Computer Software Priacy and Its Impact on the International

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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 fivehundred 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 smalltime 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 pyprotection 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 email, 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 "China and Russia Again Named 'One Copy Countries' by the SPA in special 301 Report." Software Publishers Association. Press Release. Washington D.C. 20 Feb 1996. URL: http://www.spa.org/gvmt/spa301.htm. "China Takes Software Piracy Clampdown Inland." Bloomberg Forum. 1995. News and Observer. URL: http://www.nando.net/new...fo/080785/info518_5.html. Daly, Christopher B. "Judge Dismisses Fraud Charges Against Student in Software Case." Washington Post. 30 Dec 1994: D1. NewsBank CD-ROM 1995. "Hong Kong Software Pirates Arrested Due to SPA Investigation." Software Publish ers Association. Press Release. Washington D.C. 4 June 1996. URL: http://www.spa.org/piracy/releases/hongk.htm. Larson, Megan J. "Copyright in Cyberspace." ts. U of Oregon, 1995. URL: http://gladstone. uoregon.edu/%7Emega/Copy.html. "Latin America Software Sales Reach $48.2 Million in First Quarter 1995." Softwa re Publishers Association. Press Release. Washington D.C. 13 Feb 1995. URL: http://www.spa.org/research/95q1lati.htm. Meyer, Michael. "Stop! Cyberthief!" Newsweek. 6 Feb 1995: 36-38. SIRS Researcher CDROM, 1995. Art 103. Parker, Jerry. "China Tackles Software Piracy at State Agencies." Reuters: 14 April 1995: np.NewsBank CD-ROM 1995. Perry, Robert L. Computer Crime. New York: Franklin Watts, 1986. "Retailers Agree Not to Rent Computer Software Without Permission From Publisher s." Software Publishers Association. Press Release. Washington D.C. 7 Feb, 1 996. URL: http://www.spa.org/piracy/releases/swrental.htm. "Software Piracy - It's not Worth the Risk." NERDC Information Service. URL: http://nervm.nerdc.ufl.edu/update/U9506O7A.html. "Software Piracy: Ireland is Europe's Worst Offender." IBCE News. URL: http:///www.iol.ie/ibc/news/IBEC/january/4.htm.

Software Publishers Association. Software Use and the Law. Washington D.C.: SPA 1995. URL:http://www.spa.org/piracy/sftuse.htm. Software Publishers Association. To Copy or Not to Copy. Washington D.C.: SPA 19 96. URL: http://www.spa.org/piracy/okay.htm. "SPA Names Russia, China 'One Copy Countries.'" Software Publishers Association. Press Release. Washington D.C. 13 Feb 1995. URL: http://www.spa.org/gvmt/ onecopy.html. "SPA, Singapore Police, and AACT Raid Vans Carrying Pirated Software." Software PublishersAssociation. Press Release. Washington D.C. 4 June 1996. URL: http://www.spa.org/piracy/releases/singapor.htm. "SPA Sues Six U.S. Software Rental Companies." Software Publishers Association. Press Release. Washington D.C. 28 Feb 1996. URL: http//www.spa.org/piracy/rele ases/ rentsuit.htm. "The Impact of Software Piracy on the International Market Place." URL: http://198.105.234.4/ piracy/rgnifact.htm. United States. U.S. Code: Copyright Acts. Title 17, Sec 17. United States. U.S. Code: Copyright Acts. Title 18, Sec 2320 and 2322. "U.S., China Avert Trade War." Sun-Sentinel 18 June 1996: 1D - 2. "With the Growth of Worldwide Software Piracy and the Emergence of On-Line Software Distribution, Protecting Intellectual Property is now More Criti cal than Ever." The White Pages. URL: http://www.hasd.com/hasd/misc/white.htm. "What is Software Piracy?" Microsoft Anti-Piracy Home Page. 1995. URL: http://198.105.232.4/piracy/intlrep.htm.

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