The Business Software Alliance (BSA) is an organization that pursues copyright infringement claims on behalf of many software publishers against companies it accuses of violating its members’ software license agreements.  Because the cost of litigation in most cases outweighs the cost to settle out of court, the BSA often is able to force businesses to comply with an arduous and often arbitrary software audit process that typically culminates in a negotiated settlement entailing a significant settlement payment to the BSA.

Due to the nature of the process and the possibility that a settlement may be misconstrued to reflect misconduct on the part of a company, many companies that settle with the BSA seek to keep the existence and terms of settlement confidential.  However, the BSA disfavors confidentiality provisions, because they interfere with its efforts to publicize the results of its license enforcement program. Therefore, the BSA typically demands a higher settlement payment to include such a provision.

Absent a confidentiality provision in the settlement agreement, the BSA generally is free issue to a press release detailing the terms of settlement and name of the company. The BSA often then seeks to publish the release in media outlets relevant to the targeted business’ industry or geographic location, in addition to publishing the press release on its web site.

There are many considerations for a company contemplating a demand for confidentiality.  Some larger, more recognizable companies seek confidentiality provisions to offset potentially negative publicity associated with their brand.  Under those circumstances, the additional penalty amount may represent an acceptable cost. However, smaller companies often choose to pay a lower settlement amount not inclusive of confidentiality, based on a determination that damage to their brands, if any, likely would be less significant. This is a decision in which a company’s upper management should be given an opportunity to contribute. Finally, on rare occasions, some companies seek to issue their own press releases, detailing the settlement terms, and exposing the BSA’s software auditing process as a warning for other businesses.

Regardless of the strategy a company chooses regarding confidentiality, it is important to be aware of the implications of failing to include a confidentiality provision in the final settlement agreement.  When in doubt, it is beneficial to seek counsel from an attorney familiar with the BSA process.

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Many businesses targeted for software audits initiated by the Business Software Alliance (BSA) often make the decision as a result of the audit process to forego the expense and risk associated with using BSA-member software and instead transition to open-source software (OSS) solutions. While OSS may entail some challenges related to hardware and software compatibility, in many cases, those products do not entail any licensing fees, are subject to much less stringent licensing requirements, and may be upgraded at will to the latest versions without the purchase of any support subscriptions or product upgrades. As a result, they present a tempting and cost-effective alternative to other solutions, especially in light of the fact that expensive BSA settlements typically do not include the acquisition of any software licenses that a business may require in order to achieve compliance. However, through the International Intellectual Property Alliance (IIPA) – an IP trade organization of which the BSA and other content-oriented groups like the Motion Picture Association of America and Recording Industry Association of America are members – the BSA appears to be subscribing to the position that the use and endorsement of OSS is the equivalent of software “piracy.”

The IIPA’s position was reflected recently in comments it submitted to influence U.S. trade policy. Each year, the Office of the U.S. Trade Representative (USTR) conducts a review of foreign IP laws – called the Special 301 review – to identify those nations believed to have unacceptably lax copyright policies. Negative treatment in the review can lead to trade sanctions and is intended to exert pressure on foreign nations to adopt more stringent copyright policies. During the review process, the USTR accepts recommendations from interested parties regarding countries they believe should be added to the “blacklist” of poor copyright enforcers.  In its 2010 recommendations to the USTR, the IIPA named among the countries to be “watched,” among others, Indonesia, Brazil and India, at least in part, it seems, for endorsing the use of OSS in governmental agency offices. This is in spite of the fact that some nations – Indonesia notable among them – adopted those recommendations in order to curb the use of unlicensed software.

A person could be forgiven for adopting a cynical assessment of the BSA’s motivations in the wake of such an apparent policy endorsement. Under the guise of protecting its members’ valuable copyright interests, the BSA has targeted hundreds of small-to-medium-sized businesses for software audits under the threat of federal court litigation and has labeled many of those businesses “pirates” upon failure to meet the BSA’s unnecessarily strict requirements for proving ownership of software licenses. However, the IIPA’s position with regard to OSS seems to indicate that copyright enforcement may be less of a concern to the BSA than is driving sales of its members’ products.

The BSA has not historically objected to businesses transitioning to OSS in the wake of software audits, but the IIPA’s recommendations to the USTA may be cause for concern. All businesses that have been contacted by the BSA for such audits should consult with counsel to work toward the most reasonable available resolution.

