Criminal liability for tech entrepreneurs in an IP dispute

A civil intellectual property dispute turns criminal in the Netherlands only where the infringement is deliberate and serious enough to justify prosecution. The criminal provisions all require intent: Article 31 of the Copyright Act (Auteurswet) for wilful copyright infringement, Article 337 of the Criminal Code (Sr) for counterfeit trade marks and goods, and Article 79 of the Patents Act 1995 (Rijksoctrooiwet 1995) for wilful patent infringement. Negligence, or a genuine dispute about the scope of a right, does not meet that standard.

For founders and directors of technology companies the practical question is narrower than the statutory one. It is not whether the conduct could in theory be prosecuted, but what turns an ordinary licensing or patent conflict into a file the Public Prosecution Service is willing to take on, and when the individual behind the company can be charged alongside it. This article sets out both.

The civil route and the criminal route

Almost every IP conflict is fought in the civil courts. The rights holder claims an injunction and damages, and the Copyright Act provides the specific remedies: compensation under Article 27 of the Copyright Act, surrender of the profits made through the infringement under Article 27a, and the handing over or destruction of infringing goods under Article 28. Procedurally these claims run under the special rules on enforcement of intellectual property rights in the Code of Civil Procedure, which among other things allow a successful party to recover its full reasonable legal costs rather than the usual fixed scale.

The criminal provisions sit alongside that system and are not meant to replace it. Criminal law is applied as a last resort, the ultimum remedium, and the Public Prosecution Service works from a published policy that gives priority to civil enforcement and reserves prosecution for infringement that is committed professionally, on a large scale, or as part of an organised operation. That policy choice, rather than the wording of the offences, explains why so few IP conflicts ever reach a criminal court.

The criminal provisions that apply

Article 31 of the Copyright Act makes wilful infringement of another person’s copyright an offence, and the following articles increase the penalty where the conduct is committed in the exercise of a profession or a business, or where it amounts to a habit. Article 337 Sr covers false, falsified and unlawfully produced trade marks, and the importing, transit, sale, delivery and stocking of goods bearing them; it is the provision used against counterfeit hardware and packaging. Article 79 of the Patents Act 1995 criminalises wilful infringement of a patent.

Two further provisions matter to technology businesses. The Copyright Act separately prohibits the circumvention of effective technical protection measures and the trade in means intended for that purpose, which is the provision that catches licence-key generators and comparable tools. And the Criminal Code offences on computer intrusion and on the handling of data obtained by intrusion regularly appear alongside IP charges where source code or a database has been taken from a former employer or a competitor.

What turns a civil dispute into a criminal one

Three factors decide it in practice: intent, scale and public interest. Intent is the statutory element and is examined first. Scale and public interest are prosecutorial considerations, and they determine whether a case that could be brought will in fact be brought.

Scale is usually the visible trigger. A developer who has a licensing problem with a third-party library in one product is not a candidate for prosecution. A business that sells unlicensed software keys to hundreds of customers, or a distributor importing devices carrying another manufacturer’s branding, is. Repetition after an earlier warning or an earlier civil judgment weighs heavily, as does an organised structure with several participants and a cross-border element.

Public interest is assessed on whether civil enforcement can adequately address the harm. Where the rights holder has an effective civil remedy and is using it, prosecution adds little. Where the infringement has become the business model, or where consumers are being deceived about what they are buying, the calculation changes. In its judgment of 18 April 2017 (ECLI:NL:HR:2017:700), concerning the repeated sale of counterfeit branded perfume at a market, the Supreme Court rejected the argument that the prosecution should have been declared inadmissible because civil enforcement had priority: large-scale counterfeiting and piracy committed in the exercise of a profession or business falls squarely within the cases for which criminal enforcement is intended.

Conditional intent and what a warning letter changes

Intent in Dutch criminal law includes conditional intent (voorwaardelijk opzet): consciously accepting a substantial chance that the prohibited result will occur. That is the form of intent that matters most to founders, because it does not require anyone to have set out to infringe. It requires that the risk was real, that it was known, and that the conduct continued anyway.

This is why a cease-and-desist letter changes the legal position even when the claim in it is weak. Before the letter, a founder can credibly say the risk was not apparent. After it, the question becomes what was done with the information. A documented assessment of the claim, advice obtained on the scope of the right, a design change or a licence taken while the dispute is resolved all point away from conditional intent. Silence, a dismissive internal note and continued growth of the disputed feature point towards it.

