of Ferrari’s products. A copy of the complaint is available here. Ferrari has responded with a February 10 press release, in which it confirms that it has no intention of using the F150 mark for any production vehicle and that, going forward, it will refer to the car only using its full name: “Ferrari F150th Italia.” “Ford certainly has an obligation to protect its valuable brands, but litigation here is premature,” says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. “Ford’s claims of dilution and, especially, likelihood of confusion seem to be weak. Especially in light of Ferrari’s apparent willingness to compromise with regard to future references to the car, it would have made more sense to seek a mutually beneficial agreement, such as one allowing Ford to use the Formula 1 reference to the benefit of its truck line. Then again, Ferrari is owned by Fiat – a controlling shareholder of Chrysler – which may make that sort of agreement problematic.” For more information, please contact Mr. Barnett at 800-596-6176 or cbarnett@scottandscottllp.com.

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In a report released February 1, Search Engine Land’s Danny Sullivan broke a story about a “sting operation” run by Google against Microsoft in an attempt to prove that Microsoft’s Bing search engine copies Google’s search results. Google engineers apparently injected illogical entries in Google search results and found that the same bad data found its way into Bing’s results some time later. Microsoft has denied that it copied Google’s search algorithm. However, it has admitted to culling search data from users who install the Bing toolbar, opting-in to send use data to Microsoft servers. “While I expect an ongoing media battle to be waged by both sides over this issue, I do not expect to see Google file a lawsuit over the alleged copying,” says Andrew Martin, a technology and new media attorney with Scott & Scott, LLP. “Unless Google somehow managed to copy Google’s search algorithm, U.S. copyright laws probably provide no remedy for this kind of activity.” For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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All five FCC Commissioners have been asked to testify on February 16 before the House Communications & Internet Subcommittee regarding the Internet neutrality rules approved by the FCC on December 21. Those “net neutrality” rules require Internet service providers to grant all users equal access to their networks and to certain web sites. The rules were met by almost immediate legal challenges from Verizon and MetroPCS disputing the FCC’s authority to regulate broadband Internet and arguing that the FCC had overstepped its authority. However, despite the legal challenges to the net neutrality rules, the FCC now is turning its attention to extending broadband to rural areas. “The House sub-committee hearing will likely include pointed questioning regarding the FCC’s authority to issue the net neutrality rules,” says Keli Johnson, an attorney with Scott & Scott, LLP. For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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A possibly precedent-setting employment and new media law case settled out of court on Monday, February 7th, a day before it was set for trial. The suit was brought by the NLRB after an ambulance company employee was fired due to postings she made to her Facebook account criticizing her employer. “A decision by the Board could have given us insight into their take on the social media question as it pertains to employment law—specifically, how much of what is posted to Facebook or Twitter should be considered protected activity,” says Andrew Martin, a technology and new media attorney with Scott & Scott, LLP. “Even though there is some disappointment that a ruling likely will not be forthcoming, the facts in this case were muddied by the circumstances surrounding the firing, and it is likely that the Board could have avoided the thorny social media issues in favor of a ruling on a different point of law. However, a case was filed on February 4th against Student Transportation of America that involves a simpler set of facts, that that case might give the Board a better opportunity to present its take on social media policies.” For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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Every savvy business owner understands the importance of due diligence when engaging in an M&A transaction, but the Third Circuit issued a ruling that serves to underscore the point that due diligence must be accompanied by a thoughtful risk assessment exercise. On January 21st, 2011, the Third Circuit ruled that a buyer who purchases a seller’s assets may be liable for the seller’s late contributions to certain benefit plans. Einhorn v. M.L. Ruberton Construction Co., No. 09-4204 (3d. Cir. 2011). The court reasoned that interest in federal labor law policy is more important than common-law, “successor-liability” doctrines that normally shield buyers from a seller’s liabilities (unless the buyer is merely a re-organization of the seller).

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In February, Sony posted a notice on its official PlayStation blog threatening to permanently ban users from the company’s online PlayStation services if those users deploy circumvention devices or software to “jailbreak” their PlayStation consoles, thereby enabling those consoles to play pirated or otherwise unauthorized game software. Sony considers such activities to be a violation of the PlayStation software license agreement and a breach of the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA). The announcement represents the latest in a series of anti-PlayStation-jailbreaking actions by Sony, which previously sought a temporary restraining order against hackers who published a how-to guide for PS3 jailbreaking.

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Businesses that have endured software audits from industry groups like the BSA and the SIIA or from software publishers like Autodesk likely are familiar with the basic audit process of counting the total number of installations for audited products and comparing those installations against the number of licenses previously purchased to support them. There are some common variations on that general theme used by some publishers – notably, Microsoft – involving connections to server software by other computers on the network. However, for the most part, the numbers of different kinds of licenses at issue are relatively limited.

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In 1986, Congress passed the Computer Fraud and Abuse Act, or CFAA, which established criminal liabilities for unauthorized access to information stored on a protected computer. Since that time, the CFAA has been amended to keep up with new privacy concerns and, in some cases, civil liability has been attached. The typical CFAA claim is asserted by a party against an unrelated entity accused of stealing computer files for personal gain. However, in cases where a company is seeking to prosecute one of its own employees for accessing protected files, the meaning of the phrase “without authorization,” an element of any CFAA claim, is hotly contested.

