Over the past several years, advances in computer software have brought us time-saving business programs, educational software that teaches basic skills and sophisticated subjects, graphics programs that have revolutionized the design industry, Internet applications that help connect us with other computer users, and an increasingly complex variety of computer games to entertain us. As the software industry grows, everyone stands to benefit.
Compared to literature, music and movies, computer software is a relatively new form of intellectual property. Nevertheless, software is protected under the very same laws that govern music, literature, movies and other copyrighted content. Copying software illegally is not any different than illegally copying any of these forms of intellectual property -- and the punishments for doing so are equally harsh.
All software comes with a license agreement that specifically states the terms and conditions under which the software may be legally used. Licenses vary from program to program and may authorize as few as one computer or individual to use the software or as many as several hundred network users to share the application across the system. It is important to read and understand the license accompanying the application to ensure that you have enough legal copies of the software for your organization's needs. Making additional copies, or loading the software onto more than one machine, may violate copyright law and be considered piracy.
FTP allows one to upload files and download files to a site. Software pirates who transfer programs to one another commonly use FTP sites because it is efficient for transferring large files and most FTP servers support some form of anonymous login.
Web sites, often called Warez Sites allow the downloading of software -- generally free of charge -- from the Web.
Peer-to-Peer [P2P] technologies allow users to communicate in real-time and transfer files to each other. Because of the distributed and often anonymous nature of P2P sites, they are widely used for distribution of unauthorized software and content. P2P networks are also popular because they are basically "one stop shopping" where a user can find just about anything they are looking for - music, software, movies. Of all the forms of piracy discussed, P2P piracy is the most difficult to stop. The example below is from the P2P network Gnutella. For more information about P2P piracy, contact SIIA about obtaining a copy of its white paper on P2P piracy.
Lastly, another form of piracy that is prevalent on the Internet is the use of cracks, key-generators and patches. Cracks and patches are small files that circumvent copyright protection -- either technical access or copy restrictions -- by altering the source code. A key-gen or key generator is an application that uses the serial number or CD key-generating algorithm to create fake, yet still valid, serial numbers and CD keys.
Taking Action Against the Pirates: Real-Life Examples of Piracy
The following examples illustrate the various scenarios under which piracy occur. These real-life stories depict how software piracy affects the industry as a whole.
End User Piracy at Work and at Home
John was the head of a new division of End Corp., a small company with about 45 PCs. John was brought in to reduce expenses for the company and decided to cut corners on his software licenses. John only ever authorized the purchase of one copy of each program. His rationale was, "we bought it, and we can do what we want to do with it." John's plan seemed to work until the day that one of his employees called the software publisher for technical support for the pirated software. The publisher in turn called SIIA. End Corp., facing the possibility of a copyright infringement lawsuit, agreed to pay a fine of $70,000 for the illegal software. In addition, End Corp. was required to destroy all illegal software and re-purchase what it needed to be legal. The total cost to End Corp. for failing to comply with the copyright law was in excess of $150,000.
The unauthorized copying of personal computer software for use in the office or at home or sharing of software among friends is the most pervasive form of piracy encountered abroad and in the United States. SIIA estimates this type of piracy is responsible for more than half the total revenues lost by the industry.
Counterfeiting in Far East and Your Own Backyard
Not far from the bustling tourist areas in Hong Kong, there is a shopping center called the Golden Arcade where dozens of shops sell hundreds of CD-ROM titles for as little as US$10 each. At a quick glance, they appear legitimate. However, they are actually counterfeits.
Counterfeit software is not limited to the Far East. In the United States, some software distributors are apparently selling counterfeit software. Computer shows are also notorious for being rampant with counterfeit software. SIIA has obtained preliminary injunctions against software distributors who have sold counterfeit educational and entertainment titles through organized computer shows.
Counterfeits can be identified by close inspection of the discs, documentation (if any) and packaging. Poorly reproduced color, misplaced trademark logos, missing documentation and typographical errors are warnings the software may be counterfeit. For software publishers, the cost of counterfeiting is measured in lost sales and customer disappointment. For end users who buy counterfeits, there is a lack of technical support and documentation, the risk of viruses and the likelihood of incompatible or nonfunctioning software.
