| Kendall George Bojan Kalajdzic Melanie Bittman Ross McLaughlin Ross Yingling |
The University of Oklahoma MIS 3113, Section 1 Chitra Nayer Spring 2000 |
On April 6, 1999, Microsoft Corp. filed lawsuits against nine software resellers in Virginia and Maryland for allegedly selling counterfeit Microsoft products. Microsoft officials claimed their actions are "intended to protect the region's legitimate distributors and customers from the negative effects of software piracy as well as to lessen the impact on the Maryland and Virginia economies, which have already lost more than $1 billion dollars and 8,300 jobs to piracy."
The popular conception of software piracy is that it is the activity of a minority of isolated pirate-hobbyists, copying and trading software for their personal consumption. Microsoft's allegations reflect a reality that software piracy has expanded from the bedrooms of computer wiz kids to a global trade in stolen software accounting for untold billions of dollars in lost revenue to the software industry. But Microsoft's statement is even more telling, in that it indicates the impact of software piracy goes far beyond lost income for software company shareholders. It affects lost jobs in local economies, lost tax revenues to governments, and decreased quality and increased prices for consumers whether private individuals, educational institutions, or businesses.
In order to study the complex problem of software piracy, we intend to conduct a five step ethical analysis. We will begin by stating the facts. We will pay close attention to who did what to whom, how much, and how much it really costs. We will also describe the economic and legal environment of the issue. Second, we will describe the conflict. We will describe the competing higher order values. Next, we will identify the stakeholders. Beyond the immediate contestants in this conflict, there are others who have a vested interested in the outcome.
Fourthly, it will be necessary to define possible options to mitigate the conflict. Finaly, we'll need to describe the consequences of each possible resolution, so we might arrive at a reasonable recommendation.
The Facts. Software Piracy is and will continue to be an enormous economical problem for software producers. According to the Business Software Alliance, in 1998, 38% of software in the United States was pirated. This created a loss of around $11 billion and over 100,000 jobs (see Fig 1). This is an obvious problem locally, but an even greater problem is international piracy where in some countries 95% of software is counterfeit. The primary dilemma in many countries is that there are no legal standards for copyright enforcement.
|
The United States has several "stated" laws regarding software piracy. The "Intellectual Property Rights Initiative" is a stated proposal by the government to act on all forms of piracy. The U.S. Trade Representative and the Patent and Trademark Office are negotiating treaties with other countries to enforce anti-piracy legislation. In 1997 congress passed the "Net Electronic Theft Act" (NET). This allows authorities to "prosecute people who copy and distribute software over the Internet even if they don't make a profit." The NET also included a clause about software trading. This seems like an excellent standard to set, but lack of enforcement by the Department of Justice has caused this act to be ineffective.
Dwindling success of local enforcement of piracy law has sparked new enthusiasm for international lawmaking. The "WIPO Treaties" were created to bring international copyrights together to fight piracy. These treaties will hopefully send a message to the world that "the U.S. will not tolerate piracy." The core act involved in these operations is the "Digital Millennium Copyright Act." This ties copyright laws already in effect with the emerging digital age. Some inclusions of the treaty are:
Software piracy is not unique; it shares qualities with situations in other industries. Take for instance the music recording industry. It is popular today to trade MP3 encoded music. Controversy has arisen over the last several years as to whether this should be illegal. Much music is copyrighted, so it should be considered illegal to distribute these files, but many argue that the actual digital translation from CD format into MP3 voids the copyrights. MP3.com is currently suing the Recording Industry Association of America for trying to interfere with their business. MP3.com offers services for people to store and organize their music digitally. The recording industry's main argument is that MP3.com is pirating music over the Internet. The argument between the recording industry and MP3 users will persist until legislators clearly define piracy. The U.S. government has taken no specific actions against MP3 users or traders.
Technology often advances at such a tremendous rate that it is difficult for legislation to keep pace. This is precisely the value of an ethical analysis of this nature.
The Conflict. The immediate conflict that arises with the issue of "software piracy" is what is exactly legal and ethical? Is it right for one to reproduce something that is not his and even distribute it to others? There are divergent views on the subject. It is important to examine the higher-order values involved and look at how price and purpose of the software being copied influences the opinion of the industry.
