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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Softender v Mogul
Giovanni De Berti
General Information
International Software Defender Corporation (“Softender”) is a non-profit entity located in Ruritania, created and financed by the main producers of software for the international protection of software.
Softender’s core activities, as indicated on its website, are promoting the development of information technology, the respect of software rights and lobbying, nationally and internationally, for legislation on software protection. Thanks also to its efforts, a number of countries have enacted such legislation.
Mondial General Units Limited (“Mogul”) is a multinational corporation located in Ixania, manufacturing sport and leisure equipment under a number of brands of worldwide renown. Its founder, main shareholder and President is an elderly businessman, well known and highly respected both in Ixania and abroad, and active in national and international organizations.
Ixanian computer users are known to be prone to software infringements. Efforts to strengthen protection are under way, namely a law (the Software Act) was recently enacted to bring legislation in line with the more advanced countries, introducing both civil and criminal sanctions for infringements.
The Software Act provides that infringers of the exclusive rights of the software owners must immediately discontinue the unlawful use, and are liable for past royalties and heavy penalties. Moreover, infringers acting in bad faith or gross negligence face criminal liability, consisting of fines and also terms of imprisonment, even if short ones. Should the infringer be a corporate entity, fines are its responsibility, but the Software Act is not clear about who should be considered as personally liable with regard to prison sentences. In this connection, the Act refers to the “person responsible for the infringement”, without specifying at which level such responsibility should arrive or stop: president, board of directors, general manager, technical manager or person specifically appointed with the task. In comparable cases (e.g. criminal liability for environmental pollution), Ixanian courts have held that the person at the top is personally responsible, as it were by default, unless evidence is given that someone within the corporation had been given the specific task to follow the matter and sufficient powers to deal with the relevant problems before the problem arose. No case law has developed with regard to the Software Act yet.
The Software Act also provides for the appointment by the government of a regulatory authority (Software Authority) entrusted with the implementation of the Act. The Software Authority should inter alia issue rules for such implementation, including the conduct of investigations in case of infringements, the imposition of fines and its attendance as a necessary party in the relevant criminal proceedings. The Software Authority has not yet been established and some legal authors have cast doubts on whether the Software Act could be considered as properly effective unless and until the Software Authority has been set up and the rules have been issued. No case law has developed on these issues yet, and judicial authorities, including criminal ones, seem to have more pressing problems to deal with.
As a result, the rate of infringements in Ixania has not changed substantially. In view of the importance of Ixania on the world business stage, Softender has been closely monitoring the local position for some years, without obtaining significant results.
A simple but effective means of investigation by Softender is to send to likely software users somewhat innocent-looking Softender questionnaires for the collection of information on the status of the software of the addressees, ostensibly — but not expressly — for statistical use. Sometimes — not always — the addressees reply. In such a case, it is easy for Softender to check with the relevant software owners whether the users possess regular licences. If they do not, the information is passed by Softender to the software owners to pursue appropriate actions, as the case may be.
This procedure has been employed also with regard to Ixania, with limited success. Until recently the infringers identified in this way were either individuals or small businesses, obviously caught Softender
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off guard. Bigger entities usually would not respond, either because of lack of time or interest, or by design. Whether such design would be motivated by confidentiality policies or by guilty consciences is difficult to say.
Recently, however, a momentous breakthrough happened. The usual innocent-looking questionnaire sent to Mogul by e-mail received a detailed reply, covering all kinds of software used not only at the headquarters of Mogul but at all its operating units and subsidiaries in Ixania, indicating the relevant divisions, offices, plants and persons in charge (if any), with full details, explanatory notes and attachments. A telephone call to the issuer of the replies has confirmed that they indeed originated from inside Mogul. They showed at least 30% of Mogul’s extensive software programmes and applications to be unlicensed.
Softender has sent a letter to Mogul’s President, marked personal and confidential, attaching the replies to the questionnaire, denouncing the infringements, requesting their immediate regularization and reserving any action or initiative, including criminal ones, both directly and/or through the relevant software owners.
In particular, Softender stated that:
Mogul has replied rejecting all accusations, denying any liability, and intimating that the collection, as well as any use, processing or disclosure of data contained in the questionnaire without its consent was and would be a violation of Ixania’s data protection law and that any such violation by Softender would be pursued through all available channels, including criminal ones.
