Software Piracy: A Cause for Concern Onshore and Off

By Terry Costlow

In the United States and other developed nations, software piracy is fairly uncomplicated and often barely noticed. In general, companies simply load a few more copies onto their PCs than they pay for. While onshore piracy adds up to significant lost revenue, larger-scale piracy occurring overseas concerns software providers far more.

A recent international study by the Business Software Alliance (BSA) concluded that nearly all software in use in China is stolen. In fact, this emerging Asian giant tops the piracy list at 92 percent theft, and all signs indicate that this level will not decrease anytime soon. BSA says the Ukraine and Russia are also significant offenders, with 91 and 87 percent theft rates, respectively. But while the combined dollar value loss is $1.3 billion for the Ukraine and Russia, it’s still far higher in China, where the loss is estimated to be $3.8 billion.

“China is an intractable problem,” said Jesse Feder, director of international trade and intellectual property (IP) at BSA. “The piracy rate there has been hovering in the low 90s for years. The situation will not improve unless there’s more enforcement from Chinese officials.” Ninety percent of application software in China is pirated (www.forbes.com/forbes/2003/0217/078_print.html). Most PCs made in China come with a pirated version of Windows XP. Microsoft is fighting back with a stripped down version of XP that will sell for less in China.

Piracy and Economic Health

Software piracy and theft is a significant economic and IP issue for software developers and other technology companies. “It definitely affects our members,” said Glenn Tenney, chair of IEEE-USA’s Intellectual Property Committee. “We watch piracy issues especially closely when the United States is involved in trade agreements.”

Piracy also has major implications for the economic health of the United States. and other countries that have well-developed high-tech industries. The International Intellectual Property Alliance (IIPA), whose members account for 5 percent of America’s GDP and include the Entertainment Software Association, the Motion Picture Association of America and the Recording Industry Association of America, estimates that its member companies lose $10 billion in the United States alone — $22 billion globally — from piracy.

BSA and IIPA executives focus the blame on the Chinese government. Typically, government administrations agree to move against pirates, directing police and prosecutors to take action. “China is the last country not to enforce copyright laws. The fines they issue are not large enough to be a deterrent,” said IIPA President Eric Smith.

Slow Progress

Many of the efforts being made to reduce software theft in Third World nations are succeeding. Though Chinese officials have been slow to respond, some signs signal that they are beginning to understand that this issue won’t go away. China’s entrance into the World Trade Organization is a factor, along with continued pressure from many countries. Feder said that after a series of late summer meetings between leading Chinese representatives and U.S. trade officials, he was “more hopeful.”

A precedent for success does exist, assuming Chinese officials do enforce laws and dole out penalties strict enough to drive pirates out of business. In the 1980s, Taiwan had close to a 100 percent piracy rate. The country subsequently drove those rates down to “legitimate” rates, according to Smith.

But even though Taiwan has come into compliance, the impact of Taiwanese pirates on worldwide piracy remains strong. The pirates who made money during the ‘80s are still in business. “Taiwanese money runs piracy in much of Asia, but as a country Taiwan is doing OK. You will find Taiwanese syndicate people in Paraguay importing music CDs for sale in Brazil, and in Panama,  bringing in software and music for the United States.” Smith said.

Industrialized Countries Steal, Too

Though the main focus remains on developing countries, Feder noted that industrialized countries might actually pose a bigger problem. Piracy rates in these countries are low compared to the rest of the world, but the losses amount to big dollars. The IIPA estimates that roughly one in five copies of business software in the United States is pirated. But while the 22 percent U.S. theft rate might sound high compared to many industries, it’s pretty good for software. In Europe, the rate ranges from 25 to 50 percent.

“We need to focus on the developed world because the markets are so large,” Feder said.

Terry Costlow has written about the electronics industry for more than 20 years, covering a wide range of technologies and topics. He can be reached at todaysengineer@ieee.org. The opinions expressed in this article are the author's.