Thursday, August 21, 1997

How much does software piracy cost?

By DANIEL MEISLER / San Francisco Examiner

It's as easy as putting a disk in the wrong drive, but high-tech trade groups say software piracy costs billions of dollars each year.

And although the software giants are promoting their increasing success in curbing piracy, some industry observers are disputing estimates of recovered damages - as well as the damages themselves.

A report released in May by the two largest U.S. software trade organizations, the Business Software Alliance and the Software Publishers Association, put the worldwide losses at $11.2 billion in 1996. The United States accounted for$2.3 billion, the highest total of any single country.

The study by an independent research firm also found that the rate rate of piracy has dropped and dollar losses have gone down by more than $1 billion since 1994. But this modest progress hasn't stopped software companies from continuing to spend much time and money on anti-piracy programs meant to educate computer system administrators and encourage whistle-blowers.

The prevalence and ease of copying software, however, and the growth of Internet bulletin boards and Web sites dedicated to pirating software, make it hard to control.

"Probably everyone has at least one piece of illegal software," said Peter Beruk, head of the Software Publishers Association's anti-piracy program.

The combined amount recovered from piracy settlements,$22 million for the BSA and$16 million for the SPA over several years, is less than 2 percent of the 1996 U.S. total revenue lost, according to their own study.

"It's still a very big problem," said BSA vice president Bob Kruger. "But we think we're having an impact."

The SPA spends one-third of its$9 million budget on anti-piracy programs, and re-invests all recovered funds into anti-piracy efforts, said spokesman Dave Phelps.

The BSA, which has education and enforcement programs in 55 countries, claims to have made significant progress in its efforts, announcing in early July that its four-year anti-piracy program has recovered more than $22 million in pirated software. It reported a record amount of seizures in May, totaling $1.2 million.

"These figures show that it is more expensive to copy computer software than to pay for it in the first place," said Kruger. "Trade groups are holding organizations accountable for their actions."

"We've turned the corner," said PSA president Ken Wasch. "Piracy is declining."

But some question the methods and motivation of the study, which breaks down piracy rates by country, and relies on an SPA data collection program that has recently been shut down.

Jeff Tarter, editor of the software industry newsletter Soft Letter, said collecting numbers on piracy is a "sketchy" endeavor. He noted that the piracy study calculated damages and rates based on sales and shipment of American-made software compared with software in use worldwide, regardless of where it originated.

"If a Vietnamese company made a word processor that everyone there used," he said, "the numbers wouldn't change."

Tarter added that the country-by-country numbers, aside from being inaccurate, were produced with international negotiations in mind.

"The numbers were created for political purposes," he said, "and for hitting people over the head."

He also said the suspension of the SPA's data collection program, which had been recording sales and shipment records from member companies for 12 years and on which the new study relied, showed that the numbers were suspect.

Wasch disputed that assertion. "The numbers are great," he said, adding that the suspension of the data program and the accuracy of the statistics are "completely unrelated." The program was halted because the industry is now dominated by only a few companies, he said, and the industry data returned to the larger companies was virtually identical to their own records.

Trade group officials said their anti-piracy efforts focus mostly on businesses that systematically duplicate software illegally, such as by putting one copy of an application on a server and making it available to multiple users.

Kruger said publicity is a valuable tool in the fight. He said the effects of a single "unannounced audit," in which the BSA gets a court order to search a company's computers, usually on a tip from a caller to a hot line, go beyond that company.

"Every case we announce has a broader impact," he said. "Hopefully, it will influence other companies."

Once a company is found to have illegally copied software, it is forced to delete the programs, buy as many copies of the software as it had duplicated and pay a fine.

The software groups rely on toll-free hot lines for information on piracy. The BSA and SPA estimate that each receives more than200 calls each week, more than half of which are legitimate.

Phelps said that over the last two years, the SPA also has concentrated more efforts on combating software piracy on the Internet. Joshua Bauchner, who heads the group's Internet anti-piracy efforts, said the SPA has sued three Internet service providers and three users during that time. All the suits were settled out of court, he said.

Some argue that software companies may be overreacting. In an e-mail interview, the creator of a piracy Web site said that smaller software companies get needed exposure on the Web through piracy.

"Most of us, if not all, can't afford the software," he wrote. "A lot of no-name companies get shown to loads of people all over the world."