TO RENT OR NOT TO RENT – LIABILITY IS THE QUESTION – BY WARREN WEERTMAN

Whilst the instances of software piracy has been steadily decreasing in South Africa over the years, the value of the software that is being pirated is on the increase. So whilst South Africa’s current software piracy rate is 34% (down from its peak of 37% in 2007), the value of the software that is being pirated in the South African market has increased to ZAR1.9 billion. In essence, software piracy remains a problem in the South African market.
 
Given the current economic climate, companies may be looking to cut costs. One such cost-cutting mechanism may be for a company to rent, rather than own, their computer equipment. Another, far less legal route, some companies pursue is to pirate their software.
 
Renting computer equipment can make sense, especially in these trying economic times. Typically the logic for renting computer equipment is driven by the need to reduce costs and reduce a company’s exposure insofar as the licensing of computer software is concerned. However, renting computer systems may not always completely eliminate a company’s liability for software piracy. This article will explore the issue of liability of a company for software piracy in cases where the computer equipment is rented.
 
Perhaps the most important step that a company needs to take when considering the rental of computer equipment is to analyse the rental agreement that it will be entering into. In other words the company needs to have read and understood the fine print of the rental agreement. This means that a basic risk assessment needs to be done in so far as determining the liability of the respective parties as it is set out in the agreement. Important questions to ask in respect of the software that will be installed on the computer equipment include:
 
·         What software will be installed on the computer equipment?
·         How many copies of the software will be installed?
·         Who will install the software?
·         In whose name will the software be licensed?
·         Where will the licenses be stored?
 
For purposes of determining liability for software piracy where computer equipment has been rented, the two most important questions are: What software will be installed? How many copies of the software will be installed? It is important that a company is able to answer these two questions in order to be able to complete a meaningful software audit.
 
With the above two questions in mind, there are two immediate scenarios where licensing problems could occur. Firstly, it could be possible for the company from whom the computer equipment is being rented to install pirated software. The second scenario would be where the lessee of the computer equipment installs software on the computer equipment without the necessary licences. In the case of the first scenario it is the computer equipment rental company that will be liable for the pirated software. In the second scenario it is the company itself that will be liable for the pirated software since it is the company that installed the software without the requisite licences.
 
What are the penalties for pirated software?
 
If criminal charges are laid against a software pirate and the software pirate is found guilty, the penalty is R5 000 per illegal copy of the software installed and/or imprisonment. Where civil action is taken against a software pirate, the software pirate can be sued for damages which the software vendor has suffered. Typically, these damages are calculated on the retail value of the software that has been pirated.
 
What can you do to avoid such liability?
 
There are a couple of steps that every company should be following, regardless of whether it is renting its computer equipment or not. Firstly, companies need to have read and understood the terms of any agreement governing the computer equipment that they use. Secondly, it is important to remember that software is an asset that needs to be managed properly. This means that companies need to be performing a regular software audit. The purpose of this audit is for companies to know what software and how many copies they have installed on their computers. Where a company has too few licences, it then needs to take appropriate action to rectify the licensing shortfall. Typically this means purchasing additional copies of the software that has been pirated.
 
For companies renting computer equipment this means that they need to ensure that they have the appropriate licences for the software that they have installed on the computer equipment they are renting. They will not be able to claim that they are not liable for software piracy simply on the basis that they do not own the computer equipment.
 
Sure these are difficult economic times; but it is not an excuse to pirate software.

By Warren Weertman Senior Associate at Bowman Gilfillan.