Beware:
Copyright Infringement Via-Email Can Be Costly

By Patricia S. Eyres, Attorney at Law
President, Litigation Management & Training Services, Inc.

Employers have reasons well beyond inflammatory content to keep tabs 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. 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.

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 of using electronic exchange makes this type of infringement 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, or they distributed originals with a distribution or rou ting list. 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. The court rejected this defense, noting that (1) the purpose and character of the use was for the commercial benefit of Legg Mason; (2) Legg Mason employees copied the entire newsletter rather than discrete passages or limited excerpts; (3) the copying resulted in Lowry's losing subscription fees.

Finally, Legg Mason relied heavily on the fact that it had posted company policies against such copying and distribution, and therefore shouldn't be legally responsible for the legal and policy violations by its employees. The court rejected this noting that "intent to infringe or knowing infringement is not necessary in determining liability."

Lessons for subscribers
Read your subscription agreements carefully and fully understand the terms and limitations of your license. Don't assume that the doctrine of "fair use" permits you to distribute newly created copies (every forwarded e-mail is a new copy), even internally to your own staff. Most importantly, adopt appropriate policies to assure that your organization complies with the law and its agreements. Then, make sure that your staff understands and follows them. Legg Mason's copyright guidelines addressed only external distribution and employees were ill-informed. After agreeing to cease and desist, they apparently didn't inform or properly train their vast workforce.

Lessons for employers
In copyright law, the direct infringer (the employee) need not be acting within the scope of employment. The company may be liable even when the employer is not aware of the direct act, when the employee copies copyrighted works in violation of the license. The employer has an obvious and direct financial interest in the exploitation of the material. The organization is liable even when instructs its employees not to infringe copyright. Thus, regular monitoring of employee activities may be appropriate to assure actual compliance with the company's stated policies.

About the Author
Patricia S. Eyres is an experienced attorney, with over 18 years defending businesses in the courtroom. She is a full time professional speaker and author. Her most popular presentations are "Is Your E-Mail a Legal Pain in the Net?" and "Leading Within Legal Limits". She can be reached at Patricia@PreventLitigation.com or at 1-800-LIT-MGMT.

Reprinted with express permission of the copyright holder, Patricia S. Eyres, President, Litigation Management & Training Services, Inc., Long Beach, CA.