software piracy: some facts, figures, and issues
TRANSCRIPT
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Software Piracy: Some Facts, Figures, and Issues
Frederick Gallegos
onesty is the best software pol-icy. Last year ordinary peoplecost the computer industry
$11.4 billion. Some people fail to realizethat “borrowing” someone else’s softwareor taking their company’s software homefor personal use may be illegal. Althoughthese may seem like small offenses, it isestimated that illegal copying of softwarecosts the computer industry between 10billion and 12 billion dollars every year —funds that would go a long way towardkeeping the software industry healthy andinnovative. Ultimately, software piracyhurts everyone. For one thing, developerslose money that they could use to improveproducts, support, and documentation fortheir customers. In some cases, they areforced to charge higher prices to recouptheir development costs; as a result, hon-est customers have to pay more. Andwhenever developers cannot afford toinvest in new ventures and markets, inno-vation and product availability is hindered.
Who is a software pirate? Althoughmany people may not be aware of it, if theyhave ever committed any of the actions inthe following list, they have biolated soft-ware copyright law.
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giving away an old version of software after receiving an upgrade
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taking copyrighted software from a serv-er or electronic bulletin board without paying for it
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giving a copy of proprietary software to a co-worker
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“borrowing” someone’s software to try it out, then never purchasing it
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leaving copies of proprietary software on a hard disk when selling a computer
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using shareware without paying the copyright owner for it
Software piracy is not worth the risk. Onbehalf of the software industry, the Soft-ware Publishers Association (SPA) and theBusiness Software Alliance (BSA) aggres-
H
F
REDERICK
G
ALLEGOS
, CISA, CDE, CGFM, is an adjunct professor of computer information systems at the College of Business Administration at California State Polytechnic University — Pomona. He has over 25 years of experience in information technology audit, control, and security issues in both govern-ment (U.S. General Accounting Office) and private enterprise. He has taught graduate and undergrad-uate courses on IS audit, control, and security issues and has authored or co-authored more than 150 articles in the area. He is co-author of
Information Technology Control and Audit,
Auerbach, 1999.
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sively pursue organizations that use unli-censed software. The SPA and BSA haveinitiated more than 200 lawsuits since1988. The courts are supporting thesesuits, and copyright violators are payingpenalties of hundreds of thousands of dol-lars. A company cannot just look the otherway when it comes to illegal software. Vio-lating copyright laws can result in largefines and immeasurable damage to a com-pany’s reputation. Individual managerscannot afford the risk either; they could beheld personally liable for these penaltiesand could lose their jobs.
Users who purchase legal copies of soft-ware receive timesaving documentationand product support and minimize therisk of copying a software virus on to theircomputers. If the original disk gets dam-aged, legitimate users can obtain a freereplacement. In addition, they can receiveproduct newsletters and timely notifica-tion of product upgrades. But beyond thetangible benefits, such users are also pur-chasing the right to legitimately use soft-ware that took a team of hardworkingpeople many years and thousands of dol-lars to produce. Their purchase is a vote, away of rewarding the team that created thesoftware, and a way of encouraging andenabling the vendor to produce even bet-ter products in the future.
DEFINITION
Piracy involves the blatant copying ofcomputer programs and the making ofcopies on disks for distribution to others.Regardless of what is done with the copies,the action of copying is against the law. Itis deemed an infringement even if copiesare made for the copyist’s own domesticuse, unless this is specifically allowed bythe copyright owner under a “home use”policy or the copies are legitimate backupcopies. There may be a moral difference
between copying software to sell to othersand copying for personal use, but there isno legal distinction between the two; bothare illegal.
The Software Publishers Associationhas listed the following examples of piracy:
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purchasing a single user license and loading it onto multiple computers or a server (“softloading”)
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making, distributing, or selling copies that appear to be from an authorized source (“counterfeiting”)
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renting software without permission from the copyright holder
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distributing or selling software that has been “unbundled,” or separated from the products with which it was intended to have been ‘bundled”
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downloading copyrighted software from the Internet or bulletin boards without permission from the copyright holder
TYPES OF PIRACY
According to Peter Troost (“CombatingSoftware Piracy,” February 27, 1995),some widely recognized types of softwarepiracy include:
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Industrial piracy.
Industrial piracy oc-curs when an individual or group attempts duplication and distribution on a large scale for profit. As duplication equipment (including CD-ROM) has fallen in price, the threat of this practice has escalated. Whereas by far the largest volume of in-dustrial piracy occurs in developing na-tions (where government-owned factories may turn out thousands of CD-ROMs per day), there are many cases of it in the Unit-ed States as well.
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Corporate piracy.
The LAN is at the root of corporate piracy. By installing one copy of a software application on a LAN server, potentially hundreds of employees may gain unlicensed access. The business of
Piracy involves the blatant copying of computer programs and the making of copies on disks for distribution to others.
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keeping track of license agreements and controlling concurrent users is perceived by many firms as a non-value-added activ-ity that consumes valuable human re-sources. From the employee perspective, using software on a LAN or making unau-thorized copies for individual computers is an attractive alternative to the bureaucrat-ic red tape and waiting period of ordering legal copies through corporate procure-ment offices.
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Reseller piracy.
Reseller piracy involves computer hardware companies selling ma-chines with illegal copies of software pre-loaded on their hard drives. As the hard-ware industry has grown increasingly frag-mented, monitoring and regulating the actions of resellers has become increasing-ly difficulty.
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Home piracy.
Home piracy includes ev-erything from trading disks with friends to running a not-for-profit bulletin board for the purposes of illegal software distribu-tion. Traditionally the sport of “hackers,” home piracy is perhaps the most difficulty form to detect and regulate.
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Publisher patent and copyright infringe-ment.
This is the traditional type of intel-lectual property theft where one producer copies material or process from another for profit. One of the most widely publicized case of this type was the
Lotus v. Borland
suit concerning the use of Lotus 1-2-3 commands and menus in Borland’s Quat-tro spreadsheet. Although this type of pira-cy is significant, it is generally easy to identify and combat. In addition, this is the type of infringement for which the laws seem to lend themselves to enforcing.
According to the Software PublishersAssociation, other types of infringementinclude:
Direct Infringement.
Section 501a of theCopyright Act states, “Anyone who vio-lates any of the exclusive rights of thecopyright owner [reproduction, adapta-tion, distribution to the public, public per-formance, public display, rental for
commercial advantage or importation] isan infringer of the copyright or the right ofthe author.” Instances of direct infringe-ment include
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downloading software
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uploading software
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making software available for download
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transmitting software files
Indirect Infringement.
Indirect infringe-ment can be subdivided into two catego-ries, as follows:
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Contributory infringement.
Anyone who knows or should have known that he or she is assisting, inducing, or materially con-tributing to infringement of any of the ex-clusive rights by another person is liable for contributor infringement.
– posting of serial numbers– posting of cracker utilities– linking to FTP sites where software may be unlawfully obtained– informing others of FTP sites where software may be unlawfully obtained– aiding others in locating or using un-authorized software– supporting sites upon which the above information may be obtained– allowing sites where the above infor-mation may be obtained to exist on a server
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Vicarious liability for infringement by another person.
Anyone who has the au-thority and ability to control another per-son who infringes any of the exclusive rights and who derives a financial benefit therefrom, is vicariously liable for the in-fringement of another person.
– ISPs who have “warez” or pirate sites on their systems. The term warez refers to pirated or illegal software. Software or sites labeled as warez usually contain illegal material and should be avoided and reported– ISPs who have pirates for customers– System administrators for news-groups or IRC where pirate activity takes place
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LAWS AND REGULATIONS
Federal Copyright Act
Software is protected under the FederalCopyright Act, Title 17 of the U.S. Code,and is legally considered intellectual prop-erty. Of particular importance are Title 17of the U.S. Code, Sections 101, 106, 117,501, 504 and Title 18 of the U.S. Code,Section 231 9. See Exhibit 1 for the fulltext of these codes.
