http://www.microsoft.com/Piracy/intlrep.htm (PC Press Internet CD, 03/1996)The PC industry is just over 20 years old. In those 20 years, both the quality and quantity of available software programs have increased dramatically. Although approximately 70% of the worldwide market is today supplied by developers in the United States, significant development work is occurring in scores of nations around the world.
But in both the United States and abroad, unauthorized copying of personal computer software is a serious problem. On average, for every authorized copy of personal computer software in use, at least one unauthorized copy is made. Unauthorized copying is known as software piracy, and in 1994 it cost the software industry in excess of US$15 billion.
Piracy is widely practiced and widely tolerated. In some countries, legal protection for software is nonexistent (i.e., Kuwait); in others, laws are unclear (i.e. Israel), or not enforced with sufficient commitment (i.e., the PRC). Significant piracy losses are suffered in virtually every region of the world. In some areas (i.e., Indonesia), the rate of unauthorized copies is believed to be in excess of 99%.
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.
This Microsoft Report examines software piracy in its various forms, some of the reasons why piracy occurs, its impact on the end user and the industry as a whole, Microsoft's commitment to developing and marketing original software, and the progress that has been made in alleviating the problem throughout the world.
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 a copy as an "essential step" in using the program (for example, by copying the program into RAM) and to make a single backup copy for archival purposes (Title 17, Section 117). No other copies may be made without specific authorization from the copyright owner.
In December 1990, the U.S. Congress approved the Software Rental Amendments Act, which generally prohibits the rental, leasing or lending of software without the express written permission of the copyright holder. This amendment followed the lead of the British Parliament (which passed a similar law, The Copyright, Designs and Patents Act, in 1988), and adds significant additional protection against unauthorized copying of personal computer software.
In addition, 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. But 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.
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 of up to $250,000 and jail terms up to five years (Title 18, Section 2320 and 2322).
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 embodied in software is not universally recognized.
Many countries, including some which offer computer software protection, have unreasonably burdensome administrative rules (i.e., Poland and the United Kingdom for difficulties in collecting evidence; Greece for fragmentation of court process); insufficient penalties to deter piracy (i.e., the Russian Federation for no criminal penalties; most European countries for inadequate monetary damage provisions to encourage deterrence); or inadequate civil enforcement possibilities (i.e., Germany, Poland, Sweden and the UK). Several countries have general copyright laws that protect literary expression, but fail to clearly protect computer software (i.e., Belarus and Romania). As a result, piracy is a significant problem all over the world: in developing nations in Asia, Africa, the Middle East and Latin America; and in industrialized nations throughout Europe and Asia, as well as Canada, Australia, New Zealand and in the United States.
Software presents a unique problem because it is so easy to duplicate and because the copy is often indistinguishable from the original. Unlike other works such as audio and video tapes, there is no degeneration in quality from copy to copy, so that the 100th or 1,000th copy can be a perfect replication of the original. A program that reflects many years of effort by a team of software developers, and millions of dollars of investment, takes only a few seconds to copy. Although software is expensive to develop, it costs little or nothing to duplicate; virtually any PC can be used to make unauthorized copies. A product that may cost anywhere from $30.00 to $3,000.00 can be copied by just about anyone for no more than the cost of a few blank diskettes, and even that minimal cost can be avoided by copying the program onto a hard disk.
Software piracy takes many forms, and the reasons for unauthorized software copying range from pure profit motives to carelessness, lack of awareness of the law, and general disregard for the importance of treating software as valuable intellectual property. Some people believe that physical property such as a piece of computer hardware or office equipment is "property," but that software/intellectual property is "for the common good" and should be freely shared. Some believe that copying software is a relatively harmless activity that "doesn't hurt anyone" or "isn't really stealing." Managers who duplicate software to trim costs may feel that "everyone else is doing it." Still others mistakenly believe that they can make as many copies as they want because they are allowed to make backup copies (copyright law typically provides that a single backup or archival copy can legally be made). And finally, some users have the misperception that it is legal to make copies as long as the user derives no profit from their distribution.