The reverse also holds. A reasoned opinion that the patent is invalid, or that the software falls outside its claims, is not a formality; it is the record that shows the risk was assessed rather than accepted. Where the technical or legal position is genuinely arguable, criminal intent is hard to establish, which is one of the reasons genuine validity disputes stay in the civil courts.

When the founder is prosecuted personally

Most technology businesses operate through a BV, and Article 51 Sr allows offences to be committed by a legal person. The same provision allows those who ordered the conduct, and those who actually directed it, to be prosecuted alongside the company. For a founder or a director, that second category, feitelijk leidinggeven, is the real exposure.

The Supreme Court set out the framework in its overview judgment of 26 April 2016 (ECLI:NL:HR:2016:733). The offence must first be attributable to the legal person. Directing it can then consist of active conduct, of a policy whose consequences were inevitable, or of failing to take measures that the person was obliged and able to take. The person must at least have accepted the substantial chance that the prohibited conduct would occur, and knowledge of comparable conduct within the organisation can supply that acceptance. Holding the title of director is not sufficient on its own, and lacking a formal position is not a defence.

Translated to a technology company, this means that the founder who decided to ship the disputed feature, who received the warning letter and made the call to ignore it, or who left a known licensing problem unaddressed while the product scaled, is in the frame in a way that a passive shareholder is not.

Platforms and user-uploaded content

A platform that merely stores content uploaded by its users is in a different position from one that supplies infringing material itself. Article 6:196c of the Dutch Civil Code exempts a hosting provider from liability where it does not know of the unlawful content and removes it promptly once it does, and the Digital Services Act sets out how notices must be handled and what a provider must do in response. The exemption is conditional on that behaviour, not on the label the service gives itself.

For services whose purpose is the sharing of large amounts of user-uploaded content, Article 29c of the Copyright Act goes further. Such a provider is itself liable for the communication to the public of protected works unless it shows that it made best efforts to obtain authorisation, made best efforts to keep specific works unavailable once the rights holder supplied the necessary information, and acted expeditiously on notices. The same article requires a complaints procedure with human review and access to an independent dispute body.

Criminal exposure arises where the failure stops being an omission and becomes a choice: a service that earns from infringing material, knows which material it is, and does nothing, is not a passive host. Our overview of the Dutch notice-and-takedown code of conduct sets out what an adequate procedure looks like in practice.

Defences

The first line of defence is the absence of intent. Reliance on legal advice obtained before the conduct, a licence that was reasonably believed to cover the use, or a documented and arguable reading of the scope of the right all bear directly on whether the substantial chance was accepted. The record matters more than the eventual outcome of the civil dispute: a founder can be wrong about the scope of a patent without having been criminally reckless about it.

The second is licence or consent. A valid licence, sublicence or written permission removes the infringement itself, provided it covers the actual use, the territory and the period in question. Open source licences deserve particular care here, because the obligations attached to them are conditions of the licence: our article on the open source software licence in the Netherlands explains what falling outside those conditions means.

The third is a statutory exception under the Copyright Act. The relevant ones are narrow and each has its own conditions: the press exception in Article 15, the right of quotation in Article 15a, the education exception in Article 16, the incidental use of a work in a report in Article 16a, and parody, caricature and pastiche in Article 18b. They are complete defences where they apply, and they rarely apply to a commercial product feature.

What to do when a claim arrives

Treat a cease-and-desist letter as the moment the record starts. Acknowledge it, ask for the specific right relied on and the specific conduct complained of, and set out a realistic period in which you will respond. Then assess the claim properly: who owns the right, is it valid, does the product actually fall within it, and what would a change cost compared with a licence. Record that assessment and the advice it rests on, because it is the document that will later show what was known and when.

If the answer is that the claim has force, act on it rather than around it. Taking a licence, changing the implementation or withdrawing a feature while the dispute is resolved costs less than the alternative and closes off the argument that the risk was accepted. If the answer is that the claim does not hold, say so with reasons and keep operating on the basis of that reasoning. What is difficult to defend is neither: continuing unchanged while saying nothing.

The same applies to the earlier stage. An IP audit of third-party libraries and their licences, of brand elements against existing trade marks, and of freedom to operate in a patent-heavy field, is worth more before a product launches than after a letter arrives. For the wider legal picture around software and data, see our overview of IT law in the Netherlands.

How we can help

We advise technology companies and their founders on the point where an intellectual property conflict starts to carry criminal risk, and we act in the proceedings that follow. That includes assessing an infringement claim and the exposure behind it, building the record that shows how the risk was handled, defending the company and the individual where criminal law is invoked, and setting up notice-and-takedown and licensing procedures that stand up afterwards. Please feel free to contact us to discuss your situation.

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