Computer Software Piracy and it's Impact on the International Economy

The PC industry is over twenty years old. In those twenty years, evolvin
g software
technology brings us faster, more sophisticated, versatile and easy-to-use produ
cts.
Business software allows companies to save time, effort and money. Educational
computer programs teach basic skills and complicated subjects. Home software now
includes a wide variety of programs that enhance the users productivity and crea
tivity.
The industry is thriving and users stand to benefit along with the publishers. T
he SPA
(Software Publishers Association) reports that the problem of software theft has
grown,
and threatens to prevent the development of new software products. Unauthorized
duplication of software is known as software piracy which is a "Federal offense
that
affects everyone" ("Software Use..." Internet). The following research examines
software piracy in its various forms, its impact on the end user and the interna
tional
industry as a whole, and the progress that has been made in alleviating the prob
lem.
Software piracy harms all software companies and ultimately, the end use
r. Piracy
results in higher prices for honest users, reduced levels of support and delays
in funding
and development of new products, causing the overall breadth and quality of soft
ware to
suffer" ("What is..." Internet). Even the users of unlawful copies suffer from t
heir own
illegal actions: they receive no documentation, no customer support and no infor
mation
about product updates ("Software Use..." Internet).
The White Paper says that while virtually every software publisher expr
esses
concern about their software from unauthorized duplication, over time, many have
simply accepted the so-called "fact" that such duplication is unavoidable. This
has
created an atmosphere in which software piracy is commonly accepted as "just ano
ther
cost of doing business" ("With the Growth..." Internet).
In a brochure published by the SPA it is stated that a major problem ari
ses from
the fact that most people do not even know they are breaking the law. "Because t
he
software industry is relatively new, and because copying software is so easy, ma
ny people
are either unaware of the laws governing software use or choose to ignore them"
("To
Copy or not to Copy" Internet).
Robert Perry states that much of the problem of software theft arises fr
om the way
the software industry developed. In the past, when a software firm spent million
s of
dollars to write a program for a mainframe computer, it knew it would sell a han
dful of
copies. It licensed each copy to protect its ownership rights and control the us
e of each
copy. That is easy to do with only a few copies of a program. It is impossible f
or a
software company to handle five million copies of there latest program (27).
Software piracy is defined as any violations of software license agreeme
nts. In
1964, the United States Copyright Office began to register software as a form of
literary
expression. The Copyright Act, title 17 of the U.S. Code, was amended in 1980 to
explicitly include computer programs. Today, according to the Copyright Act, it
is illegal
to make or distribute copyrighted material without authorization, the only excep
tions are
the user's right to make as an "essential step" in using the program (for examp
le, by
copying the program into RAM or on the hard drive) and to make a single backup c
opy
for "archival purposes." No other copies may be made without specific authorizat
ion
from the copyright owner (title 17 section 117).
A SPA press release shows that in December 1990, the U.S. Congress appro
ved
the Software Rental Amendments Act, which generally prohibits the rental, leasin
g or
lending of software with out the express written permission of the copyright hol
der
("Retailers Agree..." Internet). "It doesn't mater whether the transaction is ca
lled 'rental,
'buy-back,' 'try before you buy,' preview,' 'evaluation' or any similar term. If
the
software dealer does not have written permission from the copyright holders to r
ent
software, it is illegal to do so." said Sandra Sellers, SPA vice president of in
tellectual
property education and enforcement ("SPA sues..." Internet.")
NERDC information services researched that the copyright holder may gran
t
additional rights at the time the personal computer software is acquired. For ex
ample,
many applications are sold in LAN (local area network) versions that allow a sof
tware
package to be placed on a LAN for access by multiple users. Additionally, permis
sion is
given under special license agreement to make multiple copies for use throughout
a large
organization. However unless these rights are specifically granted, U.S. law pro
hibits a
user from making duplicate copies of software except to ensure one working copy
and
one archival copy (NERDC Internet).
