Computer Software Priacy and its Impact on the International

Computer Software Piracy and it's Impact on the International Economy
The PC industry is over twenty years old. In those twenty years, evolving software
technology brings us faster, more sophisticated, versatile and easy-to-use products.
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 creativity.
The industry is thriving and users stand to benefit along with the publishers. The 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 international
industry as a whole, and the progress that has been made in alleviating the problem.
Software piracy harms all software companies and ultimately, the end user. 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 software to
suffer" ("What is..." Internet). Even the users of unlawful copies suffer from their own
illegal actions: they receive no documentation, no customer support and no information
about product updates ("Software Use..." Internet).
The White Paper says that while virtually every software publisher expresses
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 another
cost of doing business" ("With the Growth..." Internet).
In a brochure published by the SPA it is stated that a major problem arises from
the fact that most people do not even know they are breaking the law. "Because the
software industry is relatively new, and because copying software is so easy, many 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 from the way
the software industry developed. In the past, when a software firm spent millions of
dollars to write a program for a mainframe computer, it knew it would sell a handful of
copies. It licensed each copy to protect its ownership rights and control the use of each
copy. That is easy to do with only a few copies of a program. It is impossible for a
software company to handle five million copies of there latest program (27).
Software piracy is defined as any violations of software license agreements. 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 exceptions are
the user's right to make as an "essential step" in using the program (for example, by
copying the program into RAM or on the hard drive) and to make a single backup copy
for "archival purposes." No other copies may be made without specific authorization
from the copyright owner (title 17 section 117).
A SPA press release shows that in December 1990, the U.S. Congress approved
the Software Rental Amendments Act, which generally prohibits the rental, leasing or
lending of software with out the express written permission of the copyright holder
("Retailers Agree..." Internet). "It doesn't mater whether the transaction is called '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 rent
software, it is illegal to do so." said Sandra Sellers, SPA vice president of intellectual
property education and enforcement ("SPA sues..." Internet.")
NERDC information services researched that the copyright holder may grant
additional rights at the time the personal computer software is acquired. For example,
many applications are sold in LAN (local area network) versions that allow a software
package to be placed on a LAN for access by multiple users. Additionally, permission 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 prohibits 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 prohibits
duplicating software for profit, making multiple copies for use by different users within
an organization, downloading multiple copies from a network, or giving an unauthorized
copy to another individual. All are illegal and a federal crime. Penalties include 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 losses are
suffered in virtually ever region of the world. In Some cases, like Indonesia, the 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 interpretations of the
laws and the degree to which they are enforced. The concept of protecting the intellectual
property incorporated in software is not universally recognized.
Asia is one of the most technologically advanced regions of the world. As the
software market continues to grow and flourish so does the black market of software
piracy ("The Impact..." Internet). The worst countries in this area are China and Russia.
Named "one copy countries" two years in a row (1995 and 1996) by the SPA, studies
show that ninety-five to ninety-eight percent, virtually every copy, of U.S. business
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 business
software is illegally copied, that cost the U.S. $117 million in 1994 ("SPA names..."
Internet).
Although Asia has extremely high piracy rates, SPA Executive Director Ken
Wasch comments "China, Russia, and Thailand (the three countries in Asia with the
highest piracy rates) deserve credit for enacting copyright laws that specifically protect
computer programs and other software..." Russia and China enacted copyright protection
statutes several years ago, and Thailand enacted its law late in 1994 ("SPA names..."
Internet).
Asian countries have also taken action against offenders of copyright laws. The
SPA reports that "on Wednesday, May 22, 1996, Hong Kong Customs officers arrested
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 equipment
capable of reproducing the pirate CDs" ("Hong Kong..." Internet). A Software Publishers
Association press release shows more examples of Asia's fight against software piracy
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..." Internet). 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 Software
Alliance's "vice president Stephanie Mitchell said while that was the largest number of
people so far arrested in a single raid on software retailers, China must dish out 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 computer
software." Also Russia and Korea were placed on the Special 301 Priority Watch List 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 signed 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 countries
through out the region and was initiated in 1989 "...with the filing of the software
industry's first enforcement action for the illegal use of software in Italy". Piracy
continues to be a significant problem in spite of the enactment of stronger copyright 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 exceeding $6
billion" ("The Impact..." Internet).
Microsoft's studies show that many European countries including some which
offer computer software protection, have "unreasonably burdensome" administrative
rules. Poland and the United Kingdom have displayed difficulty in collecting evidence
and Greece is blamed for "fragmentation of court process." Most European countries 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 dollars 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 reduction 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 quarters sales
data (1995) confirms Brazil's status as a major market for U.S. software publishers. With
a rapidly growing and increasing sophisticated economy. The potential for U.S. software
companies in Brazil is enormous" ("Latin America..." Internet). Gowning along with the
increase of sales and production is the threat of software theft "with the average 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 the 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 underground
and Internet crimes, it is very difficult to obtain information on these subjects. 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 supplied by
my own personal observations and investigations.
Most small-time software piracy centers around bulletin board systems that
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 telephone
modem or money donations) allows the pirate to copy, or "download," copyrighted
software. All the participants benefit because individuals must "upload" (copy files 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 efficient by
creating mutual participation "pirate groups" (as referred to by the computer
underground). These groups are composed of ten to seventy members contributing in
different ways. The members usually are anywhere from thirteen to thirty years of age.
Some pirate groups are international, with members operating from different regions of
the world. Their primary purpose is to obtain the latest software, remove any copy-
protection from it and then distribute it to the pirate community. The methods the pirates
use to obtain the software is only known by the members of the pirate groups themselves.
Some speculate that the members either "hack" (break into a computer via modem from
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 system
providing millions with access to education, entertainment. and business resources, as
well as promoting new forms of personal communication, including e-mail and on-line
chatting" (Larson Internet). This also creates ideal piracy breeding grounds. Software
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 channels
most of which are copyrighted software available for trade. If someone sees a particular
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 hopes of
getting an answer. Like IRC users can attach files to the messages, some of which 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 copyrighted
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 pirate groups
are found utilizing these on-line services to trade copyrighted software and with over
1.25 million other users on-line, they can go about unnoticed. David Pogue, a writer for
MacWorld says that members of these pirate groups sign on by using fake credit card
numbers and phony personal information. While on-line, the pirates trade copyrighted
software or "warez" by e-mailing them to each other and using chat rooms to receive
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 of dollars
to small-time software pirates. On the pirates' side is the safety of private bulletin 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 software
pirates from committing their crimes. This permits pirates to go virtually undetected 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 one owns it.
It has no rules" (Meyer 36-38).
Microsoft says major software developers recognize that piracy is a problem.
They have begun taking steps to alleviate the problem. The software industry realizes 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 monitoring
markets, conducting investigations, and pursuing litigation on their own as well as
through the Business Software Alliance (BSA) and the Software Publishers Association
(SPA) ("What is..." Internet).
The White Paper lists "a number of potential solutions to software piracy that
software publishers have used over time." Package warning and license labeling makes
users aware of the consequences of illegal use of the software but usually are ignored by
the user. High profile "piracy busts" and legal action against organized counterfeiters by
anti-piracy organizations such as the SPA and BSA are "essentially sending a message to
pirates that there are real risks associated with illegally coping software." Site Licensing
is a "popular" and "cost-effective" way of selling software to large organizations who
need more then one copy of the software. Forced registration and support contracts only
effect novice computer users because experts don't necessarily need technical support 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 more 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 for these
losses to increase is very real. Software publishers have used a number of alternative
methods to protect their intellectual property, but have generally achieved marginal
success in reducing losses to piracy.





















Works Cited
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