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Is a software audit protected by the Attorney-Client privilege?

Posted by Steve Vondran | Jul 30, 2016 | 0 Comments

Software Law Essentials – [protecting the audit results with the Attorney-Client privilege]


Here is a question I recently received by an astute professional on LinkedIn.  He asked whether or not a company can protect the audit results via the lawyer-client “privilege” and basically wanted to know how this legal concept applies in real life.  It was a great question, and here is my general response.  This is not legal advice but rather general conversation points on this important copyright law issue.

What is the Attorney-Client Privilege

Although each state may have its own version of this “privilege” since I am licensed in California and Arizona, I will only talk about California's law, specifically, case law from the 9th Circuit (which covers the Western States such as Washington, Oregon, Montana, Utah, Idaho, California and Arizona.  Here is a general snippet of what this privilege is all about (and what it ISN'T about):

The attorney– client privilege is the oldest and arguably most fundamental of the common law privileges recognized under Federal Rule of Evidence 501. See United States v. Zolin, 491 U.S. 554, 562, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). The assurance of confidentiality promotes open attorney– client communications, which are “central to the legal system and the adversary process.” United States v. Hodge & Zweig, 548 F.2d 1347, 1355 (9th Cir.1977); see also Zolin, 491 U.S. at 562, 109 S.Ct. 2619. The attorney– client privilege protects fundamental liberty interests by allowing individuals to seek the legal advice they need “to guide them through [the] thickets” of complex laws. United States v. Chen, 99 F.3d 1495, 1499 (9th Cir.1996).  Notwithstanding its importance, the attorney– client privilege is not absolute. The “crime-fraud exception” to the privilege protects against abuse of the attorney– client relationship. Hodge & Zweig, 548 F.2d at 1355. As the Supreme Court wrote in Clark v. United States, 289 U.S. 1, 53 S.Ct. 465, 77 L.Ed. 993 (1933), “The privilege takes flight if the relation is abused. A client who consults an attorney for advice that will serve him in the commission of a fraud will have no help from the law. He must let the truth be told.”  See  In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1090 (9th Cir. 2007) abrogated by Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 130 S. Ct. 599, 175 L. Ed. 2d 458 (2009).

Civil Discovery under the F.R.C.P.

In a copyright infringement lawsuit (or even trademark or other federal case), a Plaintiff copyright holder is entitled to seek all relevant evidence including setting depositions, serving request for production of documents, special interrogatories and requests for admissions.  There are also other discovery tools.  But in these cases, the party responding to the request may be able to object and/or assert a “privilege” (using by providing a privilege log), and thereby seek to avoid disclosing certain things that are protected (ex. emails, communications, fax, phone calls, snapchats, text messages, and even the audit results themselves).  In the “software audit context” you can MAKE THEM DO THE WORK.  In other words, force them to show how many copies of software are installed on what computers, demand production of proofs of purchase and receipts, and gauge FOR THEMSELVES how many licenses are “short.”   Although an audit report may have been “produced” via the “voluntary” audit process, this might have been rushed, might not be accurate, and if the proper FRE Rule 408 confidentiality agreement was set in place, this audit spreadsheet should be protected from disclosure under both the FRE 408 agreement and per the attorney-client privilege.  As one court noted:

“Permissible discovery, however, may be limited by relevant privileges, including the attorney– client privilege. “As a general matter, a party is not entitled to discovery of information protected by the attorney– client privilege.  Because the attorney– client privilege is in derogation of the search for truth, it is ‘narrowly and strictly construed. The party asserting the attorney– client privilege bears the burden of proving that it applies.”  See  Vasudevan Software, Inc. v. Int'l Bus. Machines Corp (see also IBM audit)., No. C 09-05897 RS (PSG), 2011 WL 1599646, at *1 ( N.D. Cal. Apr. 27, 2011).

So for example, forcing the Plaintiff in a copyright infringement action to “do its own work” could dis-incentivize them from filing suit, and may help lead to a private settlement of the action (which is usually in everyone's best interest, but not always).

Requirements of a “privilege log” under Federal Rules

In re Grand Jury Investigation, 974 F.2d 1068, 1071 (9th Cir. 1992) discussed what a company might need to show to prevail on attorney-Client privilege argument, in this case the 9th Circuit Court held:

In Dole, the log identified: (a) the attorney and client involved, (b) the nature of the document, (c) all persons or entities shown on the document to have received or sent the document, (d) all persons or entities known to have been furnished the document or informed of its substance, and (e) the date the document was generated, prepared, or dated. Id. at 888 n. 3. The log submitted by the Corporation in this case fulfilled conditions (a), (b), (c), and (e).

Furthermore, the Corporation's privilege log went beyond the Dole standards to provide information on the subject matter of each document. Whatever questions the Corporation's log might leave open with regard to whom the documents were shown or were intended to be shown are answered to our satisfaction by the affidavits of the attorneys responsible for preparing the documents. Therefore, the Corporation has met its burden in demonstrating the applicability of the attorney-client privilege.

Note that there is NO attorney-Client privilege if the Attorney is seeking to help a client get away with software piracy under the crime-fraud exemption.

