Legal Updates

Pirates Beware! This Employer Does Not Tolerate Illegal Downloads

Illegal software piracy is becoming a growing concern for employers, and is the latest area of potential liability for employers, evolving from the growth of the Internet as a business resource – and tool for potential employee abuse.  However, as with other computer and Internet-related issues, employers can take steps to reduce the risks associated with employee misuse of computer and Internet technology.

By now, most employers are familiar with the challenges of preventing harassment and discriminatory conduct via email and Internet postings, decreased employee productivity due to personal Internet use during work hours, and the hazards of destructive computer files and programs (such as spyware, viruses and worms) corrupting company computer equipment.  More than ever, having an Electronic Communications Policy aimed at monitoring employee conduct while using employer computer resources is not only advisable, but also vital to protecting the employer from liability for substantial damages awards.

However, recent case law suggests that many employers are still overlooking a potentially costly workplace activity:  illegal software piracy.  Many employers mistakenly believe that a comprehensive electronic communications policy shields them from the individual acts of employees, who may be illegally using files and programs that are easily accessible on the Internet.  In fact, however, under a developing legal theory based on a hybrid of employment, copyright and agency law, an employer can be held liable for violating licensing agreements, even though the employer lacks knowledge of an employee’s misuse of a computer file or program.  As such, employers may be unknowingly exposed to liability simply by providing employees with the tools to access the Internet.

Software Piracy

Traditionally, software piracy is thought of as the use of business programs without a valid a user license.  However, software piracy can extend far beyond the unauthorized use of business software titles to include the illegal exchange of music and video files, digital artwork, computer games and scholarly works published in electronic form, to name a few.  In addition, an employer’s skilled software developers may have the capacity to create software programs using unlicensed copies of downloaded programs.  In sum, by simply providing employees with a computer, operating system and an Internet connection, an employer empowers a worker with the tools to break the law.  As is described more fully below, this basic empowerment of employees can be enough to implicate an employer in a copyright infringement action, even if the employer has taken steps to monitor and discourage software piracy.

Forms of Employer Copyright Liability

Employers can be liable under two distinct theories for violation of copyright laws for the unauthorized copying and use of licensed software by its employees, independent contractors and others over whom the employer has authority.  First, to be liable for contributory copyright infringement, the employer must have knowledge of the infringement and have made a material contribution to the infringement.  However, willful disregard of employee infringement may be sufficient, even if the employer does not have actual knowledge of the misconduct.  For example, if the employer turns a blind eye to employees playing music files on their computers and knows that various music downloading programs are accessible through the employer’s Internet connection on company-issued computers, the employer may be exposed to liability for a contributory infringement claim.  In other words, a plaintiff copyright holder need only show that the employer should have known that the employee could infringe on a copyright and failed to address the employee’s conduct, even though the employer may not have been actually aware of any illegal conduct by the employee.

Second, to be liable for vicarious copyright infringement, a plaintiff copyright-holder need only show that the employer derived a direct financial benefit and had a right and ability to supervise the infringing worker.  Again, actual knowledge of illegal activity by the employee or intent to infringe on the copyright is not required for the employer to be liable under the vicarious infringement theory.  Further, an employer cannot use as a shield the defense that it instructed employees not to download or use unlicensed software, files or electronic documents.  In fact, the primary participant in the infringement need not even be an employee or independent contractor of the employer, so long as the employer has some authority over the actions of the individual engaged in the software piracy.

What Can Employers Do To Decrease The Risk Of Liability?

Despite this seemingly harsh and unforgiving liability standard, employers can take the following important measures to limit potential damages associated with a finding of contributory or vicarious copyright liability:

• Publish strongly-worded electronic communication and business property policies that clearly explain that employees’ computer use will be monitored, employees have no reasonable expectation of privacy and that employees found unlawfully downloading unlicensed property from the Internet will be subject to disciplinary action, up to and including termination of employment.
• Consistently enforcing electronic communication and business property policies, including imposing discipline for violations of such policies.
• Distribute the electronic communication policy at least annually, if not more frequently, and remind employees that this is a zero-tolerance policy and that employees who violate the policy will be subject to disciplinary action, up to and including termination of employment.
• Require employees to sign an annual acknowledgement of the electronic communication policy and place the signed acknowledgement in the employee’s personnel file.
• Include in the policy and the acknowledgement form the employee’s written acknowledgement of the employer’s right to monitor the employee’s computer activity.
• Implement and continuously update efforts (from regular hands-on investigations to software programs) to monitor and prevent possible violative behavior.  Get creative!  Work with technology professionals to identify potential copyright issues that may arise during the development of new internal work processes or software programs.

By implementing more restrictive measures, the employer can hopefully prevent copyright infringement, limit exposure to copyright infringement liability, maintain workplace productivity and recognize the established legal rights of copyright holders.

We are available to assist employers with updating their policies to protect against these types of claims, and to answer any questions about policy matters in general.