Last week Robert Holleyman, the CEO of the Business Software Alliance, published on op-ed article in the Mercury News. This article started by asking what the negative impact for the automotive industry would be on the incentive to innovate if 4 out of 10 automobiles were stolen right off the dealer’s lots rather than purchased. Holleyman went on to explain that this is exactly what is happening in the software industry today, with 43 percent of software being pirated in 2009, which is up 2 percentage points from 2008.
About three weeks ago Rosetta Stone Inc. (NYSE: RST), a leading provider of technology-based language-learning solutions, announced that the company had reached settlements in cases against ten individuals for copyright and trademark infringement. These individuals pirated software, including the unauthorized copying, downloading, sharing and selling of counterfeit Rosetta Stone® language learning software. These Rosetta Stone® settlements are important because they demonstrate that software piracy is not just a problem in developing nations, but is also a problem in the United States as well.
Rosetta Stone reached settlements against:
- Alex Ryken, Gayville, SD
- Almando Boochoon, Jamaica, NY
- Farid Feizian, Lutherville, MD
- Jeremy Tate, Dunlap, TN
- Joseph Biggerstaff, Louisville, KY
- Lawrence Jeanette Ota, Fairborn, OH
- Mark Dashiak, Bellmawr, NJ
- Mark Parker, Lithonia, GA
- Scott Easom, Lindale, TX
- Undisclosed Company, Madison, AL and Czech Republic
But this is just the tip of the iceberg. According to Holleyman’s article:
Nearly eight in 10 programs installed on PCs in China are unlicensed. In India, it’s nearly two-thirds. In Mexico, it’s six in 10. In Brazil, it’s more than half. The commercial value of unlicensed PC software in those four countries — all prominent members of the G-20 — came to nearly $13 billion last year. Globally, the figure was more than $51 billion.
Rosetta Stone CEO, Tom Adams, and eleven other CEOs, including Steve Ballmer of Microsoft, Shantanu Narayen of Adobe, and Enrique Salem of Symantec, recently met with members of the Obama administration and member of Congress in Washington DC to discuss bolstering intellectual property protection both domestically and overseas. These high level meetings as well as robust industry enforcement of intellectual property rights demonstrate a continued commitment to fighting software piracy and strengthening intellectual property laws. But is the Business Software Alliance and its membership fighting a losing battle? Sadly it seems so, but why?
The Business Software Alliance explains software piracy in this way:
Software piracy is the unauthorized copying or distribution of copyrighted software. When you purchase software, you are actually purchasing a license to use it, not the actual software. The license is what tells you how many times you can install the software. If you make more copies of the software than the license permits, you are breaking the law. Whether you are copying, downloading, sharing, selling, or installing multiple copies of software onto personal or work computers, you are committing software piracy.
It is hard to imagine today that consumers don’t understand what constitutes piracy, particularly after more than a decade of aggressive enforcement, and in some cases over-enforcement, of copyrights in music by the Recording Industry Association of America. But the reality is that pirated software is cheap, or even free, which is hard for many individuals and companies to pass up.
The reality is that individuals and companies fuel the piracy market. Simply stated, if there were no demand there would be no supply, so it is quite disingenuous for us to only point the finger at the supplier, but rather we ought to acknowledge that there is plenty of blame to go around, which may be a hard pill to swallow. And while there may an intellectual distinction between sharing software or music with a friend or family member, there exists a cultural indifference that borders on contempt for the rights of creators. That is why if you are a creator and you rely only on the weak protection provided by copyrights you are going to be enormously dissatisfied in most cases with your protection, but that is a different story for a different day.
Those who fuel the piracy market foolishly look to only the initial cost when they make decisions, failing to appropriately take long term costs into consideration or simply ignoring them altogether. Famously right now we are witnessing a textbook case of the perils of a myopic view in the Gulf of Mexico. In a desperate attempt to get the oil rig online and pumping British Petroleum ignored safety concerns and damaged equipment, apparently with full knowledge that if a worst case scenario occurred they would not be able to stop oil from gushing into the Gulf of Mexico. So in order to reap revenue faster safety and equipment concerns were ignored, which in the long run will cost BP many billions of dollars that they will have to pay out to those injured, and still the well is not producing revenue. Talk about penny wise and pound foolish! For more see BP’s Safety Problems Began Long Before the Oil Spill and BP’s internal investigation of oil spill: Several ‘warning signs’ were ignored.
But this myopic view is not something limited to large companies that are only concerned with profits. It is a problem that to some extent many if not most suffer from, and where the rubber meets the road for many is with respect to ignoring copyrights, whether it be in music or software.
According to Michael Wu, general counsel of Rosetta Stone. “Pirated software is likely to contain spyware, which can steal personal and confidential information, and may cause operational failures from viruses or malware.” Rosetta Stone, therefore, urges individuals to verify that a seller is authorized to sell the program and to report piracy of Rosetta Stone products or inquire about the legitimacy of Rosetta Stone products before they purchase. Consumers are urged to call the Business Software Alliance Anti-Piracy Hotline at 1-888-667-4722 with questions or to report piracy.
In addition to the billions of dollars in lost revenue each and every year to those that create software, we all should be worried about the viruses, malware and use of pirated software to collect confidential information. Is the risk losing your identity really worth getting software for little or no cost? Is the risk of succumbing to viruses and malware really worth getting software for little or no cost? Getting a virus or losing confidential information will in the long run cost you tremendously through loss of productivity and out-of-pocket costs associated with fixing the problem, but yet many are penny wise and pound foolish, failing to take into consideration the long run costs associated with their actions.
Perhaps it is naive to think that in the absence of piracy these large companies would reinvest the monies they are losing into increased research and development, resulting in better software and more innovation. What is, however, true is that small companies suffer from piracy and a lack of respect for their copyrights just the same as companies like Rosetta Stone and Microsoft. The difference is small companies and individuals who are creating cannot sustain in the face of widespread piracy, so a culture of piracy does quite clearly negatively impact innovation and resulting better products, and that is enormously problematic.