Software piracy fight makes enemies

Published Nov 26, 2007

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Michael Gaertner worried he could lose his company. A group called the Business Software Alliance had written him to claim that his 10-person architectural firm in Galveston, Texas, was using unlicensed software.

The letter demanded $67 000 (about R450 000) - most of one year's profit - or else the BSA would seek more in court.

"It just scared the hell out of me," Gaertner said.

An analysis by The Associated Press reveals that targeting small businesses is a lucrative strategy for the Business Software Alliance, the main global copyright-enforcement watchdog for such companies as Microsoft, Adobe Systems and Symantec.

Of the $13-million that the BSA reaped in software violation settlements with North American companies last year, almost 90 percent came from small businesses, the AP found.

The BSA is well within its rights to wring expensive punishments aimed at stopping the wilful, blatant software copying that undoubtedly happens in many businesses. And its leaders say they concentrate on small businesses because that's where illegitimate use of software is rampant.

But technology managers and software consultants say the picture has more shades of grey than the BSA acknowledges. Companies of all sizes say they inadvertently run afoul of licensing rules because of problems the software industry itself has created. Unable or unwilling to create technological blocks against copying, the industry has saddled its customers with complex licensing agreements that are hard to master.

In that view, the BSA amasses most of its bounties from small businesses because they have fewer technological, organisational and legal resources to avoid a run-in.

In Gaertner's case, some employees had been unable to open files with the firm's drafting software, so they worked around it by installing programs they found on their own, breaking company rules, he said. And receipts for legitimate software had been lost in the hubbub of running his company.

"It was basically just a lack of knowledge and sloppy record-keeping on my part," said Gaertner, who ended up with a settlement that cost him $40 000.

In the US., the largest software market, piracy rates have not budged in years. BSA critics say that is because making examples out of small businesses has little deterrent effect, since many company owners like Gaertner don't even realise they're violating copyrights.

"If they were going after actual pirates, that would be a different story, but they're going after hardworking companies," said Barbara Rembiesa, head of the International Association of Information Technology Asset Managers.

She founded the group to educate businesses on how to manage their software because she felt the industry wasn't doing enough of that, even as it was imposing steep penalties for noncompliance.

"If you were driving down the street and you got a speeding ticket, and there was no speed limit sign, it probably would be thrown out of court," she said.

Yet the BSA is getting more aggressive. Its CEO says software licenses aren't as difficult as many users contend. It has dropped an amnesty campaign for businesses. And this year it began dangling rewards of up to $1-million to disgruntled employees who anonymously report their bosses for using counterfeit or unlicensed software.

"The software vendors have every right to collect the license fees they're entitled to," said Tom Adolph, an attorney with Jackson Walker LLP who has defended against BSA claims. "It's the tactics of the BSA that rankle me."

The BSA was founded in 1988 to represent technology companies on many fronts, and its members also include IBM, Hewlett-Packard and Dell. The alliance spends more than $3-million a year on lobbying, prodding Congress on such issues as patent reform and Internet security.

But the most visible element is the BSA's fight against counterfeit software and illegal copying. Not all members are part of that effort; those that are include Microsoft, Adobe, Symantec, Autodesk, Apple and McAfee.

In countries with the highest piracy rates, the BSA has pushed governments to crack down, arguing that greater respect for intellectual-property laws would stimulate investment in their economies. In July, Chinese police who cooperated with the BSA and the FBI crushed rings that had been selling an estimated $2-billion worth of pirated Microsoft and Symantec software around the world.

These steps seem to work. The percentage of software in China that was not legitimately purchased is 82 percent, but that's down from 92 percent in 2003 and 96 percent a decade ago, according to BSA-commissioned market research.

Overall, the BSA says the worldwide piracy rate is 35 percent, down from 43 percent in 1996. However, the group says that because the industry has grown in that time, software companies' annual piracy losses have quadrupled. The BSA says piracy took a $40-billion bite out of a $246-billion industry in 2006.