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Many companies today have their own company Facebook Pages, Twitter accounts or blogs. It is estimated that 4 out of 5 companies with more than 100 employees will utilize social media platforms to communicate with their current customers and to market to potential ones. These companies understand the value of participating in the online marketplace. What is not widely understood, however, is that companies are obligated to store and maintain social media communications as “electronically stored information” or ESI in the same way as they are obligated to store e-mail or written communications. Courts require companies to have document retention policies in place to allow the companies to access and produce such ESI during the discovery phase in the case of litigation.

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As Egypt’s government seized control and cut off that nation’s access to the Internet last week, U.S. Senator Joseph Lieberman reintroduced the “Protecting Cyberspace as a National Asset Act of 2010” legislation, commonly referred to as the Internet Kill Switch Bill.  Although the timing unintentionally coincided with the events in Egypt, sponsors of the bill have no intention to abandon the legislation.

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The United States District Court for the District of Columbia affirmed on January 4 the U.S. Patent and Trademark Office's five-year suspension of an attorney. The USPTO excluded attorney John Halvonik of Rockville, Maryland from practicing before the USPTO for five years on a finding that Halvonik violated a number of provisions of the USPTO's Code of Professional Responsibility, which includes disciplinary rules governing conduct of attorneys practicing before the Office. The USPTO found that Halvonik committed multiple willful and egregious acts of professional misconduct in violation of the Code, including commingling client and personal funds, failing to promptly refund client fees that had not been earned, and neglecting to prosecute client matters in a timely manner. "Attorneys must be careful to abide by the rules of professional conduct of their state bar and any agency or office before which they practice," says Julie Machal-Fulks, partner at Scott & Scott, LLP. "The USPTO received complaints about Halvonik and thereafter concluded he had engaged in misconduct." For more information, please contact Ms. Machal-Fulks at 800-596-6176 or jfulks@scottandscottllp.com.

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The U.S. Patent & Trademark Office recently announced the implementation of new, online discussion tools designed to give IP owners and practitioners an opportunity to provide public comment on how the USPTO can update and improve the Manual of Patent Examining Procedure (MPEP) and Trademark Manual of Examining Procedure (TMEP). The Office also recently announced that it would be maintaining an index of all electronic forms available through the Trademark Electronic Application System (TEAS). Previously, in order to determine the forms available online, it was necessary to drill down through several categories of filings. "The USPTO continues to demonstrate a commitment to transparency and to minimization of bureaucratic inefficiency," says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. "Practitioners should find both of these new resources to be useful tools, and I expect that each should help to facilitate positive developments for the prosecution of registrations at the USPTO." For more information, please contact Mr. Barnett at 800-596-6176, or at cbarnett@scottandscottllp.com.

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A patent infringement battle between Intel and Nvidia started in 2009 when the chip maker sued Nvidia regarding a chipset license agreement between the two companies that allegedly was not valid for Intel's then-current and future generation CPUs with integrated memory controllers. Nvidia responded, alleging that the suit was part of Intel's plan to push competitors out of the market. The two companies have resolved their dispute with a $1.5 billion software license agreement in which each party will license some of its technology to the other. Intel and Nvidia will gain access to parts of each others' patent portfolios (excluding Intel x86 designs and flash memory). "Software license agreements are excellent tools for helping companies with valuable software products resolve a dispute and find a mutually beneficial arrangement," says Scott & Scott, LLP managing partner Robert Scott. "License agreements need to be carefully negotiated documents in order to allow companies to leverage their intellectual property and gain access to technology previously out of reach or deemed too costly to develop independently." For more information, please contact Mr. Scott at 800-596-6176 or rjscott@scottandscottllp.com.

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The Justice Department is considering anti-trust and anti-competition litigation against Google following its deal to acquire ITA Software Inc. ITA powers airline booking web sites, such as Kayak.com, Hotwire.com, American Airlines, and Continental Airlines. Although no formal decision has been made to challenge this deal, some critics argue that it effectively would allow Google to control the online travel industry. "Google needs to demonstrate that this acquisition will not give it an unfair competitive advantage over its rivals," says Keli Johnson, an attorney at Scott & Scott, LLP. "If the Justice Department pursues anti-trust litigation, Google may not be allowed to acquire ITA." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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On January 12, electronics giant Sony, maker of the PS3 video game system, filed for a temporary restraining order against three hackers who published a PS3 "jailbreak" on the Internet that would free the PS3 system to run unauthorized games and other applications. The company claims that the release of this jailbreak hack is a violation of the Digital Millennium Copyright Act (DMCA) anti-circumvention provisions and that it will significantly affect the market and sales of authorized PS3 games. "It will be interesting to see how this plays out for Sony in light of the ruling by federal regulators this past summer that similar 'jailbreak' technology used on Apple iPhone devices was lawful," says Andrew Martin, media and technology attorney with Scott & Scott, LLP. For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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 The Associated Press announces on January 12th that it had reached a settlement in ts copyright lawsuit against Shepard Fairey, the New York-based street artist who created the iconic "HOPE" image of Barack Obama. In a statement regarding the settlement, the AP said that "neither side surrenders its view of the law," and that the two sides have agreed "to work together going forward with the Hope image and share the rights to make the posters and merchandise bearing the Hope image." The monetary terms of the settlement were not described in the statement. According to Christopher Barnett, an attorney at Scott & Scott, LLP: "The interesting legal questions involved in this lawsuit - including the extent to which news photography deserves copyright protection and the related boundaries of 'fair use' - remain undecided. However, a March trial date in this case remains in place for the purpose of deciding related claims against companies that sold merchandise bearing the 'HOPE' image, so this litigation may yet spawn important precedent." For more information, please contact Mr. Barnett at 800-596-6176, or at cbarnett@scottandscottllp.com.