Without authorization from the copyright owner, title 18 of U.S. Code pr
ohibits
duplicating software for profit, making multiple copies for use by different use
rs within
an organization, downloading multiple copies from a network, or giving an unauth
orized
copy to another individual. All are illegal and a federal crime. Penalties inclu
de fines up
to $250, 000 and jail terms up to five years (Title 18, Section 2320 and 2322).
Microsoft states that illegal copying of personal computer software is a
crucial
dilemma both in the United States and over seas. Piracy is widely practiced and
widely
tolerated, in some countries, legal protection for software is non existent; in
others laws
are unclear, or not enforced with sufficient commitment. Significant piracy loss
es are
suffered in virtually ever region of the world. In Some cases, like Indonesia, t
he rate of
unauthorized copies is believed to be in excess of ninety-nine percent ("What is
..."
Internet). Copyright laws vary widely from country to country, as do interpretat
ions of the
laws and the degree to which they are enforced. The concept of protecting the in
tellectual
property incorporated in software is not universally recognized.
Asia is one of the most technologically advanced regions of the world. A
s the
software market continues to grow and flourish so does the black market of softw
are
piracy ("The Impact..." Internet). The worst countries in this area are China an
d Russia.
Named "one copy countries" two years in a row (1995 and 1996) by the SPA, studie
s
show that ninety-five to ninety-eight percent, virtually every copy, of U.S. bu
siness
software is illegally pirated, which costs U.S. software companies an estimated
five-
hundred million dollars a year ("SPA names..." Internet and "U.S., China..." D1
- 2). In
Russia the latest statistics from the SPA show that ninety-five percent of busin
ess
software is illegally copied, that cost the U.S. $117 million in 1994 ("SPA name
s..."
Internet).
Although Asia has extremely high piracy rates, SPA Executive Director Ke
n
Wasch comments "China, Russia, and Thailand (the three countries in Asia with th
e
highest piracy rates) deserve credit for enacting copyright laws that specifical
ly protect
computer programs and other software..." Russia and China enacted copyright prot
ection
statutes several years ago, and Thailand enacted its law late in 1994 ("SPA name
s..."
Internet).
Asian countries have also taken action against offenders of copyright la
ws. The
SPA reports that "on Wednesday, May 22, 1996, Hong Kong Customs officers arreste
d
two suspected software pirate vendors and seized 20 CD-ROMs, each containing
software with an estimated total retail value of US$20,000 along with the equipm
ent
capable of reproducing the pirate CDs" ("Hong Kong..." Internet). A Software Pub
lishers
Association press release shows more examples of Asia's fight against software p
iracy
when Singapore police raided vans carrying 5,800 CD-ROMs containing $700,000 U.S
.
dollars worth of pirated software on March 25, 1996 ("SPA, Singapore..." Interne
t). The
Bloomberg forum reports that on August 7, 1995 China anti-piracy forces invaded
stores
in the southwestern city of Chengdu and arrested 37 people. The Business Softwar
e
Alliance's "vice president Stephanie Mitchell said while that was the largest nu
mber of
people so far arrested in a single raid on software retailers, China must dish o
ut harder
punishments to discourage pirates after their caught" ("China takes..." Internet
).
A result of China's lack of strictness, the SPA called upon the USTR (U.
S. Trade
Representative) "...to take action against China under Section 306 of the Trade
Act of
1974 for failing to improve enforcement of intellectual property right in comput
er
software." Also Russia and Korea were placed on the Special 301 Priority Watch L
ist by
the USTR so that the SPA is able to review their intellectual property laws and
enforcement ("China and Russia..." Internet). "The United States and China sign
ed a
major accord in March of 1996 mandating tough enforcement against intellectual
property piracy in China..."(Parker np).
The BSA's European anti-piracy program is comprised of over 20 countrie
s
through out the region and was initiated in 1989 "...with the filing of the soft
ware
industry's first enforcement action for the illegal use of software in Italy". P
iracy
continues to be a significant problem in spite of the enactment of stronger copy
right laws
and successful prosecutions against software theft. "The average piracy rates of
25
European countries was estimated at 58 percent in 1994, with dollar losses excee
ding $6
billion" ("The Impact..." Internet).