Licensing
Organizations that have a good grasp ofcopyrights and license agreements usuallyencounter fewer problems with softwaremanagement. Knowing and understand-ing their legal rights provides organiza-tions not only with information aboutrestrictions but also with the informationrequired to take advantage of theirlicenses. The discipline of keeping copy-right and license agreements maintainedand well-documented affects other areasas wel l . When employees are heldaccountable for keeping copies of dis-kettes and manuals, theft and lossesdecrease.
Almost all commercial computer soft-ware is licensed directly or indirectly fromthe copyright owner — the software pub-lisher — for use by the customer through atype of contract called an “end-userlicense agreement” (EULA). Differentproducts may have different EULAs.
A license agreement is a legal contractbetween the software company that holdsthe copyright to the software and the orga-nization or individual who uses it. Becauseof the different usage of software products,there is little standardization in the wayagreements are written or used. Maximiz-ing the user’s investment in softwarerequires reading and accepting the licenseagreement for each software product thatis used. In addition to the individual
license agreement, some software manu-facturers also offer volume licensing pro-grams for businesses and organizations.For certain eligible education customers,software vendors usually offer a specialeducational licensing program.
Provided the user accepts its terms, theEULA grants permission to use the soft-ware along with some additional rights.The EULA also imposes certain restric-tions on the use of the software. TheEULA includes the “Grant of License”section, which describes how the softwaremay be used. Also included in the EULAare restrictions against reverse engineer-ing, leasing, or renting the software, andother restrictions that apply to the partic-ular software. In addition, the EULAdescribes the terms under which the usermay make a backup or archival copy of thesoftware and details the limited warrantyprovided for the product.
The EULA is an important part of thesoftware product and should alwaysaccompany legally licensed software. Ifsoftware was purchased by a user from astore, through a mail-order catalog, oreven from an individual and an EULA didnot accompany the product, the user mayhave purchased illegal software.
A WORLDWIDE PROBLEM
The results of an independent study onglobal software piracy were releasedrecently by the Business Software Alliance(BSA) and the Software Publishers Associ-ation (SPA), the two leading trade associa-tions of the software industry. The studyestimates that, of the 574 million newbusiness software applications installedglobally during 1997, 228 million applica-tions — or four in every ten — werepirated. This represents an increase of twomillion more new applications beingpirated than in 1996.
Organizations that have a good grasp of copyrights and license agreements usually encounter fewer problems with software management.
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EXHIBIT 1
Copyright Act of 1976
[as amended]
17 U.S.C. §101, 106, 117, 501, 504 and 506
18 U.S.C. §2319
Of particular importance are Title 17 of the U.S. Code, Sections 101, 106, 117, 501, 504 and 506 and Title 18 of the U.S. Code, Section 2319.
Title 17 U.S.C., § 101. Definitions
• The term ‘financial gain’ includes receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works.
Title 17 U.S.C., § 106. Exclusive rights in copyrighted works
Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
• (1) to reproduce the copyrighted work in copies or phonorecords;
• (2) to prepare derivative works based upon the copyrighted work;
• (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
• (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and
• (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly.
Title 17 U.S.C., § 117. Limitations on exclusive rights: Computer programs
Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:
(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or
(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful. Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program. Adaptations so prepared may be transferred only with the authorization of the copyright owner.
(b) The legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the requirements of section 411, to institute an action for any infringement of that particular right committed while he or she is the owner of it. The court may require such owner to serve written notice of the action with a copy of the complaint upon any person shown, by the records of the Copyright Office or otherwise, to have or claim an interest in the copyright, and shall require that such notice be served upon upon any person whose interest is likely to be affected by a decision in the case. The court may require the joinder, and shall permit the intervention, of any person having or claiming an interest in the copyright.
(c) For any secondary transmission by a cable system that embodies a performance or a display of a work which is actionable as an act of infringement under subsection (c) of section 111, a television broadcast station holding a copyright or other license to transmit or perform the same version of that work shall, for purposes of subsection (b) of this section, be treated as a legal or beneficial owner if such secondary transmission occurs within the local service area of that television station.
(d) For any secondary transmission by a cable system that is actionable as an act of infringement pursuant to section 111(c)(3), the following shall also have standing to sue: (i) the primary transmitter whose transmission has been altered by the cable system; and (ii) any broadcast station within whose local service area the secondary transmission occurs.
(e) With respect to any secondary transmission that is made by a satellite carrier of a primary transmission embodying the performance or display of a work and is actionable as an act of infringement under section 119(a)(5), a network station holding a copyright or other license to transmit or perform the same version of that work shall, for purposes of subsection (b) of this section, be treated as a legal or beneficial owner if such secondary transmission occurs within the local service area of that station.
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EXHIBIT 1
Copyright Act of 1976
(continued)
Title 17 U.S.C., § 504. Remedies for infringement: Damages and profits
(a) In General. — Except as otherwise provided by this title, an infringer of copyright is liable for either –
1) the copyright owner’s actual damages and any additional profits of the infringer, as provided by subsection (b); or
2) statutory damages, as provided by subsection (c).
(b) Actual Damages and Profits. — The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.
(c) Statutory Damages. –
1) Except as provided by clause (2) of this subsection, the copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $500 or more than $20,000 as the court considers just. For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work.
2) In a case where the copyright owner sustains the burden of proving, and the court finds, that infringement was committed willfully, the court in its discretion may increase the award of statutory damages to a sum of not more than $100,000. In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court it (FOOTNOTE 1) its discretion may reduce the award of statutory damages to a sum of not less than $200. The court shall remit statutory damages in any case where an infringer believed and had reasonable grounds for believing that his or her use of the copyrighted work was a fair use under section 107, if the infringer was: (i) an employee or agent of a nonprofit educational institution, library, or archives acting within the scope of his or her employment who, or such institution, library, or archives itself, which infringed by reproducing the work in copies or phonorecords; or (ii) a public broadcasting entity which or a person who, as a regular part of the nonprofit activities of a public broadcasting entity (as defined in subsection (g) of section 118) infringed by performing a published nondramatic literary work or by reproducing a transmission program embodying a performance of such a work.
(FOOTNOTE 1) So in original. Probably should be “in.”
Title 17 U.S.C., § 506. Criminal offenses
(a) Criminal Infringement — Any person who infringes a copyright willfully either –
1) for purposes of commercial advantage or private financial gain, or
2) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1 000, shall be punished as provided under section 231 9 of title 1 8, United States Code. For purposes of this subsection, evidence of reproduction or distribution of a copyrighted work, by itself, shall not be sufficient to establish willful infringement.’.
Title 18 U.S.C., § 2319. Criminal infringement of a copyright
(a) Whoever violates section 506(a) (relating to criminal offenses) of title 17 shall be punished as provided in subsections (b) and (c) of this section and such penalties shall be in addition to any other provisions of title 17 or any other law.
(b) Any person who commits an offense under subsection (a) of this section –
1) shall be imprisoned not more than 5 years, or fined in the amount set forth in this title, or both, if the offense consists of the reproduction or distribution including by electronic means, during any 180-day period, of at least 10 copies or phonorecords, of 1 or more copyrighted works, which have a total retail value of more than $2,500;
2) shall be imprisoned not more than 10 years, or fined in the amount set forth in this title, or both, if the offense is a second or subsequent offense under paragraph (1); and
3) shall be imprisoned not more than 1 year, or fined in the amount set forth in this title, or both, in any other case.
(c) Any person who commits an offense under section 506(a)(2) of title 17, United States Code –
1) shall be imprisoned not more than 3 years, or fined in the amount set forth in this title, or both, if the offense consists of the reproduction or distribution of 10 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of $2,500 or more;
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Revenue losses to the to the worldwidesoftware industry due to piracy were esti-mated at $11.4 billion. This is a reversal ofthe 16 percent decrease in estimated lossesbetween 1995 and 1996 that were gener-ally attributed to lower software prices.North America, Asia, and Western Europeaccounted for the majority (84 percent) ofrevenue losses. The top ten countries withthe highest dollar losses due to softwarepiracy are (in ranking order) the UnitedStates, China, Japan, Korea, Germany,France, Brazil, Italy, Canada, and theUnited Kingdom. Total combined lossesfor these countries are $7.8 billion, or 68percent of worldwide losses.