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 Microsoft and Apple are in the midst of a fight to determine whether Apple will be allowed to register APP STORE™ as a trademark with the U.S. Patent & Trademark Office. In a motion for summary judgment filed January 10 at the USPTO's Trademark Trial and Appeal Board, Microsoft alleged that the term is used widely to describe the entire category of marketplaces into which Apple's well-known App Store falls, rendering the term "generic" and ineligible for protection as a trademark. Apple disagrees, saying that the term merely describes its own store, rather than the whole class of such stores, and that the public has come to associate the term exclusively with Apple's store. "The line between a generic mark and a descriptive mark is rarely a bright one," says Christopher Barnett, a trademark attorney with Scott & Scott, LLP. "Apple clearly has an incredible incentive to fight Microsoft's motion, and I would not be surprised to see the TTAB deny Microsoft's motion and let the case play itself out, so that each side has a full opportunity to offer evidence in support of its position." For more information, please contact Mr. Barnett at 800-596-6176, or at cbarnett@scottandscottllp.com.

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 On January 4, the Software & Information Industry Association (SIIA) announced its fifth annual forum on the adoption of cloud-based technologies by public sector organizations. Formerly known as SaaSGOV, SIIA has rebranded its forum to capitalize on the recently announced federal "cloud-first" policy. "SIIA's annual forum is re-invigorated this year, as the federal government officially adopted a pro-cloud position in the midst of the frenzy of cloud computing interest that erupted in 2010," says Andrew Martin, technology attorney with Scott & Scott, LLP. "Hopefully, many conversations will occur between private and public-sector cloud experts at this conference to drive cloud computing standards for years to come." For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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Microsoft confirmed that its Business Productivity Online Suite cloud offering, the precursor to the upcoming Office365 Google App killer, experienced a data breach on December 22. The breach of users' Offline Address book data occurred due to a configuration error across data centers in North America, Europe and Asia. "Though relatively minor in scope, Microsoft's breach highlights the kinds of questions businesses and individuals should be asking when making a decision to place critical data in the cloud," says Andrew Martin, technology attorney with Scott & Scott, LLP. "Though governments are taking steps to establish baseline rights for cloud users, at this point, the only way to address privacy and security issues is through the contract with the cloud service provider." For more information, please contact Mr. Martin at 214-999-00880, or amartin@scottandscottllp.com.</</body>

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A federal judge ruled on Wednesday against a motion to dismiss a cause of action for contributory cybersquatting brought by Microsoft against several defendants accused of establishing domain names constituting infringements of the software giant's trademarks. The Court held that contributory cybersquatting is a valid cause of action, though it noted that the claim requires a showing of bad faith by the defendants. "In order to establish a cause of action for cybersquatting under the Anti-Cybersquatting Consumer Protection Act, a plaintiff must prove (1) that the defendant registered, trafficked in, or used a domain name; (2) that the domain name is identical or confusingly similar to a protected mark owned by the plaintiff, and (3) that the defendant acted in bad faith," says Keli Johnson, an attorney at Scott & Scott, LLP. "This ruling may have wide-ranging implications for web sites designed to imitate more well-known sites in order to divert Internet traffic." For more information, please contact Ms. Johnson at 800-596-6176 or KJohnson@scottandscottllp.com.

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Clothing designer Dawn Simonrangkir filed a defamation suit against rock musician Courtney Love based on a series of posts the celebrity made to her Twitter account. The suit, originally filed 2 years ago, will be heard by Los Angeles court on January 18, as the parties were apparently unable to reach a settlement. "The outcome of this case will turn on how the court views posts to social media sites by high-profile individuals as compared to traditional news media. If the court decides that celebrities should be held to the same standard as a news outlet when it comes to false or damaging statements of fact, then Love's case will take a considerable hit. She likely will be forced to fall back on her long-shot 'Twitter made me do it' defense," says Andrew Martin, media and technology attorney with Scott & Scott, LLP. For more information, please contact Mr. Martin at 800-596-6176 or amartin@scottandscottllp.com.

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The BSA and SIIA are not the only organizations pursuing business for software copyright infringement.  Though it is a member of both the BSA and SIIA, Autodesk, which manufactures the popular design software AutoCAD, often pursues audit targets on its own.

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In many software audits, the auditing entity like the Business Software Alliance or the Software &amp; Information Industry Association requires a dated proof of purchase to demonstrate when a license for a software product was acquired. However, in audits initiated by Autodesk, the serial number can play a crucial role in demonstrating ownership.

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Many businesses that use software published by Autodesk are familiar with the company’s vigorous copyright enforcement program. Autodesk is one of the most active software publishers when it comes to threatening litigation over allegedly unlicensed use of its well-known computer-aided design products, such as AutoCAD, and it regularly targets businesses of all sizes demanding costly and distracting audits and settlements, often based solely on the word of unidentified informants.

