Q&A: How Software Piracy Undermines Economic Recovery

REDMOND, Wash., Oct. 19, 2001 — Software piracy costs the software industry billions of dollars in lost revenue every year, and tens of thousands of lost jobs. The numbers are considerable in the best of times: during the current economic slowdown, they represent an unacceptable drain of vital economic resources. PressPass spoke with Microsoft Associate General Counsel Nancy Anderson, who manages the company’s anti-piracy activities in the United States, Canada and Latin America, about the economic impact of software piracy and some of the efforts Microsoft and other software companies are making to combat it.

PressPass: How big an issue is software piracy?

Anderson: Software piracy — which basically is the unauthorized copying and use of a software program — is a critical problem because it undermines the very foundation of the software industry. We’re in a business that is based on the value of intellectual property. And like any industry founded on intellectual property, the business model is simple. A significant investment is made to develop products. And survival is dependent on our partners’ ability to distribute and license products so that a reinvestment can be made into research and development to create new and better software products to meet consumers’ needs. Piracy shatters that model.

The issues facing the software industry are similar to those faced by the movie and recording industries. The nature of the products makes them easy to copy and distribute illegally. When that happens, the effects ripple throughout our economy in the form of jobs that are lost, taxes that go uncollected and products that don’t get developed. Intellectual property is the base of our knowledge economy. For our economy to prosper, it is essential that the value of your copyright be preserved and protected, whether you make movies, or recordings, or books, or software.

PressPass: How widespread is software piracy?

Anderson: Piracy is a serious issue in many parts of the world. Over the past six years the world piracy rate has declined 9 percent overall. But for the first time in those years, world piracy did not decline this year, but slightly increased by 1 percent. The software industry is losing nearly US$12 billion annually to piracy. In the United States, which has the lowest piracy rate in the world, one in four software programs is pirated or illegally copied. That’s a phenomenal amount for any industry to endure.

PressPass: Where do all these illegal copies of software come from?

Anderson: Piracy comes in a number of forms. Casual copying is one of the most common types. Perhaps most at risk are small- and medium-sized businesses that expand quickly. All too often, businesses load the software they need by copying applications without purchasing additional licenses. This is a serious issue, and it is the reason we have become more active working with small- and medium-sized businesses to educate them about the risks of copying software illegally, and to help them learn how they can become compliant quickly, easily and in a way that is cost effective.

Counterfeiting is also a significant problem. Counterfeit software can look like the real thing — highly sophisticated packaging, documentation and labels — or it can be basic. In addition, the Internet is making distribution of pirated software easier than ever. According to a recent study, there are more than 2 million Web sites distributing illegal software.

More disturbing is the fact that many counterfeiting operations are involved in organized crime. Sophisticated manufacturing plants, located primarily in Asia, Latin America and Eastern Europe, are set up to illegally replicate software and take advantage of distribution networks that are already in place for other illegal enterprises such as money laundering.

PressPass: What is the economic impact of all this piracy?

Anderson: Each year, the Business Software Alliance conducts a global study of the cost of software piracy. It is a study that strictly measures the value of sales lost due to piracy of business software applications. The total value for last year: US$11.75 billion. This number does not take into consideration the losses accrued when other types of software, like games, are pirated.

PressPass: That’s a lot of money, but isn’t this a victimless crime? In the larger scheme of things, is fighting software piracy a good thing to focus time and resources on?

Anderson: The notion that no one is harmed by software piracy is na
ve at best, and dangerous at worst. Software piracy slows down the pace of innovation by reducing the amount of money available for developing new products. And it means the loss of more than 100,000 jobs in the United States each year.

Equally important, every time somebody buys a piece of counterfeit software, there is a very good chance that they are supporting organized criminal enterprises.

There’s one more thing to consider. Buyers themselves can be victims of counterfeit software. Counterfeit software is often of lower quality. Viruses in counterfeit software are evident, especially in illegal software downloaded off the Internet. And investigations indicate that upwards of 90 percent of the software for sale on the Internet is, in fact, pirated. In addition, when you buy illegal software, you lose the opportunity to take advantage of warranties, customer support and other benefits that come with legitimate products.

In many ways, combating the piracy of intellectual property is more important than ever. The intellectual-property industries are among the most dynamic and successful in the world. The software industry in particular plays a critical role in driving economic growth. Software piracy poses a serious threat to the health of our industry, and it is critically important that we work with industry organizations, governments and law enforcement agencies to fight software piracy wherever and whenever possible. One thing that is encouraging right now is the fact that there is increasing recognition and support from governments around the world for protecting the health of the software industry through more active enforcement of copyright laws.

PressPass: What is being done to address the problem?

Anderson: At Microsoft, we believe that our efforts against software piracy require three things. The first is education. We work extensively through industry organizations and through our own marketing efforts to let the public and businesses know what the risks of software piracy are, what effect piracy can have on the economy as a whole and what they can do to make sure that they are compliant with copyright laws.

The second involves working with government and law enforcement agencies to make sure that there is a legal framework in place that honors intellectual property rights.

Enforcement is the third aspect. When the public sees consistent enforcement of the laws that are in place, they begin to gain respect for the principle of intellectual property.

However, legal action is always the last step, after other avenues are closed, to ensure that copyright laws are respected.

PressPass: What is being done to enforce the laws that are in place?

Anderson: To give you an idea of how serious the problem is, a year ago, the U.S. Department of Justice announced the expansion of the government’s anti-cyber crime efforts. The most recent expansion includes the creation of 10 special teams of prosecutors whose main job is to prosecute cyber crimes with an emphasis on copyright and trademark infringement. The U.S. government has also created the Intellectual Property Rights Center to address violations of intellectual property rights laws. The multi-agency center is focused on addressing intellectual property rights enforcement issues.

To give you an idea of how seriously we take the problem, Microsoft has resources worldwide working on the software piracy problem. For example, our senior manager of worldwide investigations came to Microsoft a little over two years after being deputy chief of intelligence for the Drug Enforcement Administration.

PressPass: How successful have efforts to combat software piracy been?

Anderson: Over the years, we have seen significant reductions in software piracy in many markets. The greatest reduction in any one region’s piracy rates in 2000 was seen in Eastern Europe — at 63 percent, down from 70 percent in 1999.

It is always good to see governments increase their support and respect for intellectual property rights, and to see local industries succeed and thrive as a result. So the benefits extend much further than any one company. We feel a responsibility at Microsoft to the industry and to our channel partners to help create, sustain and grow a vibrant software industry, which starts with strong respect for intellectual property.

PressPass: What are the greatest challenges that Microsoft faces in its efforts to curb counterfeiting and piracy?

Anderson: An ongoing challenge is the sheer difficulty of keeping up with organized criminal networks. The amount of intelligence and investigation, security and technology, plus the colossal amount of person power, that is required to track, capture and prosecute offenders is massive. It is always going to be a challenge to get ahead of counterfeiters.

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