Africa and the Middle East
At 65 percent, this region had the second-highest regional piracy rate in the world,even after a 9 percent decline from 1996.South Africa, Turkey, and Israel represent49 percent of the monetary losses in theregion. (See Exhibit 2.)
On June 22, 1998, as a result of a leadreceived from the BSA, the Ministry ofCulture in Egypt carried out its first end-user raid against a company in Cairo. Thiscompany was found to be using piratedcopies of Office 97 Professional and Win-dows 95. A hard disk containing this soft-ware was confiscated. The Ministry of
Culture gave the company two days tolegalize the software.
In Ankara, Turkey, following last year’sraid on end-user target BMC Sanayi ve Tic-aret AP, a member of one of the country’slargest financial groups, a verdict was issuedin the criminal courts on June 20, 1998. Asthe first criminal conviction for end-usepiracy in Turkey, this represents a landmarkvictory. Two employees of the companywere convicted of copyright infringementand sentenced to six months imprison-ment. The court also issued fines againsteach for $60,000. The sentence and finewere then suspended because of the defen-dants’ clean criminal records. The BSA laterreached an out-of-court settlement con-cerning the civil case. The settlementagreed on is the sum of $100,000 togetherwith a joint press release conceding the lia-bility. The BSA also agreed to drop privatecriminal proceedings against two membersof senior management of BMC.
In Israel, a judge recently ruled that LiorNimni, an individual and owner of a com-puter games and television retail shopaccused of copying BSA member softwareonto CDs, was in violation of the CopyrightOrdinance and Consumer Protection laws.Nimni’s defense was that he did not knowthat this was against the law — Section 3(l)of the Copyright Ordinance requires that
EXHIBIT 1
Copyright Act of 1976
(continued)
2) shall be imprisoned not more than 6 years, or fined in the amount set forth in this title, or both, if the offense is a second or subsequent offense under paragraph (1); and
3) shall be imprisoned not more than 1 year, or fined in the amount set forth in this title, or both, if the offense consists of the reproduction or distribution of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1000.
(d) (1) During preparation of the presentence report pursuant to Rule 32(c) of the Federal Rules of Criminal Procedure, victims of the offense shall be permitted to submit, and the probation officer shall receive, a victim impact statement that identifies the victim of the offense and the extent and scope of the injury and loss suffered by the victim, including the estimated economic impact of the offense on that victim.
(e) As used in this section –
1) the terms “phonorecord” and “copies” have, respectively, the meanings set forth in section 101 (relating to definitions) of title 17; and
2) the terms “reproduction” and “distribution” refer to the exclusive rights of a copyright owner under clauses (1) and (3) respectively of section 106 (relating to exclusive rights in copyrighted works), as limited by sections 107 through 120, of Title 17.
The countries with the highest dollar losses due to software piracy are the United States, China, Japan, Korea, Germany, France, Brazil, Italy, Canada, and the United Kingdom.
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the accused has to have “knowingly” soldinfringing software. Despite this, the judgeconcluded that when Nimni sold threecompilation CDs that included games andBSA member software, he did so with fullknowledge of what the disks contained.Moreover, the software companies had notgiven permission to reproduce their soft-ware this way. The judge further pro-claimed that Nimni had sold the softwareat a greatly reduced price and that Nimni’sdefense was “naive.”
In South Africa, a hard disk loader, withwhom the BSA settled earlier this year,signed an immediate settlement agree-ment and paid $2,600 for further infringe-
ment. Exercising an audit clause from theprevious settlement allowing a check ofrecords, the BSA had found further viola-tions. The hard disk loader agreed thatBSA may publicize freely, and the case wasimmediately announced at the annualComputer Faire in Johannesburg.
In Turkey, during the month of June1998, nine raids against suspected pirateresellers were carried out in Ankara, Istan-bul, and the Antalya region, following tipsfrom customers. During the raids, morethan 30 PCs found to be loaded with ille-gal software, including Microsoft, Adobe,and Novell programs, were seized, alongwith large quantities of writeable CDs and
EXHIBIT 2
Middle East and Africa
Piracy Rates Piracy Losses (Retail $000)
Middle East 1995 1996 1997 1995 1996 1997
Bahrain 92% 90% 89% $4,243 $4,495 $3,576
Cyprus 77% 70% 68% $2,566 $2,540 $1,809
Israel 75% 69% 54% $55,639 $77,261 $57,060
Jordan 87% 83% 80% $2,567 $2,659 $1,883
Kuwait 91% 89% 88% $10,300 $10,817 $7,889
Lebanon 79% 73% 79% $1,419 $1,422 $1,796
Malta 77% 70% 64% $1,975 $1,956 $1,299
Mauritius 90% 88% 77% $1,562 $1,646 $1,070
Oman 96% 95% 93% $7,397 $7,905 $5,682
Qatar 91% 89% 87% $3,033 $3,206 $2,760
Reunion 72% 66% 59% $1,894 $1,860 $1,232
Saudi Arabia 77% 79% 74% $29,619 $32,562 $22,541
Turkey 90% 85% 84% $95,249 $90,717 $64,306
UAE 88% 72% 60% $9,866 $8,653 $ 5,325
Other 78% 73% 73% $37,491 $37,822 $27,774
Totals 83% 79% 72% $264,820 $285,522 $206,003
Africa 1995 1996 1997 1995 1996 1997
Egypt 84% 88% 85% $10,674 $18,128 $12,890
Kenya 82% 77% 72% $437 $443 $302
Morocco 82% 77% 72% $6,579 $6,675 $4,559
Nigeria 82% 77% 72% $3,620 $3,673 $2,509
S. Africa 58% 49% 48% $88,323 $43,783 $69,833
Other 87% 83% 71% $146,878 $152,531 $95,414
Totals 74% 70% 60% $256,512 $255,234 $185,507
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pirated diskettes. Public prosecution ispending against eight of the companies,but no action will be taken against theninth company, where no unlicensed soft-ware was found.
Asia and the South Pacific
Asia continues to be the region with thegreatest dollar losses, which totaled $3.9billion in 1997, up from 3.7 billion in 1996.This increase results from a three percentincrease in the number of new businesssoftware installations, coupled with atrend toward piracy of more sophisticatedand costly applications. The countrieswith the highest rates were Vietnam (98percent ), China (96 percent), and Indo-nesia (93 percent). Countries with thehighest dollar losses were China ($1.4 bil-lion), Japan ($752 million) and Korea($582 million). (See Exhibit 3.)
On the basis of an informal complaintfiled by Microsoft, the Administration forIndustry and Commerce (AIC) at HaidianDistrict raided two Beijing companies sus-
pected of end-user piracy. Because theAIC does not have clear authority to takeaction against end-user piracy under thePRC copyright law, the agency conductedthe raid based on its duty to monitor gen-eral business activity. The AIC invitedMicrosoft, a public notary officer, and arepresentative from the China SoftwareAlliance (CSA) to join the raid. At the firsttarget, the team found illegal copies ofCSA member titles; at the second, theyfound pirate copies of Microsoft Office 97and several CSA titles. The case waspassed to the National Copyright Admin-istration for decision.
BSA recently concluded actions againsttwo well-known companies. After a leadfrom an ex-employee of one of the mostfamous English training centers in Taipei,BSA convinced authorities to conduct araid, which uncovered the use of illegalcopies of Adobe, Eten, Microsoft, Novell,and Symantec software on the center’s 73computers. The training center agreed topay BSA $50,000 to settle the matter.
