Extending the Doctrine of Vicarious Liability to Copyright Infringement – a First in Singapore

We live in a digital age where information and software are readily available on the Internet with just a click of a button. While the Internet has vastly improved the way we live and conduct business, it has also inadvertently led to a new kind of problem – piracy, which is defined as the “unauthorised use or reproduction of another’s work”.  

In a corporate setting, the question then is what happens if an employee is caught being a software pirate? Who should bear the responsibility? The unsuspecting employer, or the errant employee?

In the recent High Court decision of Siemens Industry Software Inc (formerly known as Siemens Product Lifecycle Management Software Inc v Inzign Pte Ltd [2023] SGHC 50 (“Siemens v Inzign”), the Honourable Judge Dedar Singh Gill (the “Judge”) held that a company can be held vicariously liable for its employee’s conduct in infringing copyright protected works – vicarious or imputed liability is the legal rule which holds a person or company responsible for the actions committed by his/its employees. 

Facts of Siemens v Inzign

The Claimant and its related companies are in the business of distributing and sub-licensing its NX Software to users in Singapore. The NX Software is designed for industrial and commercial use. It can be used to create computerised models of a product, develop physical products from these models, and put them to use with little or no physical testing. These functions have been described as encompassing computer-aided design (“CAD”), computer-aided manufacturing (“CAM”), and computer-aided engineering.

The Defendant is a local manufacturing company that uses and owns legitimate licences for 3 modules of the NX Software. The Defendant’s errant employee in question, Mr Win, was hired by the Defendant as a machinist whose role requires him to use the NX Software.

Mr Win found an unauthorised version of the NX Software and installed it on an unused laptop he found in the Defendant’s toolroom, arguably in breach of the Defendant company’s anti-piracy policy.

Mr Win gave evidence in Court that he downloaded the pirated software to obtain more practice in using the NX Software. The Court eventually inferred that Mr Win had infringed 2 modules of the NX Software.

The use of the unauthorised software was discovered by an employee of the Claimant through an automatic reporting function that was built into the NX Software and traced the infringement to the Defendant via its IP address. The Claimant suggested that the Defendant could “legalize” the unlicensed use of the software by purchasing it, but the offer was rejected by the Defendant.

The High Court’s Decision

As the issue of whether Mr Win had infringed the Claimant’s copyright in the NX Software was not disputed, the High Court’s decision focused on whether:

1.     the Defendant company was itself primarily liable for Mr Win’s copyright infringement;

2.     the Defendant company was vicariously liable for Mr Win’s copyright infringement;

and if liability is found, then;

3.     the quantum of damages that should be awarded; and

4.     whether additional damages should be awarded.

This article will focus on the first 2 points – whether and how the Defendant company should be liable.

(1) Primary Liability

Section 31(1) of the Copyright Act 1987 (2006 Rev Ed) states that a Defendant would be held liable for copyright infringement if the Defendant was found to have (a) committed the infringing act; or (b) authorised the infringing act. Note that the Copyright Act 1987 has since been repealed and replaced with the current Copyright Act 2021 which came into force on 21 November 2021. Be that as it may, Section 146(1) of the Copyright Act 2021 is the equivalent of Section 31(1) of the Copyright Act 1987.

In respect of (a), the Judge held that the acts of Mr Win cannot be attributed to the Defendant company such that it is taken to have committed the copyright infringement itself. There was no evidence to suggest that Mr Win’s acts were sanctioned by the company. Moreover, the Defendant furnished evidence of Mr Win’s signed acknowledgement of its anti-software piracy policy back in 2015 which expressly states that employees are “not allowed to install, download or use any unauthorized software onto company’s computers”.

Turning to the point of “authorisation”, the Judge had to evaluate various factors in their totality to decide whether authorisation was made out. This logically involves some form of a balancing exercise that is dependent on the factual matrix of each case. The Judge held that the Defendant had not authorised Mr Win’s infringement because it, amongst other things, had no control over what Mr Win did with the laptop as these acts were carried out without the Defendant’s knowledge. This was despite finding that the Defendant had failed to take reasonable steps in preventing Mr Win’s infringing acts due to its lax supervision and weak anti-software piracy policy. On a balance, the Judge found that there was no authorisation on the part of the Defendant.

(2) Vicarious Liability

The doctrine of vicarious liability is a creature of tort law that seeks to hold a defendant, such as an employer, liable for the wrongful acts committed by another person within its charge – in this case the employee, even if the Defendant company had technically done no wrong.

This doctrine exists for the purpose of ensuring that persons who put risky enterprises into the community are held responsible when those risks materialise and cause harm to third parties.

Before Siemens v Inzign, there was a dearth of local case law that decided on whether vicarious liability could extend to copyright infringement. In finding that it does, the Judge looked at past cases and accordingly held that vicarious liability is not limited to any particular type of tortious misconduct. In light of common law principles, and in the absence of express restrictions in the Copyright Act (1987 or 2021), there does not seem to be anything preventing this doctrine from applying to copyright infringement cases. To us IP lawyers, this decision is greeted with much praise as it marks a step forward in developing our local jurisprudence on copyright laws.