If the attorney-client privilege is asserted, and challenged by the Plaintiff in a copyright infringement lawsuit, it may not always work.  One well-recognized exception to the privilege is known as the “crime-fraud” exception.  In short, if a lawyer or law firm is helping a client be a “software pirate” then the privilege may fail despite a privilege log.  As on Court in the 9th circuit noted:

“It is well settled that the attorney-client privilege does not extend to attorney-client communications which solicit or offer advice for the commission of a crime or fraud.  See Clark v. United States, 289 U.S. 1, 15, 53 S.Ct. 465, 469, 77 L.Ed. 993 (1933); 8 John H. Wigmore, Evidence § 2298 (McNaughton Rev.1961 and Supp.1991). In United States v. Zolin, 491 U.S. 554, 565, 109 S.Ct. 2619, 2627, 105 L.Ed.2d 469 (1989), the Supreme Court held that in camera review of privileged information may be used to establish whether the crime-fraud exception applies. The Court set forth a two-step analysis for determining whether in camera review is appropriate in a given case. First, there must be a minimal showing that the crime-fraud exception could apply. Id. at 572, 109 S.Ct. at 2631. If this initial hurdle is overcome, then the district court has the discretion to conduct an in camera review.”  See In re Grand Jury Investigation, 974 F.2d 1068, 1071 (9th Cir. 1992)

Note, the criminal copyright “threshold requirements” should be reviewed.  Many software audit cases are “smaller” cases dealing with small mom and pop businesses and thus, at least, the “crime” portion of this rule may be tough for a Plaintiff software publisher to overcome.  In other cases, the dispute may wind up in a judge's chambers and the details of the alleged software piracy and attempt to conceal that may come to the surface.

Tips to protecting your software audit results with the Attorney-Client privilege

Here are a few things to think about in hiring a law firm to protect you in regard to a software audit (whether via the software alliance, SIIA, or other auditing entity):

  1. Come to your attorney in good faith and disclose what you know;
  2. Disclose what you do and do not have and explain why you believe your organization has unlicensed software (no proofs)
  3. If you were using “crack codes” and “keyword generators” these will be hard to protect via the privilege (Why? They are evidence of willfully infringing copyright, and if you meet the minimum threshold requirements for “criminal copyright” then the Attorney may be helping you avoid a crime).
  4. Do not discuss your software audit with employees and staff.  Some of this may not be protectable.
  5. You are better off having an attorney help you with the audit, because you have a better chance of keeping the results protected if a settlement cannot be reached.  At least there is potential layer of protection that may help result in a settlement, instead of a lawsuit.

What about the “work-product privilege” in software audits?

Another legal theory to consider is the attorney “WORK PRODUCT” privilege.  This is another privilege that could be used to try to protect the results of an audit as may be produced on a excel spreadsheet.  This privilege was discussed in one federal case and contrasted with the attorney-client privilege:

“The work-product doctrine is distinct from and broader than the attorney-client privilege.”); United States v. Adlman, 134 F.3d 1194, 1200 (2d Cir.1998) (“The attorney-client privilege and the work product rule serve different objectives. The fact that a document does not come within the attorney-client privilege should not result in the deprivation of the protection accorded by Rule 26(b)(3).”); Wildbur v. ARCO Chem. Co., 974 F.2d 631, 646 (5th Cir.1992) (noting that “the attorney work product doctrine fosters interests different from the attorney-client privilege”); National Union Fire Ins. Co. v. Murray Sheet Metal Co., 967 F.2d 980, 984 n. 4 (4th Cir.1992) (“The work product immunity, which is frequently referred to as a ‘work product privilege,' is not to be confused with the attorney-client privilege which arises from different circumstances and is subject to different protections and waivers.”

See Tennison v. City & Cty. of San Francisco, 226 F.R.D. 615, 621 (N.D. Cal. 2005). However, it must also be understood that work-product is not an absolute unfettered privilege and there may be instances where the opposing party (ex. a Plaintiff in a software piracy lawsuit), may be able to seek disclosure of what would otherwise be “protected” work product.  For example, in Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Murray Sheet Metal Co., 967 F.2d 980, 983 (4th Cir. 1992) the federal court noted: “The policies of protecting work product and permitting liberal discovery are accommodated in the Federal Rules of Civil Procedure by protecting absolutely the “mental impressions, conclusions, opinions, [and] legal theories. concerning the litigation” but permitting discovery of other work product upon a showing of “substantial need.” Fed.R.Civ.P. 26(b)(3).

Contact an intellectual property copyright law firm

We can help you ascertain and protect your legal rights.  If you do not know your rights you are less likely to be able to protect those rights.  As they say “you don't know what you don't know.”  The Attorney-Client privilege can be a powerful tool to help facilitate a settlement as opposed to handling the case yourself, and being forced into a copyright suit to settle on their terms.  Under this scenario, it is much harder to protect your audit results, and if you “under-disclosed” in your audit to try to get a more favorable settlement, this might be exposed as a “lie” which will make you more likely to write a large check to avoid what could be an embarrassing jury trial.  We offer low flat rate fees for copyright cases including audits, torrent defense, DMCA and other alleged infringement disputes.  Call (877) 276-5084 to speak with a lawyer. 

About the Author

Steve Vondran

Thank you for viewing our blogs, videos and podcasts. As noted, all information on this website is Attorney Advertising. Decisions to hire an attorney should never be based on advertising alone. Any past results discussed herein do not guarantee or predict any future results. All blogs are written by Steve Vondran, Esq. unless otherwise indicated. Our firm handles a wide variety of intellectual property and entertainment law cases from music and video law, Youtube disputes, DMCA litigation, copyright infringement cases involving software licensing disputes (ex. BSA, SIIA, Siemens, Autodesk, Vero, CNC, VB Conversion and others), torrent internet file-sharing (Strike 3 and Malibu Media), California right of publicity, TV Signal Piracy, and many other types of IP, piracy, technology, and social media disputes. Call us at (877) 276-5084. AZ Bar Lic. #025911 CA. Bar Lic. #232337


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