EXHIBIT 3
Asia/Pacific
Piracy Rates Piracy Losses (Retail $000)
Asia/Pacific 1995 1996 1997 1995 1996 1997
Australia 35% 32% 32% $198,146 $128,267 $129,414
China 96% 96% 96% $443,933 $703,839 $294,593
Hong Kong 62% 64% 67% $122,938 $129,109 $122,169
India 78% 79% 69% $155,645 $255,344 $184,664
Indonesia 98% 97% 93% $150,921 $197,313 $193,275
Japan 55% 41% 32% $1,648,493 $1,190,323 $752,598
Korea 76% 70% 67% $675,281 $515,547 $582,320
Malaysia 77% 80% 70% $80,596 $121,488 $82,552
New Zealand 40% 35% 34% $26,083 $29,271 $20,284
Pakistan 92% 92% 88% $14,233 $23,144 $20,395
Philippines 91% 92% 83% $45,022 $70,735 $49,151
Singapore 53% 59% 56% $40,374 $56,553 $56,599
Taiwan 70% 66% 63% $165,462 $116,980 $136,850
Thailand 82% 80% 84% $99,146 $137,063 $97,404
Vietnam 99% 99% 98% $35,076 $15,216 $10,132
Other 95% 86% 83% $90,053 $49,113 $31,974
Totals 64% 55% 52% $3,991,399 $3,739,304 $3,916,236
Asia continues to be the region with the greatest dollar losses, which totaled $3.9 billion in 1997, up from $3.7 billion in 1996.
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Additionally, following the BSA investiga-tion of a landscape design company inKaohsiung, authorities raided the pre-mises and found unauthorized copies ofAutodesk, Dynalab, and Microsoft soft-ware on its 18 computers. The companyagreed to settle the matter by paying BSA$35,000 in damages.
Following New Zealand’s recent deci-sion to completely eliminate all parallelimport restrictions on all copyrightedgoods, Microsoft launched an aggressiveanticounterfeiting campaign in order tohead off an anticipated increase in thelevel of imported counterfeit software intoNew Zealand. Microsoft targeted an Auck-land importer of counterfeit software, pay-ing a surprise visit. During this visit, theimporter was given the choice of deliveringup all counterfeit Microsoft software,including importation and sales records,and signing undertakings admittingimportation and sale of counterfeitMicrosoft software, or else facing immedi-ate legal action. The importer agreed tothe terms and delivered up the requesteditems, including copies of counterfeitMicrosoft Office 97 Professional and salesrecords showing that it was imported fromMiami, Florida. This case is proof that anincrease in counterfeit importation follow-ing the parallel import restriction elimina-tion is more than speculation.
Recent purchases from dealers through-out Victoria and the Australian CapitalTerritory (Canberra) uncovered illegalpractices, including the loading of unli-censed software onto PCs for sale. Sevenof the dealers decided to settle immedi-ately rather than face legal proceedings.The settlements involved damagesamounting to approximately $26,613 andincluded donations of computer equip-ment to a children’s charity and pledges bythe dealers to purchase Microsoft productsonly though authorized distributors.Microsoft has pledged sales support andtraining to the dealers showing consistentcommitment to the settlement terms.Microsoft has filed suit against three other
dealers, one of which has three retail loca-tions throughout Victoria and has previ-ously given undertakings not to infringeMicrosoft’s products. This program willexpand to other regions including Queen-sland and New South Wales over the com-ing months.
In Hong Kong, BSA recently enteredinto a consent order settling its copyrightinfringement case against a publicly listedcompany with worldwide operations inelectronics and other business areas. Thecase against this company started after asenior manager tipped off the BSA Hotlinein June 1997, revealing that the companywas using unauthorized software programspublished by Adobe, Autodesk, Microsoft,and Symantec on more than 200 PCs. Aspart of the settlement, the company agreedto pay $193,575, which comprises legalfees, damages, and the value of replace-ment software. This settlement amountmarks the largest since the launch of theBSA 30-day enforcement campaign at thebeginning of 1997. The company alsoagreed to issue a joint press release withBSA strongly supporting the BSA enforce-ment efforts and the use of legal software.
In Perth, Western Australia, in a well-attended press brief ing, Microsoftannounced its $12,847 settlement withthe Australian software development com-pany, Info Sci Pty Ltd. The settlement fol-lows a lawsuit filed against the companyand its technical director for using illegalMicrosoft software. It was the firstinstance in which Microsoft sued an Aus-tralian company for using illegal software.As a token of appreciation, Microsoftawarded Fahad Saadah $3,059 for provid-ing details of the piracy activity. Notably,Mr. Saadah played an active role in thepress briefing, establishing a message forlocal businesses to “do the right thing” andlicense their software. As a result of thepress briefing, television broadcast theevent throughout the region.
In the latest Dealer Test PurchaseCampaign in Thailand, Microsoft caughtfour computer dealers hard disk loading
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unlicensed Microsoft Windows 95 Thaiversion and Office 97 Thai version ontonew PCs being sold to the public. As aresult of settlement negotiations withMicrosoft, Microchip C&C agreed to payMicrosoft a total of $5,500 as costs anddamages and to publish an apology in theEnglish and Thai media for infringingMicrosoft’s copyright. The remainingthree dealers face legal proceedingsbecause of their refusal to settle amicably.
On June 9, 1998, the Malaysian Enforce-ment Division conducted the first end-userraid at the end of the 30-day legalizationperiod, which began May 8. The raid wasconducted against a Kuala Lumpur engi-neering firm for using illegal software torun its business despite previous publicwarnings from the Enforcement Division.A total of 20 out of 39 PCs found on thepremises were installed with unlicensedsoftware and were subsequently seized byan enforcement team composed ofEnforcement Division officers and BSAtechnicians and representatives. The unli-censed software included Autodesk,AutoCAD, Microsoft Windows, MicrosoftOffice 97, Norton Utilities, and NortonCommander, with a total estimated valueof $39,551. On June 12, the EnforcementDivision held a press conference with theBSA announcing that this first end-userraid following the government-endorsedAwareness Campaign signaled the begin-ning of a serious crackdown by theEnforcement Division on corporate piracy.The Enforcement Division stated thatenforcement would not be restricted to theKuala Lumpur area and would be extendedto other Malaysian states. The BSA alsoannounced that it would embark upon a“direct calling campaign” whereby BSArepresentatives would contact end users toascertain whether they were still usinglicensed software.
South America
Countries with the largest revenue lossesinclude Brazil ($395 million), Mexico($133 million), and Argentina ($105 mil-
lion). These three countries represent 69percent of the region’s dollar losses, corre-sponding to the 65 percent of the businesssoftware market these countries repre-sent. Although the piracy rate in SouthAmerica declined by six percentagepoints, more than six out of every tenapplications were pirated in the regionduring 1997, with an overall regionalpiracy rate of 62 percent. The countrieswith the highest piracy rates were El Sal-vador (89 percent, still the highest in theregion), Bolivia (88 percent), and Para-guay (87 percent). (See Exhibit 4.)
Recently, two raids by Colombiancourts against suspected pirates foundlarge amounts of pirated software. InMedellin, the civil court’s team inspectedan ice cream producer on June 16, 1998.They found 85 unauthorized copies ofMicrosoft software and 20 unauthorizedcopies of Symantec’s Norton Commanderproduct. In all, 98 percent of the softwarefound was unlicensed. The court orderedthe seizure of this software and 20 PCs. InBogotá, a concrete additives manufacturerwas inspected by the court on June 19,1998. Pirated copies of Microsoft, Adobe,and Symantec software were found, lead-ing to a court seizure order for 75 percentof the installed software programs.
In June 1998, the BSA successfully com-pleted a search and seizure upon a regionalbank in Guayaqyuil, Ecuador. BSA expertsinspected 59 PCs, finding unlicensedMicrosoft products on 56 of them. Despitebeing subjected to threats of physicalharm and countersuits, the antipiracyteam finished the inspection, and courtofficials seized the 56 computers contain-ing the pirated copies of software.
