Of course it's not a good idea - but companies do run out of money. When they do, the relevant question isn't, how do we inflict further punishment; it's, how can we maximize the chances of people getting paid.
The developer could have just sued for the money owed him, without adding the incendiary copyright-infringement charge.
This was an example of a circular firing squad (well, to the extent you can have a circle with two people). It looks to me as though all hands played it badly.
I mostly agree with you, but I have one serious doubt remaining. If the company in question was so broke, how could they hire a new contractor instead of just paying the current one? That action leaves a bad taste in my mouth, I think perhaps the original developer had good reason to want more than just the money they owed him for his contract work. It looks to me like there were lies involved, at least somewhat.
Maybe the new contractor was on a much-reduced rate. Hire an experienced developer to do most of the work, don't pay him for the work he's done, then hire a new grad to finish it off?
If the company is operated in such a way that it promises to pay people and then doesn't, perhaps a more relevant question is, how do we keep more people from getting scammed into working for free.
The fact that the company was able to hire an additional contractor demonstrates that they had the finances available to pay all or part of their outstanding debt.
The use of copyright-infringement forces the company to meet their ethical and legal responsibilities immediately, before proceeding with leveraging his work. It's not the contractor's responsibility to provide the corporation a bridge loan.
The developer could have just sued for the money owed him, without adding the incendiary copyright-infringement charge.
This was an example of a circular firing squad (well, to the extent you can have a circle with two people). It looks to me as though all hands played it badly.