Inadequate laws, inadequate enforcement, ignorance, different attitudes about intellectual property, and significant economic incentives all combine to foster software piracy around the world. The fact remains that software piracy, no matter the justification, creates serious negative impacts. Even in the "best" countries, piracy remains a significant and extremely costly problem for the individual, the local economies and the software industry as a whole.
Forms of software piracy seen around the world include:
End user copying among organizations and individuals;
Counterfeiting;
Hard disk loading (the unauthorized loading of software onto a computer's hard disk at the time a computer is purchased);
Downloading of copyright protected software via electronic bulletin boards; and,
Software rental and/or Mail Order Clubs.
Unauthorized copying of personal computer software within organizations, also called "end user copying," occurs when extra copies are made within an organization for employees to use in the office, or to take home. Disk swapping among friends and associates outside of the office environment is also included in this category; software is often copied from the workplace and distributed to friends outside the workplace, but other "sharing" of software is also quite common.
Unauthorized copying of software within organizations is the most pervasive form of software piracy faced by Microsoft and other vendors of popular business applications programs. It is estimated to be responsible for more than half of the total revenues lost by the personal computer software industry worldwide. This practice is widespread not only within corporations, but also within institutions such as schools, public agencies, government offices and nonprofit organizations.
Audits conducted within companies reveal that large organizations generally are more careful about unauthorized software use than smaller ones. Large organizations are more likely to have established procedures and policies governing software copying and acquisition. They also tend to be more sensitive to the fact that unauthorized copying exposes not only the individual but also the organization to potential liability, as well as damage to the organization's public image. Larger organizations are more likely to come under scrutiny because of their size, and are less inclined to risk a lawsuit for the sake of cost trimming.
Despite higher rates of compliance with the law, the monetary impact of unauthorized copying within large organizations is still quite significant. Even five percent non-compliance within a large organization can represent tens of thousands of dollars in lost revenues to software publishers. In an audit of just one department of a large public company in the U.S. found to be 95 percent legal, unauthorized copies represented displaced sales valued at more than $50,000.00.
Although unauthorized internal duplication by organizations is the most damaging form of piracy for companies such as Microsoft, it is also the one that responds best to education and awareness-building programs.
"Sharing" copyrighted software with friends and colleagues is also believed to be a significant problem, but is even more difficult to detect, and more difficult to remedy for that reason. Individual users who make unauthorized copies often simply do not believe they can or will be caught. Litigation against individuals can be prohibitively expensive, and places the plaintiff company in the sometimes awkward position of appearing to be unfairly "picking" on an individual, notwithstanding the hundreds or even thousands of dollars that may be involved.
Software counterfeiting is the illegal duplication and sale of copyrighted software in a form designed to make it appear to be legitimate. Unlike end user violators, software counterfeiters operate purely for profit, and money always changes hands. Counterfeiting occurs in all regions of the world, but the problem is particularly acute in Pacific Rim areas such as Hong Kong, Indonesia, Taiwan, and the People's Republic of China, as well as in the United States and Eastern Europe. Counterfeiters range from individuals running mail-order operations out of their homes to dealers who duplicate and sell software, whether separate from the computer hardware or in combination with PC systems, to large scale warehouse operations.
There are several forms of counterfeiting. One involves copying of the entire product package, whereby end users are deliberately misled into thinking that the product they are buying is the legitimate product from the original source. The entire product is duplicated including the packaging, documentation, disk labels, registration cards and other features of the original product package. Sometimes even the security features, such as the hologram and Microsoft's Certificate of Authenticity, are also counterfeited in a further attempt to lure the customer into purchasing fake products.
Counterfeiting also includes the sale of illegally duplicated software marketed under a completely different name, with no attempt made to represent the copy as having been distributed by the original software developer.
Revenue losses due to software counterfeiting are substantial, although smaller than the losses caused by organizational end user duplication. The exchange of money facilitates the detection and tracing of software counterfeiting.
