Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Aeton Law Partners LLP : Hartford, Middletown, Glastonbury

 A recent decision by the United States Court of Appeals for the Ninth Circuit serves as reminder of the types of litigation that can arise from simply maintaining a website. Although the decision involved a dispute between two law firms, the facts could easily be related to competing businesses. 

The case involved Brayton Purcell, LLP, a California law firm that successfully sued another law firm for copyright infringement based on website content.   Brayton Purcell had copyright protection for its substantial website content on elder law.  According to the decision, a competitor law firm must have liked the content because the competitor copied the content verbatim for its own website.  This resulted in an undisclosed arbitration ruling in favor of Brayton Purcell.

Any business with a website should consider having a legal review done to determine if potential problems exist with the website's content.  Facing a lawsuit over a website is one the problems I discussed in a recent lecture on 5 Technology Bombs That Can  Sink Your Business.

There are many ways that a website can lead to litigation.  Stanley Jaskiewicz authored an excellent article for E-Commerce Law & Strategy featured on Law.com related to "clearing" rights to publish content on websites.  He cited a simple example of how a business website can infringe a copyright by merely copying and pasting a photograph from one website to the business' website.  In the process, the business might infringe the rights of the original photographer and the website owner.

A basic legal compliance review for a website can avoid this type of problem.  It starts with a risk assessment of the website and its content, including a review for potential claims involving: 

• Copyright & Trademark infringement.  Copying from the the look and feel, content, and slogans from another website are some of the ways you can run afoul of copyright and trademark laws.
• Defamation & Disparagement.  Posting content that is defamatory or disparaging of a competitor could result in litigation because the statements could be viewed by millions.
• Unfair Trade Practices.  This type of claim is usually a tag along to some other actionable conduct.  This claim is often used to obtain an injunction or to recover greater damages and attorney's fees.
• False Advertising and Misrepresentation.  A website should be viewed no differently than traditional advertising.  False claims can bring lawsuits from consumers who make decisions based on website content.
• Domain Name Disputes.  These disputes often occur when two companies want a similar domain name.  Depending on a variety of facts, one company may have greater rights to use the name regardless of who registers the name first.

Here are some tips to avoid a lawsuit concerning website content: 

• Conduct a risk assessment.   This includes an audit and inventory of the website content.
• Obtain "clearance" rights. If any of your content might violate copyright or trademark laws, you should seek to obtain clearance to use the material.  This involves the concept of searching out property right holders or authors and seeking permission or paying for use of the content.  
• Avoid use of protected materials.  For example, do not copy another website verbatim as the law firm did in the California case.  This might seem like a no brainer but many people believe that anything posted on the Internet somehow loses its copyright and trademark protection. 
• Protect your content.  In the California case, it was noted that the law firm had copyrighted its online content.     The law firm also monitored for any other website copying its content by use of Copyscape website.  Copyscape allows a user to input a website address or specific page to search the web for plagiarism. 
• Cooperation or settlement.  Lawsuits involving property rights for website content usually begin with one website owner sending another a "cease and desist letter."  This is a demand that an owner take down infringing material.  One way to avoid a lawsuit is to simply agree and take down the material.  Alternatively, you might be able to reach an agreement for use of the material. 

The bottom line is that your business does not need the headache of a lawsuit over a website.  Taking caution from the beginning with website content can help eliminate the risk.

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This month's business technology tip arises from the recent David v. Goliath story reported on by Douglas Malan of the Connecticut Law Tribune.  Kent Johnson, the owner of a small computer repair shop in Connecticut was sued by the software Goliath Microsoft for allegedly selling one improperly licensed version of Microsoft Office. Microsoft put 15 people on the case and sued Mr. Johnson in federal court for copyright infringement.  

Mr. Johnson represented himself against Microsoft and reportedly reached a favorable settlement.   Mr. Johnson has a website that provides all the details of the case form the very beginning.   As much as Mr. Johnson's apparent success against Microsoft was unusual, the notion of Microsoft going after business owners for copyright infringement is not. 

Microsoft, and other software publishers, might pursue an infringement case directly or through enforcement groups such as the Business Software Alliance (BSA) and the Software & Information Industry Association (SSIA).  These groups estimate that piracy costs software publishers seven billion dollars annually.

