Autodesk 2017 Updates – The Scope of Software Audits [independent contractors]

Introduction

Recently, I had a friendly encounter with one of Autodesk's experienced software lawyers who suggested to me that my Client could be held liable for copyright infringement if their INDEPENDENT CONTRACTORS did not have licensed software.  I said, Geez, how could that be contractors are “independent”?   They use their own tools, they are liable for their own compliance.  Their counsel informed me that his position was that yes, they could be held liable.  Since that did not comport with my understanding of the law (and given the growth of outsourcing engineering, architecture and design services through freelance websites), I decided to look into.

Say for example an engineering firm contracts with NASA to design a part for the space shuttle.  The relationship is setup as an independent contractor relationship and the nature of the relationship is set forth in a written contract between the companies which clearly indicates it is not an employer-employee relationship, and not a partnership, and clearly a situation where the independent contractor uses it own tools to get the job done.

Using their own tools, in this example, will refer to using their own Autodesk software products to get the job done (for example, using AutoCad, Revit, Maya, Civil 3D, Inventor, etc.).  Under this scenario, it would appear to me the engineering firm doing the CAD work needs to be properly licensed with Autodesk, Solidworks, CNC software, Microsoft, or whatever other software tools they are using.  That is their compliance issue.  But does the hiring firm (ex. NASA) have some affirmative duty to make sure the independent contractor is properly licensed? Meaning, do they have to tell the contractor “before you do this job, you need to prove to me or certify to me that all the tools you are using, from your pliers and hammer, down to your machines, electrical equipment, and software programs are all legal, or certify in writing that they are, and indemnify me for any breach of this?”

This seems to me to be a bit over the top so I looked into it since it seemed the Autodesk lawyer wanted me to confirm compliance with a contractor, a point I sought clarification on and was not satisfied, legally, with the response.

What is an independent contractor?

Now, generally, an employer WILL be held liable for the infringement software installations of their employees (ex. “wow, i didn't know my shop guys were passing the Revit or Mastercam software around“), in cases like this, the case for liability is much stronger, as employers are generally more responsible for the acts committed by their employees within the course and scope of their employment, especially where the employer is benefitted and receives a financial benefit.  There is case law on this as well.  See our article on vicarious copyright infringement.  So in some cases it may become important to distinguish between “employees” (who a company may be held liable for their acts and omissions), and what a true independent contractor is (in which case the employer might NOT be held liable if they had no reason to know of software theft, or using software outside the terms of a license – ex. using a student version of software for commercial purposes).

Here is one court discussing the test for determining what an independent contractor is:

“The most significant factor in determining whether the status of a person performing services for another is an employee or an independent contractor is the right to control the manner and means of accomplishing the result, that is, the details of the work. “If the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.” ( Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43 [168 P.2d 686], disapproved on another point in People v. Sims (1982) 32 Cal.3d 468, 479-480, fn. 8 [186 Cal.Rptr. 77, 651 P.2d 321].) Other factors are also to be considered. They, including the issue of employer control, are set forth in the Restatement Second of Agency section 220, as follows”: (1) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right to control. (2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered: (a) the extent of control which, by the agreement, the master may exercise over the details of the work; (b) whether or not the one employed is engaged in a distinct occupation or business; (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (d) the skill required in the particular occupation; (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) the length of time for which the person is employed; (g) the method of payment, whether by the time or by the job; (h) whether or not the work is a part of the regular business of the employer; (i) whether or not the parties believe they are creating the relation of master and servant; and (j) whether the principal is or is not in business.” (See Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 950, fn. 4 [88 Cal.Rptr. 175, 471 P.2d 975].) However, the cases which have recognized the Restatement's multiple factor enumeration have emphasized that employer control is clearly the most important and the others merely constitute “secondary elements.” Toyota Motor Sales U.S.A., Inc. v. Superior Court, 220 Cal. App. 3d 864, 873–75, 269 Cal. Rptr. 647 (Ct. App. 1990), as modified (June 5, 1990).

Is an architect, engineering or design firm liable to ensure the software compliance of their independent contractors?

In the research I performed, I was not able to find a case where one company was held liable for the software infringement of a contractor they hired.  Yet, the intellectual property authority I spoke with informed me there could be “vicarious” infringement so (since there was no case law cited for this proposition) I decided to look into it myself.   Here is what I found as far as California Federal Court Case law:

Under California law, an employer generally is not liable for the acts of an independent contractor. Carroll, 113 F.3d at 165; Yanez v. United States, 63 F.3d 870, 872 (9th Cir.1995). “An independent contractor is one who renders service in the course of an independent employment or occupation.  See Robinson v. City of San Bernardino Police Dep't, 992 F. Supp. 1198, 1206 (C.D. Cal. 1998).