At a seminar sponsored by the localoffice for the protection of copyrights(ONDA) in May 1998, the Santo Dom-ingo District Attorney announced the cre-ation of an antipiracy department withinhis office. The department is to be staffedby two prosecutors dedicated exclusivelyto the protection of intellectual propertythrough active enforcement efforts. The
Despite being subjected to threats of physical harm and countersuits, the antipiracy team finished the inspection, and court officials seized the 56 computers containing the pirated copies of software.
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seminar was attended by approximately 65judges and prosecutors.
Western and Eastern Europe
Although dollar losses in Eastern Europeseem relatively low compared with otherregions ($562 million in 1997), EasternEurope continues to be the region withthe highest piracy rate. Nearly eight out often applications were pirated in 1997.With an overall regional rate of 77 percent— representing only a three percentdecline from the previous year — thecountries with the highest piracy rateswere Bulgaria (93 percent) and Russia (89percent). Countries with the highest dol-lar losses in Eastern Europe were Russia($251 million), Poland ($107 million), andthe Czech Republic ($51 million). (SeeExhibit 5.)
In Western Europe, the largest dollarlosses to software piracy occurred in Ger-many ($509 million), France ($408 mil-lion), and the United Kingdom ($355
million). The highest piracy rates were inGreece (73 percent), Ireland (65 percent)and Spain (59 percent). The average piracyrate in Western Europe declined by fourpercentage points to 39 percent.
According to a recent study conductedby PricewaterhouseCoopers on behalf ofthe BSA, by 2001 the packaged softwareindustry will have created 426,464 jobs,$21.76 billion in fiscal revenues, and salesof $59.75 billion. However, the same studyalso indicated that if software piracy werekept down to 27 percent (the present U.S.level), a further 258,651 jobs, $13 billion intax revenues, and $37.4 billion in salescould be achieved.
As David Gulley, Director and SeniorEconomist at PricewaterhouseCoopers,comments: “This study shows that evensmall percentage reductions in softwarepiracy can lead to dramatic increases in pack-aged software sales and, as a result, a rise injobs and tax revenues.” This is well illustratedif one looks back on the industry’s economic
EXHIBIT 4
Central and South America
Piracy Rates Piracy Losses (Retail $000)
Central and South America 1995 1996 1997 1995 1996 1997
Argentina 80% 71% 65% $151,814 $122,389 $105,194
Bolivia 92% 89% 88% $4,017 $3,527 $3,853
Brazil 74% 68% 62% $441,592 $356,370 $394,994
Chile 61% 62% 56% $47,920 $39,960 $33,147
Colombia 72% 66% 62% $103,288 $85,920 $65,085
Ecuador 88% 80% 75% $15,460 $12,852 $13,236
El Salvador 97% 92% 89% $13,207 $11,489 $10,419
Guatemala 94% 89% 86% $10,095 $8,675 $7,867
Honduras 88% 83% 78% $4,592 $3,918 3,468
Mexico 74% 67% 62% $135,905 $105,909 $133,102
Nicaragua 92% 89% 83% $6,529 $5,763 $5,010
Panama 77% 64% 60% $7,330 $5,528 $4,867
Paraguay 95% 89% 87% $6,327 $5,408 $5,029
Peru 84% 74% 66% $40,522 $32,437 $31,017
Uruguay 84% 79% 74% $18,876 $16,116 $13,613
Venezuela 72% 70% 64% $57,968 $51,272 $54,905
Other 77% 54% 47% $76,074 $43,230 $34,848
Totals 76% 68% 62% $1,141,516 $910,763 $919,653
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contribution in 1996, when it generated $37billion in sales; 334,181 jobs and $15 billionin tax revenues throughout Europe.
In Devon, United Kingdom, a Barnsta-ple trader, Christopher Charles Bennett,pleaded guilty to 22 charges brought bythe Devon Count Council under theTrades Descriptions Act, the TrademarksAct, and the Copyright Designs and Pat-ents Act for infringements, including,among others, Microsoft software. Thejudge considered that the matter clearly
deserved a custodial sentence, but becauseof Bennett’s family circumstances and hisconsiderable financial debts, he imposedthe following sentence: 240 hours commu-nity service (the maximum allowed) andpayment of costs totaling $816.
In Esbjerg, Denmark, the city courtordered an individual to pay Microsoftdamages of $140,000 in a compilation CD-ROM case. The man in question was oneof the major targets identified in lastspring’s compilation CD-ROM campaign.
EXHIBIT 5
Western and Eastern Europe
Piracy Rates Piracy Losses (Retail $000)
Western Europe 1995 1996 1997 1995 1996 1997
Austria 47% 43% 40% $66,994 $50,267 $41,620
Belgium 48% 38% 36% $78,210 $49,197 $51,485
Denmark 47% 35% 32% $82,670 $37,531 $45,787
Finland 50% 41% 38% $80,603 $36,335 $37,754
France 51% 45% 44% $537,567 $411,966 $407,900
Germany 42% 36% 33% $775,898 $497,950 $508,884
Greece 86% 78% 73% $40,573 $45,802 $44,546
Ireland 71% 70% 65% $40,640 $45,650 $46,847
Italy 61% 55% 43% $503,648 $340,784 $271,714
Netherlands 63% 53% 48% $275,320 $221,144 $195,098
Norway 54% 54% 46% $96,981 $103,852 $104,337
Portugal 61% 53% 51% $50,230 $36,183 $40,991
Spain 74% 65% 59% $229,933 $148,823 $167,288
Sweden 54% 47% 43% $206,332 $112,498 $127,051
Switzerland 47% 43% 39% $132,779 $99,545 $92,898
UK 38% 34% 31% $444,561 $337,344 $334,527
Totals 490/0 43% 39% $3,642,938 $2,574,871 $2,518,726
Eastern Europe 1995 1996 1997 1995 1996 1997
Bulgaria 94% 98% 93% $20,394 $9,594 $13,171
CIS less Russia 94% 95% 92% $37,033 $49,469 $44,276
Czech 62% 53% 52% $56,108 $69,212 $51,972
Hungary 73% 69% 58% $55,086 $42,987 $25,488
Poland 75% 71% 61% $150,287 $169,202 $107,625
Romania 93% 86% 84% $20,163 $8,380 $15,297
Russia 94% 91% 89% $301,076 $383,304 $251,837
Slovakia 62% 56% 58% $13,678 $14,055 $171018
Slovenia 96% 91% 76% $20,174 $8,666 $9,198
Other 84% 73% 62% $74,078 $27,639 $25,474
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Based on information seized and thedefendant’s own statements, it was esti-mated that he had sold nearly 3,000 com-pilation CD-ROMS. A total of 90 CD-ROMs were seized in connection withsheriff’s court proceedings, and the namesof 28 customers were discovered. All cus-tomers were then contacted and asked toreturn illegal CD-ROMS, erase illegal cop-ies, and to confirm that they will not buyor use illegal software in the future. As aresult, 46 CD-ROMs were turned over toBSA local counsel.
Routine car searches carried out by cus-toms officials on the German–Polish bor-der have led to the seizure of 2,400counterfeit Microsoft Office 97 Profes-sional CD-ROMS, with a total retail valueof $1.88 million. Two men were discoveredwith 1,500 counterfeit copies of the pro-gram in their vehicles, having traveledfrom Poland to Germany. The residencesof both men were subsequently searched,and additional counterfeit Microsoft soft-ware was discovered and seized.
On June 5, 1998, a Moscow court con-victed the director of the CD-ROM resellerPosrednik-1 of software piracy and imposeda penalty totaling approximately $5,000.Although the penalty will not be executedbecause of a recent amnesty provision, thiscase is nevertheless significant as it repre-sents the third criminal software convictionso far under the Russian Criminal Code.
Last spring, Hungarian police, acting onBSA complaints, raided three resellers intwo towns for hard disk loading and seizedillegal copies of BSA member software,including various versions of MicrosoftWindows and MS-DOS. The police alsoseized businesses’ records, including cus-tomer lists from the stores in question, andthey are pursuing investigations againstend users. BSA local counsel continues toassist the police in the investigation andcriminal prosecution of these cases. Apress conference was subsequently held,highlighting the risks faced by hard diskloaders, as well as the risks faced by endusers when they purchase illegal software.