Actually, Ixanian law has strict data protection provisions, enforceable under both civil and criminal law, with extensive definitions of what should be considered “personal data” and covering when and how they can be collected and processed. Personal data collected and/or processed “without the consent” of their owner is not admissible in court. Moreover, said collection and processing could constitute a criminal violation of Ixania’s data protection law, exposing the infringer to fines and even imprisonment. The fact that the damage for the alleged violations of the data protection law are felt by an Ixanian resident would give jurisdiction to Ixanian courts, even if the judgement might not be recognized outside Ixania.
The definition of “personal data” includes confidential information on the economic activities of a person. According to some legal authors, these would include the software programmes and applications employed by a business person. No case law has been established yet on this specific point, even less on programmes obtained and/or employed illegally.
According to the data protection law, the “consent” required is any freely given, specific and informed indication by which the data owner signifies agreement to personal data relating to the data owner being processed. The personal data must be collected for specified, explicit and legitimate purposes and further processed in a way compatible with those purposes. In particular, the law clarifies that processing of the personal data is allowed when it is necessary for the purposes of the legitimate interests pursued by the collector or by the third party or parties to whom the data are disclosed.
After some non-committal correspondence between lawyers, Softender has applied for mediation with the ICC in Paris. Mogul has accepted to participate. Softender is represented by its Regional Vice President (an international expert and adviser on software marketing and protection), assisted by an Ixanian lawyer specially appointed for this matter. Mogul is represented by its Chief Operating Officer, assisted by the head of Mogul’s corporate legal department. Both parties have full settlement authority.
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Confidential Information for Softender
Requesting Party
When Softender received the replies to the questionnaire, the first reaction was that it might be a hoax, but a cautious telephone call to the author of the replies, who had indicated his contact details in the report, swept away any doubts.
At Softender, people could hardly believe their good fortune. Meetings have been held since, at top level and in utmost secrecy, to decide what course of action to adopt. For the moment, the software owners involved have not been informed.
The discovery could have remarkable impact on the whole Ixanian position, and Softender would like to get the maximum advantage from the episode, given the renown of both Mogul and its President. It could even give impetus to the long overdue push to get the Ixanian government to establish the Software Authority and give real bite to the Software Act.
Softender’s general policy has always been to keep a fairly low profile. Its public presence has been confined to promotional appearances in the media, often through well-known testimonials, inviting correctness and honesty in the use of software “in the interest of information technology progress and to the benefit of authorized users”, as well as to lobbying efforts with governments, legislators and official entities (business associations, chambers of commerce, professional bodies and similar) for the introduction of legislation, ethical rules and best practices for the protection of software.
The repressive part of its corporate object (seizure of illegal materials, actions in damages, criminal reports) has been left to the parties both directly concerned and legally entitled to act, the software owners themselves. Usually, the infringers would not put up strong opposition. Rather they would regularize their position for the future and try and settle for the past. The “naming and shaming” part of these actions has been effected by Softender by well-aimed leaks to the media, again in the names and on behalf of the software owners.
In Mogul’s case, the amounts of money attributable to past use of unlicensed software and relevant penalties are sizeable and, when collected, would improve Softender’s image vis-àvis the software companies supporting it. However, the request is somewhat inflated. The amount of unpaid licences is easier to be calculated, and should not exceed US$250,000. More difficult is to assess the amount of penalties, which depends on the time of use and on the number of users, data that are not completely disclosed by the questionnaire, and could vary from US$50,000 to US$250,000. Thus the maximum amount should not exceed US$500,000. Moreover, in the absence of agreement, their actual collection would require legal actions by the individual software companies involved, in reliance on the evidence obtained through the questionnaire.
An important aspect to be ascertained concerns the person(s) liable for the infringements. The answers to the questionnaire do not offer a clear indication of who could be the “person responsible for the infringement” in Mogul’s case, and no further clarifications were obtained through the subsequent telephone call. If liability for the infringements could be referred to the President, or to a top manager, Mogul may not wish to risk legal proceedings. On the other hand, the importance of the case may convince Mogul to fight it out in court, and put to a severe test the validity of the system used for obtaining the data, namely the admissibility of the data as evidence in court proceedings.
Mogul might even decide to pursue a counter-attack under the provisions of Ixania’s data protection law, and file criminal reports against Softender and/or the software owners for illegal collection, detention and/or use of Mogul’s personal data.
The general result might thus be a number of legal proceedings. While they may create useful case law for future reference, they might also backfire by producing conflicting judgements, especially in view of the unfinished structure of the regulatory framework under Ixania’s Software Act.