Some computer dealers load unauthorized copies of software onto the hard disks of personal computers. This practice is called "hard disk loading" and is used as an incentive for the end user to buy the hardware from that particular dealer. These dealers do not provide original disks, documentation or the end user license agreement that comes with a legitimate copy of the product.
Hard disk loading has been a widespread problem, even in the United States, but this form of piracy is easy to detect. Investigators dispatched to a store can quickly determine if the dealer offers illegal software as a buying incentive. Some end users unwittingly receive illegitimate software already installed; the absence of disks, documentation, registration forms and software licensing should alert them to the problem.
Hard disk loading leaves enough evidence to make prosecution straightforward. The industry's focus on hard disk loading over the last five years has begun to reduce the practice in the United States. Successful cases have also been brought in several other countries (i.e., Chile, Saudi Arabia, Singapore and Germany). Dealer cases involving hard disk loading are often the first enforcement efforts undertaken in other countries due to the relative ease of proving infringement.
Bulletin Board Piracy (BBS)
Downloading copyrighted software to users connected by modem to an electronic bulletin board is another form of piracy. Over the last two years, progress has been made in curbing this problem in the U.S. and Europe, but little progress has been made in other countries. The U.S. Federal Bureau of Investigation is actively involved in monitoring bulletin boards, and most owners of subscription bulletin board services monitor their services to stay legal. However, "underground" pirate bulletin boards still exist in the U.S. and other countries, and the problem continues to be a source of concern.
Piracy of copyrighted software via electronic bulletin boards should not be confused with public domain software or with providing "shareware." Shareware is software that may or may not be copyrighted but is specifically offered by the author for nearly unrestricted use, including copying and sharing with others. Shareware is sometimes accompanied by a request for a modest donation if the user finds the software useful. Offering shareware is legal and is a way for new or small developers to test the usefulness of their products, or to obtain a level of visibility for products that small companies could not otherwise achieve.
The explicit right to restrict rental is unfortunately often unclear or absent from national copyright laws (exceptions include the U.S., The European Community, and Canada.) As a result, the industry continues to encounter three primary forms of software rental: product rented from a retail outlet for use on the renter's home or office computer; product rented through mail order "clubs;" and product installed on computers which are in turn rented for temporary use.
Those establishments which only rent software, whether a retail storefront or mail order operation, operate in much the same way as video rental stores. The customer chooses software from a wide variety of available titles, pays a small sum, and takes the product away for a limited period of time. While some effort is occasionally made to at least give the appearance of deterring copying, it is clear that this type of operation is typically a mere device for individuals to obtain a copy of a product from which they can make another copy for permanent use on their personal computer.
Rental of personal computers which have software pre-installed on the hard disk tend to be less frequently used as a device for obtaining software products from which an unauthorized copy can be made and retained. Some companies have asked for and been granted permission to provide software with rented computers, as there are clearly circumstances under which such arrangements are legitimately required.
The number of pirated copies of a software product in existence is closely related to the program's popularity. The more popular the program, the more illegal copies can be found. Microsoft Corporation develops, markets, and supports a wide range of software for business and professional use, including operating systems, network products, languages, and applications as well as books, CD-ROM products and hardware for the PC marketplace. Due to the high quality, popularity, and depth of the Microsoft product line, Microsoft products are particularly vulnerable to all forms of software piracy. The MS-DOS and Windows operating systems are by far the most widely counterfeited software products in the world.
MS-DOS is particularly vulnerable to piracy because of its broad applicability and vast market. MS-DOS is the most popular operating system for IBM and IBM-compatible PC's, and, together with Windows, is presently used on more than 82 million personal computers around the world. Pirates counterfeit both the Microsoft-packaged versions of MS-DOS and Windows and versions produced by Microsoft licensed Authorized Replicators. Dealer copying of MS-DOS and Windows, which is then provided to PC purchasers at little or no cost, is endemic around the world.
