Copyright Infringement – Software settlement essentials (calculating money damages)
So you have worked like a mad dog to build out your software and you sell it commercially in your marketplace. Whether you have basic business productivity software, personal software, biomedical software or some other type of protected code that has been federally registered with the United States Copyright Office, the last thing you need is another company out there using your software for FREE, not paying you a dime, and basically pirating your software. We can help you recover lost revenue for software infringement. This intellectual property blog talks about calculating damages for intentional infringement and how to prove your case. For companies and businesses facing a BSA, Autodesk, SIIA or audit with another software compliance entity (such as Deloitte Touche or Price Waterhouse Cooper) this may be of value as well.
How to calculate damages for intentional software piracy (Case example)
Okay, so you nabbed another company using your copyrighted software without paying for it. Your copyrights in the software are registered and protected. Now what do you do? First thing most people want to know is what can I recover for intentional software licensing infringement? Failure to properly license software and intentionally using it for their own personal gain? Here is one way to look at a damages calculation:
1. Cost to properly license a copy of your software for all laptops, PC's, and networks that use your software. For example, if you have 10 unlicensed copies on 10 different platforms, you have 10 copyright infringements. Each one is a separate infringement of a copyrighted work. If your software costs $1,000 to license that is $10,000 in actual damages.
2. Standard in the industry is to use a 2-4X (often seen as a “triple”) multiplier if you can settle the case without going to trial. While this is sometimes deemed an “arbitrary” standard, it is understood to be an industry standard, while also negotiable. There is precedent (watch the video below for case citations) for even as much as a 5x statutory multiplier. However, keep in mind that what you will find when examining the case law is Courts trying to award enough to award the Plaintiff for their losses and deter future misconduct with the defendant and third parties, but to provide no more than a “just” and adequate award. In the above example, the damages for piracy have now reached $30,000.
3. Profits earned by Defendants. In many cases, the Defendants in a software piracy case are using the software to increase their bottom line, improve profits, etc. There is case law establishing that if you can prove what the Defendant's profits are using your software (ex. Microsoft, Autodesk software can help businesses make money), you have a right to seek those profits of defendants damages if the case goes to copyright Court. For example, let's say there is a 10 person architect firm using Autodesk AutoCad software, obviously this helps them make money. If you have prove that each architect brings in $250,000 per year at their work station, using unlicensed copies of your software, you can seek to recover the $250,000 X 10 ($2,500,000). The architect firm would not have made this money without the use of the Autodesk software is how the argument might go.
So, adding all this up, you now have $2,530,000 in monetary damages.
4. If the software/copyright infringement is deemed willful and malicious, the Plaintiff in a copyright lawsuit can also seek its attorney fees. For example, a federal copyright lawsuit could cost a Plaintiff $200,000 or more to prosecute. These damages can be requested in a infringement case. So now you are up to $2,730,000 using our example above.
5. Punitive damages – Can you recover punitive damages on top of all the above damages in a software piracy/infringement case? This is a common question. The copyright law is silent as to punitive damages. Typically you cannot recover punitive damages in a copyright infringement case, (but see this article that argues for punitive damages in a infringement case) but you can seek up to $150,000 statutory damages per (willfully) infringed work. If not willful the statutory damages is $30,000 per infringed work. So this can add up either way. Here is another good article on the availability for punitive damages in a copyright infringement case.
Some Plaintiff's look to state law and “unfair competition” statutes to try to recover punitive damages, this has also not met with a lot of success in California and Arizona where our firm practices. For example, in Yanting Zhang v. Superior Court, 57 Cal. 4th 364, 376, 304 P.3d 163, 171 (2013) the Court held:
“The injunctive and restitutive remedies authorized under the [ UCL] … are of very limited utility. They are designed to prevent unfair business practices and to require disgorgement of money or property obtained by means of such practices. Damages are not available under Business and Professions Code section 17203. [Citation.] That means that no claim for compensatory or punitive damages can be recovered in a[ UCL] action.”
Video – Calculating damages for shortages of Microsoft Office (“unbundling” explained)
Bonus materials: Steve Vondran, Esq. explains how the business software alliance may seek to “unbundle” when calculating damages in a software licensing shortage case. Make sure to SUBSCRIBE to free legal updates by clicking on the RED “V” (for Victory). NOTE: Here is a link to the code section 17 U.S.C. 504 damages in a copyright infringement case. Note that a Plaintiff can recover actual damages plus Defendants profits OR statutory damages of $750-$150,000 if willful. A Plaintiff CANNOT get statutory damages PLUS Defendants profits, PLUS actual damages. If the infringement is deemed innocent, the damages could be as low as $200 per infringement. So, for best results the case facts have to be examined closely by your litigation attorneys.
Bonus materials: Click on the picture to watch Attorney Steve discuss copyright damages. You can subscribe to free video law updates by clicking on the Red “V” in the top right hand corner of the video. Feel free to share our video on your social media networks.
