Unbundling Software Suites in SIIA Audits

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.

The effect of unbundling is to dramatically and artificially inflate the monetary component of a SIIA settlement because the SIIA calculates its fine based upon the MSRP of each component part of the software. In a SIIA audit involving Microsoft Office for example, the SIIA unbundles the suite by separating Microsoft Outlook, Microsoft Word, Microsoft Excel, Microsoft PowerPoint, and Microsoft Access and then calculates its proposed fine on the basis of the MSRP of each component. This practice results in a proposed fine per installation of approximately $2,000 for a product with a market price ranging from $150 to $350, depending on the version.

In my opinion, the SIIA’s practice of undbundling is completely contrary to law because the software suites of SIIA member publishers are compilations under the copyright law and therefore constitute a single work for purposes of calculating statutory damages for infringement. The U.S. Copyright Act 17 U.S.C. § 101(c) defines a compilation as follows:

A “compilation” is a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. The term “compilation” includes collective works.”

The statutory damages provision of the U.S. Copyright Act 17 U.S.C. § 504(c) provides in pertinent part that:

For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work.

Federal court’s have also interpreted these provisions to preclude recovery of statutory damages for the component parts of a compilation. For example, in XOOM v. Imageline, the Court of Appeals for the Fourth Circuit only made one statutory damage award for each compilation of electronic clip art, even though each compilation included thousands of works because “[a]lthough parts of a compilation or derivative work may be ‘regarded as independent works for other purposes[,]’ for purposes of statutory damages, they constitute one work.” XOOM v. Imageline at 285, citing H.R. Rep. No. 94-1476, at 162 (1976).

Similarly, in WB Music Corp. v. RTV Communications Group, 445 F.3d 538 (2d Cir. 2006) the Court of Appeals for the Second Circuit interpreted 17 U.S.C. § 504(c) and discussed the distinction between compilations authorized by the copyright holder that constitute “one work” for statutory damages purposes and collections of separate works compiled by the defendant and never authorized by the copyright holder. Because the software suites implicated in SIIA audits involve separately copyrighted works included in a compilation authorized by the copyright owners, section 504(c) applies and prohibits the award of statutory damages for the component parts of the suite.

Scott & Scott, LLP is not affiliated in any way with the SIIA.