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Google recently amended its terms of service to require reciprocity to import contacts into another application, effectively banning Facebook from accessing its Contact API. Although Facebook entered into reciprocity agreements with Yahoo and Hotmail for the same data sharing features, Facebook does not allow reciprocity for sharing e-mail addresses and contact information with Google. "The social networking site has come under fire in the past for failing to provide sufficient security to protect its user's privacy," according to Keli Johnson, an attorney with Scott & Scott, LLP. "However, because Facebook currently engages in similar agreements with Yahoo and Hotmail, it willbe difficult for the social networking site to cite privacy concerns for failing to provide reciprocity. Ultimately, Google may determine there is value in exchanging data with Facebook and its many users." For more information, please contact Ms. Johnson. at 817.722.3962 or KJohnson@scottandscottllp.

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A new product offering called Office 365 is Microsoft's latest cloud computing offering. Office 365 is a cloud productivity platform incorporating elements of Microsoft Office, SharePoint, Exchange, and Lync. Office 365 is marketed as a comprehensive productivity and communication cloud application targeting both small-to-medium and enterprise markets. While Office 365 will not officially be released until sometime next year, beta testing is proceeding with "a few thousand organizations in 13 countries and regions," according to Microsoft's press release. "The Terms and Conditions posted to the beta sign-up website are brief, but they do indicate that Microsoft is avoiding the issues with data storage and transfer present in the European Union by representing that no European Union country will host any data stored to the Office 365 cloud," says Andrew Martin, an attorney with Scott and Scott, LLP. For more information, contact Mr. Martin at 214.999.2918 or amartin@scottandscottllp.com.

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 On November 3, a federal jury determined that Jammie Thomas-Rasset, of Brainerd, Minnesota, should pay $1,488,000.00 in copyright damages to the Recording Industry Association of America (RIAA). This latest award follows two previous damages awards - one for $222,000.00 and a second for $1.92 million - both of which were subsequently abandoned. Ms. Thomas-Rasset has maintained her innocence from the beginning of the legal saga, and has stated that she cannot pay any amount to settle the matter. Her attorneys have indicated that they would appeal the verdict as being unconstitutional. According to Christopher Barnett, an attorney at Scott & Scott, LLP: "Both parties to this lawsuit probably wish at this stage that the matter would just go away, but neither can afford to concede - the RIAA cannot let a person who is, from their perspective, an unrepentant copyright violator escape punishment, and the defendant cannot pay a statutory damages award for copyright infringement. It is understandable that the RIAA has stopped asserting these types of claims against individuals who download music over the Internet." For more information, contact Mr. Barnett at 800.596.6176 or cbarnett@scottandscottllp.com.

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Public interest in Cooks Source, a food magazine, spiked recently after members of the magazine's editorial staff were caught after apparently copying the substance of a food blogger's cooking article and then reposting it as the magazine's own content. However, after being confronted by the blogger, the editors appear to have compounded their original error by belittling the blogger's concerns and claiming "public domain" entitlement to the original work. The incident subsequently became the kind of online PR headache that gives many business owners nightmares. "Copyright protection in recipes usually is fairly thin, but the blogger's article here appears to have included additional editorial content that could be copyrightable," according to Christopher Barnett, an attorney with Scott & Scott, LLP. "Likely worse for the magazine's editors, however, is the fact that they failed to appreciate their magazine's exposure to negative press from social networking. Businesses must learn that any confrontational communication sent to third parties all too easily can become the subject of an Internet publicity disaster." For more information, contact Mr. Barnett at 800.596.6176 or cbarnett@scottandscottllp.com.

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On October 18, US Represenatives Edward Markey and Joe Barton sent a letter to Facebook co-founder and CEO Mark Zuckererg demanding that Facebook answer 18 questions regarding its privacy practices. A recent Wall Street Journal article reported that a number of Facebook apps inadventently transmitted tens of millions of users' personal information. The congressmen stated that, "given the number of current users, the rate at which that number grows worldwide, and the age range of Facebook users, combined with the amount and nature of information these users place in Facebook's trust, this series of breaches of consumer privacy is a cause for concern." According to Ilan Jenkins, an attorney at Scott & Scott, LLP, "the legislators' inquiry is one of many directed toward Facebook and is representative of the dangers that face software developers and online media companies." For more information, contact Ms. Machal-Fulks at 800.596.6176 or jfulks@scottandscottllp.com.

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In a ruling handed down on December 14, 2010, the Sixth Circuit in United States v. Warshak held that a user of a third-party e-mail service has a reasonable expectation of privacy in the e-mails stored on the third-party’s servers. In the case, the government failed to obtain a search warrant based on probable cause before it compelled Warshak’s ISP to turn over his e-mail communications. The government argued that the Stored Communications Act of 1986 (SCA) permitted just such a warrantless search. In holding that Warshak had a reasonable expectation of privacy, the court struck that part of the SCA as unconstitutional.

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If you are working on a license agreement, don’t forget to carefully define what is and is not included within the scope of the license.  “Scope creep” has the potential to contaminate the parties’ understanding of what the license includes and to damage the parties’ relationship.  License agreements almost always include provisions to protect the parties, to provide for indemnity, to define appropriate limitations of liability, to set the extent of any warranties, and to set rules and effects of termination, but the license provision itself often receives inadequate attention.

