Magazine article Business Credit

Businesses Beware: Copyright Infringement on Your Intranet Can Be Costly

Magazine article Business Credit

Businesses Beware: Copyright Infringement on Your Intranet Can Be Costly

Article excerpt

Employers have reasons well beyond inflammatory content to keep labs on e-mail messages. Many businesses have already learned that with access to the Internet, employees may inadvertently or intentionally divulge proprietary data. Some have also had to take legal accountability for their employees' unlawful theft of content from copyright holders on the Web. But, a recent case highlights how even employees' exchange of resources through the company's Intranet can lead to a public courtroom battle and end with devastating costs.

Legg Mason, Inc., a Maryland financial services firm has learned the hard way that even seemingly innocent internal exchanges can result in huge liabilities. In October 2003, a jury in Baltimore federal court found that Legg Mason had willfully infringed the copyrights of Lowry's Reports, Inc., a newsletter covering stock market conditions. The verdict? A whopping $20 million.

Legg Mason purchased three $70 subscriptions to the highly regarded newsletter, published by a seven-person organization. Through a standard license, the subscriber was prohibited from making reproductions. Legg Mason employees then systematically distributed it to over 1,000 co-workers in violation of the terms of the subscription agreement.

When it learned of the infringement, the publisher sent a cease-and-desist letter and the firm agreed to stop distributing the newsletter internally. When the infringement continued, the publisher sued and the result sent shock waves through a business world increasingly reliant on the free flow of e-mail.

Why so much? The damages were so high for two reasons. Every e-mail transmission was a new "infringing copy," and there were thousands for every issue. Second, the jury considered the infringement "willful," which led to enhanced penalties as specified under the Copyright Act.

How E-mail Increases the Risk

The ease (and temptation) of using electronic exchange makes this type of infringement such a widespread risk. Before e-mail, firms that wanted their employees to benefit from educational resources typically did one of two things. They purchased enough subscriptions for everyone to receive an individual copy, or they distributed limited subscription originals through the workplace with a distribution or routing list. The cost of making multiple photocopies was deemed prohibitive, and more importantly the act of making the copies triggered the realization that reproduction was prohibited. Today, managers and employees alike have become accustomed to exchanging mountains of documents electronically; often in haste, and without deliberate thought about the legality of the transmission. Each electronic transfer is the legal equivalent of a photocopy.

Defenses Reflecting Common Misconceptions

Legg Mason made several arguments at trial that reflect commonly held misconceptions. First, the financial services giant claimed that the infringement was a good faith mistake by low-level employees who were accustomed to using internal e-mail as a lightening fast tool to exchange information with colleagues. The publisher proved that the legal responsibility lay with corporate decisions that gave employees the technological means to infringe copyrights so easily without first training them to use it legally.

Second, Legg Mason relied on a widespread myth about copyright law by asserting that the e-mailed and paper copies constituted a "fair use" under the copyright act. …

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