Approximately 30 journalists attended thepress conference, and coverage appearedon national television.
In the first instances of their kind, twoEstonian courts found defendants guiltyof selling illegal CD-ROMs with BSAmember software. The first conviction, onMay 25, was the result of a police raid ofMustambe market on April 25 in whichpolice seized 17 illegal CD-ROMs con-taining Microsoft, Adobe, and Symantecsoftware, and 322 CD-ROMs containingentertainment software. The defendantwas fined $250 and ordered to destroy allof the illegal CD-ROMs. The second ofthese sentences resulted from a flea mar-ket raid in Tallinn in early May duringwhich police seized 57 CD-ROMs con-taining illegal BSA member software. Thecourt found the defendant in this secondcase, Aleksander Sozinov, guilty of copy-right infringement and ordered him to paya fine totaling $250. These recent raidswere inspired by new regulations in Esto-nia that prohibit the sale of CDs and CD-ROMs in open markets or other publicplaces. Since the adoption of the new reg-ulations, Estonian police have seized morethan 12,000 CDs and hundreds of CD-ROMs, many with BSA member software,throughout the country.
On June 14, 1998, the criminal policeraided the headquarters of the companyEuro Comp SRO, which owns the biggestchain of retail stores specializing in elec-tronics in Slovakia. Police acted on therequest of BSA local counsel, who receivedinformation that the company had ille-gally installed Microsoft, Novell, and othersoftware on its network (more than 40PCs) and that it had illegally preinstalledsoftware onto PCs for sale in its retailshops. This is the first ever end-user andhard disk loading raid in the SlovakRepublic. BSA has published a pressrelease that was aired on the most popularradio station and was subsequently pub-lished in several daily newspapers.
A campaign against hard disk loadinglaunched in Italy earlier this year has been
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a huge success. The campaign was initi-ated after information was sent regardingillegal activities among resellers involvingMicrosoft software, in particular hard diskloading activities. The goal of the cam-paign was to stop the illegal activities thatnegatively impact the market and createunfair competition. A total of 24 resellerswere caught distributing illegal Microsoftsoftware; 14 civil actions ended in settle-ment between Microsoft and the resellers,and 10 civil lawsuits are pending. Thecampaign generated positive feedbackfrom the reseller community.
North America
At $3.1 billion, losses to software piracy inNorth America represent 27 percent ofworldwide losses. The United Statesaccounted for $2.7 billion of the NorthAmerican losses, up from $2.3 billion in1996. The dollar losses reflect a 28 percentpiracy rate, coupled with a market thatrepresents 43 percent of the business soft-ware in use worldwide. (See Exhibit 6.)
This survey shocks the conscience, fur-ther illustrating that fighting piracy mustbe elevated to a higher priority. For exam-ple, while the average “inventory shrink-age” (losses from shoplifting and othersources) for the U.S. retail sector is lessthan two percent, the software industryloses 27 percent in the United States, andworldwide losses average an alarming 40percent. “These losses have serious nega-tive implications well beyond the industry,stealing jobs and hurting customers,” saidRobert Holleyman, president and CEO ofthe Business Software Alliance.
“Software piracy continues unabated,and even more sobering is the realizationthat piracy of educational and entertain-ment software costs uncounted billionsmore,” said Ken Wasch, president of theSoftware Publishers Association. “We callon governments around the world to ratifythe WIPO Copyright Treaty, which wouldprovide much-needed remedies againstsoftware piracy tools, and to rededicatethemselves to fighting piracy by andthrough enforcement and education.”
Jointly commissioned by BSA and SPA,this study was conducted by InternationalPlanning and Research (IPR). The IPRstudy evaluated sales data and marketinformation for 82 countries in the sixmajor world regions, and was based on 26business applications. This study com-pares 1997 piracy rates with losses in 1994,1995, and 1996.
Microsoft recently announced thebreakup of a counterfeiting operation inAnaheim, Cal i fornia involving theMicrosoft Windows 98 operating system.On July 8, 1998, Anaheim police arrestedDonald Goldberg in a parking lot after heallegedly delivered more than 800 copies ofcounterfeit Windows 98 to an Anaheimpolice officer in a previously arranged trans-action. “This is the first case of counterfeit-ing Windows 98 that we’ve found,” saidAnnmarie Levins, Microsoft corporateattorney. “We’re very pleased by the actionand attentiveness of the Anaheim PoliceDepartment Economic Crimes Detail, whoshut down this operation so quickly.”
The suspects in this case allegedly tookout advertisements in local sales publica-
EXHIBIT 6
North America
Piracy Rates Piracy Losses (Retail $000)
North America 1995 1996 1997 1995 1996 1997
United States 26% 27% 27% $2,940,294 $2,360,934 $2,779,673
Canada 44% 42% 39% $347,085 $357,316 $294,593
Total 27% 28% 28% $3,287,379 $2,718,251 $3,074,2661
Software piracy continues unabated, and even more sobering is the realization that piracy of educational and entertainment software costs uncounted billions more.
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tions, using pagers to arrange locations forthe delivery of the pirated software. Fol-lowing the arrest of Goldberg, Anaheimpolice searched the business location ofAutoScape Productions. Evidence ofcounterfeiting of Microsoft products andsoftware from other companies, includingAdobe, Symantec, and Autodesk wasseized. Goldberg was charged under Sec-tion 350 of the California Penal Code:Theft of Trademarked or CopyrightedMaterial. Bail was set at $1,000.
The software industry is a significantdriver of the current economic prosperityin the United States, accounting for$102.8 billion in software and software-related services, payment of $7.2 billion intaxes, and the creation of more than twomillion jobs. Software piracy threatens theability of the industry to continue to con-tribute to the U.S. economy. According toa 1997 study by Nathan Associates, Inc.,commissioned by the Business SoftwareAlliance, software piracy in 1996 resultedin the loss of 130,000 jobs in the UnitedStates, nearly $1 billion in tax revenuesand $5.3 billion in wages.
On June 3, 1998, BSA announced thatIndustrial Systems Associates (ISA) inFeasterville, Pennsylvania, an industrialparts supplier, has agreed to pay BSA$110,000 to resolve claims of softwarecopyright infringement. The informationoriginated via a call to the BSA antipiracyHotline. Industrial Systems Associatesagreed to make the payment after an inter-nal audit revealed pirated copies ofMicrosoft and Symantec software. Pressand media coverage of the announcementappeared in the local newspaper as well asregional radio news programs.
In Pasadena, California, Raffi HratchSetrakin, doing business as CompleteComputer Center, has signed a settlementagreement with Microsoft. Setrakin alleg-
edly hard disk loaded Windows 95 andOffice 97 Professional onto a computersystem sold to an undercover Microsoftinvestigator. After extensive negotiationshe agreed to settle Microsoft’s $16,044costs and damages. Setrakin is prohibitedagainst any future infringement under theterms of the settlement agreement.
In Houston, Texas, Lauren ComputersInc., doing business as Softeq Computers,and its principal Phuc Tran, aka MichaelTran, have signed a settlement agreementwith Microsoft. Softeq Computers alleg-edly hard disk loaded and distributedcounterfeit Microsoft software. Afterextensive negotiations, the firm agreed tosettle Microsoft’s costs and damages to thesum of $11,672, and it is prohibitedagainst any future infringement under theterms of the settlement agreement.
INTERNET SOFTWARE PIRACY
Internet piracy is on the rise. According toBSA, three major factors are contributingto this rise. The first is the explosivegrowth in the number of people accessingthe Internet. At home and at work, theInternet is accessed by an estimated 50million users in the United States alone.Second, ease of access to the Internet hasincreased along with advances in technol-ogy. Increasingly inexpensive, ever-fasteraccess combined with revolutionary devel-opments in the World Wide Web hasallowed pirates to connect with even themost novice of users. Finally, most Inter-net piracy can be accomplished in thehome or office with very little risk of detec-tion. Unlike the physical distribution ofpirated software, the goods are transferredfrom host computer to PC without beingtouched by human hands and often with-out anyone’s knowledge.
