Cooperation or Litigation: SIIA Audit Strategy
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 SIIA audit can always be resolved for a lower total cost through cooperation than through litigation.
Most importantly, cooperation does not preclude litigation in the future if the SIIA is unreasonable in its approach to settlement. In other words, you can always go to court if the out-of-court, lower total cost approach is not satisfactory. However, we have seen audit targets and other lawyers make several mistakes that actually detriment their legal position during negotiations with the SIIA. The two critical success factors to properly handling a SIIA audit or making sure that the information gathered during the process, which would not otherwise be discoverable in a court proceeding, is protected by attorney work-product and attorney client privileges. In addition, no information should be provided to the SIIA unless and until the SIIA agrees that the information is governed by Federal Rule of Evidence 408 and therefore will not be admissible in court if an out-of-court resolution is not reached with the SIIA. The only time I have deviated from this advice has been where the audited entity was not a viable going concern and the principal(s) were judgment proof. If you have been contacted by the SIIA, you should contact an experienced attorney to assist you with strategy.
