The Unforeseen Penalties of Software License Violations

Proactive Monitoring Can Prevent Embarrassment and Financial Penalties

Here's three events you don't want to happen:

1. To suddenly find out that your teen-aged daughter has dropped out of college two months before graduation, tattooed "I Love Bart" on her forearm, joined the circus and is now a performer on the flying trapeze.

2. Receive a late night phone call from your teen-aged son telling you not to worry because the tow truck driver doesn't think the damage to the car or to the convenience store window is as bad as it looks.

3. Get a letter informing you that your company is the target of a software license audit from the Business Software Alliance (BSA) because a former or current employee thought you are using more copies of key software applications than your licenses permit.

And unfortunately, that third event can be worse than the first two combined. Daughters eventually do come back home and automotive bodywork does fix cars, but if you're caught using more software than you've paid for, the consequences can include financial penalties and damage to corporate reputation.

If you don't think these events will happen to you, you might want to learn from others. Consider the IT staff at entertainment games maker BreakAway Ltd. of Hunt Valley, MD., or the footwear maker Aetrex Worldwide of Teaneck, N.J., both of whom paid sizable fines to the BSA for installing unlicensed copies of applications from BSA member companies Adobe and Microsoft. Breakaway paid a $75,000 fine, while Aetrex paid a $100,000 fine, and both companies also had to uninstall all unauthorized applications from their IT systems. Further, they then had to purchase and pay for the proper number of licenses and "commit to implementing stronger software asset management practices," according to the Washington-based BSA, an advocacy and lobbying group for the software industry.

BreakAway has had the Institute for Defense Analysis and the Federal Deposit Insurance Corporation as clients since going into business in 1998 and participated in 2009 in an $8.6 million research and development project to develop cyber security testing and evaluation technology, according to the BSA. Do you think that companies that are publicly "outed" for illegally using software will get additional lucrative contracts so easily in the future? Who knows, but why risk it?

Especially since having the proper number of licenses for the software they wanted to use in the first place probably wouldn't have cost anywhere near what the fines cost.

And how does BSA discover cases like these? Usually its from a current or former employee. The motivations are many. Some were honest workers who didn't like the fact that their employer was using software without proper licensing. Some were disgruntled employees or former staff who wanted to stick it to their former employers. And with all the layoffs, furloughs and cuts that have happened in the last two years or so, there's likely a lot of anger out there, just ripe for one simple phone call to report a corporate misdeed. And to add further incentive, there's a reward involved when someone reports such cases that are found to be true.

The whole ugly scenario is something to avoid, whether it involves your desktop operating systems, office suite applications, CRM or ERP systems or anything else in your IT infrastructure.

For several six years, BSA has issued an annual study on software piracy. In its most recent report, the Sixth Annual BSA-IDC Global Software Piracy Study, some $9.1 billion in software was installed and used in the U.S. without proper licensing, according to the group. Around the globe, the software licensing theft is estimated at $53 billion for 2008, the group reported.

That's a lot of money, but that's only what is reported and has been tallied up. It's likely that the total figures are much higher. "Companies need to put software asset management on their top 10 lists of things to do," said Jenny Blank, director of legal affairs at the BSA. "What they would rather be doing than dealing with a BSA audit is building their companies up. We encourage them to put software compliance higher on their task lists."

So what's this all mean for you and your IT department? Proactive asset management in order to know that software licenses you use are properly acquired and you're free of future embarrassment and liabilities. It also means that you want to speak with your staff and be sure that they know what licenses are permitted inside the company. Don't ask them to install things that are illegal. And don't allow them to do it either.