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Obviously, the “naming and shaming” scheme employed in previous cases would certainly create great — even worldwide — embarrassment to Mogul and to its President personally, given their renown and standing, and could be very effective to deter other big infringers. For Softender, the best outcome would be to bring Mogul into compliance and to find a way to achieve such deterrence without either Softender or any of the software owners having to go through court proceedings.
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Confidential Information for Mogul
Responding Party
The letter received from Softender has been like a bombshell within Mogul’s top management. Internal investigations of how and why the information on the state of Mogul’s software had come to Softender’s knowledge were immediately conducted. It emerged that for some unexplained reason the questionnaire had landed on the desk of the person temporarily in charge of the small library at the company’s headquarters, a student of sociology performing an internship in order to collect material for his undergraduate degree. The internship was part of an undergraduate training project between Mogul and a leading university of Ixania, a project of which Mogul’s President is an official sponsor.
Somewhat stranded in a small office and happy to be given at last something real to do within the company, the student had pestered everybody in the company he could get hold of to collect all data requested in the questionnaire, and more. No one within the company had any suspicion about the reasons for such a request. If anything they thought it was part of the research work for the student’s paper, and had, happily or sometimes gingerly, obliged.
It was also ascertained that the student later received a phone call from somebody who introduced herself as the issuer of the questionnaire, asking for some additional details, obviously someone from Softender, checking the reliability of the answers. The student, still pleased at having duly and accurately performed the task and delighted to be personally contacted, happily confirmed everything.
Mogul’s President, previously personally unaware of the infringements, is furious that — not necessarily in this order — (a) the company was not in perfect compliance with software requirements, (b) no one within the company appears to have been in charge of software compliance, (c) questionnaires involving internal and confidential information about the company would be blithely delegated to an intern, without anyone caring about the whole business.
The President has immediately and officially entrusted the Chief Operating Officer of Mogul, in charge of all the manufacturing units, with software compliance, with strict instructions to regularize the software position of the whole company without delay. The President has expressed in no veiled terms his opinion that such responsibility was already included in this officer’s remit.
The software position of the company has been swiftly put right, by purchasing the missing licences as from now. No steps have been taken yet with regard to past infringements and, in purchasing the new licences, Mogul has not made any disclosure of past breaches to the software companies. Further, legal advice has been sought about the risks Mogul is running under the provisions of the Software Act.
The exact amount of arrears and penalties likely to be paid to the various software owners cannot be assessed with precision, but should be less than indicated in Softender’s request, maybe in the region of US$300,000 to US$450,000. To obtain a more precise assessment would be very useful.
With regard to risks of criminal liability, if the judicial interpretation elaborated in comparable instances (such as breaches of environmental protection laws) were to be applied to this case, Mogul’s President could be in a delicate position, since no one was formally in charge of software compliance in the past. This was not disclosed in the answers to the questionnaire; actually the indication of the persons in charge of the various units could give the impression that they were also responsible for software compliance. The intern who replied to the questionnaire does not remember whether this aspect was raised in the subsequent telephone call nor, if so, what he answered.
Also, the fact that the Software Authority has not been appointed yet could give some support to the argument that the Software Act should be considered as not yet in force.
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In addition, should the case go to trial, Mogul could argue with some force that the information collected through the questionnaire should not be admissible in evidence under Ixania’s data protection laws. Moreover, the somewhat underhand way in which such information was collected and/or would be disclosed by Softender could constitute a violation of Mogul’s rights thereunder and in turn expose Softender to administrative fines and criminal liability. The President is personally offended that open and honest questions were not addressed to him. He would have checked personally that everything was in order — he is no cheat!
All this having been said and considered, Mogul wishes to avoid being exposed publicly and possibly internationally as a major infringer of software laws, nor has Mogul’s President any desire to be drawn into criminal proceedings, be it as culprit or victim, the more so now that his name is being confidentially touted as the next chairman of the Ixanian Chamber of Commerce, a position of high prestige.
Mogul’s President has given the Chief Operating Officer ample and substantial powers to settle in any way that would minimize adverse publicity, keep Mogul out of court and the integrity of Mogul’s President intact — but paying as little money as possible (if indeed any) and without accepting any form of blackmail. Should this not be achieved, no doubt has been left that the responsibility for the whole unfortunate business would be placed upon the Chief Operating Officer.