The common vehicles for Internetpiracy include:
Software piracy threatens the ability of the industry to continue to contribute to the U.S. economy.
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■
E-mail.
This includes exchange of soft-ware via e-mail as well as the solicitation and sale of software through e-mail com-munications. Electronic mail eliminates the need to copy programs onto physical media as well as the necessity of trading in person.
■
News groups.
Much like electronic mail, news groups are established discussion groups that provide a forum in which to transact trades. They are publicly avail-able, and are also used as vehicles to dis-tribute pirated software.
■
Internet chat.
IRC (Internet Relay Chat) allows real-time, interactive “chat-ting” — participants see what others type as they type it. IRC discussion groups (called channels) have been established as a marketplace to advertise the recent or temporary pirated software sites.
■
Mail order.
An extension of traditional mail order, the Internet establishes a new medium for locating customers and prod-uct. Prospective buyers can browse, select, and order pirated software online. Spam (unsolicited commercial e-mail), the elec-tronic equivalent of direct “junk” mail, is another source of advertisement for pirated software used to lure potential customers.
■
FTP.
File Transfer Protocol sites allow the exchange of programs though upload-ing and downloading. They are frequently enormous warehouses of program files and information that are exploited by software pirates, allowing the distribution of thou-sands of copies of copyrighted software programs. Legitimate corporate, govern-ment, and educational organizations are often the victims of hijacking by pirates, who use others’ computers as temporary distribution sites.
■
Serial numbers.
Many Web sites list thousands of serial numbers, which are needed by users who obtain software from pirate Websites or other unauthorized sources in order to install or operate the program.
■
World Wide Web.
The evolution of the Web allows pirates to create home pages, providing links to active download sites.
Some simultaneously advertising and pro-viding pirated software, or which others link directly to remote hosts. “Warez” is a slang term for pirated software. A search on “warez” yields thousands of pages of software piracy sites, in countries all over the world.
Internet piracy is a form of copyrightinfringement, and it is illegal. In general,software piracy is the unauthorized dupli-cation or distribution of copyrighted soft-ware programs. Downloading a copy-righted software program from the Inter-net without authorization makes a copythat directly infringes the work, regardlessof whether the work is zipped, encrypted,or parceled. Uploading the files and creat-ing sites that enable others to downloadthe files — even from remote locations —materially contributes to the infringementand is also prohibited by the law.
Civil penalties for copyright infringe-ment include civil injunction, actual dam-ages (including infringer’s profits), orstatutory damages up to $100,000 perinfringement. Criminal penalties for copy-right infringement include fines up to$250,000 and jail terms up to five years, orboth. In 1997, President Clinton signed abill that removes profit motive as one ofthe criteria for criminal prosecution. Thatmeans that perpetrators no longer need toobtain economic benefits from the piracyto face criminal charges. (See Exhibit 7.)
Because software piracy takes manyforms, as previously described, it is neces-sary to use different strategies to combateach problem. As the problem has esca-lated over the years, publishers have trieda myriad of inventive measures. Followingare descriptions of the state of currentthought in combating piracy.
Trade Sanctions
The common method of combatingindustrial piracy (counterfeiting) is crimi-nal law enforcement in this country andtrade sanctions abroad. The Special 301law, which protects against copyright and
In 1997, President Clinton signed a bill that removes profit motive as one of the criteria for criminal prosecution.
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patent piracy, provides for six months ofnegotiations with foreign governmentsconcerning cases of infringement, with apossible extension of two months. If reso-lution were not achieved within thisperiod, the United States would theoreti-cally retaliate with trade sanctions.Because of political considerations, Spe-cial 301 has proven difficult to enforce.
Legal Action
As required by the law governing copy-rights and patents, the most commonremedy in firm-to-firm infringement casesis civil legal action. With the courts cur-rently favoring patent and copyright hold-ers over infringers, an alarming trend hassurfaced in parties trying to capitalize onthe system. A current hot spot in themedia is the debate over the patenting ofcommonly used computer algorithms thatare hard for competing programmers toavoid using. “Patents surface like landmines after someone has developed soft-ware independently,” according to Dou-glas K. Brotz of Adobe Systems.
Aside from firm-to-firm intellectualproperty infringement, the federal govern-ment has made an effort to stop large-scalesoftware duplication. With the recent trialof the MIT student accused of facilitatingsoftware piracy to the crackdown on cot-tage-industry software pirates, authoritiesare attempting to send a strong message. A
father and son who, authorities say, were thealleged masterminds behind the operationto counterfeit copies of the popular CD-ROM games “Rebel Assault” and “Myst”were arrested in Buffalo, NY, and chargedwith two felony counts of copyrightinfringement. The FBI is continuing a stingoperation aimed at CD-ROM counterfeit-ers, and officials said additional warrantswere served in Indiana and New Hampshire.
As the law currently reads, “a violationis a felony if 10 or more copies areinvolved, if they are valued at $2500 ormore and if the copying was done withinsix months. If the infringement falls shortof those measures, then the instance isconsidered a misdemeanor. The purposethe law is to stop large-scale abuse.” Thisleaves a hole in the law where individualacts of software copying are concerned.
In addition to going after counterfeit-ers, publishers are cracking down on hard-wa re r e se l l e r s w i th a vengeance ,anonymously visiting trade shows andcomputer fairs to check for pirated soft-ware on resellers’ machines. The penaltiesfor resellers are steep; they face triple dam-age awards and may be required to paypublishers for the illegal copies of softwarein their possession.
Industry Watchdogs
There are currently two industry groupsdedicated to preserving software intellec-
EXHIBIT 7
Top Seven Countries Hosting Pirate Sites
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tual property rights. These are the Soft-ware Publishers Association and theBusiness Software Alliance. Both of theseindustry groups focus on corporate piracyand industrial piracy or counterfeiting.
The Software Publishers Association hascollected $14 million in lawsuits since1988; the Association’s hotline receivesbetween 20 and 30 calls per day, mainlyfrom disgruntled employees. Annually, itcollects more than $3.5 million in fines andpenalties. The Business Software Alliancehas launched 500 investigations that led to400 settlement agreements during the pasttwo years. In addition to keeping an eye oncorporations, software publishers nowsponsor five undercover Internet patrollerswho monitor software exchanges.
Copy ProtectionIn the days when computers were run fromfloppy disks, copy protection was astraightforward matter. Disks could beprotected so that they could not be copied,but the end user was not inconveniencedbeyond not being able to make a personalbackup copy. Unfortunately for publish-ers, even in those days, on-disk copy pro-tection was not entirely effective. Hackerswould eagerly await the next copy-protec-tion scheme for the chance to be the firstto break it. Several factors in computinghave been combined, however, to makecopy protection an exception rather than arule in preventing piracy.
With the advent of hard drives and theneed for backup and recovery systems,copy protection began to hamper the legit-imate end user’s normal activities. Thedynamic nature of the software industry,with firms entering and leaving all thetime, raised the stakes for consumers ofcopy-protected software, because a com-pany might not be around to replace a cor-rupted disk. By 1986, there was such aconsumer backlash that most publishersabandoned copy protection altogether.With piracy currently approaching epicproportions, however, many firms are rein-vestigating the logistics of protection:
■ PageMaker 5.0 from Adobe Systems prevents the concurrent use of the same program copy on a network. When a net-work user tries to load the program, the software checks the serial number against those of other copies in use. If someone else is using one with the same serial num-ber, a second copy will not load.■ Microsoft Office comes on 1.7MB flop-py disks, a format that cannot be copied using any of the standard DOS commands or through File Manager.■ SoftCop has released a program that en-ables software companies to lock entire ap-plications until the user calls in, registers the product, and gets a unique code to un-lock it. Softcop also encodes internal de-tails of the machine it is installed on to prevent transfer to other machines.■ The DeScribe word processor for OS/2 and Windows, when originally released, came on disks that would expire at the end of six months, making them unusable. Us-ers would then receive a new set of disks in the mail every six months. Because of cus-tomer reactions, the scheme was retracted.