Piracy costs the PC software industry billions of dollars each year. All PC software companies are harmed by revenue losses due to piracy. Software piracy leads to higher prices and less incentive for innovation both for local and multinational companies. If software were not so frequently stolen, developers could recover their development costs more quickly and go on to fund new development efforts. Support also suffers, particularly in developing markets where the high degree of piracy deters investment in local support resources. Overall, the effect is to stifle variety and creativity within the industry. The end result is the reduced availability of high quality software to end users.
The harm also extends to software resellers. Although not every pirated copy represents a lost sale, there can be no doubt that retail dealers would enjoy more business without piracy (estimates are that half of all unauthorized copies represent lost sales). This would mean more jobs and more revenue to the local economies.
Italy is a good example of how high piracy rates can effect an economy. Facing an 86% piracy rate, the software industry, through the BSA, initiated government lobbying efforts seeking stronger laws and increased enforcement. As a result, new copyright laws were enacted that specifically protect software. Soon after the enactment of the new copyright laws, the Guardia di Finanza, Italy's tax police, initiated numerous enforcement actions against end users for non-payment of sales tax (VAT) on illegal software. The combination of these efforts by the BSA, Microsoft and the GdF resulted in a reduction in the piracy rate to 50% in 1993. That led to a significant increase in industry wide revenues as well as for the Italian government.
In addition, pirated software represents higher costs to the end user. When a consumer decides to make an unauthorized copy of his favorite piece of software, the consumer forfeits his right to the support, documentation, warranties and periodic updates provided by the product's manufacturer. Moreover, pirated software often contains viruses that could potentially damage the consumer's hard disks and its contents. In the long run, unauthorized duplication of software costs everyone time and money.
During the early 1980s, Microsoft and other software publishers frequently relied on software copy protection - or product locks - to prevent or restrict the user's ability to make copies. Copy protection deterred the user from making copies of a diskette through the use of special copy protection code and/or special hardware devices. Any damage to the original disks meant the user had to go back to the software publisher for a new original of the product. Even if the software permitted making a restricted number of backups, thereby enabling the user to load it onto a hard disk, hard disk failures or accidental hard disk reformatting often exhausted the number of copies allowed, which again meant having to arrange for a new original from the software publisher.
As a result, a market arose for utility software designed to override copy protection. By the mid 1980s, the existence of code-breaking software and an awareness of the inconvenience to end users caused Microsoft and the software industry to largely abandon the practice of copy protection.
In order to solve the problem of software piracy without increasing costs and otherwise disadvantaging legitimate users, Microsoft began to seek other solutions. Past experience and a better understanding of all of the factors that contribute to the problem have convinced Microsoft that stronger legal protection, litigation, education, public awareness and persuasion are all important components of the solution. As a company with subsidiaries located throughout the world, Microsoft is committed to fighting software piracy on a global basis.
Through educational campaigns Microsoft and its subsidiaries have developed over the years, such as the Authorized Dealer Program in Taiwan, the Delivery Service Partner program in France, and the Reseller Program in Australia, Microsoft focuses international efforts on educating the public about the benefits of working with original copies of Microsoft products. Public awareness programs such as these are designed to assist the consumer to voluntarily comply with the software copyright laws.
When education and awareness programs fail to produce results, Microsoft will use strong legal action to protect its products. On our own and in conjunction with other companies and industry trade groups, Microsoft will continue to use legal action, as well as the education and awareness programs as effective anti-piracy tools.
Microsoft has established a toll free number, accessible in the United States and Canada (1-800-RU-LEGIT), where users can obtain information and report concerns they may have about suspected incidents of piracy.
