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Recent legal headlines about who is potentially liable for copyright infringement have focused on the MGM Studios v. Grokster case, currently under review by the U.S. Supreme Court. While that decision may be a watershed event in the cutting edge field of peer-to-peer file-sharing, it is unlikely to affect the much more commonplace issue of the extent of liability of corporate officers and agents for copyright infringement — the extent of which is not widely understood, but which should be communicated as part of company training programs. Many corporate officers and employees assume that liability for the acts they perform in the course of their employment stops at the corporate door, in the way that liability for a corporate debt is generally limited to the corporation. They do not realize that in many circumstances they can be held personally liable for copyright infringement. This liability is based on the federal Copyright Act and cases construing the act, so that state law provides no immunity. A better analogy for understanding the liability of individuals is their potential liability in cases of auto accidents if the accidents happen when they are driving on company business. While the company and its insurance carrier may “defend and indemnify” the employee from such a claim, if litigation ensues the individual employee will almost certainly be named as a defendant in the case. In other words, an employee who is driving a car while on the job will likely be named as a defendant, even if the collision were just an accident, without any intent or malice on the part of the employee. The Copyright Act basically imposes a form of tort liability on the individuals who commit copyright infringement, even if committed in the course of their employment. Some months ago the federal court for the Southern District of New York articulated this in the case of Logicom Inclusive, Inc. v. W.P. Stewart & Co. In the Logicom case the court considered whether four people who worked for the corporate defendant could be held individually liable for copyright infringement of the plaintiff’s software. On a 12(b)(6) motion to dismiss, the court found that all four individuals were properly included as defendants, because each was properly alleged to be a “moving, active [and] conscious force behind [the] infringement.” The cases in this field distinguish among “direct” liability, “contributory” liability and “vicarious” copyright liability. While articulated in different ways under these different theories, the two overriding factors in determining individual liability are the degree of willfulness of the individuals involved in the infringement and the extent to which an individual benefits financially from the infringing activity. Consider the case of an employee who has no ownership stake in his or her employer, but who intentionally copies bootleg software for use by company personnel. The employee will be individually liable for this conduct, no less than if while driving his car on company business he intentionally ran someone over. Since “statutory damages” under the Copyright Act can be as high as $150,000 per infringement, the liability can be real and very substantial. There are also cases in which company officers and even shareholders have been held liable for copyright infringement committed by company employees. Consider the situation above, in which a lower-level employee copies software for use by company personnel. As illustrated by the Logicom case, individuals who approve such activity can be held personally liable. Cases based on “vicarious” copyright liability go even further and don’t require approval by the supervising employee. They have held that where a corporate officer has the right and ability to supervise infringing activity and has a direct financial interest in such activities, the corporate officer can be liable for the copyright infringement of the corporation. Thus, a company owner-officer cannot claim that he or she is immune from liability on a “see no evil, hear no evil” theory. If he or she has the authority to supervise those who infringe and benefits financially from the infringement, then the plaintiff does not need to prove that he or she had actual knowledge of the infringement in order to prevail against the company owner-officer. Thus, under the Copyright Act, liability does not stop at the corporate door, as it generally does for a corporate debt. In light of the widespread but mistaken assumption that liability stops at the corporate door, the more effective training approach for companies and their employees is to think of liability as being governed more by the standards of general tort liability. There is also a very practical reason that companies and employees are best advised to think about the risk in this way: differences in insurance coverage. Most companies carry insurance that will defend and indemnify the company and employee for the consequences of an auto accident. Far fewer companies carry insurance that covers copyright infringement in any circumstance, let alone in every circumstance. The most common situation is therefore that the company and its employees are relying on company resources to defend and indemnify them for copyright infringement. Alan J. Haus is a partner in the San Francisco office of Lewis Brisbois Bisgaard & Smith, where he practices intellectual property law.

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