What is Strict Liability, and Should You Care?
Strict liability is probably not a term you use in your business everyday, but it pays to be careful when it comes to liability. Especially since a few steps now can prevent a legal nightmare in the future.
Strict liability basically means that the defendant is liable for some wrongdoing, even though the defendant may not have intended the wrongdoing (or, had no knowledge whatsoever of any wrongdoing). It exits in both civil and criminal settings. If you’re like most people, you find the concept of getting into trouble for something you did not intend mind boggling. But, it can happen to you, and we have examples.
Strict liability is generally very rare in American jurisprudence. Almost all cases of civil or criminal liability have some form of intent component. For example, you cannot “steal” from someone unless there is a showing you intended to wrongly deprive another of their property. In other words, you will not get in trouble if a criminal runs by your backyard and tosses someone else’s property on your lawn.
In the criminal setting, you see strict liability for traffic offenses, statutory rape, possession of narcotics, and selling alcohol to a minor. If you’re driving, not paying attention to the speed limit and you speed, you can get a ticket even if you didn’t actually intend to speed.
In the civil setting, strict liability is most often applied to situations involving (1) products liability, (2) inherently dangerous activities, and (3) copyright infringement. In raising these claims, there is no need to prove mental state or intent to cause harm but merely prove the harm occurred and the defendant (i.e. your business) caused the harm.
Imagine if you (for whatever reason) owned a tiger rehabilitation center. No matter how many precautions you take to keep the tigers in their cages, if one escapes and hurts someone, you will be liable for the harms of the tiger. You had no intention for the tiger to escape and/or hurt someone, but you are still liable. Contrast this with someone sticking their arm in a clearly marked tiger cage — where you may be able to raise a defense that the harm was caused by the plaintiff’s actions.
Furthermore, imagine you’re a contractor and hire a demolitions expert as a subcontractor to demolish a building. If that subcontractor ends up hurting someone, you as the contractor can be held strictly liable for the acts of your subcontractor. In strict liability settings, the law will often superimpose liability of the acts of the subcontractor on the contractor.
In other words, even if you do not know, you can be liable for a contractor stealing copyrighted materials!
This is especially true of copyright infringement claims. Often, a business leader will hire the services of a contractor or agency to build the company’s website or produce marketing material, videos, ads, or more. But where is the contractor getting that material from? A problem occurs, if the audio and/or visual material is misappropriated or pirated. Even if the business leader had absolutely no idea that the material was misappropriated or was even promised that the material was legally acquired, the business owner using the misappropriated material can face very harsh financial penalties.
In the first example, a client hired a contractor off of guru.com, a popular “freelancer” website where one can go and hire just about anyone for anything. Eight years ago, our client used guru.com to find a web developer from India. This web developer’s rates were very inexpensive and he did great work (or so it was thought). Our client ended up using his website for eight years without any problems whatsoever.
Then, one August afternoon, our client received a “demand letter” from a law firm out of Seattle representing Getty Images. Apparently, Getty Images has an automated system that compares images on websites with its database and if it finds a match without a corresponding customer purchase for your domain name, it will flag the match as misappropriation. In our client’s situation, he thought his web developer purchased all the images and didn’t have any receipts or materials to defend himself. Worse, the web developer wouldn’t respond to inquiries from us nor our client.
In this situation, Getty Images merely has to prove that they own the copyright and that our client was using the image. It is then on our client’s shoulders to prove he owns a valid license (i.e. through a purchase) or that he also owns the copyright of the image. This is copyright infringement strict liability in action. Our client has no defenses, short of showing he has a valid license to the image in question.
Ultimately, we figured out the independent contractor he hired simply copied images he liked off the website, without any cares whatsoever about making sure the right license was purchased. We were able to successfully settle this matter for our client, but our client did incur some legal fees in our defending him.
In our second example, a stay-at-home mother with experience in special education needs wanted to start a small business out of her home selling specialized training materials to parents of children with special needs. Our client did her due diligence and found a well-recognized “kit” that included lesson plans, educational materials and booklets. She spent thousands on this kit, which was sold by a well-recognized thought-leader in special education.
Unfortunately for our client, just as she was preparing to demonstrate and promote the kit to others in her community, the manufacturer of the kit she purchased was sued for copyright infringement. The suit alleged that some of the materials in the kit were copied from other copyrighted work, and the plaintiff used the discovery power of the courts to determine who purchased the kits from the defendant. That’s when the plaintiff then in turn made demands on those who purchased the kits and then joined them in the copyright infringement lawsuit.
Imagine spending thousands on something to help establish your business, only to be involved in an expense lawsuit simply because you bought that something from someone?
Unfortunately, there is no simple formula to make it absolutely certain to avoid a copyright infringement lawsuit in business. Some general rules of thumb to follow include:
- Supply Your Own Audio and Visual Material. A very easy way to avoid any legal trouble is to make your own material. Don’t let contractors supply material for you. Go through the expense of finding and acquiring the material yourself, and then give to the contractors to incorporate into whatever they are doing for you.
- Require Indemnities of Your Contractors. If the nature of your contractor relationship requires they furnish some audio or visual material, then make sure you have a very well-written contract that requires your contractor to indemnify and hold your business harmless for any third-party infringement action pertaining to the materials they provide your business.
- Require Approvals and Licenses. If your contractor is providing material that could be the subject of a copyright, make your contractor prove to you that they (1) possess a license to use the copyrighted material, and (2) have a right to assign or transfer their license to you. Oftentimes, contractors will try to do the right thing by purchasing materials from Getty Images or other similar websites, but the contractors will make a mistake by purchasing the material under their own name instead of yours. When they do this, the contractor may own a license to use the material, but the license usually specifically prevents the transfer of the license to another party — so you have no right to use the material, EVEN IF YOU PAID FOR IT!
- Treat Promises, Assurances and Indemnities Like Credit. Anyone making a promise to you is only as good as their word, and their word is only as good as their financial strength and your ability to go after them. Therefore, if you’re hiring an oversees contractor, don’t expect to be able to sue them or hold them accountable with any indemnity provision. Treat such contractors as though you were lending them $100,000. How would you do business under such circumstances?
- Add a Copyright Infringement Rider on Your Liability Insurance. It’s cheaper than you might think, and it will also provide coverage for your defense. Talk to the agent who provides your GL policy, and see whether it’s worth adding to your policy.
Though strict liability may not be a part of your everyday business, it pays to be careful in who you hire and how you beef up your online and offline marketing efforts. If you’re not careful, a $5,000 website can end up costing you $50,000 in legal fees and settlement costs. Feel free to check out our other articles on how to build a website and how to select a website vendor.
Law 4 Small Business. A little law now can save a lot later.