This appears to suggest the opposite of what I was being informed, but again, this is only one case, from one state, and results may vary.  My point is, don't be bullied into believing everything you hear when you are dealing with a software compliance audit.  I have heard some things that did not exactly ring true, from both Autodesk lawyers, and attorneys from the Business Software Alliance.

In fact, I have one pending case with BSA whereby a small business owner is using Windows “Home” Software for business purposes.  I was told this was not permissible.  However, after doing some research online, I saw the opposite position emerging (ex. the “Home” version was for marketing purposes and was usually offered OEM at stores like Bestbuy).  Since the Home and Business versions may not have a huge difference in price, I wondered what the big deal was.  Yes, you want to comply with the terms of any licensing agreement you enter into as a matter of contract law, but does this mean you cannot use a “Business” version of Windows to perform personal tasks, like checking you aol, yahoo, or gmail private email or running personal software programs such as games, or fun applications?  Just things that make you go “hmmmm.”

Again, I did more research and pulled up the license agreement and sent it over to BSA counsel. I have not received a formal response explaining how what my client's business was doing was improper.  At any rate, the point is to closely look at your licensing agreements when you are being told you are out of compliance, demand proof, and don't always take everything you hear for a software attorney as the gospel.  We are a nation of laws, and at times you have to do some legal research to more fully understand your legal rights in this “voluntary” audit process.

Are software audits voluntary?

PODCAST:  Click on the picture above to hear Attorney Steve talk about what happens if you decide not to participate in software piracy investigation.

What if a company is sued for the acts of its contractor, but had no knowledge of infringement?

So if you are threatened with being sued for the intentional software piracy of a contractor you used, you should ask a few questions of the law firm you are dealing with (or compliance company as the case may be):

1. Are you suggesting our company is responsible for the acts or omissions of their company?
2. If so, on what basis?
3. Are you saying that we had knowledge that they were pirating software?
4. If so, what is the basis of your knowledge?
5. Under what legal theory can we be held liable?
6. Do you have any case law you are relying on for your opinion?
7. What evidence are you willing to provide?
8. Since I have no knowledge, how much do you think you can recover in damages?

A quick overview of copyright damages

So if you have someone hitting you hard with copyright damages, keep this in mind which is language pulled from one federal court case I reviewed:

“Plaintiff has elected to recover statutory damages as pursuant 17 U.S.C. § 504(c). Section 504(c) provides that a successful plaintiff may recover “statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just.” 17 U.S.C. § 504(c)(1). Where the copyright owner proves that the infringement was willful, a court, in its discretion may increase the award to an amount up to $150,000. 17 U.S.C. § 504(c)(2).”

In cases where the infringer proves that he was not aware and had no reason to believe that his acts constituted infringement, a court may reduce to statutory damages award to a sum of not less than $200. 17 U.S.C. § 504(c)(2).

Plaintiff requests an award of attorneys fees pursuant to 17 U.S.C. § 505. “Attorneys fees are generally (although not always) awarded to a prevailing plaintiff under 17 U.S.C. § 505 to deter infringement and make the plaintiff whole.” JBJ Fabrics, Inc. v. Mark Industries, Inc., 5 U.S.P.Q.2d 1414 (C.D.Cal.1987) (citing McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 323 (9th Cir.1987)). Plaintiff is not entitled to attorneys fees incurred prior to its registration of its copyright in the Murphy Video. See 17 U.S.C. § 412.   And the Court will not award attorneys fees against those Defendants who are found to have infringed innocently or who have made good faith attempts to avoid infringement. See McCulloch, 823 F.2d at 323. Because the Court makes no finding as to Defendants Wolf and Prose's willfulness, a decision on Plaintiff's request for attorneys' fees and costs will be reserved.

See ICG-Internet Commerce Grp., Inc. v. Wolf, 519 F. Supp. 2d 1014, 1020 (D. Ariz. 2007).

Contact an Autodesk software license compliance Law Firm

If you received a demand letter from the law firm of Donahue Fitzgerald  LLP and wondering if the letter is real (in the internet world you have to be careful), we can help you ensure the letter is authentic and we can provide an initial consultation to discuss your legal rights and potential defenses and mitigating factors.  We have helped many companies from around the United States, both small mom-and-pop company to large multi-national companies.  We offer low flat rate fees and tenacious legal representation.  Call us at (877) 276-5084.