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Colin J Wall
Case Analysis
This is a fascinating role-play, in the sense that the two parties do not have a contractual relationship and the mediation is taking place against a backdrop of legislation in Ixania. In this particular case mediation has been suggested by Softender, as they wish for some level of confidentiality, which the usual “naming and shaming” of software infringers will not provide. This is in large part so that Softender can turn this situation into one where Mogul and its President will help Softender achieve its objectives regarding software compliance in Ixania. Mogul is also keen to deal with this matter quietly and confidentiality. Sensibly, the parties have chosen Paris as the mediation venue, as the French courts have shown a great reluctance to interfere in mediation confidentiality.
As in many mediations there is a high degree of uncertainty with regard to the legal positions. In this case it is unclear whether the Software Act is actually in force and whether Softender might have infringed Ixanian data protection law. That uncertainty is increased by the lack of case law. The uncertainty acts as a driving force towards a mediated settlement. Fortunately, Softender is located in a different jurisdiction and so may well be able to ignore the civil and criminal proceedings in Ixania that attach to infringements of the data protection law. Mogul’s President is not in such a fortunate position and he is keen to extricate himself from any possibility that he may be held responsible for the software infringement as the “person responsible for the infringement” under the Software Act. The President has, in very clear terms, decided that the Chief Operating Officer is responsible for this situation and it is he or she who must resolve the matter in mediation. So we have the not uncommon situation in a corporate dispute that one or more party representatives are negotiating not only on behalf of the party but also for themselves.
The fact pattern in this mediation also reflects the usual situation which pertains in international mediations, of an exaggeration of both parties’ financial claims, thus making the parties seem further apart than they actually are. This is to some extent a reflection of positional bargaining and the lawyers’ tendency to want their clients to be seen to be in a strong financial position. The mediator should be able to shift the parties and, if necessary, the lawyers’ from these exaggerated positions, to something more realistic.
The exchange of financial information is likely to take place within the caucuses of the mediation and probably only after an agreement in principle has been reached by the parties on the substantial dispute. It will be hard for the Chief Operating Officer of Mogul to achieve the President’s goal that Mogul pay “as little money as possible” to settle this case, given that Mogul is clearly guilty of software infringement. This objective is to some extent secondary to the others of minimizing adverse publicity, keeping Mogul out of court and keeping the President’s integrity intact. Softender has no such concerns, as any penalties that Mogul might agree to pay will go straight to the individual companies whose licences have been infringed. This amount is not known with any degree of certainty, other than the fact that both parties consider that a lower figure than Softender’s estimate is more realistic. This should make it easier for the Chief Operating Officer to accept making the payments.
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Greg Bond
Commentary for Training
Asking Why Mediation?
This is a case where the role-playing lawyers should be encouraged to prepare thoroughly, as it is likely that clear positions on licence infringement, the Software Act, and data protection laws may need to be strongly presented, perhaps in well-crafted opening statements, and probably reinforced at times throughout the mediation process. There is a legal quandary, however, in that while Mogul has clearly failed to purchase software licences, the Ixanian Software Act is not well established in terms of case law and data protection laws may work in Mogul’s favour. Given this, the mediator’s task will be to facilitate a settlement that leaves both sides legally secure and takes wider interests into account. Good lawyers representing both sides will work with the mediator to get there.
A mediator may ask the parties why they are in mediation and what it is that they hope to achieve from the process. This standard question can be skilfully used to gain a first impression of the parties’ interests. It can be asked in joint session or in caucus, or in both — with the answers probably differing significantly if given privately. If there is an answer in joint session, then the parties will be giving each other information as much as the mediator; in caucus they can be more candid. In this case, this question will probably generate significant responses that can assist the mediator in doing his or her job well. While it seems easy to answer for Mogul as the company has an interest in settlement with no loss of face, meaning that mediation as a confidential setting is clearly a good choice of process, the answer is less clear for Softender.
Softender’s operations rely to a large degree on “naming and shaming”, so as to encourage compliance to software licencing. Confidentiality is not normally part of the process. If the mediator asks why Softender is choosing mediation in this case, and is not interested in publicly shaming Mogul, then Softender’s real interests will become more apparent. In many mediations, exploring the parties’ reasons for being at mediation and their expectations for the mediation will often help the parties themselves gain insight into their own interests, realizing aspects they were not previously aware of. For the mediation trainer, it would also be recommended in this case to encourage the students playing Softender in particular to work on knowing their interests in advance.
Why is Softender not taking Mogul publicly to task? Is deterrence of other potential licence infringers an important interest here? If it is, how can it be achieved without shaming Mogul and still avoiding long legal proceedings with unreliable outcomes? Work on these questions, both in preparation and during the mediation, should facilitate the search for more realistic settlement options.
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