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Businesses that receive software audit demand letters from auditing entities such as the BSA or SIIA, or from software companies like Autodesk or Microsoft, often contend they cleaned up their network after receipt of the letter and should be released from any further obligation to conduct an audit or communicate with the auditor.  Audited business should keep in mind, however, that the auditing entities typically are focused only on the targeted businesses’ software license-compliance status as of the audit effective date – the date on the first letter those entities send to a targeted business.  The auditing entities usually will seek confirmation that the businesses were compliant on the effective date, and on no other date.

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Businesses that receive software audit demand letters from auditing entities such as the BSA or SIIA, or from software companies like Autodesk or Microsoft, often contend they cleaned up their network after receipt of the letter and should be released from any further obligation to conduct an audit or communicate with the auditor.  Audited business should keep in mind, however, that the auditing entities typically are focused only on the targeted businesses’ software license-compliance status as of the audit effective date – the date on the first letter those entities send to a targeted business.  The auditing entities usually will seek confirmation that the businesses were compliant on the effective date, and on no other date.

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The Business Software Alliance (BSA) and the Software & Information Industry Association (SIIA) are organizations that represent software publishers seeking to enforce the copyrights in the products they publish.  In furtherance of this goal, these entities routinely send letters to businesses they believe may be infringing their members’ copyrights by failing to satisfy the requirements of applicable software license agreements.  In the letter, the BSA and SIIA request audits of all member software products installed on all computers and servers owned by the targeted businesses.

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Settlement Agreements with the SIIA, a trade association for the software and digital content industry, often contain provisions requiring the audited company to not only purchase software to satisfy licensing deficiencies it carries going forward after settlement, but also to purchase software from an “authorized reseller.” An authorized reseller is a vendor with permission to sell the software publisher’s products. Software publishers often publish lists of authorized vendors on their websites. Many audited companies looking to rectify past purchasing oversights by buying software from the first reputable vendor they locate may breach their SIIA settlement agreement if the agreement contained the provision requiring that all purchases must be made from an authorized reseller.

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Many companies who comply with a demand by a software publisher or industry association (such as the BSA or the SIIA) for an internal software audit end up facing significant settlement demands after forwarding their audit materials to the other side. One of the reasons the settlement demands often are so high is the fact that the auditing entities frequently base their demands, in part, on the “unbundled” price of software suites. Thus, where a company may expect to pay a fine based on the MSRP of, for example, one undocumented installation Microsoft Office Professional 2007 ($679), it likely will end up receiving a settlement demand based on the combined MSRPs of each of the components of that undocumented suite: Word ($229), Excel ($229), PowerPoint ($229), Outlook ($110), Publisher ($169), and Access ($229), all totaling $1195. In a typical case these difference add tens of thousands of dollars to the amount in controversy.

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Like all audits, success in a SIIA software audit depends less on what you own and more on what you can prove that you own. Although not required by law, the SIIA takes the position that a target company is out of compliance for each installation of SIIA member software products for which the target company cannot produce a dated proof of purchase. Many clients are dismayed to discover what does and does not constitute valid proof of purchase according to the SIIA.

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Software piracy audits conducted by the BSA and the SIIA threaten small and medium sized businesses. As the economy tightens, software publishers such as Microsoft, Adobe, and Autodesk hide behind software piracy enforcement groups to pursue customers accused of installing more software on corporate computers than they have purchased licenses for.

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The targets of SIIA audits frequently believe that they know who reported them to the Software & Information Industry Association. Justifiably angry, they want to know what legal recourse they have against the informant. Because the informants are frequently out of work, having been fired by the target, I advise my clients about the number one rule governing litigation: never sue poor people. Legally speaking, the most probable cause of action against an informant in a SIIA audit would be based upon a breach of an employment agreement containing a confidentiality provision. We have frequently assisted clients in drafting letters to former employees presumed to be the informant, forcefully reminding them of their confidentiality obligations, but have come short of advising clients to file suit against a presumed informant.

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If your company has received a letter from the SIIA requesting a software audit, you are probably wondering whether you should cooperate or tell the SIIA to pound sand. I advise my clients to cooperate but to do so in a manner that will not jeopardize their legal position in the event that cooperation does not result in an acceptable out-of-court settlement. This advice is predicated on the fact that business clients almost universally seek a resolution that has the lowest total costs and the most predictability. In SIIA audits, these costs are software licensing fees, fines payable to the SIIA, attorney’s fees, organizational impact, and the potential damage to brand associated with negative publicity. In my experience, a properly handled BSA audit can always be resolved for a lower total cost through cooperation than through litigation.

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One of the first things I ask a prospective client is: What is the date on the initial letter you received from the SIIA? The date on the initial in a SIIA letter is often referred to as the Audit Effective Date. This date is important for many reasons. I like to tell my clients that a SIIA audit measures a snap-shot in time – what SIIA member software was installed on the company’s computers as of the Audit Effective Date. Once you have an accurate inventory of what was installed on the Audit Effective Date the next step is to determine what proofs of purchase are available to establish purchases prior to the Audit Effective Date.