Microsoft's studies show that many European countries including some whi
ch
offer computer software protection, have "unreasonably burdensome" administrativ
e
rules. Poland and the United Kingdom have displayed difficulty in collecting evi
dence
and Greece is blamed for "fragmentation of court process." Most European countri
es do
not have sufficient penalties and inadequate civil enforcement possibilities to
discourage
piracy, especially Germany, Poland, Sweden and the UK. "Several countries, for
example, Belarus and Romania, have general copyright laws that protect literary
expression, but fail to clearly protect computer software" ("What is.." Internet
). Ireland
is Europe's worst offender with yearly losses of more then forty-four million do
llars per
year due to the fact that eighty-three percent of software is pirated ("Software
Piracy:
Ireland..." Internet).
The BSA "called for legislative reform and stricter observance of laws"
after
reviewing a study examining Europe's software piracy rates. The BSA argues that
"experience has shown that improved legal protection for software copyright, and
better
policing by private companies and governments, can lead to a significant reducti
on in the
number of illegal copies being made" ("Software Piracy: Ireland..." Internet).
Latin America is the second fastest growing market for package software
("The
Impact..." Internet). SPA president Ken Wasch said, "The encouraging first quart
ers sales
data (1995) confirms Brazil's status as a major market for U.S. software publish
ers. With
a rapidly growing and increasing sophisticated economy. The potential for U.S. s
oftware
companies in Brazil is enormous" ("Latin America..." Internet). Gowning along w
ith the
increase of sales and production is the threat of software theft "with the avera
ge piracy
rate in 16 countries estimated at seventy-eight percent in 1994" ("The Impact...
" Internet).
The effect of international piracy organizations is a major problem that
everyone
is aware of. Another element which is beginging to make its presence known is th
e small-
time software pirates that distribute software on BBSs (Bulletin Board Systems)
or over
the Internet. As with most topics dealing with the extremely new Internet underg
round
and Internet crimes, it is very difficult to obtain information on these subject
s. In order to
acquire information about these underground Internet crimes, which are important
to
fully understand the concept of software piracy, most of the subject matter is s
upplied by
my own personal observations and investigations.
Most small-time software piracy centers around bulletin board systems th
at
specialize in "warez" (common underground term for pirated software). On these
systems, pirates can contribute and share copies of commercial software. Having
access
to these systems (usually obtained by contributing copyrighted programs via tele
phone
modem or money donations) allows the pirate to copy, or "download," copyrighted
software. All the participants benefit because individuals must "upload" (copy f
iles from
their system to the BBS) copyrighted programs in order to download. This way new
programs are appearing continuously.
My observation reveals how pirates have found ways to become more effici
ent by
creating mutual participation "pirate groups" (as referred to by the computer
underground). These groups are composed of ten to seventy members contributing i
n
different ways. The members usually are anywhere from thirteen to thirty years o
f age.
Some pirate groups are international, with members operating from different regi
ons of
the world. Their primary purpose is to obtain the latest software, remove any co
py-
protection from it and then distribute it to the pirate community. The methods t
he pirates
use to obtain the software is only known by the members of the pirate groups the
mselves.
Some speculate that the members either "hack" (break into a computer via modem f
rom
one's own system) into computers of software companies and steal the software or
"pay
off" employees of software companies. The software they receive is almost always
less
then one day old and is often referred to as a "zero day ware."
"The Internet is an incredible international electronic information syst
em
providing millions with access to education, entertainment. and business resourc
es, as
well as promoting new forms of personal communication, including e-mail and on-l
ine
chatting" (Larson Internet). This also creates ideal piracy breeding grounds. So
ftware
pirates utilize the services of the Internet to "trade" copyrighted "warez." In
1994 the
Washington Post reported about an individual who had set up a computer bulletin
board
system connected to the Internet, that allowed over one million dollars worth of
software
to be copied. People using the Internet computer network were able to retrieve
commercial software from this BBS for free. The sysop (system operator or person
operating the BBS) was charged with fraud and copyright infringement but never
convicted because of "murky" laws (Daly, D1).
