How to respond to a claim when an employee downloads illegal software

There has been a noted increase in the number of websites offering reduced-price software, that is seemingly genuine but is not. The downloading, accessing and/or use of pirated software is illegal, and perpetrators can face not only civil liability but also criminal prosecution. Where that wrongdoing is carried out by an employee in the course of their employment, the employer can be held liable for the employee’s actions.

Software companies can now identify with increasing accuracy when pirated software has been used, and by whom, by their IP address. It is not uncommon, therefore, for an employer to receive a Letter Before Claim alleging wrongdoing on the part of one of its employees, threatening legal proceedings against the employer if demands for financial compensation are not met.

In this article, Will Charlesworth considers what the legal basis is for such a claim against an employer, the potential available remedies and defence, how to resolve the claim before it escalates, and what immediate steps should be taken on receipt of a Letter Before Claim.  

What is the legal basis for a software infringement claim?

The legal basis of an illegal/pirate software claim will usually be the infringement of copyright that vests in the relevant software, under the Copyright Designs and Patents Act 1988 (“the Act”). To succeed in court, the software company need only prove that the software that was downloaded/accessed/operated was unlicensed. It does not matter whether the user intended to do use illegal software or not; it will still constitute copyright infringement.

Where the wrongdoing was carried out by an employee, the employer may be held liable for the employee’s actions under the common law principle of ‘vicarious liability’. In this context, liability may be found where there is a sufficiently close connection between the wrongdoing in question and the acts the employee was authorised to carry out in the course of their employment.

Potential remedies available

A copyright infringement claim is a serious action and the potential remedies that can be sought against an infringing party include:

• a freezing order over the infringer’s assets and bank accounts;
• a court order requiring the disclosure of relevant information by the infringer;
• the seizure of infringing copies of software;
• an award of damages (financial compensation), which can be punitive in nature; and
• the payment of legal costs.

Copyright infringement can also constitute a criminal offence.

Not all of the above remedies will be relevant or appropriate in each case, and there can be good grounds to challenge the demands made in the Letter Before Claim (for example, the financial compensation figure).

What defences are available?

The defences that may be available in a software infringement case will depend upon the facts of the case. For example, the statutory copyright defence of “innocent infringement” may not apply in many cases, but where the fact of the infringement (the download/use) is disputed, it may be possible to challenge the evidence presented in support of the claim.

It may also be possible to challenge the assumption of an employer’s vicarious liability if it can be proven that the employee in question was ‘on a frolic of their own’. Current case law on this issue sets out specific tests for applying, or disapplying, vicarious liability and it is highly fact-specific.

Can a strategic approach be adopted to reach an early resolution?

The threat of a proceedings being issued at court should not be dismissed, as litigation carries considerable risk for an employer as a defendant:

• a court judgment can have serious financial implications for a business;
• court proceedings are of public record, so there is a potential for reputational damage;
• litigation costs can become very high, very quickly, often out of all proportion with the damages claimed; and
• the standard rule is that the loser pays the winner’s costs, so there is a large financial risk in proceeding to trial.

A software company claimant will also be aware that they also face high legal costs and there is the potential they will be unsuccessful at trial. There is therefore a clear benefit to both parties in reaching settlement out of court, at an early stage.

A strategic approach is recommended when responding to a claim. An Alternative Dispute Resolution (ADR) tactic can be deployed to great effect, such as making an early ‘without prejudice’ offer of confidential settlement, or extending an invitation to a mediation, for example.

Initial steps on receipt of a Letter Before Claim

When responding to a Letter Before Claim alleging software infringement, time is of the essence, and so it is recommended that:

1. evidence of the wrongdoing is preserved with the assistance of IT experts (e.g. retaining the device and/or systems used to access the illegal software);

2. legal advice is sought without delay (there is often a deadline to respond to the claim);

3. it may be necessary to also confirm the position with an existing insurer (if cover is in place); and

4. until the above (1) to (3) are carried out, insofar as it is possible, no contact is made with the claimant software company, or its solicitors, to avoid potentially prejudicing any potential defence.

If you are concerned about a potential software infringement, please contact Will Charlesworth.