Software piracy is a growing concern in our society, because the Internet is has made bootleg software more accessible than ever. People can pirate software in the comfort of their own home with "little risk of detection". The Internet required individuals to exercise morals and self-restraint to resist the temptation to download software for their own use. Software piracy is clearly illegal. However, some hold moral beliefs convictions that are in conflict with published law.
Some hold that there is nothing wrong with software piracy. Many software pirates believe in the freedom of information. According to them, it is acceptable to copy the software because they have a right to the information contained in the software. They also see the reproduction and distribution of software a part of "fair use" within copyright law. The Fair Use Clause permits copyrighted material to be reproduced on a limited basis for educational purposes. Recognition must be given to the original author of the work to protect their creation. Software pirates clearly violate both the letter and intent of the Fair Use Clause in their wholesale reproduction of entire copyrighted works for their personal consumption.
Some software pirates see circumventing copyright protections as a challenge. Whether software pirates personally "crack" or defeat security features of software or merely distribute stolen "warez", they garner a feeling of satisfaction knowing they have rebelled against the system.
We have described some fairly sophisticated motives behind hobbyist piracy, however the most common reason underlying software piracy is no well thought out moral value at all. Most pirate software because it is convenient for them.
Software manufacturer are pursuing high order values that are quite different than that of the pirate. Manufacturers value freedom of expression for software authors. They hold that the programmer deserve compensation for their work. They also believe in providing a quality product to their patrons at a reasonable price. Their goal is not to cheat people out of their money, but they are just providing a service like any other business and therefore their values also lie in capitalism. They want their fair share of the market. They are producing products and expect appropriate revenues from their business enterprise. Fundamentally, they also desire to uphold the integrity of the information industry as a whole.
Counterfeiters, those who copy the software and sell it for a profit, have but a single goal-to make money. They value capitalism, or a shadowy reflection of capitalism, but they seek to make money at others' expense. They are unconcerned with the law. They are motivated by greed.
Does it matter how much the software cost or what it is being used for? The answer is no. No matter what the cost, it is still illegal to copy someone else's work. This is known as copyright infringement and is illegal in the United States. The civil penalties include civil injunction, actual damages, or statutory damages up to $100,000 per infringement. Criminal penalties include fines up to $250,000 and jail terms up to 5 years, or both. The only legal way to use someone else's software is through the Fair Use Clause and even then there are strict guidelines that must be followed. It is difficult to imagine a situation where software piracy is necessary to save life, so it should be avoided and discouraged by all.
The Stakeholders. As the software piracy issue grows, more people are affected by piracy everyday. Software companies, the government, workers, retailers, and honest consumers all pay the price for software piracy. Consequently, growing numbers of individuals are taking a stand against software piracy. On the other hand, pirate hobbyists, "warez dudes", and many dealers of bootleg software are opposed to the enforcement and expansion of copyright law.
Software companies are the biggest stakeholders in the piracy issue. They rely on software sales to fund their company operations and their future developments. Unfortunately, software piracy is now taking a large amount of the income these companies depend on away from them. In fact, in 1998 software piracy cost them 2.9 billion dollars in revenue in the United States alone and 11 billion dollars worldwide. As the number of Internet users continues to grow, software piracy will become an increasing problem and businesses will lose even larger amounts of revenue. As their profits decrease, software companies will no longer be motivated to fund development of new products. This will dampen innovation. Consequently, software companies want stronger penalties enforced on all people who illegally copy software.
The government also wants to take a strong stand against piracy. Piracy hurts the government financially also. In 1998 alone it the United States Government lost one billion dollars in corporate tax receipts. Additionally, software piracy robs the economy of jobs and in turn diminishes income tax revenues. These factors combined with the ways piracy hurts the private individuals and investors has caused the U.S. Government to take an increasingly stronger stand against it.
The software development industry employees are also major stakeholders in the software piracy issue. The copying of software cost workers 109,000 jobs in 1998 and another 150,000 jobs that would have been created in the software industry were not because of the lost revenue of piracy. The employees lost a total of 5.3 billion dollars in lost wages in 1998. Obviously, workers pay a huge price for piracy too.