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One of the most controversial tactics the SIIA uses when calculating its settlement demands is its practice of unbundling software suites such as Microsoft Office and Adobe Creative Suite. Unbundling occurs when the target of a SIIA audit is unable to provide acceptable proof of purchase for one or more installation of a software suite.

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What is software piracy? Like many politically charged phrases, the definition of software piracy is influenced by your financial interests and your viewpoint. The Software & Information Industry Association recognizes several types of piracy, including, softlifting (installing a single licensed copy of software on several machines), unrestricted client access, hard-disk loading, OEM piracy, commercial use of non-commercial software, counterfeiting, CR-R piracy, internet piracy, manufacturing plant sale of overruns, and renting.

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One of the most common mistakes I encounter in SIIA audits is what I call the post-effective date software buying spree. The buying spree occurs in response to a letter from the SIIA’s attorneys requesting a self audit. Many clients are discouraged to learn that software purchases made after the date of the SIIA’s initial letter have no impact in a SIIA audit matter. For this reason, I advise my clients against scrambling to acquire software in response to a SIIA audit.

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One of the top ten questions asked by my clients is “How long does the SIIA self-audit process take from start to finish?” Of course I give the standard lawyer answer: it depends. Here are the steps to a typical SIIA audit.

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On December 30, 2010 Dallas-based Match.com was sued in the U.S. District Court for the Northern District of Texas by a group of individual plaintiffs seeking class-action certification. In the complaint, the plaintiffs allege breach of contract and negligent misrepresentation against Match.com based on their claims that the dating website contains “thousands of fake and fraudulent profiles” and that some of those profiles were “placed by third-parties for illegitimate and unlawful purposes.” The complaint alleges that Match.com “makes little to no effort to vet, police, or remove these profiles and thereby permits, condones, and acquiesces in their posting.”

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On December 10, 2010, Microsoft announced that it was seeking to add an additional defendant to its pending federal lawsuit against RedOrbit.com, a news and information website intended for space, science, health, and technology enthusiasts. In its lawsuit, Microsoft has alleged that RedOrbit and, now, Vertro Inc. (a web advertising network business) engaged in a scheme to generate fraudulent “clicks” on advertisements placed on RedOrbit.com through Microsoft’s adCenter platform (now called pubCenter).

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Earlier this year, Mississippi passed legislation requiring organizations to notify individuals whose personal information is compromised by a data breach. With only Alabama, Kentucky, New Mexico and South Dakota as the remaining states without data breach notification laws, Mississippi joins the vast majority of states to have passed such legislation. House Bill 583 will not go into effect until July 1, 2011, but its form and structure tracks many other states’ notice requirements in the event of a data breach.

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With the intense scrutiny and speculation swirling around WikiLeaks’ most recent posting of confidential U.S. State Department documents, it should not come as a surprise that Amazon, WikiLeaks’ hosting provider, found itself under informal investigation by Congress. Facing this type of inquiry, it did not take long for Amazon to terminate its cloud agreement with WikiLeaks, leaving the whistle-blowing site temporarily without an online presence as it searched for a new cloud provider to host its materials.

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Cloud computing contracts vary widely depending on the type of service being provided and the market to which that service is targeted. Cloud services that are inexpensive or free generally present the contract in the familiar “click-wrap” format that we all, at one point or another, have “agreed to” (but that we almost never actually read). Those agreements often are wholly in favor of the cloud service provider. On the other hand, larger cloud implementations representing considerable, strategic business decisions on the part of the customer (and considerable sales on the part of the cloud service providers) usually are accompanied by agreements that should be read, understood and negotiated to meet the right balance of risk and incentive for both parties. However, many of these large-scale implementation cloud contracts nevertheless are missing a critical term: the cyber risk insurance requirement.

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Early this month, the National Labor Relations Board (NLRB) issued a press release regarding a complaint issued by the Board’s Hartford regional office against a company that terminated an employee who “posted negative remarks about her supervisor on her Facebook page.” The NLRB contends that, among other things, the company’s Internet use policy contained provisions prohibiting employees from engaging in protected concerted activity—a violation of Sections 7 and 8(a)(1) of the National Labor Relations Act (NLRA).

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No one questions the prevalence and increasing reliance on social media from a corporate perspective. Earlier this year, PR firm Burson-Marsteller released a study of 100 of the top Fortune 500 companies and found that upwards of 75% of the companies use blogs, YouTube, Facebook or Twitter to communicate with their clients or stakeholders. Personal use of social media sites continues to rise as well, with the Pew Internet & American Life Project finding social networking use by users 18-24 at 86%, while use by users 50-64 at a surprising 42%. Along with this increased use come rising concerns of privacy issues on social media sites. One has to look no further than two of the Internet’s behemoths, Facebook and Google, to understand the privacy risks associated with social media.

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Many businesses that partner with Oracle to resell its server hardware or to host software solutions built on Oracle platforms are familiar with that company’s sometimes complex licensing rules. Many companies also are familiar with the fact that “complexity,” as applied to those rules, often could be replaced by “unreasonable” or even “draconian.” One industry group recently fired what could be the opening salvo against Oracle in an effort to attack some of those rules as being anticompetitive and in violation of U.S. antitrust law.