Microsoft and other major software developers recognize that piracy is a problem that cannot be solved by one company alone, and 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 Business Software Alliance (BSA), and other ad hoc joint efforts. Alliances have also been established with the software industries in many countries, including: the U.K. (FAST); Sweden (DIMIK and LKD); the Netherlands (BSA NL); Denmark (BKD); Norway (KDL); Germany (VSI); France AFEL); Italy (ASSOFT); Spain (SEDISI); Portugal (ASSOFT); Australia (BSAA); New Zealand (BSA New Zealand); Taiwan (CISA); Republic of Korea (Software Property Committee, KISA); Japan (ACCS, BSAJ); Mexico (ANIPCO); Venezuela (INVESOFT); Brazil (ABES); Canada (CAAST); Chile (ADS); Argentina (BSA Argentina); Belgium (BSA Belique); Colombia (INDUSOFT); Hong Kong (MVSA); Hungary (Intercode Software Agency); India (INFAST); Russian Federation (ICC); Singapore (BSA Singapore); and Uruguay (BSA Uruguay). Forming additional industry alliances are a high priority. Increasingly, software developers are implementing public awareness campaigns to educate organizations and end users about the law and the importance of using legitimate software. Significant progress is being made in persuading governments and corporate end users of the importance of deterring piracy, both as a matter of responsible business practice, and as a fundamentally important factor in building a healthy software industry.
Formed in late 1988 by six leading United States software companies-Aldus, Ashton-Tate, Autodesk, Lotus, Microsoft and WordPerfect-the BSA focuses on both national and international anti-piracy efforts. Its current worldwide members include Autodesk, Bentley Systems, Inc., Intergraph Corp., Microsoft, Lotus, Novell and the Wordperfect's Application Group, Sybase, and The Santa Cruz Operation. The BSA's goal is to advance free and open world trade of legitimate software through public policy, litigation, public awareness programs and other activities.
Legal proceedings have been instituted by BSA and its member companies against unauthorized software copying in numerous countries where piracy is prevalent, including Argentina, Australia, Belgium, Brazil, Canada, Chile, Columbia, Denmark, France, Germany, Hong Kong, Hungary, India, Italy, Japan, Mexico, New Zealand, Netherlands, Norway, People's Republic of China, Portugal, Republic of Korea, the Russian Federation, Singapore, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, the United States, and Venezuela. Additional enforcement programs are being initiated each year. The BSA has also undertaken public awareness campaigns around the world to encourage users to rely on legitimate software, and has published several supporting documents including: the Software Code of Ethics, designed for an organization to sign as a commitment to use only legitimate software and, the Guide to Software Management and Accountability, a booklet explaining the risks of using unauthorized software, the benefits of using legitimate software, and how to manage software responsibly within an organization.
BSA has also taken a leading role in international markets to address deficiencies in laws and enforcement efforts. BSA has been active in proposing statutory revisions, encouraging adherence to international copyright conventions and bilateral and multilateral discussions of intellectual property protection for computer software. BSA representatives have also worked with and through various government representatives and agencies around the world to encourage stronger protection for computer software and enforcement of intellectual property rights.
The BSA has been instrumental in building alliances with software trade associations in countries around the world. It is clear that protection of software is an interest the software industry around the world shares, and building working relationships with other software industry groups will continue to be a high priority.
The BSA has made available for your marketing communication needs the BSA Marketing Style Guide. The Guide has been designed both to help coordinate the software industry's anti-piracy messages as well as assist organizations in communicating their policies of responsible software management. The Guide is used by a wide range of companies and organizations, including publishers, distributors, and customers of the software industry. The main objective of the Marketing Style Guide is to foster broader communication efforts which provide software users with clear and concise information about the legal use of software. The Guide contains artwork for BSA logos (domestic and international versions), suggestions for marketing programs and sample marketing materials.
For further information regarding BSA activities, you can contact the BSA at one of the addresses listed below.
Microsoft and other leading software companies are working hard to address the problem of piracy around the world. Litigation, marketing, legislative work, persuasion, education and awareness efforts are all part of the solution. While Microsoft believes that its work in these areas will strengthen intellectual property protection for its own products, it also believes that the problem of software piracy is one which ultimately can be solved only with the cooperation, participation and support of the software industry. Substantial progress has been made, and Microsoft looks forward to continuing to work with other companies in the industry towards that solution.
Please write to the following addresses for additional information or commentary regarding software piracy:
In the U.S., Canada, Mexico and Latin America:
In Asia:
In Europe:
The Business Software Alliance:
or
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