Retailers have taken a stand against software piracy too. Piracy hurts all software retailers by forcing them to compete against cheaper pirated software. This competition lowers their profit. As the cost of the software increases, people turn to less expensive illegal substitutes.
The final stakeholders whom are harmed by software piracy are honest consumers who will not buy pirated software and refuse to download copied versions. Overall, piracy forces the cost of software on the market to increase. This increase forces honest consumers to pay more for their software. Plus, the companies will not develop as many new products, so the consumers will not have as much new innovative software to purchase. There are also consumers who unwittingly purchase illegal software. Lured by a more attractive price, they purchase software from deliberate counterfeiters who advertise stolen products as the genuine article. Or purchase a new computer system complete with preinstalled, however, illegal software. These consumers receive an inferior product, and unconsciously forfeit benefits of legal registration.
These software bootleggers or counterfeiters make incredible sums of money by selling copied software at a much cheaper price than the original product can be purchased. They dupe unsuspecting consumers and sponge off the hard work of others. Some take advantage of the anonymity offered by the Internet. By promoting their illegal wares on the Internet, they stand a better chance of avoiding large fines and jail time.
"Warez dudes" also support the copying of software. "Warez" is hacker jargon for pirated software. Warez dudes do not trade software for profit. The majority of the warez site holders believe that software should be free and truly believe they are contributing to the betterment of society by providing this service. They also pride themselves on their ability to crack the software so that many people can use it.
Finally, many individuals support copying software. These individuals are also not profiting from piracy. They copy software for their own personal use and not for resale. They believe that software prices are too high and unthinkingly contribute to the continuous price increases by stealing software.
Although these stakeholders hold two very different views, they all have some major similarities. The issue of software piracy affects them all, and they all will agree that how it is handled will greatly affect all of their futures and the future of the computer industry.
Options. There are basically five options that can be responsibly taken in to protect the software manufacturers' intangible assets: increase protection of software, increase legal penalties on offenders, permit free educational use of software, make software available free of charge, and lease the software.
The first measure that could be taken is to increase the copyright protection internal to the software code. A great deal of software available today already has internal measures to prevent copyright infringement. Some require the original CD in order to operate properly. Others require an online registration and verification, which signals the manufacturer if a particular serial number has been installed multiple times. However, these measures are only effective if the internal protection mechanisms remain intact. This means the code of software must be made more difficult to de-compile and alter.
A second measure that can be taken is to increase the legal penalties of copyright infringement. Software piracy is common in countries where copyrights are not guaranteed. In these countries certain businesses publicly offer pirated CDs for the price of burning a CD. In such situations a little effort will achieve significant positive effects toward copyright protection. Bilateral and multilateral relationships between countries are already producing measurable increases in software policing.
Software can be available free of charge for educational purposes. There are many positive effects to this approach. Users become familiar with particular software packages that they will use in their future carriers. People naturally gravitate to familiar software even when a competitor offers a similar or more advanced product. There is no better example than WordPerfect vs. Microsoft Word. The WordPerfect community of users is reluctant to switch to Microsoft Word, which has become the world standard in word processing.
Beyond educational purposes, there is an increasing trend for software producers to offer software for free to all users and realize profits through another means. For instance the Linux operating system is promising to become the platform of the future and a potential rival to Microsoft's Windows family of operating systems. With its unique approach of connecting numerous programmers around this project it is becoming an arguably better and more stable system than Windows. Revenue generated from such a method of distribution is based on service charges. Interest in this type of business has flourished recently with several vendors creating their own special Linux support packages. Some Linux vendors offer fee-for-service technical support services. Others offer technical support on a subscription basis. SGI has recently announced its Linux version with a technical support package that will make Linux available and supportable for business purposes.
Finally, a new and emerging trend being offered on the market is leasing the software. All major software manufacturers are announcing their readiness to support this idea with their full lines of software. The anticipated growth of the Internet's throughput capabilities is quickly turning this idea into reality. There are a number of web sites that are offering free or for service web-based applications. One example is desktop.com, a virtual desktop that can be accessed anywhere in the world. Similarly, when the Internet can support high quality streaming audio, music can be broadcast in the same way that it is by radio. This environment offers protection of copyrights because no download is required. Use of such software or music will be on-demand as manufacturers determine terms on which this service will be charged.