Piracy for Profit and Reputation
A college in the Midwest noticed during routine Web server maintenance that it was running at 85 percent of total capacity. Just the semester before, the server had never exceeded 25 percent. Upon investigation of the material on the site, the site operators noticed significant "warez" activity. Warez is the word commonly associated with the transfer of pirated software across the Internet. The server operators were able to determine that two students created these warez pages on the colleges server. The college made a backup of the warez site and contacted SIIA for assistance. SIIA helped the college update its policies and procedures, but more importantly, SIIA worked cooperatively with the college in pursuing the two students. In lieu of filing suit against the students, SIIA agreed to settle if they would agree to turn over their computers to SIIA, provide information as to where they received the illegal software and agree to perform community service. The college also sanctioned the students. Once the sites operated by the students were removed, the server again ran at 25 percent capacity. These two warez sites alone occupied 60 percent of the server's capacity.
Even if software pirates are not making a profit from the software, as in the example above, it is still illegal. The rules protecting software outside the Internet continue to apply in cyberspace. Copyright and other intellectual property laws protect software created, posted and traded on the Internet. Internet service providers (ISPs) or Internet access providers (IAPs) may be liable for copyright infringement if their users illegally copy or distribute software, through downloading, uploading or transmitting software files without the copyright owners' authorization and they fail to avail themselves of the "safe harbor" provisions of the Digital Millennium Copyright Act.
Raids on Computer Show Vendors SIIA has developed an ongoing relationship with the Department of Justice, and the FBI, to address the problem of software piracy, both in the physical world and on the Internet. SIIA has assisted federal authorities in investigating and taking action against all types of infringers, including retailers and trade fair operators who offer counterfeit software for sale. This participation includes making investigatory purchases of infringing material, assembling loss assessments for material seized by the FBI and analyzing seized evidence to confirm that it is counterfeit.
Recently, SIIA accompanied the FBI on two raids against individuals who were offering pirated software. During the first raid, SIIA assisted the FBI as they shut down a software piracy ring that was offering counterfeit software at Market Pro shows in Indiana, Ohio and Tennessee and at the AGI Computer shows in Indiana. In addition to seizing software being sold for far below the standard market price, the federal agents also seized the CD-ROM recorder that was being used to make the infringing copies.
Only a few months later, SIIA again assisted the FBI in a raid against a retailer in Fayetteville, NC. The retailer, Software Exchange, offered counterfeit software and also rented software. It is interesting to note that this same retailer was enjoined by a federal judge from renting software in 1996 and had a $360,000 default judgment levied against him. In violation of this default judgment, the retailer continued to rent software and also began counterfeiting software. The FBI subsequently raided this retailer and SIIA assisted the federal authorities in identifying counterfeit material.
"Pirates With Attitude" Then -"Pirates With Jail Time" Now
In United States v. Rothberg - a case in which SIIA was actively involved -- the U.S. District Court for the Northern District of Illinois sentenced the defendant to 24 to 30 months in prison. Rothberg pleaded guilty to conspiracy under 18 U.S.C. Section 371 to commit copyright infringement in violation of 17 U.S.C. Section 506(a)(2) and 18 U.S.C. Section 2319(c)(1). Rothberg, was one of 17 defendants convicted in connection with the prosecution of the Pirates With Attitudes (PWA), a web-based network that made $1.4 million worth of computer software available to paying members to make unauthorized copies. SIIA and its member companies assisted the government in creating the case against PWA. PWA's server log files indicated that approximately 55,000 files had been uploaded to the server. Using the number of pirate programs on the server at the time it was seized (instead of the log files), determining that 94 percent of the programs on the PWA server were functioning and establishing that the average retail price of the programs found was $384, the court set the value of the infringing items at at least $1,424,640.
In 1997, the No Electronic Theft (NET) Act became law. The NET Act provided for enhanced protection of copyrights and trademarks by amending provisions in titles 17 and 18 of the U.S. Code. The NET Act permits federal prosecution of large-scale willful copyright infringement even where the infringer does not act for a commercial purpose or for private financial gain. This amendment closes the gap in statutory protection discussed in United States v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994).
