Running a business often requires the installation and use of software. However, software and its components can be subject to statutory (provided under a specific law) and contractual rights and infringing such rights can lead to unwanted consequences. Accordingly, any person who carries on a business and requires the installation and use of software should be made aware of the existence of such rights and the obligations arising therefrom. The purpose of this article is to raise public awareness on the matter.
Increase in allegations made against Quebec SMEs regarding software copyright infringement
In recent years, we have seen a surge in measures taken against Quebec businesses (specifically small or medium size businesses) by many multinationals in the software industry to assert and exercise the statutory and contractual rights on their marketed software. These measures usually begin with a written communication containing (i) the allegations of illegal installation and/or use of one or more software, accompanied sometimes by a report detailing the information on which the allegations are based (e.g., business name, serial number and version of the software allegedly illegally installed and/or used, number of illegal installations and/or use allegedly detected, date on which (or period in which) the illegal installation and/or use allegedly occurred, name of IT equipment on which the software was allegedly illegally installed and/or used, etc.) (an ”Incident Report”) and (ii) an enticing settlement offer that the ongoing procedures will cease after the payment, before a given deadline, of an amount of money (usually substantial in consideration of the extent of the allegations made and applicable law principles on the matter in Canada).
This written communication is sometimes sent directly by the software copyright owner, but more often by an agent, i.e., international associations operating in matters of software copyright protection on a global scale (such as the “Business Software Alliance” (commonly known as “BSA”) and “IT Compliance Association” (commonly known as “ITCA”)) or a law firm. On some occasions, the written communication comes after and/or before phone calls meant to obtain extrajudicial confessions confirming the existence of a copyright infringement and coerce a premature settlement of the dispute.
Consultation with an attorney specializing in intellectual property is highly recommended upon receiving a communication, oral or written, claiming infringement of software copyrights. The tone of the conversation may seem candid, but agents of a software copyrights owner only act in the interests of the latter and will not hesitate to take advantage of any comments made by their interlocutor to negotiate the best settlement possible or, in the absence of such a settlement, to strengthen their allegations in a legal proceeding1.
Legal framework applicable to the installation and use of software: what do legislation and contracts say?
Although it is a good idea to verify the legitimacy of such a communication2, it could be risky to ignore it and presume an attempt of fraud. Canadian law establishes that software (”Computer Programs”) are literary works subject to copyright protection, to the extent that they meet the originality criteria3 and other prescribed requirements under the Copyrights Act (the “CA”)4. Consequently, to install and use software on IT equipment without the prior consent of the owner of the software copyrights constitutes a copyright infringement5. Even if the unauthorized installation and use of the software can be attributed to one employee having acted alone, this cannot be used as a valid means of defence to exonerate the allegations of copyright infringement on the software in question6. A recent decision by the Federal Court of Canada finds that it is possible for a software copyright owner to meet the applicable burden by filing an Incident Report demonstrating the copyright infringement7. Incidentally, any legitimate allegation of software copyright infringement should be addressed seriously and diligently.
When an infringement on a software copyright has been perpetrated and confirmed, the following step is to assess, subject to the existence of an applicable means of defence8, the amount of the compensation to which the owner of this copyright could be eligible according to the legal principles in Canada. The CA provides that this compensation corresponds to (i) damages and (ii) such part (as the court considers just) of the profits that the infringing party has made from the infringement and that were not taken into account in calculating the damages9. To determine the amount in damages which should be attributed to the copyright owner of the counterfeit software, the courts may base the amount on the price that should have been paid by the infringing party to obtain the licence to install and use the software lawfully in the course of operating its business10. In the event that the evidence presented allows the court to conclude that the infringing party’s conduct has been malicious, oppressive, and high-handed, punitive damages may be awarded11.
Rather than claiming the monetary compensation described above, the software copyright owner could choose to ask the court to order that the infringing party pays statutory damages (pre-established by the CA, without necessarily having to prove the damage suffered)12. If the copyright infringements are for commercial purposes, statutory damages should be a sum of not less than $500 CAN and not more than $20,000 CAN with respect to all infringements involved in the proceedings for each work or other subject-matter13. The exact quantum of the statutory damage is determined by the court based on a plethora of factors, including the conduct of the parties prior to and during the legal proceedings14.