What type of proof do you need to succeed in a software infringement case
In order to file a federal copyright lawsuit, you need to have registered your software with the U.S. Copyright Office. That is a pre-requisite to filing suit and seeking attorney fees. You also need enough good faith evidence of infringement to meet the standards of FRCP Rule 11 (all legal filings must have merit and not be frivolous). You need to have some proof (EVIDENCE) of infringement. For example common forms of evidence of infringement may include:
1. Informant who has been inside the infringing company and witnessed the willful infringement firsthand and is willing to provide a declaration
2. Corporate whistleblower willing to testify about unlicensed software usage by officers and directors of a company
3. A “crash report” that proves unlicensed copies of software are installed on the computer, servers or other networks devices of the company
4. An email that admits to infringing software (ex. telling a vendor you don't have a license after they ask you about your product key code)
5. Posting job listings advertising for certain software job skills (ex. on LinkedIn) and yet when they look up your company you have no licensing for the product you are seeking skills for.
6. Trade publications that tout creating projects by use of software, for example an architect or engineering firm that created a new highly touted project using Autocad, Revit, Solidworks, CNC Mastercam, etc.
7. Illegal downloads of software (such as Microsoft Office, Windows, Visio) using (busted by an internet spy for the software company)
8. Illegally selling unlicensed software or decoupled product keys online (ex. Amazon, eBay, Craigslist)
9. There are many other types of evidence that can arise, call us to discuss.
Bonus materials: Click here to view “How did Autodesk find out about my unlicensed software usage.”
Are copyright infringement cases filed in state court or federal court or some other copyright court?
Copyright law is exclusive federal jurisdiction. For this reason, most software infringement cases will be filed in federal court. If they are filed in state court, the case will likely be removed to federal court by the Defendant or kicked out for lack of subject matter jurisdiction by the state court judge.
However, that being said, keep in mind there are instances when a copyright holder may want to sue in state court. For example if there was intentional fraud involved in obtaining the copyrighted works a state court fraud action might be preferable to suing for copyright infringement. One reason might be that if you can prove intentional fraud you may be able to recover PUNITIVE DAMAGES for the fraudulent acquisition of software. Fraud would require some type of false promise made to induce the Plaintiff to induce the Plaintiff to transmit software licenses to the Defendant. The potential to recover punitive damages should thus be reviewed with your litigation counsel before deciding on the proper venue to file suit.
Copyright Infringement of Software Damages argument
Here is some legal argument from one case I reviewed in regard to the issue of money damages and penalties in software piracy cases:
Damages Software Company is entitled to lost licensing revenue and Defendants' profits, which will be established by providing proof of the Defendants' gross revenue derived from their use of the pirated software. 17 U.S.C. § 504(b).
The Defendants then have the burden of establishing their deductible expenses and “what percentage of the infringer's profits” were not attributable to copying the infringed work. See Three Boys Music, 212 F.3d at 487. But if infringed portions are so suffused and intertwined with non-infringing portions as to render an apportionment impossible no apportionment is appropriate. See Business Trends Analysts, Inc. v. Freedonia Group, Inc., 887 F.2d 399, 407 (2d Cir. 1989).
In this Circuit, “[t]he rule is that one deducts from the gross sales price the costs that are directly attributable to the items in question. But general overhead, such as management, rent, telephones, designers, and the like are not to be deducted, since they are, by hypothesis, there whether the particular item is sold or not.
Only if a particular ‘overhead' item can be specifically related to the goods in question can it be deducted. This is true even if overhead increases losses or decreases gains for the enterprise as a whole.” JBJ Fabrics, Inc. v. Mark Industries, Inc., 1987 U.S. Dist. LEXIS 13445 (C.D. Cal. Nov. 4, 1987); see also Judge Posner's discussion in Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983); 3 NIMMER ON COPYRIGHT § 14.02. “The Ninth Circuit is in accord with this view.”
The software publisher is also entitled to statutory damages if it so elects before a final judgment. 17 U.S.C. § 504(c). The statutory damages awarded need not coincide with actual dollar loss caused by the infringement. See Lowry's Reports, Inc. v. Legg Mason, Inc., 302 F. Supp. 2d 455 (D. Md. 2004).
Factors considered in awarding statutory damages include:
“(1) expenses saved and profits reaped by the defendant,
(2) revenues lost by the plaintiffs,
(3) the deterrent value of the award,
(4) whether the infringement was willful or innocent.” See Broadcast Music, Inc. v. C.B.G., Inc.,
If the Court finds that the infringement was willful, it may increase the award of statutory damages up to $150,000 per infringed copyright. 17 U.S.C. § 504(c)(2).
Willfulness can be proven by showing either:
“(1) that the defendant was actually aware of the infringing activity,
(2) that the defendant's actions were the result of ‘reckless disregard' for, or ‘willful blindness' to, the copyright holder's rights.” See Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936, 944 (9th Cir. 2011).
VIDEO: How do Court's determine what is “willful infringement?
My software company is located in California and I am thinking about hiring a law firm in Texas or Connecticut to handle my case does that make good sense?
There are many law firms across the United States that will claim they can handle your case. We have heard of companies in Texas and Connecticut saying they are willing to file suit in California state or federal court by “associating with local counsel.” Why not just hire a local counsel instead of trying to deal with an out of state law firm that is not licensed to advise you on legal issues in California or Arizona where we practice?
Contact a Software Piracy Litigation Law Firm
Steve Vondran, Esq., earned his undergraduate degree in kinisiology and law degree earning a certificate in intellectual property studies. He is former elected executive counsel member for the Arizona state bar section on intellectual property. To discuss your software piracy and infringement case with Mr. Vondran, call us at (877) 276-5084.
In software infringement cases, normally we can take your case on a contingency fee basis. Please call us to discuss your case facts.