On December 11th, 2001 the U.S. Customs Service, in coordination with its law enforcement counterparts in the United Kingdom, Australia, Finland, Sweden, and Norway, executed approximately 70 search warrants worldwide in the initial phase of Operation Buccaneer. This was then the most significant law enforcement penetration of international organizations engaged in the criminal distribution of copyrighted software, games and movies over the Internet. Operation Buccaneer successfully targeted the suppliers, crackers, and leadership of multiple top-level warez groups that specialize in the supply (aka "release") of new pirated works to the warez scene. These so-called "release" groups included DrinkOrDie, Razor1911, RiSCISO, MYTH, and POPZ. Additionally, the investigation successfully targeted members of several leading "courier" groups that specialize in the illegal distribution and trading of copyrighted works over the Internet, including the groups RequestToSend (RTS), WeLoveWarez (WLW), and RiSC. Collectively, these warez groups were responsible for illegally reproducing and distributing over the Internet hundreds of millions of dollars worth of copyrighted works. Operation Buccaneer was conducted by the United States Customs Service and the Computer Crime and Intellectual Property Section of the Department of Justice in coordination with the United States Attorney's Office for the Eastern District of Virginia, foreign law enforcement, and U.S. Attorneys' Offices across the nation.
SIIA continues to look for opportunities to assist federal law enforcement against all forms of software piracy, including renting, counterfeiting, hard disk loading and online piracy as the world moves further into the Internet age.
Unfortunately, there are many people who, either ignorantly or deliberately, engage in software piracy. Whenever you use a piece of software that is unlicensed, you are depriving software companies of their earnings. More importantly, you are depriving the creative teams who have developed the software (e.g., programmers, writers, graphic artists) of compensation for the thousands of hours they have spent working on a particular program.
In a very real sense, software piracy adversely affects the world economy by diverting money that stimulates further product development. Piracy particularly affects the United States, which currently provides approximately 80 percent of the world's software.
The Dimensions of the Piracy Problem
On average, the software industry loses about US$11 to US$12 billion in revenue to software piracy annually. Of the billions of dollars lost to piracy, a little less than half comes from Asia, where China and Indonesia are the biggest offenders. Piracy is also a big problem in Western Europe, where piracy losses annually range from $2.5 and $3 billion dollars. Piracy rates are quite high in Latin America and in Central Europe, but their software markets are so much smaller that the dollar losses are considerably lower.
About $2 billion in piracy loses come from North America. The piracy rate in the United States has been relatively constant at about 25% over the past few years, which is the lowest rate of any country. This means that one in every four copies of business application software is used illegally. The large dollar amount in losses is attributable more to the fact that there are so many computers and computer users in the United States than to a high piracy rate when compared with the rest of the world.
SIIA works with the U.S government, foreign governments and international organizations around the world to protect intellectual property in international markets. As an example, the Special 301 provision of the Omnibus Trade and Competitiveness Act of 1988 authorizes the U.S. Trade Representative (USTR) to prepare lists of countries that do not provide effective protection of intellectual property rights or deny fair and equitable market access to U.S. firms relying on intellectual property protection. The lists inform the administration about countries considered priority targets for future trade negotiations or possible trade sanctions. The most recent list of countries that deny effective intellectual property protection to U.S. nationals can be found at: http://www.ustr.gov/enforcement/special.pdf
There is no evidence that software piracy will be eliminated anytime in the foreseeable future. SIIA acknowledges that many countries have made efforts to improve intellectual property protection for computer software. However, the high rates of software piracy and dramatic losses to U.S. software developers demonstrate that much remains to be done. There is evidence that continuing education and enforcement efforts can - and do - make a difference. In the United States, for example, the level of piracy has been reduced from 48 percent in 1989 to 25 percent in 2002.
We have learned that reducing software piracy rates requires the combined efforts of policy-makers, software developers and publishers, businesses, journalists and concerned individuals. As long as software piracy exists, there will be fewer jobs, less research and development, increased costs and lower standards of living.
Consequences of Software Piracy
The losses suffered through software piracy directly affect the profitability of the software industry. Because of the money lost to pirates, publishers have fewer resources to devote to research and development of new products, have less revenue to justify lowering software prices and are forced to pass these costs on to their customers. Consequently, software publishers, developers, and vendors are taking serious actions to protect their revenues.
