A software license violation penalty is the fine or legal action that occurs as a result of software piracy. Software piracy is the unauthorized use, duplication, or distribution of copyrighted software. It also includes illegal copying, downloading, and expired licenses. The Business Software Alliance and Software and Information Industry Association states that about 40 percent of installed software in the business realm and 23 percent of software overall in the US are illegally copied. Regardless of these statistics, software piracy is a serious criminal offense and may result in severe legal consequences for both businesses and individuals.

Software Piracy Law

In the US, copyright laws classify software piracy into three main categories. Infringement in any category may result in prosecution.

  • Counterfeit sales occur when a person illegally duplicates and sells copyrighted software without the copy owner's permission. Even just purchasing the software can result in a fine.
  • Unlicensed use occurs when consumers or employees copy or share software programs without an appropriate number of licenses. Using restricted-use software for unauthorized purposes (e.g. using academic versions in a business) is also included in this category. It is the most common type of piracy among home users and businesses.
  • Hard disk loading occurs when a third party installs software onto a computer (either new or old) without the permission of the copyright holder. Generally, this occurs in questionable computer shops or with repair technicians.

Penalties for Software License Violation

Whenever piracy occurs, the copyright holder loses their rightful profits. If the accused party is found guilty, they will be responsible for paying for any lost profits and damages, in addition to legal fees. If the accused has shared the software with others, they can also be responsible for lost profits and damages associated with each installed copy.

Just like illegally downloading movies and music, software piracy is a federal crime. In some cases, the consequences may go beyond just paying back the copyright holder and may even cause federal statutory damages to be charged. Depending on the case, the amount will vary, but it can be as much as $150,000 per instance.

The legal penalties are much more severe when people or businesses are caught selling illegal software. They may be required to pay fines as high as $250,000 and may face up to five years in prison. In addition, a permanent felony will be on their record.

Unlicensed Software in the Workplace

Most businesses rely on software to increase employee productivity and overall business efficiency. The reality is that it is relatively easy for a business to obtain unlicensed software. Many employees unknowingly use unlicensed software and some don't even know that it's illegal to use and copy software that the company has not licensed.

Upon installation, software users typically agree to enter End User License Agreements (EULAs). Violating these agreements may result in liability for the business, its officers, and its directors. The Copyright Act of the United States (sometimes referred to as simply the "Act") is the most powerful law used to enforce EULAs. Within this law, various damages (including actual damages and attorneys' fees and costs) are identified, which can be enforced against the use of unlicensed software.

Using unlicensed software not only places the company using it at financial risk, but the copyright owners may choose to seek personal liability against company officers and directors when it becomes clear they knew about, or encouraged using unlicensed software. Because of the significant financial and legal risks to a company, its officers, and its directors, it's important to develop and enforce a policy that prevents the use of unlicensed software. In addition, the company must frequently review the policy and remind all employees of the company's position regarding software licensing.

Many companies have already established policies that prohibit employees from using unlicensed software, but may be unknowingly violating software licensing agreements that apply to trialware. Trialware is the name given to software programs that allow the user to install it for a limited amount of time, after which it must be registered (by purchasing a license) or uninstalled from the computer. If nobody follows up after a trialware installation to determine whether a license was obtained for the software, and the amount of time exceeds the trial period, there's a good chance the use of the software violates the Act.

If you need help understanding software license violation penalty, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.