Personal liability of directors for the company's possession of illegal software
In a recent judgment, the Antwerp Court of Appeal ruled that the director of a company can be held personally liable in case illegal software is available within their company. In the present case, illegal copies of (Autodesk) AutoCAD and Microsoft Office were discovered on eight computers at the company's registered office.
According to the Court of Appeal, the director could and should have been aware of the facts.
Below we outline some of the principles applicable to the possession and/or use of illegal software.
Possession of illegal software may already constitute an infringement
Computer programs may be protected by copyright.
Pursuant to art. XI.304 of the Code of Economic Law, the use of computer programs without the author's consent (i.e. without a valid license) is prohibited as is the mere possession for commercial purposes, insofar as the person concerned (in this case the director) knows or should reasonably assume that it is an illegal copy.
Whether or not the user/owner acted in good faith is irrelevant.
The possession/use of illegal software is also punishable under criminal law.
The director may be held personally liable
If illegal software is used by a company, or is even merely available, the company itself will be liable. However, in addition, the director may also be held personally liable.
Pursuant to art. 2:56, first paragraph, of the Belgian Code of Companies and Associations (hereinafter referred to as BCC), directors are also personally liable towards third parties for shortcomings in the performance of their duties if the shortcomings also constitute a tort (art. 1382 of the Civil Code). The director's shortcomings therefore is a breach of the duty of care. The Court of Appeal has now confirmed that a copyright infringement, even if unintentional and unconscious, constitutes such a shortcoming.
The Court of Appeal ruled that Microsoft and Autodesk could therefore address both the company and the director personally to claim damages. In the present case, the Court of Appeal does not accept the 'ignorance' invoked by the director, nor could the director invoke the principle that his actions are only imputable to the company.
Is exemption of liability possible?
Whether or not a director "should have known" about the illegal software will depend on the precise circumstances and their specific duties and responsibilities (‘ignorance’ is rarely accepted by the courts).
The courts, for example, assess whether the director has taken precautions to ensure third party copyright compliance. Such precautions may include regularly checking the company's computers for illegal software or, even better, introducing a mechanism that prevents downloading illegal software. Of course, it is important to be able to provide proof of these precautions. Directors will have to be able to demonstrate that they have actively taken measures to prevent these practices (e.g. e-mail traffic, evaluation of employees involved, meeting reports, etc.).
For example, a director may also be exempted from personal liability for the possession of illegal software by the company if they can prove that they did not take part in the decision that caused the infringement or if they reported the infringement to all other members of the management body. In order to substantiate this evidence, the minutes of the board meeting may be relevant, which again emphasizes the importance of properly reporting board meetings.
"In solidum" liability of director and company
In the present case, the Antwerp Court of Appeal condemned the director “in solidum”, i.e. jointly and severally, together with the company, as both were found to be at fault. This means that both the company and the director are obliged to pay full damages to the author of the software.
The compensation was fixed at twice the normal license fee per infringing software copy. Although the principle of a double license fee as damages is not incorporated in the legislation, it is common practice to calculate the damages. After all, the compensation not only covers the loss of income through a legitimate software license, but also the costs of combatting counterfeiting, the devaluation of the copyright, the possible damage to the reputation and the illegitimate benefits received.
Limitation of director’s liability
The BCC has introduced an important novelty. The personal liability of a director is now in principle limited to fixed amounts (art. 2:57 BCC), taking into account the average turnover of the company over the past three financial years.
This limitation of liability varies from 125.000 euros (for small companies) to 12 million euros (for large companies) and applies vis-à-vis the company as well as vis-à-vis third parties and is also applicable to infringements of intellectual property rights.
This limitation also applies to the pecuniary consequences arising from a criminal offense. However, there are important exceptions to this limitation of liability. For example, it does not apply if the shortcomings can be qualified as ‘common’ rather than ‘accidental’.
Possible recourse against an employee who committed the infringement
Finally, we would like to point out that it is possible to recover the compensation paid from the employee who actually installed the illegal software copy in case of fraud, grave error or repeated minor error (art. 18 of the Belgian Employment Contracts Act). However, it is uncertain whether a single illegal copy automatically constitutes a grave error. This also depends on the specific circumstances.
We advise to include the installation of illegal software in your work regulation as a grave error on the basis of which your company can proceed to dismissal for serious cause and (possibly) the recovery of damages. In addition, it is advisable to draft a so-called ‘IT policy’ stating that the installation and/or use of illegal software is prohibited.