The full text of the IIPA’s recommendations is available here:

http://www.iipa.com/2010_SPEC301_TOC.htm

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“Software piracy” is a favorite catch-phrase used by the Business Software Alliance (BSA) and the software companies it represents.  Most people understand software piracy to involve the intentional copying and, in many cases, distribution of copyrighted software to third parties without permission of the copyright owner.  Understandably, the term has extremely negative connotations, and most businesses will go to great lengths to avoid behavior that could reasonably be branded as “piracy.”

Unfortunately, the BSA’s definition of software piracy is considerably more broad than the common understanding and may be confusing to companies audited by the BSA who have never knowingly copied unlicensed software.  During a BSA-initiated software audit, the BSA requires the businesses it targets to provide dated proofs of purchase for each software product installed on their computers.  There are specific types of documentation the BSA accepts, and it usually rejects purchases from E-bay, Amazon, or similar Internet-based re-sellers.  Therefore, if a company unknowingly purchases software from an unauthorized retailer or simply is unable to find receipts for products it purchased, the BSA will penalize the company as though it intentionally violated copyright law and “pirated” the software.

Worse, typically after an audit the BSA will enter into settlement agreements with the companies it accuses of copyright infringement.  Unless a provision for confidentiality is included in a settlement agreement (usually only in return for a significant additional amount to be paid at settlement), there is nothing to prevent the BSA from publishing a press release identifying the targeted company, the software products involved, and the settlement amount, and otherwise making express or implied statements that the company is guilty of “software piracy.”

As a general rule, companies should keep all receipts from software purchases indefinitely, and they should purchase software only from authorized dealers.  Additionally, recipients of letters from the BSA should seek experienced legal counsel to assist with the audit and to help negotiate a resolution that may prevent the unnecessarily negative publicity that can result from the BSA’s overzealous application of the “pirate” label.

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The Business Software Alliance (BSA) regularly targets small-to-medium sized businesses for expensive software audits to determine whether those businesses are in compliance with their BSA-member software licenses. In furtherance of that effort, the BSA offers cash rewards to disgruntled current or former employees who provide information about allegedly unlicensed software installed on their employers’ computers.

However, in many cases, businesses targeted by the BSA discover that there appear to be significant discrepancies between the information apparently provided by the BSA’s confidential informants and the actual license-compliance status of those businesses. Many businesses suspect that the cause of the discrepancy is the informants’ desire to profit from the BSA’s reward program. Regardless of the cause, however, when the audit materials submitted in an audit matter do not conform to the information supplied by the confidential informant, the BSA typically disputes the results. The business then ends up incurring additional legal fees in an effort to authenticate those results and move the matter forward to a resolution.

Worse, though, even when the BSA discovers that its informant may have provided false information, it typically will not stop pursuing the copyright infringement claims.  The BSA’s loose definition of “unlicensed” software covers any software with no proof of purchase. Therefore, even though business records are only required to be kept for seven years for tax purposes, because the BSA requires dated proof of purchase in order to credit a business with license ownership, it effectively expects its business targets to keep their invoices for software license purchases forever.  The BSA thus justifies its continued pursuit of businesses, even in the face of an apparently unreliable informant, based less on principles of copyright law than on potentially inadequate accounting practices.

There is usually little recourse against the BSA or the informant for initiating legal action based on false information.  In some cases, a company may consider suing the informant on a breach of contract or breach of confidentiality claim, depending on the existence of any prior agreements with the informant, but the expense of such an action would be prohibitive for most businesses.  For these reasons and others, it is important for all companies, regardless of whether they are faced with a BSA audit, to be prepared to document their license ownership, to keep confidential all information relevant or potentially relevant to an audit, and to seek the assistance of counsel.

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Many companies choose to pursue an internal audit of software systems after receiving a request from the Business Software Alliance (BSA). When it comes to deciding how to proceed with an audit, there are multiple considerations, including, but not limited to, the size of the company, amount of computers, type of software at issue, IT support, and accuracy of a company’s records.

A small company with few computers is better suited than a larger corporation to conduct its own audit either manually or to take advantage of one of the many free software scan tools available on the internet. There are still risks of inaccuracy involved. One danger is that a company may submit information regarding a free download that may be mislabeled, and inaccurately reported to the BSA as unlicensed software.

This risk is amplified for larger companies with many computer systems and multiple users. If a large company seeks to conduct its own audit, the free scanning tools are still an acceptable choice, as manually checking each computer is both tedious and can lead to mistakes. An alternative is to seek a consultant who specializes in software infringement issues and who can assist with network inventory and sorting through software purchasing invoices and receipts. However, it is important to keep in mind that, unless that consultant is an attorney, he or she may have no duty of confidentiality to the company. Therefore, it is wise either to obtain a comprehensive confidentiality agreement from the consultant or to retain a knowledgeable attorney to assist with the inventory.

