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What clients need to know about software piracy.

Under federal copyright law, unauthorized duplication of computer software carries both civil and criminal penalties that apply to the perpetrator--and maybe to the employer as well. This means professional firms and their clients are vulnerable to prosecution if they are not careful about their use of software. Those who understand when and how piracy occurs can reduce or prevent exposure to copyright infringement liability. CPAs can apply this knowledge at their own firms or as consultants to their clients.



Under certain limited circumstances, a lawful owner of a copy of a computer program can make another copy or adaptation, unless an agreement specifically prohibits it. Typically, computer program purchasers acquire the right to use them on a single computer. The Copyright Act (17 U.S.C. 117) permits making a copy or adaptation of a computer program provided it is either for the user's archives only or is created as "an essential step" in using the program in conjunction with a machine (that is, computer-controlled equipment). Since the phrase "essential step" often requires legal interpretation, it's a good idea to consult an attorney before purchasing a program that may require subsequent modification.

If a copy is made for the archives, then that is its only permitted use. Accordingly, the owner of the copy cannot sell or otherwise transfer that copy by itself. In addition, all archival copies must be destroyed if the owner of the copies discontinues rightful use of the original program. But if all rights to the original program are leased, sold or otherwise transferred to another party, exact legal copies also may be transferred. However, adaptations (that is, modifications) of the program may be transferred only with the authorization of the copyright owner.



In buying a computer program, the owner usually acquires the right to use the program in accordance with the terms of a written license agreement. Here are the three most common kinds of agreements:

Single-use license. This generally allows the buyer to install and operate the software on one computer. Under this type of license, installing and/or copying the program onto any additional computer is illegal. However, the transfer of a computer program from one computer to another may be acceptable, provided the software is physically removed ("de-installed") from one computer before transfer to another. Also, if the single-user license is silent about the purchaser's right to make a backup copy or adaptation, then making either of them for archival purposes or as an essential step in using the program on a machine should be permitted, since doing so is allowed under the Copyright Act.

Site license. This generally permits copying software onto multiple computers located at one or more specified locations. It may limit how many copies can be installed.

Multiuser license. This generally allows operation of the software on a network of computers. It usually involves a multuuser version of the software that allows several users to access and use one program simultaneously. These license sometimes restrict the number of users or work stations permitted access to the software.

Many software companies offer a single-user version as well as a more expensive multiuser version of the same program. To reduce expenses, a firm or its clients might be tempted to use the single-user version on a network, but this clearly violates copyright laws.

To protect themselves and their clients from ambiguities and misunderstandings in licensing agreements, CPAs should ask legal counsel to review and clarify them to ensure the provisions are right for the owner's intended used.


Many people believe that if software is not explicitly copy-protected, the buyer can make an unlimited number of copies to use, share or sell. This is a serious misunderstanding. Whether or not a program is copy-protected, any use that is not permitted by the copyright laws or by an explicit written agreement constitutes an infringement.


It is estimated that software manufacturers have lost billions of dollars in the last decade because of unauthorized use and illegal copying of computer programs. No wonder, then, that software trade organizations have targeted abolishing piraciy as a high priority. Their chief weapon is lawsuits, and the message to professional firms and their clients is clear: Don't take chances.

Under common law agency principles, employers are responsible for many acts committed on the job by employees. When employees commit acts of copyright infringement on the job, the employer may very well be held liable, even if key managerial employees are unaware of such acts. In virtually all cases, the copyright owner will seek financial restitution from the employer since it is usually the employer that has the "deep pockets."

In addition to the company's financial liability, officers, directors and others in positions of authority can be held personally liable for contributory infringement if they induce, cause or materially contribute to the infringement by employees. This personal liability exists even if the company is a corporate entity. To reduce the possibility of personal liability, companies should take firm action to quash unauthorized use, copying or distribution of computer software.



Whether a firm is reviewing its own policies or advising a client, the first step that should be taken is organizationwide education. Employees should be told precisely what is and is not permissible software use under the copyright laws. A firm or company should create an antipiracy policy and enforce it by taking disciplinary action for violations.

The education policy should be thorough and extend to all employees involved in the purchase, use and distribution of software. In today's computer-literate workplace, that can include a significant number of employees. There should be follow-up explanations and actual software-use checkups.

For example, a knowlegeable and trusted staff person or outside adviser can conduct periodic audits to ensure that all software programs in use are authorized copies and that they are used in an authorized manner. If pirating is uncovered, it should be ended swiftly. If the violations are intentional, strict disciplinary measures should be applied. The company should take a strong stand that is clear to anyone inside or outside the organization.

If the policy is visibly policed and vigorously enforced, unauthorized uses will likely be few, which will minimize any possible damages to the copyright owner and any corresponding monetary award against the company. Moreover, rigorous enforcement of a policy against piracy should eliminate any personal liability of company officers and managers for acts committed by employees.



Experienced computer systems personnel in CPA firms are ideally qualified to establish software policies and conduct software audits for clients concerned about legal liability. Business consultants can help clients detect pirating, monitor use and develop policy and procedure manuals for software use.

The same due diligence and preventive maintenance that CPA firms apply in their own practices can be offered to clients to help them reduce their exposure. Piracy prevention is a necessity that CPA firms can turn into a profitable practice area.
COPYRIGHT 1990 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Faigus, Martin L.
Publication:Journal of Accountancy
Date:Nov 1, 1990
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