The Business Software Alliance (BSA) figures were published
on Monday. It opened 420 investigations in 2005 into UK businesses
reported to be using software illegally, an increase of 24% on
2004. According to the BSA, the strength of the economy was a key
contributor to the rise: as businesses enjoy rapid growth, managers
often overlook their software licensing. It put 80% of the
settlement cases down to negligence.
The largest settlement was for £31,000 and eight settlements
exceeded £20,000. But these sums are not wildly different from what
each company would have paid had it been properly licensed in the
first place because copyright law does not set out to punish for
simple infringement.
OUT-LAW spoke to Graham Arthur, a Senior Associate with law firm
Covington & Burling, who acts as BSA's UK counsel and author of
many threatening letters sent on behalf of BSA members like
Microsoft and Adobe. And he hopes that legal reform will give his
letters more bite.
He explained that when a copyright owner has had its rights
infringed – such as the use of a computer program with no licence –
the law seeks to put that copyright holder back in the position it
would have been in had no infringement taken place. When the
infringement is a matter for the police – selling illegal copies of
Windows XP at the local market, for instance – significant fines
and even imprisonment may follow.
But licence creep – such as 150 installations of Windows XP in a
company that has bought the right to 25 – is a matter for the civil
courts. Here, damages are available but they are generally pegged
to the licence fee for the unlicensed copies. It is difficult to
deter piracy if the unlicensed user only runs a risk of paying a
sum that he should have paid sooner. So, at least for now, a bit of
creativity is required when assessing the loss.
Other countries allow for punitive damages in intellectual
property lawsuits – perhaps a licence fee in addition to a lump of
cash that sends a strong warning to others. But in the UK it's
harder. "The problem is that companies may refrain from buying a
licence until they're caught – then pay for a licence and argue
that because they've paid, there is no loss," said Arthur.
Additional damages and The Sun
Section 97(2) of the Copyright, Designs and Patents Act of 1988
offers some hope for creative industries: "The court may in an
action for infringement of copyright having regard to all the
circumstances, and in particular to – (a) the flagrancy of the
infringement, and (b) any benefit accruing to the defendant by
reason of the infringement, award such additional damages as the
justice of the case may require."
It sounds like an opportunity for punitive damages and in a way
it is; but there are few examples of its application in court.
Arthur points to a rare example: The Sun newspaper ran a story
under the headline: "DOUBLE KILLER POPS OUT FOR A MCDONALD'S –
Outrage over jaunt for psycho". A picture of the convicted killer
appeared next to the story. But the picture was originally taken
for his medical records when he was detained at a hospital. It was
used by The Sun without authorisation.
Nottinghamshire Healthcare NHS Trust sued for infringement. That
bit of its case was easy. But since the NHS Trust would never have
licensed the photograph for publication, arguably it suffered
little or no loss. So it sought to rely on section 97(2) damages.
Mr Justice Pumfrey considered these 'additional damages' at
length.
Justice Pumfrey concluded: "…careless infringement sufficiently
serious to amount to an attitude of 'couldn't care less' is in my
judgment capable of aggravating infringement and of founding an
award of damages under section 97(2)."
He awarded basic infringement damages of £450 – the sum he felt
that a willing copyright owner would be paid for a picture of
similar size, interest and prominence being used by The Sun. But he
brought that figure up to £10,000 using the powers in section
97(2).
Applying The Sun ruling to software
Graham Arthur acknowledges that using software without a licence
is quite different from using the content of medical records
without authority. "You can't really say that the software
publisher would never have granted a licence," he said. "And
there's no case law on the application of 97(2) in software that
helps either the BSA or the infringer."
Arthur referred to recent cases in Norway, France and Latvia
where the courts have, in cases of unlicensed software use, applied
similar domestic laws – and decided that the copyright owner is not
entitled to additional damages. He reckons the reasoning is unfair
and he hopes it would not be followed over here – especially as he
sees the same “couldn't care less” attitude in many of BSA’s cases.
The cases in France and Latvia are being appealed.
He gives an example of how the BSA makes a calculation of loss:
"If you're using Photoshop 4.0 without a licence and you're caught,
you are told to buy a licence. You can't buy a licence for version
4.0 today – you have to buy a licence for the current version. But
that will mean that the user has used two versions, but paid only
one licence fee. The loss in that case is the licence fee that
should have been paid for version 4.0. If we ascertain that version
4.0 has been used for, say, two years without a licence, we'll also
claim for lost interest on that licence.” That combination will
cost more than buying version 7.0 legitimately – so there is some
deterrent; but not much.
Then comes the claim for additional damages under section 97(2).
Arthur does not express much confidence of success. "We know that
we'll only get an award if the circumstances are appropriate. It's
perceived to be a provision against bootleggers," he said.
If the defendant had been using Photoshop 7.0 for two years –
i.e. a situation where there is no room to argue about upgrades –
the BSA would claim some interest, but it wouldn't be much. It
would just represent the advantage to the copyright owner if the
licence had been bought two years earlier and invested. "That
wouldn't be fair – there is no deterrent – so this is where we
might seek to rely on 97(2), especially if the software had been
cracked." What he describes is wilful infringement, not just
licence creep.
A subscription model, rather than a perpetual licence, might
provide a greater deterrent: two years' unlicensed use will become
expensive and that figure is added to payments for ongoing use. But
it is unrealistic to expect the entire software industry to
suddenly make the shift to a subscription model. Instead, the BSA
is looking for legislative reform.
"We are talking to the Government about getting a new provision
in our copyright law that allows for a punitive award as part of a
damages award," said Arthur. "The US has a remedy of statutory
damages; Ireland has a very generous additional damages remedy. We
want similar powers here."
He describes our courts as being "squeamish" and "confused"
about section 97(2). Parliament needs to address that, he says.
What the creative industry hopes is not that it will profit from
damages; rather, it wants a change in behaviour. Infringement is
rife – but stringent penalties could deter it. The BSA claims that
its aim is not to recover large sums in court actions, but to
change behaviour. The risk of having to pay such sums can help, in
the BSA’s view, change the “couldn't care less” attitude.
Arthur admits that the BSA settles all of its cases. He said:
"The cost of going to court outweighs the amount at stake, even
though liability is cut and dried. There is no advantage to either
party in going all the way to court to argue about damages. A
damages assessment is independent of the hearing on liability and a
damages assessment rarely sets a precedent: each case turns on its
own circumstances."
The BSA writes to infringers and sets out a sum and invites
settlement. Court procedure demands that parties at least attempt
to settle their claim. So Arthur's letter will claim for the
licence fee, the interest and a figure under section 97(2) –
although he confirms that "we'll be up-front in admitting that the
case law on this part is not particularly helpful," he says. The
uncertainty persuades the BSA to negotiate on this figure, rather
than the concrete part of its claim.
The Department of Constitutional Affairs is expected to launch a
consultation on damages later in the year. It forms part of the
UK's implementation of the EU Enforcement Directive. While the UK
is not obliged to change its 97(2) provision, the BSA and other
creative industry bodies will answer that consultation, lobbying
for reform.