In addition to collecting an inventory of software installations, it is important to gather purchasing information to provide to the BSA. If receipts and invoices are not provided for all software installations reported, the BSA will assume the software is unlicensed and will increase its settlement demand. Regardless of the size of a company, if there are concerns about the ability to scan software, locate purchasing information or evaluate audit results, it is advisable to seek outside assistance with the process from an expert.

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When a company receives a letter from the Business Software Alliance (BSA) questioning the authenticity of software licensing status and demanding an in-house audit, it is very important to have proofs of purchase for the licenses in question. Absent sufficient proof of purchase, the BSA will assume that the associated software installations are unlicensed and will demand that the company pay a penalty to resolve claims of alleged copyright infringement. It is also important to note that the BSA requires specific types of proof of purchase in its evaluation of a company’s compliance status.  For example, a serial number, installation CD, or an empty box in which software was sold likely will not be acceptable to the BSA to establish proof of license.

Therefore, it is an important to keep records of all software purchased, regardless of the vendor or the date purchased. Typical forms that are acceptable to the BSA include receipts of purchase and invoices from authorized vendors. If software is pre-installed on a computer, a company may be able to obtain documentation from the manufacturer showing all such software on that computer.

Once all of the information related to installations and licenses is gathered, it is submitted to the BSA for review. The review may be a lengthy process, usually ultimately culminating in a settlement offer, which is typically negotiated downward. It is therefore key to submit all information proving proper licensing to decrease the total settlement. By obtaining a lower opening settlement offer, a company can reduce total exposure in negotiations.

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The Business Software Alliance (BSA) is an organization that represents software companies and prosecutes alleged unlicensed use of those member companies’ software products.  The BSA generally initially sends a company a letter indicating the company may be out of compliance with applicable software license agreements and demanding that the company investigate and inspect each computer for BSA-member software installations.  Then the inspection begins.

This process varies depending on the size of the company and the number of computers within the scope of the audit.  A small company with very few computers has more cost-effective options, such as using a free scan tool to inspect their computers, conduct hard drive imaging, or simply logging on to the computers to determine what is installed. 

However, there are numerous methods of inspecting and reporting software installations, and because of the complexities facing companies with many computers, it often is more effective to use a network scanning tool to determine installations on computers.

After selecting and deploying the scanning tool that is most effective for a company’s needs, a company should review the raw inventory results to determine if there are any errors in the results. It is not uncommon for inventory tools to report the presence of a software product on a computer even after the company has taken steps to remove the product. In addition, there are several product-specific pitfalls to avoid. For example, it is common for older versions of the free Adobe Reader to appear in inventory results as the full Acrobat product. Also, a computer may appear to have a full Microsoft Office suite, when one component, such as Microsoft Word, is the only product from the suite that actually is installed.  Each of these items can make a significant difference in a company’s exposure.

Finally, companies also should use a review of their software inventory results to determine which software products they need going forward. BSA settlements typically require companies to certify their compliance with applicable software agreements as of the date of settlement, and it is advisable to begin the compliance review as soon as possible. For example, it is often the case that a company does not require the full Adobe Acrobat, but could meet their needs using the Adobe Reader tool.

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Part of negotiating a settlement for alleged software licensing violations with the Business Software Alliance (BSA) involves certain provisions that have far-reaching implications.  A key to understanding those provisions involves carefully reading and dissecting each subsection. 

Often, one of the most important provisions, aside from the sections resolving a company’s alleged liability for copyright infringement, consists of language (if any) pertaining to confidentiality.  Unless a company requests a confidentiality provision to be included in the settlement agreement, the BSA often will issue a press release detailing the investigation of the company and the terms and cost of settlement.  Many businesses understandably seek to avoid this type of publicity.  If included in the settlement agreement, the confidentiality provision provides protection from the public release of information and prohibits the BSA from disclosing the terms of the settlement.  However, it is important to note that this provision does not protect against court-ordered subpoenas or against the release of information by the BSA to the software companies it represents. 

It is also important to note that this provision often comes at a cost.  The BSA regularly significantly increases the settlement price if a company seeks confidentiality. Companies therefore often choose not to include a confidentiality provision, but they should be prepared for the press release detailing each alleged violation of licensing agreements and the amount paid to the BSA in fines. If the company chooses not to purchase confidentiality, the BSA often will allow the business to review a proposed release prior to publication and to provide a quote to include with the release.