On another note, the way in which software installed lawfully on the IT equipment of a person operating a business is used may result in the non-performance of contractual obligations binding the latter to the software copyright owner. The authorized use of a software under licence is typically regulated by a written contract called “Licence”, “Licence Contract”, “End User Licence Agreement”, “Terms of Use”, or “Software-as-a-Service Agreement”15. For example, such a contract could provide that it is the licensee’s responsibility to (i) ensure that the software is not installed on more than the authorized number of IT equipment, (ii) ensure that the software is not used concurrently by more than the authorized number of individuals and/or (iii) collaborate with the copyright software owner and its agents in an audit verifying compliance by the licensee with its other obligations arising from the contract. In this context, any person operating a business and planning to subscribe to a software licence should familiarize themselves with the content of the related contract. In addition to seeking the opinion and advice of a lawyer who specializes in intellectual property regarding the practical implications of this content, it is good practice to retain the services of an authorized distributor of the software concerned in order to ensure its installation and configuration and reduce or eliminate the risk of non-performance of contractual obligations towards the software copyright owner.
The importance of policies and practices that regulate the installation and use of software: better safe than sorry!
Ultimately, it is the responsibility of the persons operating a business to identify and implement appropriate measures ensuring that the installation and use of software on IT equipment made available to employees is carried out in compliance. with the provisions of the CA and the stipulations of any contract entered into with the copyright owner of each software (see schedule for a non-exhaustive list of such measures). Many copyright owners can detect any illegal installation and/or use of recent versions of their software. They use integrated technologies that can constitute, or be likened to, “technical protection measures” as defined under the CA16, typically programs that transmit certain information to servers designated by the copyright owner when the software is either opened or used on any IT equipment (commonly known as “phone-home technology”). This information allows the copyright owner to ensure that the software is associated with a valid licence and, as the case may be, if it is used in compliance with the requirements stipulated under the contract related to the software and which legally binds the licensee. Legal issues in confidentiality of the information and personal information matters17 raised by such protection measures reinforce the importance of understanding the consequences that could result from the provisions of the contract regulating the use of software. A lawyer specialized in intellectual property can offer professional support for the review and/or negotiation of such a contract.
In the event of illegal installation and/or use of copyrighted software, the negotiation of a reasonable settlement in the circumstances with the copyright owner or designated agent is often the way to go. Any settlement should be embodied in a written transaction, the terms of which having been reviewed by an intellectual property lawyer.
In any case, we strongly recommend retaining the services of a lawyer specializing in intellectual property to benefit from professional support for any process aimed at (i) preventing copyright infringement or breach of contractual obligations relating to software used in the operation of a business or (ii) legally analyze and then respond appropriately to allegations of copyright infringement or non-performance of contractual obligations relating to software used in the operation of a business.
For any questions related to the content of this article, do not hesitate to contact the undersigned at the following email address: adam.ansari@cainlamarre.ca.
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[1] See notably Trimble Solutions Corporation v. Quantum Dynamics Inc., 2021 CF 63, par. 57 et seq., where the Federal Court of Canada considers communications between a representative of ITCA and the representative of the defendant corporation to arrive at the conclusion that the latter has indeed infringed the plaintiff’s software copyright.
[2] We recommend being cautious when analyzing a communication from a person claiming to act on behalf of a software copyright owner. Generally, legitimate written communications transmitted on behalf of such a holder are accompanied by a document confirming that the sender is designated as the agent of the owner concerned for the protection of its marketed software copyright. In all cases, appropriate verifications should be carried out to ensure that the sender is who it claims to be in the communication.
[3] CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13, par. 16 and 25.
[4] Copyright Act, R.S.C. 1985, c. C-42, sec. 2 (definition of the expressions “computer program” and “literary work”) and 5 (conditions for subsistence of copyright). Regarding the principle that the source code and object code of a computer program could be protected by copyright, see Matrox Electronic Systems Ltd. v. Gaudreau, [1993] R.J.Q. 2449, p. 11-12. On the same subject, see also Alex COLANGELO and Alana MARUSHAT, ”Exploring the Limits of Computer Code as a Protected Form of Expression: A Suggested Approach to Encryption, Computer Viruses, and Technological Protection Measures”, 2006 51-1 McGill Law Journal 47, p. 59 to 61 (article consulted on the online CanLII platform on May 11, 2024 (https://canlii.ca/t/2b5p)).
[5] Trimble Solutions Corporation v. Quantum Dynamics Inc., supra, note 1, par. 52, in reference to Apple Computer Inc. v. Mackintosh Computers Ltd., [1987] 1 CF 173. The Federal Court explains that “[i]n the case of computer programs, it has been found that copyright is infringed when a copy of a program is installed on the user’s computer, which generally occurs when a person opens a computer program, and the object code of the program is then copied into the internal memory of the computer […]”.
