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. 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... .' D 1 - 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 en or mo us' ('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 beginning 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-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, D 1). IRC (Internet relay chat) is an Internet service that enables people allover 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' bye-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's ide 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 " China and Russia Again Named 'One Copy Countries' by the SPA in special 301 Report.' Software Publishers Association.

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