In many software audits, the auditing entity like the Business Software Alliance or the Software & Information Industry Association requires a dated proof of purchase to demonstrate when a license for a software product was acquired. However, in audits initiated by Autodesk, the serial number can play a crucial role in demonstrating ownership.

Autodesk products are typically upgraded frequently and Autodesk usually issues a new, unique serial number with each purchase. When responding to an Autodesk audit, the business that owns Autodesk products may elect to provide the serial numbers in lieu of the invoices. It is important to provide serial numbers for the versions of the products that are installed and in use as of the date of Autodesk’s letter. For instance, if a company upgraded a copy of AutoCAD ® 2000i to AutoCAD ® 2004, the company should not provide both serial numbers to Autodesk in response to the audit request.

It is also important to realize that Autodesk licenses are generally non-transferrable without Autodesk’s written permission. If an audited company is planning to produce a serial number for a product that was not obtained from an authorized Autodesk reseller, there is a strong likelihood that the company will not get credit for the license.

If you have been audited by Autodesk, please seek advice from experienced counsel before responding. For more information, please visit www.scottandscottllp.com.

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The BSA and SIIA are not the only organizations pursuing business for software copyright infringement.  Though it is a member of both the BSA and SIIA, Autodesk, which manufactures the popular design software AutoCAD, often pursues audit targets on its own. 

The audits begin much like those instituted by the BSA or SIIA.  The target of Autodesk’s audit will receive a letter from a law firm representing Autodesk demanding the business’ cooperation in disclosing the number Autodesk installations on its network and the number of Autodesk licenses it owns, including serial numbers.  The law firm will assert it has received information that indicates the business may have more installations of Autodesk software than it is licensed to use.  The letter will go on to describe the various penalties associated with copyright infringement and it may threaten the business with civil litigation.

Targets who receive such letters should treat the matter very seriously.  It is important to know your legal rights and protect your legal position before responding to a request for information from a software publisher who is trying to conduct an audit.  Additionally, many companies who prepare their own responses to Autodesk without the benefit of counsel and before conducting a thorough investigation often receive an unexpectedly high settlement offer from Autodesk. 

In many cases, Autodesk demands a settlement payment calculated as the MSRP of the allegedly unauthorized products installed on the business’ network multiplied by three.  The multiplier, Autodesk argues, is the penalty for using unauthorized software and is assessed in lieu of proceeding with formal judicial resolution.  The use of multipliers as an approximation of damages is a hotly contested issue.

When responding to Autodesk audit requests, companies should work with experienced counsel to thoroughly investigate the software usage on their computers, protect themselves by requesting agreement from Autodesk regarding the use of the materials that will be produced in the audit, and negotiate a resolution geared toward ensuring future compliance. 

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Since the passage of the Digital Millennium Copyright Act (“DMCA”), Autodesk has used the Act’s anti-circumvention provision as a tool to demand higher settlements in copyright infringement actions against companies who are alleged to have unlicensed software installed on their computers. This provision is designed to prevent a user of the software from tampering with it to overcome security features and to install the software on computers without an appropriate license.

Autodesk has obtained mixed results from this approach. Notable among the outcomes that were less-than-favorable to Autodesk in this regard is the case of Timothy Vernor.  In response to a threat for legal action citing, in part, violations of the DMCA, Vernor filed suit against Autodesk in 2007 and succeeded in obtaining a partial settlement that allowed him to resell used copies of Autodesk products on EBay. However, Autodesk nevertheless is persisting with its DMCA arguments. In June 2009, it filed lawsuits in California against companies accused of copyright infringement and unlawful reproduction of Autodesk products. The complaint filed in Autodesk v. Scenario Design, Inc., alleges Scenario Design violated the DMCA’s anti-circumvention provision. If successful, Autodesk could recover a higher award than it would on just a “traditional” claim of copyright infringement by proving Scenario Design unlawfully circumvented the software’s security protection.  A similar case alleging copyright infringement, Autodesk v. Cubellis, Inc., was filed in California on June 1, 2009 by Autodesk. However, on July 23, 2009, this case was voluntarily dismissed by Autodesk.

Ironically, Autodesk faces its own copyright infringement claims in the matter of Crook v. Autodesk, filed May 13, 2009 in California. The plaintiff there asserts that Autodesk has engaged in reproducing copyrighted software at its offices and has itself violated the anti-circumvention provision of the DMCA. The complaint alleges that a tracking program run by the plaintiff identified users at Autodesk who were using fraudulent codes and registration keys to obtain access to the plaintiff’s software.