Using pirated software is also risky for users. Aside from the legal consequences of using pirated software, your organization forfeits some practical benefits as well. Those who use pirate software:
Increase the chances that the software will not function correctly or will fail completely;
Forfeit access to customer support, upgrades, technical documentation, training, and bug fixes;
Have no warranty to protect themselves;
Increase their risk of exposure to a debilitating virus that can destroy valuable data;
May find that the software is actually an outdated version, a beta (test) version, or a nonfunctioning copy;
Are subject to significant fines for copyright infringement; and
Risk potential negative publicity and public and private embarrassment.
It is also worth noting that the use of pirated software also drives up the costs for legitimate users - which gives legitimate users all the more reason to help SIIA fight piracy by reporting to us those companies that are not "playing by the rules."
Types of Software Piracy
Many computer users have found themselves caught in the piracy trap, unaware they were doing anything illegal. To avoid such unpleasant surprises, it may be helpful to know the ten basic ways one can intentionally or unintentionally pirate software:
Softlifting occurs when a person purchases a single licensed copy of a software program and loads it on several machines, in violation of the terms of the license agreement. Typical examples of softlifting include, "sharing" software with friends and co-workers and installing software on home/laptop computers if not allowed to do so by the license. In the corporate environment, softlifting is the most prevalent type of software piracy - and perhaps, the easiest to catch.
2. Unrestricted Client Access
Unrestricted client access piracy occurs when a copy of a software program is copied onto an organization's servers and the organization's network "clients" are allowed to freely access the software in violation of the terms of the license agreement. This is a violation when the organization has a "single instance" license that permits installation of the software onto a single computer, rather than a client-server license that allows concurrent server-based network access to the software. A violation also occurs when the organization has a client-server license, the organization is not enforcing user restrictions outlined in the lciense. For instance, when the license places a restriction on the number of concurrent users that are allowed access to that program and the organization is not enforcing that number. Unrestricted client access piracy is similar to softlifting, in that it results in more employees having access to a particular program than is permitted under the license for that software. Unlike softlifting though, unrestricted client access piracy occurs when the software is loaded onto a company's server - not on individual machines - and clients are permitted to access the server-based software application through the organization's network.
3. Hard-disk Loading
Hard-disk loading occurs when an individual or company sells computers preloaded with illegal copies of software. Often this is done by the vendor as an incentive to buy certain hardware. If you buy or rent computers with preloaded software, your purchase documentation and contract with the vendor must specify which software is preloaded and that these are legal, licensed copies. If it does not and the vendor is unwilling to supply you with the proper documentation, do not deal with that vendor. SIIA offers assistance in finding qualified vendors through our Certified Software Reseller Program
4. OEM Piracy/Unbundling
Some software, known as OEM (original equipment manufacturer) software, is only legally sold with specified hardware. When these programs are copied and sold separately from the hardware, this is a violation of the distribution contract between the vendor and the software publisher. Similarly, the term "unbundling" refers to the act of selling software separately that is legally sold only when bundled with another package. Software programs that are marked "not for resale" are often bundled applications.
5. Commercial Use of Noncommercial Software
Using educational or other commercial-use-restricted software in violation of the software license is a form of software piracy. Software companies will often market special non-commercial software aimed at a particular audience. For example, many software companies sell educational versions of their software to public schools, universities and other educational institutions. The price of this software is often greatly reduced by the publisher in recognition of the educational nature of the institutions. Acquiring and using noncommercial software hurts not only the software publisher, but also the institution that was the intended recipient of the software.
Counterfeiting is the duplication and sale of unauthorized copies of software in such a manner as to try to pass off the illegal copy as if it were a legitimate copy produced or authorized by the legal publisher. Much of the software offered for bargain sale at non-trade computer shows is counterfeit software. SIIA estimates that at least 50% of the software sales that take place at computer shows throughout the United States involve counterfeit software.
7. CD-R Piracy
CD-R piracy is the illegal copying of software using CD-R recording technology. This form of piracy occurs when a person obtains a copy of a software program and makes a copy or copies and re-distributes them to friends or for re-sale. Although there is some overlap between CD-R piracy and counterfeiting, with CD-R piracy there may be no attempt to try to pass off the illegal copy as a legitimate copy - it may have hand-written labels and no documentation at all. With CD recording equipment becoming relatively inexpensive, the software industry is being plagued by this new form of end-user piracy. Just a few years ago, so-called "compilation CDs" (illegal CD-ROMs containing many different software applications) were selling for $400-$500. With CD-R's becoming more available, the price has dropped to $20 -- making illegal software available to a greater number of people.