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On October 29, 2010, health insurance giant BlueCross BlueShield’s Michigan unit was sued for illegal price-fixing under the Sherman Act by Michigan plaintiffs seeking class-action certification. A copy of the complaint is available here. In their complaint, the plaintiffs allege that BCBS forced hospitals to include “most favored nation” or “MFN” clauses in their provider contracts, under which the hospitals allegedly agreed to charge other commercial insurers either at least as much as – or more than – they charged BCBS for the same services, thereby giving BCBS a competitive advantage in the marketplace.  BCBS Michigan also is facing an antitrust lawsuit filed by the U.S. Department of Justice based on essentially the same set of facts.

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Entering into a Microsoft Enterprise or Select agreement can be an effective way for companies with large and predictable software needs to reduce IT costs.  However, Enterprise and Select agreements may include restrictions on an affiliate’s ability to use software licensed under those agreements. Additionally, the flow of documents over the course of a Microsoft agreement relationship may create confusion regarding the current terms of the agreements and may end up steering a company in the wrong direction relative to its software asset management objectives.

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 A recent 9th Circuit ruling overrules a series of trial court results from the U.S. District Court for the Western District of Washington and reiterates the dangers of buying and selling software on eBay and other resale websites.  Typically, the “first-sale doctrine” provides that the exclusive right of distribution granted to the owner of a copyrighted work extends only to the first sale of the work.  Once the work has been sold, the new owner may resell the work without fear of copyright infringement.  In addition, the “essential-step” defense provides that the owner of a copy of software does not infringe copyrights if the new copy is created as an essential step in using the software on a computer (for example, when copying software to a computer’s memory).  However, in Vernor v. Autodesk Inc., 2010 WL 3516435 (9th Cir. Sept. 10, 2010), the court ruled that the first-sale doctrine and essential-step defense do not apply to software that is merely licensed rather than sold.

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Social networking web sites have become an emerging conduit for small companies to recruit and conduct business.  However, while some companies find this to be a successful means to expand business opportunities, others, such as Mark One Financial, have discovered that use of social networking for some purposes carries risks.  Mark One attempted to collect debt from a Florida individual who had fallen behind on auto payments by contacting her friends and family members on Facebook.  It is now facing a lawsuit for abuse and harassing attempts to collect debt, including a request for an injunction against using Facebook as a means to contact its clients.

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Listening to a discussion about “cloud computing” may make listeners’ ears cringe because of a sensitivity brought on by the unending cloud media hype, but computing in the cloud soon will be as mainstream as e-mail (coincidentally, one of the first successful cloud offerings). The hype is fueled by pro-cloud commentators, vehemently promoting the cloud panacea, battling it out with cloud naysayers who warn that a move to the cloud is fraught with too much risk for serious consideration. I think both sides are right. An investment in the cloud can yield a tangible cost savings on upfront set-up and ongoing maintenance costs for companies. Additionally, the on-demand aspect of cloud architecture means that companies quickly can adapt to opportunities for growth and can tighten their belts when demand for their services and products shrinks. But cloud detractors are not mere panic mongers—there is significant risk lurking in the cloud. Happily, most companies can have it both ways by focusing on a document, frequently overlooked, that is a shield against many cloud-based risks—the Service Level Agreement or “SLA”.

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On August 27, 2010, Microsoft filed suit against online retailer Jigantic.com alleging fraudulent software sales, copyright violations, trademark violations, and other claims.  The August 27th filling in the District of Connecticut also names 20 “John Does,” because the retailer allegedly went out of its way to mask its identity.

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The Texas Attorney General’s Office is investigating whether Google violated antitrust laws with its search rank methods.  The inquiry reportedly focuses on whether and to what extent Google manipulates search results to place certain links closer to the top of the results list in order to stifle competition.  A good search result ranking often translates into instant commercial success for many businesses while a lower ranking may contribute to a business’ failure.

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Web sites catering to online reviews of businesses – including sites dedicated to reviewing (some might say attacking) only one business – have created public relations nightmares for many businesses.  In some cases, the targeted businesses perceive the content of the gripe sites to be defamatory or infringing of the target’s intellectual property rights. However, while it may tempting to threaten legal action against these sites, companies are learning that such action may cost more than it achieves and may risk further bad publicity as a result of so-called oppressive prosecution. A good example is the recent case of Career Agents Network, Inc. v. CareerAgentsNetwork.Biz.

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Both state and federal governments are seeking ways to ensure citizens’ personal information is secure and remains private, but the laws vary wildly and are sometimes frustratingly complex. For businesses, it is not always clear which laws, if any, the business is subject to. Once applicability of the law to a business is determined, the process of evaluating compliance of IT systems and policies can be time-consuming.

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The Library of Congress and the 5th Circuit Court of appeals both recently made significant strides in expanding and clarifying the exceptions to the anti-circumvention provisions of the Digital Millennium Copyright Act (“DMCA”).

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On July 22, 2010, software publisher AccuSoft sued Northrop Grumman Systems in federal court for breach of contract, copyright infringement and trademark infringement related to Northrop’s use of AccuSoft’s ImageGear and ImageTransport software. Northrop allegedly used and integrated AccuSoft’s products in the development of a paperless records information system it developed for the U.S. military. According to AccuSoft, Northrop failed, in particular, and in violation of applicable software license agreements, to provide the required periodic reporting regarding the number of end-user licenses for the AccuSoft products that Northrop had distributed. AccuSoft did not specify a damages claim in its complaint, though it did state that the unauthorized software distributions number in the “hundreds of thousands,” meaning that a decision in its favor potentially could entail a multi-million dollar penalty against Northrop.

