When someone buys a commercial piece of software, such as Microsoft Office, he or she is bound by a copyright license that specifies how many machines the buyer can load with the software. Thus, a license agreement for a single user allows the buyer to load the software onto one machine (including laptop if the person has one), and to make a back-up copy just in case something happens to the original disk or CD-ROM (compact disc-read only memory).
Business and Personal Concerns
Companies that want all of their employees to use a particular software must buy a site license. Often, a site license allows the buyer to network the software, so that each user can log on to the company network and access the program. Each user on a network is called a client; a software package such as Microsoft Office cost each client about $50 in 2001. A company with 1,000 employees, therefore, will need to pay around $50,000 to enable all of its employees to use Microsoft Office.
If a person with a single user license loads the software onto a friend's machine, or if a company loads a software package onto each employee's machine without buying a site license, then both the single user and the company have broken the terms of the software license agreement and are therefore guilty of software piracy. Software piracy involves the unauthorized use, duplication, distribution, or sale of commercially available software.
Types of Piracy
Software piracy is often described as softlifting , counterfeiting, Internet piracy, hard-disk loading, OEM unbundling, and unauthorized renting.
This involves installing software with a single-user license on multiple machines, and is the most common type of software piracy within companies. The Business Software Alliance (BSA), a consortium of software developers, reports that from 1993 to 1998 it collected $35 million in settlements of copyright infringement claims against U.S. companies. California and Texas were the states with the highest number of offenders. In most cases, companies cited for copyright infringement attributed illegal downloading to insufficient management control over their employees.
Counterfeiting and Internet Piracy.
These are similar acts and involve the unauthorized duplication, distribution, or sale of commercial software. A person who makes copies of Microsoft Office CDs and sells them is engaging in counterfeiting . Internet piracy involves selling the counterfeit products online, often on Internet auction sites. Reviews of these auction sites have suggested that up to 90 percent of the software for sale is counterfeit, although such sites try to keep illegal merchandize from entering their auctions.
Hard-disk Loading, OEM Unbundling, and Unauthorized Renting.
These are perhaps less well-known examples of software piracy since they can appear to be legitimate practices. Hard-disk loading involves loading software onto new computers when they are sold to a customer. OEM unbundling involves selling a component of a multi-application package as a stand-alone application.
Unauthorized renting involves hiring out software in violation of single-user licenses. Most buyers have purchased PCs with pre-loaded software; however, a person buying small component software, or renting items such as videos and even computer games, would have to know something about particular software licensing agreements to realize whether the software has been pirated.
The software piracy rate can be estimated by comparing the number of personal computers sold with the number of software packages sold. Based on the assumption that for each new PC, a standard set of software would also be sold, the software piracy rate is calculated as the percentage shortfall in software sales. The financial loss is then the cost of these missing software sales.
Using this method, the Software and Information Industry Association (SIIA) and the Business Software Alliance (BSA) estimate that the software industry lost $12.2 billion in revenue in 1999 due to the pirating of business software. This is an increase from the 1998 figure of $11 billion and brings the estimated losses since the surveys began in 1994 to a total of $71.4 billion.
The world's highest software piracy rates are in Eastern Europe and the Middle East, with rates of more than 60 percent, suggesting that six out of every ten software packages used are pirated. Fourteen countries are estimated to have a software piracy rate above 80 percent, with Vietnam (98 percent), China (91 percent), Russia (89 percent), and Oman (89 percent) at the top of the list.
Because of the size of their respective software markets, however, the greatest financial losses occur in the United States, Japan, the United Kingdom, France, China, and Germany. These six countries accounted for $6.7 billion, or more than half of worldwide lost sales in 1999. Although the United States had the lowest piracy rate in the world at 25 percent for 1999, the United States alone accounts for more than $3 billion in lost sales.
The SIIA suggests a three-pronged attack on software piracy—using legislation, effective enforcement, and public education. This approach is based on the conviction that buying and selling pirated software is essentially trafficking in counterfeit goods. Indeed, most countries provide legal protection for software by extending copyright, patent, contract, and trade secret legislation. They also recognize software as intellectual property , just like literary creations and works of art, which are all subject to intellectual property right (IPR) protection.
Recent legislation enacted by the United States to combat digital theft includes the 1997 No Internet Theft Act (NET Act) and the 1998 Digital Millenium Copyright Act (DMCA). The 1999 Digital Theft Deterrence and Copyright Damages Improvement Act raised the fines that could be applied to software pirates up to $150,000.
Who Is a Software Pirate?
So who is a software pirate and why? Many studies have shown that students are prime software pirates. In November 1999, a twenty-two-year old senior at the University of Oregon was the first person to be convicted under the No Internet Theft Act (NET Act). The student was sentenced to two years of probation for making copies of software available for download from a university web site.
When asked why someone might pirate software, people often cite cost as the key reason. Software can be expensive. The highest piracy rates often occur in some of the poorest countries in the world (e.g., Vietnam, China). Given how easy it is to copy software, such theft will continue to be a major issue for software developers for decades to come.
see also E-commerce; Privacy; Security.
Trevor T. Moores
"BSA Announces Top Ten States for Software Piracy Settlements." Business Software Alliance. December 29, 1998.
Cheng, Hsing K., Ronald R. Sims, and Hildy Teegen. "To Purchase or To Pirate Software: An Empirical Study." Journal of Management Information Systems 13, no. 4 (1997): 49–60.
Moores, Trevor T., and Gurpreet Dhillon. "Software Piracy: A View from Hong Kong." Communications of the ACM 44, no. 12 (2000): 88–93. Report on Global Software Piracy, 2000. Software and Information Industry Association. May 24, 2000.
Business Software Alliance. <http://www.bsa.org/>
Software and Information Industry Association. <http://www.siia.net/piracy/pubs/piracy2000.pdf>