8. Internet Piracy
Internet piracy is the uploading of commercial software (i.e., software that is not freeware or public domain) on to the Internet for anyone to copy or copying commercial software from any of these services. Internet piracy also includes making available or offering for sale pirated software over the Internet. Examples of this include the offering of software through an auction site, IM, IRC or a warez site. Incidences of Internet piracy have risen exponentially over the last few years. Internet piracy is discussed in greater detail below.
9. Manufacturing Plant Sale of Overruns and 'Scraps'
Software publishers routinely authorize CD manufacturing plants to produce copies of their software onto CD-ROM so that they can distribute these CD-ROMs to their authorized vendors for resale to the public. Plant piracy occurs when the plant produces more copies of the software than it was authorized to make, and then resells these unauthorized overruns. Piracy also occurs when the plant is ordered by the publisher to destroy any CDs not distributed to its vendors, but the plant, in violation of these orders, resells those CDs that were intended to be scrapped. While most plants appear to be compliant, and there are compliance procedures in place, there have been several instances of these forms of piracy.
Renting software for temporary use, like you would a movie, was made illegal in the United States by the Software Rental Amendments Act of 1990 and in Canada by a 1993 amendment to the Copyright Act. As a result, rental of software is rare.
The ten types of piracy identified above are not mutually exclusive. There is often overlap between one type of piracy and another. For instance, SIIA has come across numerous instances of OEM counterfeiting. This occurs when OEM software is unbundled in order to be re-sold, and not only does the pirate sell the OEM software, but he also makes numerous illegal copies of the OEM software and sells them as counterfeits.
Shareware and Freeware
Many users become understandably confused between shareware, freeware and public domain software. These are all ways of marketing software, and have nothing to do with the actual type of software being distributed.
Shareware is "copyrighted software which is distributed for the purposes of testing and review, subject to the condition that payment to the copyright owner is required after a person who has secured a copy decides to use the software." This definition is contained in Copyright Rules & Regulations, 37 CFR 201.26. (Shareware is also sometimes referred to as try-before-you-buy software.)
Freeware is software that is distributed in a way that allows individuals and non-profit organizations to use the software at no charge. The software usually comes with a license agreement that prohibits the software from being sold, rented, or otherwise distributed in a for-profit manner.
Public domain software is "software which has been publicly distributed with an explicit disclaimer of copyright protection by the copyright owner." 37 CFR 201.26.
Lastly there is another category, often referred to as crippleware that is a hybrid between shareware and freeware. Crippleware allows a person to use the software for free. If the individual likes the software, he/she can then pay to receive a code that activates some "crippled" features, like the ability to print or to use advanced functions.
Both shareware and freeware are often accompanied by a license agreement that sets forth the terms and conditions of use of that product. Though shareware is commercial software, many shareware authors use electronic distribution as part of their distribution system. Loading shareware onto or downloading shareware from the Internet does not constitute piracy. However, shareware may be considered pirated if it is not registered and paid for before the expiration of the application's specified trial period.
While there is no money exchanged to obtain a copy of freeware and it can usually be downloaded without liability, freeware can still be considered to be pirated if it is used in a manner that violates an accompanying agreement. For example, if the freeware license contains a restriction on selling the freeware and someone includes the freeware on a compilation CD of freeware programs and sells the program, the freeware has been pirated because the license has been violated.
Unlike shareware or freeware, there are no copyright restrictions on a piece of public domain software. Therefore, public domain software will usually not be subject to a license agreement and the user of public domain software is generally free to use the software as they desire, with no restriction.
Internet piracy is the most rapidly expanding type of piracy and the most difficult form to combat. Internet piracy takes many forms:
Auction Site Piracy;
Bulletin Board Services & News group piracy;
Cracks/Serial Numbers sites; and
Internet Relay Chat.
Auction site piracy occurs when the seller burns software onto CD-ROMs, offers the software for sale in an online auction. The auctioneer will often data-mine the names and e-mails of losing bidders and contact those bidders in an attempt to sell additional copies. SIIA has a good working relationship with most major auction sites and is able to remove pirate auctions shortly after their being posted.
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