BEWARE: Software piracy could be devastating for your business and for directors

In 2010, 35% of software used in South Africa was “pirated” – either it is downloaded illegally or a counterfeit copy of the software is purchased. The commercial value of this is in excess of R4 billion. It also puts businesses at risk as they are more likely to be exposed to viruses, have no recourse to the owners of the software in the event of it breaking down and take on the risk of being caught by increasingly vigilant owners of software.    Being in possession of pirated or counterfeit software is an offence in terms of the Copyright Act and/or the Counterfeit Goods Act. In addition, software vendors, such as Microsoft, will levy their own penalties when they find their software has been pirated. Apart from breaking the law, businesses are risking their reputations if they are caught. As it takes much hard work to build up a reputation, risking losing your good name by using pirated software makes no sense at all.    A new legal route to attack piracy      The 2008 Companies Act (“the Act”) offers software owners a new, potentially cost-effective and quick avenue of attack against software piracy.  The Act provides that a company must not carry on its business –    1.    Recklessly,  2.    With gross negligence,  3.    With intent to defraud any person, or  4.    For any fraudulent purpose.    If the CIPC (Companies and Intellectual Property Commission) has grounds to believe that the above provisions have been breached, it may issue a notice to the relevant business giving it 20 business days to show that it is in fact not in breach, failing which the CIPC can issue a notice to the business requiring it to cease trading.    This is a devastating outcome for any business. So it is easy to imagine a software owner finding out that a company is illegally using its software and taking this to the CIPC.    Directors: Your personal liability risk    The Act makes directors personally liable for damages, losses or costs incurred by the business due to the director failing to meet his/her fiduciary duties (e.g. knowingly causing damage to the company) or not exercising the requisite due care and skill required of the director.    In the case of pirated software, directors (and this includes alternate directors and those senior managers deemed by the Act to be directors for this purpose) are clearly exposed in this regard to incurring substantial costs and, of course, potential criminal charges under the Copyright Act and the Counterfeit Goods Act.    Be Aware!        Software piracy is pervasive in South Africa and the consequences are severe for both the business and its directors personally if they are caught. The Act makes it easier to crack down on software piracy.  Make sure your business does not have any pirated software.
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