Scott Technology Attorneys

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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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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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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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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In Solers, Inc. v. Doe, 2009 WL 2460862 (D.C. 2009), Solers, Inc. (“Solers”) filed an action against “John Doe” defendant, alleging defamation and tortious interference with prospective advantageous business opportunities based on a report to the SIIA alleging that Solers was using unlicensed software.  Solers served a subpoena on the SIIA to learn the informant’s identity. The Superior Court granted SIIA’s motion to quash the subpoena and dismissed the action for failure to state a claim. However, on appeal the District of Columbia Court of Appeals vacated the order and remanded the case to the Superior Court, holding, among other things, that a court should apply a five-step test when presented with a motion in a defamation action to quash or to enforce a subpoena which seeks the identity of a defendant who speaks anonymously over the Internet.  This decision represents a significant development for businesses accused of copyright infringement based on reports of informants to software trade associations regarding alleged software copyright infringement. At least one court now recognizes the necessity, in some cases, of permitting businesses to learn the identity of a confidential informant in a trade association software audit.

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Last month, the Software & Information Industry Association (SIIA) announced the first major settlement reached by its Corporate Content Anti-Piracy Program (CCAPP). (You can read the SIIA’s press release here.) The settlement was reached with Knowledge Networks, Inc. (KNI), a market research firm based in Menlo Park, California, with fewer than 500 employees nationwide. The SIIA accused KNI of copyright infringement arising out of KNI’s internal distribution to its employees of written content authored by SIIA members, such as the Associated Press, Reed Elsevier, and United Press International, without securing licenses to copy the content.  

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