This article is a contribution by Attorney Jaesik Moon of Choi & Lee Law Firm. If you would like to share quality content for startups in the form of a contribution, please contact the Venture Square editor team at editor@venturesquare.net.
Do you know what software your office workers use for company work and whether the software is officially purchased? If you don’t know and have never officially purchased the software, you will likely receive a certified letter from a law firm sooner or later. The certified letter will likely ask you to purchase the software for an unexpectedly large amount of money and demand a large amount of damages at the same time. Startups and small businesses often have a lot of expenses here and there, so they are reluctant to purchase the genuine software. Many employees use the student version or cracked version that they used at school without any problems, so they don’t think it will be a problem, and they continue to use it without any problems, but when they try to purchase it officially, the cost is not small. However, if there is a problem, there is no excuse, and this is not an individual’s deviation, but the company’s responsibility. Recently, our client company was in an awkward situation after receiving such a certified letter. Today, we will look at what responsibility the company has for illegal software use and how to respond when caught.
1. Liability for illegal use of software as a copyrighted work
Software is strictly protected by copyright law. Copyright law defines a “computer program work” as a creative work expressed as a series of instructions or commands that are used directly or indirectly in a computer or other information processing device to obtain a specific result. This is what we commonly refer to as “software.” Therefore, illegal use of software is usually subject to liability under copyright law.
You probably know that illegal use of software is an act that violates the law (usually it is an act that violates the right to reproduce copyright). So, what kind of civil and criminal liability will an actual software company have when it files a lawsuit for illegal use?
2. Criminal liability
First, criminal liability. Article 136, Paragraph 1, Subparagraph 1 of the Copyright Act stipulates that a person who infringes on copyright property rights by means of reproduction, performance, public transmission, exhibition, distribution, rental, or creation of secondary works shall be punished by imprisonment for not more than 5 years or a fine not exceeding 50 million won, or both. Of course, this corresponds to a statutory penalty that sets an upper limit on punishment. Looking at related case law, in reality, a fine of 1 million won or 2 million won is often imposed assuming it is a first-time offender. However, depending on whether there is a previous conviction for a similar crime, the number of times the offender has copied, and whether there is an agreement with the victim, a heavier punishment may be imposed. In addition, the Copyright Act has a 'dual punishment provision' that imposes a fine on not only the offender but also the corporation when a representative or employee of a corporation commits an act of copyright infringement in relation to the corporation's business. Therefore, if a representative or employee commits an act of copyright infringement, not only the person in question but also the company will be subject to a fine.
3. Scope of civil liability and damages
Next is civil liability. Since illegal use of software is obviously an illegal act, you are responsible for compensating for damages caused by that act. However, the important thing here is the scope of compensation for damages. In the case of copyright infringement, it is true that damages occurred due to the infringement, but it is difficult to specify the scope of the damages. Therefore, the Copyright Act has specifically stipulated several methods for determining the scope of compensation for damages.
First, the profits received through the infringement are estimated as the amount of damages. Accordingly, if a copyrighted item is sold illegally, the infringer must pay compensation equivalent to the sales proceeds (Article 125, Paragraph 1 of the Copyright Act). Second, the amount equivalent to the amount that can generally be received for exercising rights regarding the copyrighted work may be recognized as the amount of damages. If there is a market price or sales price established for the copyrighted work, that price may be recognized as the amount of damages (Article 125, Paragraph 2 of the Copyright Act). Finally, if it is clear that damages have occurred, but it is difficult or impossible to specify the damages using the above methods, the court may determine a reasonable amount of damages by considering various materials submitted in the lawsuit (such as the infringer’s sales, operating profit, degree and duration of the infringement, etc.) (Article 126 of the Copyright Act).
In the case of copyright infringement due to illegal use of software, since the sales price of the software is fixed, the amount that the infringer would have paid if he had purchased the software normally is usually recognized as the amount of damages. However, if the software in question is not purchased as a whole but is divided into modules or purchased by number of times or period, it is difficult to determine the amount that would have been paid for actual use, so it is highly likely that the court will recognize the amount of damages after considering various circumstances under Article 126.
On the other hand, if an employee of a company commits an act of copyright infringement, such as illegal use of software, in relation to the company's business (execution of business), the corporation is liable for damages together with the employee as a user under Article 756, Paragraph 1 of the Civil Act. Therefore, if software is used in connection with the company's business, it is difficult for the company to avoid liability even if it is solely due to the employee's mistake.
4. Response to disputes arising from illegal use of software
Most software companies these days require account registration and login when using software in order to respond to copyright infringement such as the above, and if you use software that was not officially purchased, they set it up so that tracking and detection are possible through the account. Therefore, if illegal use is recognized, it is not easy to deny the act.
Therefore, unless there are special circumstances, such as the software being used solely for the personal use of employees or being completely unrelated to the company's official business, it is difficult to avoid responsibility. In addition, there are situations where the software must continue to be used for work. Therefore, it is difficult to respond strongly to the software company, and the most important focus in the issue of illegal use of software is whether an agreement within a 'reasonable' range is possible.
The software company will naturally hold the illegal users strictly accountable and demand a significant amount of money in order to demand compensation. However, whether the amount is appropriate is a separate issue. As with all negotiations, both sides initially present the maximum they want. Therefore, we should proceed with negotiations while considering the degree of responsibility we will have to bear if a lawsuit is filed and the extent that the company can afford financially. If the company demands an unreasonable amount despite explaining various circumstances and appealing, we should consider filing a lawsuit. Of course, the judgment on whether to proceed with negotiations and the appropriateness of the other software company's claims may vary depending on the specific circumstances, so it is recommended that you receive advice from a legal expert.
Keep in mind that there is no such thing as a free lunch, and the best way to prevent illegal use is to purchase genuine products. However, in the early stages of business, it may not be possible to purchase software officially, and you may be involved in unexpected disputes. In such cases, do not panic at excessive demands, and respond based on the information provided above.
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