If your business is facing allegations of copyright infringement or unlawful circumvention by Autodesk or other software publishers, it is critical that you contact knowledgeable counsel to assess the validity of the claim and to help you to achieve an efficient and reasonable resolution.

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Many businesses that use software published by Autodesk are familiar with the company’s vigorous copyright enforcement program. Autodesk is one of the most active software publishers when it comes to threatening litigation over allegedly unlicensed use of its well-known computer-aided design products, such as AutoCAD, and it regularly targets businesses of all sizes demanding costly and distracting audits and settlements, often based solely on the word of unidentified informants.

In addition to such matters targeted at its past and potential customers, however, Autodesk’s enforcement program also includes efforts to eradicate what it believes to be unauthorized sale of its software. The Washington state federal lawsuit of Vernor v. Autodesk Inc. falls into this category. Here, the plaintiff, Timothy Vernor, had for some time attempted to sell used AutoCAD packages on eBay. However, when he did so, Autodesk sent notices to eBay pursuant to the Digital Millennium Copyright Act that such activity violated Autodesk’s copyrights, and in order to avoid contributory copyright liability, eBay removed the listings. After several such exchanges, eBay eventually terminated Vernor’s account. In response, Vernor filed suit against Autodesk, seeking a declaratory judgment that his sale of used software did not constitute copyright infringement.

In its first substantive opinion in the matter, the Federal Court for the Western District of Washington denied a motion to dismiss in which Autodesk had argued that the software Vernor attempted to sell on eBay had been licensed exclusively to a Seattle architecture firm, that the firm had no authority to transfer the software to any other party, and that Vernor’s activity therefore constituted a violation of its copyrights in the software. The court disagreed, holding that the first sale doctrine under U.S. copyright law protected Vernor from liability. Despite Autodesk’s characterization of the earlier transaction as the transfer of a license, the court ruled that the architectural firm merely had purchased a copy of the product, and first sale doctrine allows the lawful owner of a copy of a work to sell or give it away.

On September 30, 2009, the court essentially repeated this holding in ruling on cross-motions for summary judgment filed by each of the parties. Again relying primarily on the 9^th Circuit’s opinion in United States v. Wise (1977), the court characterized the earlier sale to the architectural firm as just a sale with a restriction as to use. After Wise, the 9^th Circuit held in other cases involving software disputes that software licensees did not “own” their copies. However, the Vernor trial court nevertheless looked to Wise as the controlling precedent, because it was the earliest case to consider the issue and because the 9^th Circuit did not expressly address it in the cases that followed.

A decision by Autodesk not to appeal these rulings by the Vernor court would be surprising, considering what is at stake. The implications of the court’s holding, if allowed to stand, would cast a shadow across the license-enforcement initiatives of not only Autodesk, but also other software publishers and their trade groups, such as the Business Software Alliance and the Software & Information Industry Association. It will be very interesting to see what happens next in this matter.

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Businesses that receive software audit demand letters from auditing entities such as the BSA or SIIA, or from software companies like Autodesk or Microsoft, often contend they cleaned up their network after receipt of the letter and should be released from any further obligation to conduct an audit or communicate with the auditor.  Audited business should keep in mind, however, that the auditing entities typically are focused only on the targeted businesses’ software license-compliance status as of the audit effective date – the date on the first letter those entities send to a targeted business.  The auditing entities usually will seek confirmation that the businesses were compliant on the effective date, and on no other date.

Because computer networks may change rapidly, the auditors need to identify a moment in time for which they can ask the audited business, “Did you have all of the licenses for the software installed on your computers?”  If the answer is yes, the auditing entity will typically close its file.  If the answer is no, the auditing entity will claim the business engaged in copyright infringement on the effective date.  The business’ representation that it was compliant after the effective date has no bearing on whether the business engaged in copyright infringement on the effective date.  If the matter proceeds to a lawsuit, the auditor likely would claim that the business infringed its or its members’ copyrights on the effective date.

The auditing entity typically demands proof of purchase documentation that demonstrates the ownership of a sufficient number of licenses on or before the effective date.  Software purchased after the effective date is not relevant to the audit.  Locating, reviewing, and compiling the proof of purchase documentation is a collective effort that often requires coordination among various individuals and departments within an organization.  In addition, identifying and listing all of the software on the company’s computers as of the effective date may be made doubly difficult when computers contain large amounts of software irrelevant to the audit. It is also important to keep in mind that software environments change as computers are added, decommissioned, and rebuilt with the ebb and flow of HR turnover.

If you have been contacted by an auditing entity such as the BSA, the SIIA, or a software publisher, you should proceed with caution and should familiarize yourself with the typical process for such software audits.  Experienced counsel can help to guide you through that process and to avoid unnecessarily large expenses.

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