[6] CCH Canadian Ltd. v. Law Society of Upper Canada, supra, note 3, par. 38 and 45. The liability of the employer regarding an injury caused by the fault of its employees in the performance of their duties is also consolidated under section 1463 of the Civil Code of Quebec.
[7] Id., par. 60. Each case remains a specific case of which the singularity of facts is likely to lead to a different conclusion from a legal point of view (in particular with regard to the extent of the information which could have been obtained by the copyright owner, then recorded in an Incident Report).
[8] The Copyright Act (supra, note 4) contains several provisions that can be relied upon to rebut allegations of copyright infringement. For example, subsection 43.1(1) of the said Act states that a court may only award remedy in respect of copyright infringement to the extent that legal proceedings are commenced within three (3) years after (i) the infringement covered by the proceeding occurred, if the plaintiff knew, or could reasonably have been expected to know of the infringement at the time it occurred or (ii) the time when the plaintiff first knew of it, or could reasonably have been expected to know of it, in the case where the plaintiff did not know, and could not reasonably have been expected to know, of the infringement at the time it occurred.
[9] Copyright Act, supra, note 4, par. 35(1).
[10] Trimble Solutions Corporation v. Quantum Dynamics Inc., supra., note 1, par. 67 and 68: “The Court is to assess damages based on a practical and realistic assessment of the losses based on the evidence that is available (Video Box at para 7; Leuthold v Canadian Broadcasting Corporation, 2012 FC 748 at para 131. Where the practice of a plaintiff, or the custom in an industry, is to grant licences for the use of a product, “the court may award damages in the amount that a defendant would have paid for a licence had the defendant been acting legally rather than illegally” (Video Box at para 7; see also Leuthold at paras 120-121 and 136).”
[11] Id., par. 77 and 78, where the Federal Court of Canada considers a representative of the defendant’s extrajudicial admission of copyright infringement to conclude that an order for punitive damages is justified.
[12] Copyright Act, supra, note 4, sec. 38.1(1).
[13] Id., al. 38.1(1)a). Concerning the fact that statutory damages varying between $500 and $20,000 can be claimed for all acts of infringement committed with respect to each counterfeit work, see Arc en ciel RH v. Services Swissnova inc., 2023 QCCA 1151, par. 90.
[14] Copyright Act, supra, note 4, par. 38.1(5).
[15] It should be noted that software-as-a-service is usually subject to a service contract rather than a reproduction licence contract.
[16] Copyright Act, supra, note 4, art. 41 (definition of “technological protection measure”). For more information regarding the legal regime applicable to technical protection measures, see in particular Nintendo of America Inc. v. King, 2017 CF 246, par. 61 to 90.
[17] Some laws impose on persons operating a business holding personal information about others (information allowing a natural person to be identified, directly or indirectly) a series of obligations aimed at ensuring the protection of this personal information. See notably the Act respecting the protection of personal information in the private sector (R.S.Q., c.P-39.1) and Personal Information Protection and Electronic Documents Act, SC 2000, c. 5.
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Schedule
Examples of measures that could be implemented to prevent (i) software copyright infringement, and (ii) non-performance of a contractual obligation towards the software copyright owner
• Adopt and implement technical protection measures preventing any unauthorized user of IT equipment to (i) install software (any installation should be done by an authorized representative having proceeded to all relevant verifications in accordance with a preestablish process) and (ii) access software already installed unless having obtained the approval of an authorized representative having proceeded to all relevant verifications in accordance with a preestablish process
• Adopt and implement a policy on the use of IT equipment for employees, in particular regarding remote work;
• Raise employee awareness regarding the possible consequences of illegally installing and using software, notably through mandatory training and sessions explaining the aforementioned policy;
• Assign responsibility for maintaining and updating a list of IT equipment on which licensed software is used either to an employee (or department) or subcontractor with the required expertise in this area;
• Carry out regular verifications of the software installed on all IT equipment (including the configuration of this software with respect to the requirements stipulated in the related contracts);
• Keep records of all decisions and steps taken and completed with the purpose of avoiding any software copyright infringement as well as any non-performance of the contractual obligations provided for in the contracts relating to the licensed software;
• Become familiar with the obligations arising from each licence agreement and software-as-a-service agreement entered into with a software solution partner (including obtaining legal advice and counsel with respect to those obligations), and then adopt and implement the necessary measures to ensure compliance with these obligations;
• Retain the services of an authorized distributor of the software concerned in order to ensure its installation and configuration and reduce or eliminate the risk of non-performance of contractual obligations towards the software copyright owner.
• Keep a copy of all documents related to the licences (invoices, receipts, contracts and ancillary documentations, etc.).