IRC (Internet relay chat) is an Internet service that enables people all
over the
world to communicate with each other by means of "switching" channels and typing
messages on the screen. IRC also allows individual to "post" files in selected c
hannels
most of which are copyrighted software available for trade. If someone sees a pa
rticular
program they want, all they have to do is "tag" the file for download and it is
copied onto
their local hard drive.
With the exception of the real-time "chatting" capabilities of IRC, most
of the
functions of USENET are the same. USENET is a message network available on the
Internet where users post public messages, on almost any topic imaginable, in ho
pes of
getting an answer. Like IRC users can attach files to the messages, some of whic
h are
copyrighted programs. Through my own analysis I have found that software pirates
have
found USENET and IRC to be extremely efficient ways to provide and trade copyrig
hted
software, which is beginning to make BBS use obsolete.
On-line services such as America Online, Prodigy, and CompuServe combine
the
ease of use of BBSs and the capabilities of the Internet. Most on-line services
provide e-
mail, virtual chat rooms, file areas and even access to the Internet. Software p
irate groups
are found utilizing these on-line services to trade copyrighted software and wit
h over
1.25 million other users on-line, they can go about unnoticed. David Pogue, a wr
iter for
MacWorld says that members of these pirate groups sign on by using fake credit c
ard
numbers and phony personal information. While on-line, the pirates trade copyrig
hted
software or "warez" by e-mailing them to each other and using chat rooms to rec
eive
new programs (Pogue 37).
Most anti-piracy organizations have taken little, if any, action against
this new
wave of software piracy. The Software industry looses millions if not billions o
f dollars
to small-time software pirates. On the pirates' side is the safety of private b
ulletin boards,
unclear laws, the vast size of on-line services and the fact that IRC and USENET
are
completely lawless. There are no laws, no restrictions and no one to stop the s
oftware
pirates from committing their crimes. This permits pirates to go virtually undet
ected and
free from punishment. In a article on computer crime in Newsweek a spokes woman
for
the on-line service Prodigy speaks about the Internet: "Its the Wild West. No on
e owns it.
It has no rules" (Meyer 36-38).
Microsoft says major software developers recognize that piracy is a prob
lem.
They have begun taking steps to alleviate the problem. The software industry rea
lizes that
the problem of software piracy cannot be solved by one company alone. Computer
companies have "made a commitment to address the problem together." Software
publishers are taking an active role in directly addressing software piracy by m
onitoring
markets, conducting investigations, and pursuing litigation on their own as well
as
through the Business Software Alliance (BSA) and the Software Publishers Associa
tion
(SPA) ("What is..." Internet).
The White Paper lists "a number of potential solutions to software pirac
y that
software publishers have used over time." Package warning and license labeling m
akes
users aware of the consequences of illegal use of the software but usually are i
gnored by
the user. High profile "piracy busts" and legal action against organized counter
feiters by
anti-piracy organizations such as the SPA and BSA are "essentially sending a mes
sage to
pirates that there are real risks associated with illegally coping software." Si
te Licensing
is a "popular" and "cost-effective" way of selling software to large organizatio
ns who
need more then one copy of the software. Forced registration and support contrac
ts only
effect novice computer users because experts don't necessarily need technical su
pport or
manuals ("With the Growth..." Internet).
Software piracy is a worldwide problem; one that is making an impact on
the
international economy and currently costing the software publishing industry mor
e than
fifteen billion dollars per year in lost revenues. With the growing interest in
the
distribution of software over the Internet and on-line services, the potential f
or these
losses to increase is very real. Software publishers have used a number of alter
native
methods to protect their intellectual property, but have generally achieved marg
inal
success in reducing losses to piracy.

Works Cited
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20 Feb
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