In the United States, where the piracy rate is a worldwide-low 21 percent, the BSA's strategy includes working with law enforcement and websites like eBay to stop suspiciously cheap software sales online.

Beyond hunting for dicey characters buying and selling counterfeits, the BSA also devotes significant attention to other forms of what it calls piracy by business users. The money harvested in these company-by-company crackdowns is not parcelled to its members whose copyrights were infringed; the funds stay with the BSA to fuel its operations. (BSA's worldwide settlements soared 53 percent last year to $56-million.)

Plenty of cases originate when a whistleblower reports that a company is intentionally cheating - copying one program onto multiple PCs. In extreme cases, the BSA will get court approval to raid companies in search of evidence.

However, there are ways to get in trouble that do not begin with counterfeits or downloads. Companies sometimes legitimately buy software and fail to follow the letter of the licensing agreements that accompany the programs.

For example, computers often get handed down. Newer, faster machines go to employees who perform intensive technical work, and their old PCs go to colleagues with lesser needs.

Commonly an employee can transfer a copy of, say, expensive drafting software to a new machine. But many companies forget or don't realise that the software should be deleted from the old machine if the company has only one license for it - even if the receptionist who gets the hand-me-down PC never uses drafting software.

The situation is further complicated because software licenses vary greatly. Some programs can be shared on multiple computers in an organisation, or used by the same person on a home and office computer.

Multiply such oversights by dozens of software programs, and suddenly a BSA audit can lead to a charge of big-time piracy.

"They call it something awful, but sometimes you grow so fast, you can't keep control of everything," said Mike Lozicki, president of MediaLab Ventures LLC of Tampa, Fla., which paid the BSA $125 000. Lozicki said 12 percent of MediaLab's software was deemed out of compliance, much of it sitting unused. "It was some really obscure stuff," he said.

The BSA enforcement director, Jenny Blank, wouldn't comment on his case.

BSA audits zing companies for software that came with used computers they bought to save money. The BSA considers software pirated if a company can't produce a receipt for it, no matter how long ago it was purchased. Software boxes or certificates of authenticity are no help, because the BSA argues the software could have been obtained from an illegitimate source.

No wonder, then, there are companies that exist mainly to help other businesses track and comply with their software licenses.

Robert Holleyman, who has headed the BSA since 1990, countered by saying a lot of companies have figured out how to get their software licenses in order.

"I don't agree with the assumption that license management is necessarily a complex task," he said. "I think that to suggest that it's impossible to do - which is not your word, but is your inference - would belie the heroic efforts of the vast majority of software users."

Yet it's safe to say the software industry has not exactly handed its customers a product that is easy to manage. That's one reason why Britain's Federation Against Software Theft - an industry group that, like the BSA, pursues scofflaw companies - has a sister division that educates companies, for a fee, on how to stay compliant.

John Lovelock, the British group's director, said that if it undertook enforcement without the education programme, "it would be half of a virtuous circle. It would give us only half of a solution."

The BSA does have some software-management tools and advice on the web. And this summer, it partnered with the federal Small Business Administration to develop and publish educational materials about software compliance.

However, software-management gurus say the BSA could be far more active in assisting companies - which are, after all, its members' customers.

"Instead of just being the software police, be the police in the sense of helping old ladies across the street," said Barbara Scott, a software consultant for Redemtech. "The BSA could become more of a partner with organisations that they're hammering as well."

Rather than a helping hand, BSA targets say they feel a stinging slap.

After an audit, the BSA generally demands at least twice the retail price of software deemed out of compliance. It also seeks the "unbundled" price of software that is sold together. So if a company loaded too many copies of a $300 package of Microsoft Office, the BSA might tally the retail value of every element in the package - Word, PowerPoint, Excel, etc. - which totals more than $1 000, and then at least double that.

Rob Scott, an attorney with Scott & Scott LLP who specialises in defending against BSA claims, argues that by charging the unbundled rate, the alliance misrepresents US copyright law, which counts product compilations as single works when it comes to assessing damages.

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