Consequences. All of these options have both positive and negative effects. The positive effects are apparent in the increased protection of intangible property, while negative effects are expressed in increased expenses or direct loss to the manufacturers.
In situations where a software manufacturer increases the level of protection on its products, cost is a major factor. Such operations usually consume time and resources, and increase demand for programmers. These are elements that directly increase the cost of production. Nevertheless, effectiveness of such actions is highly questionable because almost all software packages have been pirated. Usually such action is just buying time until software will be widely available from illegal channels.
Policing pirated software has a very limited effect. Only large traffickers are at significant risk of software police, while small entities can easily operate unobserved. To be effective policing systems must be substantial and thorough. Policing must go beyond merely ratifying laws. Enforcement agencies must be empowered and supported to effect significant benefits. Educating the public is also foundational to success-awareness among users how their business will be affected by non-compliance is key. Additionally, there is an increased cost to both software manufacturers and the public at large for increased litigation of software piracy cases.
The down side of giving software free for educational purpose is the immediate loss of profits from the relatively large educational market. However, an overall net loss is a disputable claim. Initial losses can be made up in the long term by wider consumption in the commercial market as users graduate and influence software acquisitions in their respective industries. The larger problem is the availability of free or discounted software that is later used or copied outside the educational community. Controlling this situation is quite difficult for reasons already mentioned and lost profits from pirated software could then be considerable.
Free software widely available on today's market has achieved undetermined success. Many manufacturers seek revenue by offering a single product for free and expect satisfied costumers to purchase service, other titles, or upgrades with additional features. A leader in this style of marketing is Netscape. They offered their browser for free because they expected a commensurate increase in demand for their Netscape Server products. However, it is possible for consumers to use only free software and still satisfy all their application needs. In the Netscape example, one can use the Netscape browser for free and Apache Web server for free too.
Finally, leased software being such a recent entrant into the mix, we have only a limited amount of observation from which to draw conclusions. Present indications would suggest that this method of distribution has relatively limited negative consequences. The biggest obstacle facing leased software is bandwidth. Currently, these applications have poorer performance than applications executed on a local machine. However, efforts by the biggest companies in software manufacturing, in particular Sun and Microsoft, would indicate that there is a future for products of this type.
It is difficult to reason that unmitigated software piracy is beneficial for anyone other than the pirates. Every player in the game pays in some way for the activities of software pirates, whether small or great. Consequently, it is difficult for honest individuals to side with software pirates however attractive no-cost, penalty-free software may appear. It is therefore necessary, for us to recommend measures be implemented to decrease the incidents of software piracy.
The free market will reign with regard to efforts like providing software for free, provide software for free to educational institutions, leasing software, and investing in increased security measures. Survival in the market place will be afforded to those manufacturers who apply the right mix of these measures to remain competitive.
However, our government cannot be relieved of its responsibility by casually suggesting market forces will prevail. Laws must be clearly defined and enforcement must be aggressively applied. Individual traffickers must be searched out and appropriate penalties be levied against their enterprises. Some manufacturers have been so discouraged by the government's failure to firmly enforce copyright law they have taken the lead in rooting out counterfeiters and filed court actions on their own. This trend must be reversed. Manufacturers should be encouraged to protect their intellectual property, but not because their government is falling down on the job.
Our elected officials and federal agencies need to actively pursue cooperation with foreign governments and agencies to enact cooperation treaties. Primary offender nations need to be held accountable for their inaction and duly penalized for non-cooperation.
Finally, individuals need to be informed and take personal steps to remain uninvolved in the piracy trade. We would be naïve to consider a future without software piracy. However, through cooperation among all stakeholders on the side of protecting all copyrighted material, we can shift the consequences of illegal activity to rest more squarely on the shoulders of the software pirates.
Microsoft Files Software Piracy Lawsuits on Behalf of Customers And Resellers in Maryland and Virginia
www.microsoft.com/PressPass/press/1999/Apr99/MidAtlEFPr.htm (link has expired)
BSA Anti-piracy Site
Media Web: Copyright Resources on the Internet
http://groton.k12.ct.us/mts/pt2a.htm (link has expired)
Digital Future Coalition
http://www.dfc.org (site inactive)
MP3.com