Skip navigation
Retail Traffic

EXPERT ANALYSIS: Lessons in liability

Technological progress has rendered virtually any business vulnerable to charges of copyright infringement. Standard office equipment, such as scanners, fax machines, personal computers and re-writeable CD-ROM drives, can be misused to bootleg intellectual property. Such misuse can subject a business to civil and criminal penalties, even if committed by an employee.

For example, the owner of a company that uses video duplication equipment to make copies of promotional tapes was recently threatened with legal action when it was discovered an employee used the equipment to make duplicates of recent Hollywood releases for his wife's video store.

Although ultimately no action was taken, the company owner hired a lawyer to respond to the charges and was embarrassed by being linked in the local press to a raid on the video store.

Copyright infringement

It's easy to understand you can be held legally responsible when using your computer or other equipment to violate copyright law. The issue is a lot murkier, however, when owners of intellectual property seek damages against individuals and organizations for copyright infringement committed by third parties.

This is possible because of an unusual variation on the concept of copyright infringement that is known as contributory infringement. In such cases, no misuse of protected material has directly occurred, but liability is found to exist because a defendant has made possible the theft of intellectual property by others.

The definitive statement of the law in this area arose from a lawsuit concerning the recording of television programs with home video recorders. Universal Studios and other television producers sued the Sony Corporation in an effort, in the early 1980s, to block the sale of video recorders in the United States. The plaintiffs contended Sony was liable based upon contributory infringement for violations of copyrights achieved through the use of its products.

This litigation, which became known as the Betamax case, went up to the U.S. Supreme Court, which acknowledged video recorders are used to infringe copyrights. The court nonetheless held there would be no liability if a substantial non-infringing use for the machines existed. Furthermore, the nation's highest court concluded the non-commercial recording of copyrighted television programs in order to view them at a more convenient time is permissible. The company therefore could not be attacked on the basis of contributory infringement.

“Unprotect” software

An opportunity to apply contributory infringement to the computer industry arose when so-called “unprotect” software proliferated to counter software copy-protection systems. In the mid- to late 1980s, many software firms used these systems to combat the unauthorized duplication of programs. Typically, software was employed to modify floppy disks with the intention of making it impossible to copy functional programs from the protected disks. As might be expected, a large demand developed for unprotect software to counter the protection measures.

The most popular unprotect software was CopyWrite from Quaid Software, which was specifically designed to defeat Vault Corp.'s widely used Prolok copy-protection system. Vault, alarmed at the resulting sharp drop in sales, sued based on contributory infringement. The company sought monetary damages and an injunction against further distribution of CopyWrite.

The decision

Quaid was forced to acknowledge CopyWrite was widely used to infringe software copyrights. However, the 7th Circuit of the U.S. Court of Appeals, citing the Betamax case, held there would be no liability on Quaid's part provided a substantial non-infringing use for the software existed.

The court noted it is standard practice for computer users to make backup copies of software in order to protect against loss in the event of damage to the storage medium. Moreover, the court observed this practice is specifically sanctioned by Section 117 of the Copyright Act. This section allows software owners to make backup copies if they are used for archival purposes only and are destroyed when the owner is no longer entitled to possession of the original copy.

The court concluded software with the capacity to override copy protection is capable of a substantial non-infringing use. This is so because the software is used to make legitimate backup copies, and it is therefore not in violation of copyright law.


Apple Computer successfully employed contributory infringement as grounds to block the importation of unauthorized Apple clones into the United States from the Far East. In an attempt to circumvent American law, an Asian manufacturer imported unauthorized Apple clones, but first removed the microchips containing Apple's proprietary software. The chips were to be smuggled into the country and re-installed before the sale of the computers.

The Asian company denied any involvement in smuggling the bootleg chips and asserted Apple could have no claim against it. They argued the hardware, absent the offending chip, did not infringe Apple's copyrights. However, the International Trade Commission thought differently. It believed since the computers were not marketable without Apple's software, no substantial non-infringing use existed. In addition, the manufacturer, regardless of its involvement with chip smuggling, had contributed to copyright infringement.

Internet infringement

The Internet has raised new contributory infringement issues. Its potential for misuse of intellectual property is tremendous because consumers are offered nearly unregulated access to legions of computers throughout the world. As might be expected, the first cases to address Internet-related issues concern sex, a popular subject on the World Wide Web.

It is easy to transfer a photograph into a computer file using computer scanners, which are now commonplace. This created a problem for Playboy magazine, which markets digitized versions of its images. The publication faces competition from Internet sites and online services offering unauthorized images scanned from the magazine.

In a recent case, the operator of an online service was found liable to Playboy because it allowed users to upload digitized images from the magazine to the online service. Then the images were available for download to other users.

The service encouraged this practice by giving customers additional access based upon the number of computer files they contributed to the service. It was apparently obvious the pictures in question came from Playboy, and the defendant was warned by the publisher it was offering unauthorized material.

The court concluded contributory infringement occurred because of the service's encouragement of the practice, its blatant disregard of Playboy's copyrights, and because the infringement could not have occurred but for the service's involvement. Also, because the defendant reviewed the files, screened them for viruses and moved them from an upload area to a download area to give users access, direct copyright infringement occurred.

Potential liability

The Digital Millennium Copyright Act, which went into effect on January 1, 2000, makes it a federal crime — punishable by a fine of up to $500,000 and as much as five years in prison — to manufacture or sell any device designed primarily to defeat anti-copying encryption in digital video formats such as DVD.

The law, as it developed since the 1980s, renders contributory infringement a potent weapon for owners of intellectual property. Manufacturers and retailers whose products can be used to infringe copyrights might find themselves in litigation because of the misuse of their products by employees or customers.

However, prospective defendants are protected by the shield provided by the court's inquiry into the existence of substantial non-infringing uses. Moreover, all companies have potential liability under contributory infringement if employees use company resources to violate copyright law and the employer can be deemed to have been reckless in providing access or had knowledge of the violations and took no corrective actions.

To avoid legal problems, restrict access to equipment that can be misused to only those workers who have a business-related reason for using the equipment. Make it clear that improper use of company resources is not acceptable and will subject those responsible to disciplinary action, and act promptly when any violations come to your attention.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.