Businesses negotiating the resolution of a BSA-initiated audit matter should carefully consider with counsel whether the benefits of a confidentiality provision outweigh its cost, in light of that business’ location, industry, market share, and financial situation.  

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The Business Software Alliance (BSA) hunts down and audits companies when it receives information that those companies may have software products that are not properly licensed. If a company audited by the BSA is found to have more installations of software products than is reflected in its licensing documentation, it is generally more cost effective to settle than to bring the fight to court. Scott & Scott, LLP represents hundreds of companies and assists in defense against these audits. 

A key part of reaching a settlement agreement is to resolve the potential liability arising from the BSA’s allegations of copyright infringement, so that the BSA cannot later file claims against the company for alleged violations that occurred prior to the settlement agreement. Before the BSA will agree to release its claims, however, the targeted company will need to negotiate an agreed settlement payment to the BSA. The negotiations process can vary in length, depending on the nature of claims, the BSA’s alleged damages, and whether or not the company wants to include certain provisions, such as a confidentiality clause, in the settlement agreement. After the parties reach an agreement on the payment amount, the BSA will propose a written agreement, which include its release of liability. The release is typically contingent on certain actions by the company, as defined in the settlement agreement. These include the company’s certification of present compliance, accompanied by up-to-date proof-of-purchase documentation, and a warranty that the company will continue to comply with licensing agreements in the future, among others. 

It is important to note that if the BSA subsequently learns that a company did not fully disclose all information during the audit process, or that it later did not comply with applicable licensing requirements, it may hold the company in breach of the settlement agreement and pursue legal action. In order to prevent this, it is vital that a targeted company consult with knowledgeable, experienced counsel to assist it with mitigation strategies, settlement negotiation and compliance advice.

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Preparing the BSA Audit Materials

The Business Software Alliance’s primary enforcement tool is to send a threatening letter indicating that an investigation has commenced and offering to forego litigation if the target company provides a self-audit. A self-audit consists of a listing of all BSA member software running on a company’s computer networks, appropriate indicia of ownership for the software comprised of dated proofs of purchase for each title. It is important to note that companies are usually under no legal obligation to cooperate with the Business Software Alliance. In most instances, however, cooperation will yield the most cost effective resolution. But, that is not necessarily always the case.

Cooperating Carefully with BSA

I usually advise my clients to cooperate with the BSA, but to do so without compromising any legal rights. Prior to submitting audit materials on behalf of clients we require that the BSA sign a contract protecting the confidentiality of the audit materials and ensuring that the audit materials will not be used in court if the case cannot be settled informally.

BSA Settlement Demands

The Business Software Alliance has developed a standard formula for assessing fines as part of its settlement process. It is important to note that the BSA is not a governmental entity and has no independent authority to levy an enforceable fine. Business Software Alliance fines are therefore merely offered in settlement to avoid litigation and, like all pre-litigation settlement offers, are negotiable with the help of experienced counsel.

The BSA's methodology for calculating fines starts by treating as unlicensed all software products for which there is a lack of adequate documentation, including dated proofs of purchase. All proofs of purchase must be dated prior to the Business Software Alliance's initial letter to be considered valid evidence. Because companies may not always have access to the requisite dated proofs of purchase, the BSA's proposed fines are often based, in part, on software titles that companies legally own and properly acquired.

The Business Software Alliance also unbundles the products in software suites such as Microsoft Office and Adobe Creative Suite. So instead of proposing a fine based upon one copy of Microsoft Office, the BSA proposes a fine for Microsoft Outlook, Microsoft Word, Microsoft Excel, and Microsoft PowerPoint. The result is a proposed fine of $1,126 for a product that retails for $339.

After disallowing credit for valid software without dated proofs of purchase and unbundling all software suites, the Business Software Alliance then applies an arbitrary multiple of three times the full retail price for each software title. Accordingly, one allegedly unlicensed copy of Microsoft Office will carry a proposed fine of $ 2,252.

To add insult to injury, the Business Software Alliance’s proposed fine will include a line item for $3,500 to pay the BSA’s attorney’s fees. While this is not usually a large number as a percentage, it should be taken into account when considering potential exposure. To calculate your potential exposure, use our Business Software Alliance Fine Calculator, http://www.bsadefense.com/resources-fine-calculator.asp.

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