When you purchase software for your business, the software comes with a license that restricts your use of the software.  If you violate the restrictions in the license by copying or distribution, software publishers consider it piracy.  For example, typically you cannot install a software program for several users on multiple computers without purchasing additional licenses.  Also, you generally cannot install a program on a network server and let multiple users have access to it without the proper number of licenses.

Violation of a software license or copyright can implicate significant civil (and potential criminal penalties) in piracy cases.  Penalties can range up to $150,000 per offense for copyright infringement and there may be additional damages for lost profits. Many of these cases result in significant financial settlements in favor of the software publisher. 

You might be wondering how Microsoft finds out about a small company violating its software license.   Typically, an anonymous informant (an employee or IT consultant) reports the company to the software publisher, BSA, or SSIA in hopes of recovering a reward.  These groups openly advertise rewards of up to a million dollars for anonymous tips that lead to successful enforcement  actions. 

Many times businesses can inadvertently run afoul of licensing restrictions without realizing it.  Violations can occur when trying to cut costs, relying on bad advice from IT professionals,  or an employee's improper downloading of software.  When groups like the BSA become aware of allegations of software piracy, they usually issue a software audit letter to the business or initiate a lawsuit in federal court.  The BSA will request proof of proper licensing from the business.

After receiving an audit letter a business will have to decide to either fight it in court or cooperate.  Facing Microsoft or the BSA in court can be risky financially and many businesses chose to cooperate.  Problems often arise for businesses that cooperate because they cannot establish sufficient proof of licensing or the business is not aware of the extent of the infringement. 

The best way to prevent problems with software licensing or an audit is to implement a software asset management plan.  Ideally, the plan would include at a minimum a written policy covering: (a) terms for copying, use,and transfer of company software; (b)  the risks or improper use of software and piracy; and (c) disciplinary action for employee misuse.  The plan should also include software management including a system for record keeping of all receipts, licenses, and original copies of the software.  The plan should further include regular self-audits of company computer systems to verify proper licensing.

With a good software management plan in place, a business will be better equipped to defend a software audit or avoid it in the first place.  In either case, if your business is facing an audit or other enforcement action, you should seek legal advice.  If you face Goliath alone, do not count on obtaining the same success as Mr. Johnson.

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Secretary of State, Susan Bysiewicz, has fined an affiliate of Deloitte Touche Tohmatsu approximately $22,000 in the past year for failing to register to do business in Connecticut.  The fines were reported on by Lynn Doan of The Hartford Courant and also picked up  by Alexander Soule in the Fairfield County Business Journal.  Deloitte's unit is one of the larger employers in Fairfield County, but as an out-of-state company it apparently failed to register to do business in Connecticut for more than 10 years.  The fine to Deloitte's unit was the biggest this year.

The State's authority to issue the fines arise from Connecticut General Statutes section 33-921concerning foreign corporations. Attorney General Blumenthal issued a press announcement that the State collected more than 1.2 million in fines during fiscal year 2009 pursuant to this statute.  The statute provides for penalties if a foreign corporation fails to register to do business in Connecticut.  The statute provides that the foreign corporation must pay:

(1) all fees and taxes which would have been imposed . . .had it . . . received such certificate of authority to transact business . . . and (2) all interest and penalties . . .. A foreign corporation is further liable to this state, for each month or part thereof during which it transacted business without a certificate of authority, in an amount equal to one hundred sixty-five dollars . . . Such fees and penalties may be levied by the Secretary of the State.

Although the fines might seem significant enough to act as a deterrent, and are set to increase this October, the statute also prohibits a foreign company from "maintain[ing] a proceeding in any court" in the state until it obtains a certificate of authority.  This means that a foreign company cannot successfully maintain a lawsuit if it fails to obtain a certificate of authority.  

The lack of a certificate will give a foreign corporation's opponent a special defense to a lawsuit.  However, there is some authority that suggests the company may cure the defect.  Additionally, the defense is waivable if not raised in a timely manner.   

As a practical matter, the requirement to register is helpful to business litigants.  When a foreign company registers, an agent in state is appointed to accept service of legal papers for a lawsuit.   The requirement to register also places the same burdens on out-of-state businesses as in-state businesses.

The fines further serves as a reminder to both plaintiffs and defendants in business litigation in Connecticut.  If you are a foreign corporation, you must register to do business in Connecticut before bringing a lawsuit.  If you are a defendant in business litigation, you must check to see if your opponent has obtained a certificate and raise it as a special defense or risk waiving it.

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