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Microsoft’s cloud offering, Windows Azure, is a cloud services platform designed for software development, hosting and web service management. The platform includes a cloud-based operating system with pre-configured developer tools and other options available. The license agreements are available online here and here. So, how does the Microsoft cloud licensing model stack up to our legal concerns regarding cloud computing?

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On June 24, 2010, Salesforce.com filed suit against Microsoft in a Delaware Federal court claiming Microsoft willfully infringed five Salesforce.com cloud computing-related patents. This is an apparent counter to a May 18th suit filed by Microsoft accusing Salesforce.com of patent infringement. Though Salesforce.com and Microsoft promote slightly different cloud computing models, each company claimed the patents infringed were significant components to their platforms, signifying that the fight over cloud market controls is ramping up.

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The Business Software Alliance (“BSA”) and Software & Information Industry Association (“SIIA”) pursue copyright infringement claims against companies accused of installing unauthorized copies of software.  Typically, the BSA and SIIA send letters to businesses and request audits of their computer systems.

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The FTC recently approved a settlement with Dave & Buster’s, Inc., a restaurant and arcade chain, for the largest recorded data breach of private credit card information.

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On May 26, 2010, in the case of Crispin v. Christian Audigier, Inc. (C.D. Cal. Case No. No. CV 09-09509), Judge Margaret Morrow of the U.S. District Court of Central California issued a ruling in a copyright suit concerning, in part, the discoverability of private messages sent between users on MySpace and Facebook. This decision marks one of the first examinations of the applicability of federal e-discovery rules to social media site content. In her decision, the judge reversed a magistrate judge’s finding that private messages sent between users over social networking sites are public communications and quashed subpoenas that had been issued in an attempt to obtain copies of those messages.

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The Business Software Alliance (“BSA”), and the Software & Information Industry Association (“SIIA”) pursue copyright infringement claims on behalf of software publishers, such as Microsoft, Adobe, and Autodesk, among many others.  Typically the BSA and SIIA send audit letters to companies believed to be using unauthorized copies of software products.  In their letters, they demand that the target companies conduct an internal audit of all computers they own to determine whether the auditing entities’ members’ software products are properly licensed.

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Businesses that receive software audit demand letters from auditing entities such as the BSA or SIIA, or from software companies like Autodesk or Microsoft, often contend they cleaned up their network after receipt of the letter and should be released from any further obligation to conduct an audit or communicate with the auditor.  Audited business should keep in mind, however, that the auditing entities typically are focused only on the targeted businesses’ software license-compliance status as of the audit effective date – the date on the first letter those entities send to a targeted business.  The auditing entities usually will seek confirmation that the businesses were compliant on the effective date, and on no other date.

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The United States District Court of New Jersey recently issued an opinion in a defamation action regarding an author’s post to a USENET group. The plaintiff, Charles Novins, an attorney in New Jersey, sent a letter to the defendant, Kevin Cannon, in early 2009 demanding Cannon retract his post to a USENET group in which Cannon accused Novins of, among other things, hiring drug addicts at his firm. After apparently not receiving the relief requested in his letter, Novins filed suit against Cannon along with a host of other defendants. The defendants moved to dismiss under the argument that the U.S. Communications Decency Act (“CDA”) immunizes everyone involved in content delivery with the exception of the “information content provider,” who was, in this case, the post’s author. The court agreed and dismissed the lawsuit.

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Business owners and managers whose companies have been targeted by IBM for a compliance audit often express surprise at the complex method IBM uses to determine the licensing requirements for many of its server software products, such as WebSphere and Tivoli. Many software vendors employ server software licensing frameworks that would be familiar to most anyone with experience purchasing software licenses: for every installation of a software product on a computer, the owner of that computer must purchase a corresponding license allowing use on that machine. There are some common variations on that general theme used by some publishers – notably, Microsoft – involving connections to server software by other computers on the network. With Microsoft SQL Server, for example, the computer owner must purchase either an appropriate number of client access licenses (CALs) for each user or device accessing the server software or else a “processor” license for each physical processor in a given computer, allowing use by an unlimited number of remote users or devices. (Processor licenses are typically significantly more expensive that CAL-based software licenses, but they may represent a good value for servers with a high number of remote connections.)

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The Software & Information Industry Association (SIIA) and the Business Software Alliance (BSA) routinely sends letters to businesses on behalf of many software publishers, including Microsoft, to investigate potential copyright infringement claims based on allegedly unlicensed software.  The software audit process can be long and expensive, in part due to the fact that the SIIA and BSA typically require a targeted company to produce dated proofs of purchase for licenses for every software product installed on its computers as of the effective date of the audit, regardless of how many years have passed since the license purchase.  Although the IRS generally requires businesses to maintain records for only seven years, the SIIA and BSA allow no such limitation in demanding invoices or receipts for all software license purchases.  Businesses often are unable to find the documentation for the purchase of each product, which typically results in a higher payment demanded by the SIIA or BSA to settle the matter.

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