Desktop auditing is crucial to avoid employer liability. Recently, my firm conducted an automated worldwide desktop audit for a major client. Additionally, we have received other inquiries and have seen a general increase in interest for this type of auditing service. The interest seems to be driven by two key issues: 1) the need to comply with software licensing agreements, and 2) the need to avoid liability for employee downloading of copyrighted materials.

Executives have generally understood their responsibilities under software licensing agreements, and most recognize in some abstract way that they are liable when employees install pirated software or media content on company computers. Under the concept of vicarious liability of the U.S. Copyright Act, an employer is liable for acts committed by its employees when those acts are within the scope of their employment duties. Therefore, most companies have policies in place regarding acceptable use of company computers.

But why have these needs suddenly become "front-burner" topics with many companies? Although executives know of these risks, until recently most have not done much about them because enforcement had been lax. Software vendors would occasionally audit large firms to ensure they purchased sufficient licenses. But it was nearly impossible to find a case where a company was actually sued for an employee's downloading of copyrighted materials. But the times are changing. Software vendors and the entertainment industry both are cracking down hard on non-compliance and piracy. The risk to companies -- large and small -- is real.

Software publishers stepping up audits

By some estimates, 24% of installed software in the U.S. is not licensed. According to the Software and Information Industry Association (SIIA), the worldwide cost of software piracy to vendors in 1999 was over $12.2 billion. With the software industry no longer enjoying the double digit growth of the 1990s, that's a lot of money left on the table. Therefore, vendors are looking to increase revenues by enforcing license agreements and cracking down on pirated software. The Software Publishers Association (SPA), the Business Software Alliance (BSA), and the UK-based Federation Against Software Theft (FAST), are all ramping up enforcement activity as vendors, such as Microsoft, continue to focus on combating non-compliance.

This risk is not limited to large companies. From time to time in the U.S., the BSA announces a piracy truce for small and medium businesses, where companies are encouraged to turn themselves in if they suspect they are harboring unlicensed or counterfeit software. Furthermore, the BSA, the SPA, and some software vendors such as Microsoft, solicit tipsters to anonymously report suspected cases of software piracy. So, even companies that want to be compliant could face an audit based on an anonymous tip from a disgruntled employee.

Entertainment industry cracking down on piracy

Media and entertainment companies, likewise, face loss of revenue due to illegal file-sharing. The industry has already shut down Napster, an early peer-to-peer file sharing service, and it is now turning its attention to other services, such as Kazaa and Morpheus, which are used to trade copyrighted materials, such as movies, music, software, and games. They are aggressively targeting Web sites that offer media for download as well as their Internet service providers. Just this week the Recording Industry Association of America (RIAA) got a federal judge to order Verizon to turn over the identity of a subscriber suspected of making available unauthorized copies of several hundred songs. They are also putting pressure on universities. The RIAA is currently sponsoring an educational program with more than 300 universities, claiming a 55% drop in the number of sites on university servers offering illegal downloads.

After the RIAA gets file-sharing services, ISPs, and universities under control, there is only one other place where consumers can easily download illegal content: the workplace. Is there any doubt that corporations with high-speed Internet connections and large networks of desktop computers will be the next target of the entertainment industry?

Therefore, companies need to get desktops under control. To avoid software license non-compliance, companies need to periodically audit license usage. And, to avoid liability for employee actions, companies must demonstrate "reasonable effort" to deter misappropriation or theft of computer software and intellectual property. Efforts should include a clear company policy regarding desktop software and content, consequences for non-compliance, periodic desktop audits, and documentation of the results.