In determining whether vicarious liability should be imposed, there are two elements that need to be proved:

1. A special relationship exists between the tortfeasor and the Defendant; and

2. A sufficient connection exists between the Defendant and tortfeasor on the one hand, and the commission of the tort on the other.

First, it suffices to say that employment contracts are typically considered to be a “special relationship” that exists for the purposes of determining whether vicarious liability should be imposed. In Siemens v Inzign, it was not disputed that the contractual relationship between Mr Win and the Defendant was a “special relationship” that exists between the parties.

Second, the Judge found a “sufficient connection” exists by virtue of the fact that (1) the Defendant had lax supervision of Mr Win which provided the opportunity for him to commit the infringement; (2) the Defendant had mismanaged the laptop which facilitated Mr Win’s eventual infringement of the Claimant’s copyright; and (3) the unauthorised software was used to further the Defendant’s aims as it provided Mr Win the opportunity with more practice in using the NX Software which logically would increase productivity for the Defendant.

Even after finding that the two elements have been sufficiently proved, the Judge would go on to consider from a policy stand point whether the imposition of vicarious liability would ensure effective compensation to the Claimant and whether it can serve as a deterrent against similar harms in the future. Since the Defendant had far greater financial resources to effectively compensate the Claimant and the imposition of liability would incentivise employers to take further steps in reducing such incidences of copyright infringement by their employers, the Judge concluded that vicarious liability was appropriate in the given circumstances.

(3) Quick touch on Quantum of Damages

Once liability is established, the Claimant then bears the burden of proving its loss and damages. The purpose of providing damages is to compensate the Claimant for loss by placing him in a position that he would have been if not for the infringement.  While there are multiple ways of calculating the quantum of damages, the Judge opted to determine damages based on the price which the Claimant could have reasonably charged in a hypothetical bargain.

In this regard, the Judge found the Claimant’s suggestion of damages at $259,511 to be excessive as it was based on 7 modules which the Claimant argued was applicable to the Defendant’s business.

Instead, the Judge found the appropriate measure of damages is to be $30,574 based on the cost of perpetual node-locked licences and a final 25% downward adjustment of 2 modules.

Since the Defendant had legally licensed the use of 3 modules from the Claimant and Mr Win had downloaded the unauthorised NX Software for the purposes of gaining additional practice, it stands to reason that he would only have used modules which were relevant to his job and not all the 7 modules as alleged by the Claimant.

The Moral of the Story

This case serves as a timely reminder for companies to take, among other things, their anti-piracy policies more seriously. As vicarious liability is a strict liability (which requires no actual fault or mens rea on the part of the employer), imposing it on companies’ vis-a-vis copyright infringement places a far greater legal burden on the companies’ shoulders. Not only must a company refrain from committing copyright infringement, they must also ensure that their employees do not – or they risk being tainted with that same brush. Therefore, paying mere lip service to anti-piracy policies is no longer sufficient, and companies must now take real and active steps to prevent copyright infringement by persons under their employment. Amongst other things, this includes securing computers with encryption and restricting free access to premises holding such computers.

While this new policy change places a larger burden on companies and employers, we believe that it is a step in the right direction because, as a whole, the interest of copyright owners will be more adequately protected by companies having systems in place to respect the intellectual property rights of others.

This decision also lends comfort to copyright owners in assuring them of the legal remedies that they may avail themselves to in the event of an infringement. Notably, the Judge took the time to explain that a delay in taking legal action against a Defendant is not in itself a bar to asserting a copyright owner’s claim, so long as it is done within a reasonable time. A copyright owner is also at liberty to decide whom to pursue its claims against and this decision will not prejudice the enforcement which it chooses. In other words, a copyright owner is free to choose who to commence legal action against, even if there are multiple Defendants at large. Further, there is no legal duty on the part of the copyright owner to take active or preventive measures in protecting its copyright.

Lastly, proving copyright infringement and/or vicarious liability is just one step of the equation. Having to prove damages that arises out of the infringement is a separate inquiry altogether that must be analysed with a sharp eye. While some Claimants may adopt the method of citing every possible licence in a hypothetical bargain, the case in Siemens v Inzign serves as a prime example of how the assessment of damages must be proven to be reasonable and relevant. The Judge in the case rejected the Claimant’s assessment of damages as the 7 modules cited were only theoretically relevant to the business of the Defendant. This was ultimately held to be insufficient in the absence of details regarding the methodology in selecting these modules. Among other things, the Judge also held that it was not appropriate and inaccurate for the Claimant to cite a module for a manufacturing machine that the Defendant does not even own. In this regard, we recommend seeking legal counsel as to what the likely damage would be for a case where your copyright has been infringed – it could well be 10X less than what is claimed.

What’s Next?

At That.Legal LLC, we specialise in the protection, management and commercialisation of intellectual property rights. Did you know that Enterprise Singapore is providing up to 50% support for eligible local companies to protect their IP? Find out more by booking a free 1-hr consultation with us.

Disclaimer

This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. That.Legal LLC represents neither party in this dispute and is not privy to any confidential information pertaining to the parties. All facts stated herein are compiled from publicly available sources. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of That.Legal LLC accepts or assumes responsibility, or has any liability, to any person in respect of this article.