Software publishers have constantlytried to educate consumers to the perils ofpurchasing illegal copies of software. Pub-lishers are now taking steps to make coun-terfeits easier to recognize. ImageDisc byDisc Manufacturing, Inc., embeds holo-gramlike images on the surface of discs tomake knock-offs easier to spot. Basically,this system appeals to a person’s integrity.If there is a clear indication that some-thing has been pirated, there is a chance apurchaser will not buy it. Publishers arealso taking steps to educate their corporatecustomers. The DeScribe word processor’spublisher requires companies to sign ausage agreement whereby they promisenot to use unauthorized copies.
Shareware and SamplersAn emerging trend in software distribu-tion related to moral appeal is sharewareand samplers. The idea behind sharewareis that programs may be copied and dis-
In addition to keeping an eye on corporations, software publishers now sponsor five undercover Internet patrollers who monitor software exchanges.
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tributed for free — in fact distribution isencouraged. Users, if they like the programand decide to keep it, are asked to volun-tarily send a check to an address on theircomputer screen, If they decide not tokeep it, they are to remove it from theirdrives. The idea of samplers is similar.Consumers may cheaply procure a diskwith a sample of a top-selling software pro-gram to try; if they like the program, theycan call a toll-free number to purchase thefull version. The full features of the soft-ware are then unlocked instantly, oncepayment has been received,
Packaging and DocumentationPerhaps the oldest defense against coun-terfeiting has been program documenta-tion. With user interfaces standardizingand programs becoming easier to use,however, documentation is becomingincreasingly less important. Counterfeit-ing factories in China are sophisticatedenough to provide good duplications ofmanuals and packaging so as to make thiseven less of a deterrent
MeterwareThe most novel approach to stemmingpiracy is the concept of meterware. Theidea is that users would have to dial a bill-ing number once a month. The billingoffice would receive data about to theirsoftware use and bill them for the numberof times they ran the software, This way,everyone who uses the programs has to pay.
TOOLS AND PRODUCTSAs mentioned in the previous section,auditing, locking, and metering tools areincreasingly being used as a means to con-trol piracy.
Auditing SoftwareSPAudit is offered by the Software Pub-lishers Association. SPA Audit 6.1 forWindows NT and NetWare give the userthe ability to conduct hardware and soft-ware audits on both network and standal-
one machines, using a catalog to identifythousands of software applications. Thetwo downloadable zipped files totalapproximately 84 megabytes.
GASP from Attest Systems is the mostaccurate software-auditing tool available.Consisting of over 10,500 applications, thedatabase is continually updated and is userexpandable. GASP completes most auditsin minutes, with minimum network traf-fic. Auditing for all file types, GASP datacan be easily exported into spreadsheet,database, and word processing programs.GASP collects information about any con-figuration or setup file. GASP is compati-ble with most operating systems andincludes complete hardware BIOS tests forYear 2000 compliance.
ManageWise 2.1 from Novell is an inte-grated set of management services thatenables end users to monitor and controltheir network environments. ManageWiselets users easily manage NetWare‚ servers,print queues, and Simple Network Man-agement Protocol devices. They can alsomanage Windows NT servers with theaddition of ManageWise Agent™ forWindows NT Server 2.1. Individual userscan analyze network traffic, remotely con-trol and manage networks and worksta-tions, administer network applications,and prevent virus infiltration all from theirworkstations.
NETCensus from Tally Systems, thefirst product of its kind, is the industry’smost accurate automatic hardware andsoftware inventory product. NETCensusrecognizes hundreds of brand-name PCs,add-ons, and peripherals as well as identify-ing software programs by brand name, ver-sion number, embedded serial number,and foreign language editions. The prod-uct-recognition library is updated with over400 domestic and international softwareand hardware products every 60 days. WithNETCensus, IS professionals and corpo-rate management know exactly what assetstheir organization has and where they are— uncovering hidden assets, ensuringcompliance, and controlling costs.
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Metering SoftwareABC Lan Licenser 3 is the most compre-hensive software-metering tool availablein today’s marketplace. Designed for max-imum performance and scalability acrossany size of corporate network, ABC LanLicenser 3 helps keep networks legallycompliant within all manufacturer’s soft-ware agreements and reduces the totalcost of ownership by allowing organiza-tions to purchase only the software theyneed. Its three-tier client/server architec-ture maximizes response times andreduces network traffic to an absoluteminimum while providing central admin-istration capabilities. Features includeauto callback, mobile user metering, autoshutdown of unattended applications,access control to specific applications,among others. ABC Lan Licenser’s histor-ical trend analysis and dynamic load bal-anc ing a s su re op t imum l i censedeployment on a worldwide basis. It iscompatible with Microsoft Select andAdvantage Plus licensing agreements.
AppMeter 1.2 is a software usage-meter-ing program that lets network administra-tors monitor and manage user access to theapplications on the server. With AppMeter,organizations can stay faithful to licensingagreements and avoid buying more licensesthan are necessary. AppMeter maintains anup-to-the-minute database of the currentusage of all metered applications and accu-mulates historical usage data in daily logfiles. AppMeter’s comprehensive usagereports will help administrators allocatesoftware assets efficiently, document thenetwork’s compliance with its currentlicenses, and make informed decisions onfuture license purchases.
Cenergy from Tally Systems is a best-of-class asset management suite. It combinesthe automatic hardware and softwareinventory of NetCensus with WinIN-STALL’s automatic software distribution.NetCensus, CentaMeter, and WinIN-STALL are proven, full-featured productsperforming reliably in thousands of organi-zations worldwide. They come together in
Cenergy to provide one point of purchase,one point of technical support, and onepoint of access on the desktop. Thesethree full-featured products can be boughtseparately or as part of the Cenergy suite.
CentaMeter is a software license man-agement tool that monitors license com-pliance and optimizes software usage forboth network and locally installed soft-ware. It can be used to meter, monitor,and track all the organization’s softwarelicense usage for greater cost efficiencyand license compliance. With CentaMe-ter, administrators can also monitor andrestrict access to games and Internetbrowsers and by monitoring and trackinginactive applications, discover who is tyingup valuable resources.
WHAT CAN BE DONEEven if it escapes detection, softwarepiracy poses other costs to an organization.Illegally copied software may containviruses that can wreak havoc. Imagine thecosts to the organization if the computersystem were unavailable and the data werelost. Illegal software comes with no techni-cal support or assurance of quality.Another danger is illegally bundled soft-ware. Resellers may offer a computer sys-tem bundled with numerous copies ofpopular programs. If a deal seems too goodto be true, it probably is. Users should besure to check to see that all software thatcomes with a computer has complete doc-umentation, including licenses. Illegallybundled software could end up costingmuch more down the road.
Some things organizations can do to getlegal and stay legal are:
■ appointing a software manager■ creating and implementing a software policy and code of ethics■ establishing software policies and procedures■ conducting internal controls analysis■ conducting periodic software audits■ establishing and maintaining a software log of licenses and registration materials
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■ enjoying the benefits of software license compliance■ thanking employees and students for participating
CONCLUSIONIt is important to confront the problem ofsoftware piracy by looking forward ratherthan analyzing the current state of affairs.In the world of high technology, todaybecomes yesterday in the blink of an eye.As the world’s technological infrastructureevolves and developing nations growincreasingly developed, the challenges ofsoftware piracy will undoubtedly change.By focusing the job of copy controlthrough the operating system, modifyingthe product pricing and distribution strat-egy, and also transitioning the nature ofthe business, it will be possible for firms totake control of software piracy and protecttheir intellectual property.
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