The Repercussions of Software Piracy: Damages, Approaches of Control, and Benefits from Reducing Piracy Rates

Table of Contents

Abstract

1. Introduction

2. The Scope of Software Piracy
2.1 The Software Pirates
2.2 Why Software Piracy?
2.3 Economical Damages

3. Approaches of Control
3.1 A Directive of the European Union
3.2 Other Approaches of Control

4. Economic Benefits by Reducing Software Piracy
4.1 Consumers
4.2 Workers
4.3 Innovators
4.4 Entrepreneurs

5. Conclusions

6. References

Abstract

Copyright infringement of software vastly known as software piracy has become an economical menace. Particularly, the East Asian parts are the basic distributors of unlicensed software and denote the highest piracy rates world wide. The counterfeits have become high quality products that they can even compete with original software. Reasons, why software piracy exists and who the pirates are, are appraised in this report. The tremendous damages of high piracy rates on, for example, governmental loss of tax revenues, loss of jobs, are shown. Attention is paid, whether the Directive on the enforcement of Intellectual Property Rights (Directive 2004/48/EC) passed from the European Union, which has ingredients of different international treaties such as the WIPO, the TRIPS and the WTO, is able to stem software piracy. This leads to show why only the implementation of laws causes no objective effect on the surge of software piracy. The influences of attributes such as attitude, income, and education, which play a significant role to curb piracy rates across the globe, are scrutinised. Furthermore, benefits from a reduction of piracy rates are evaluated as well.

1 Introduction

Almost every second household in the European Union is connected to the internet. The internet connection is getting faster and faster, and as a result it speeds up the download rates enormously. From the angle of an internet user there are plenty of benefits being connected with the internet e.g. collecting and exchanging information. Besides these advantages, there are damaging effects being connected world wide with other users. Particularly the software industries and to an inceasing degree other major parts such as the entertainment industry have to compete with high quality counterfeits, most of them from abroad, which cost them billions of dollars every year.

Which began with peer-to-peer networks like napster, is nowadays broadened to a variety of other file sharing applications which serve the internet user, not only with legal issues. Peer-to-peer networks have become a market place for sharing illegal data containing audio, video, software etc. In short, any data in digital format is available.

In this context copyright infringement of software vastly known as software piracy produces heavy economic losses for the concerned industries. There are ways to prevent software piracy such as simply copy protections. But they have to be improved frequently because hackers often identify gaps to circumvent the copy protection. Copy protections, hence, a technical approach to curb software piracy, should be excluded from further investigations. Taking actions such as passing laws against illegal distribution of software or any kind of digital data are other measures.

Are the industries the only victims of software piracy?

It is a matter of a chain reaction because at the end the ultimate consumers suffer of the misconduct. They have to pay, for example, raising prices for watching films or for buying music cds.

In the following sections, an examination and critical evaluation of the state of software piracy, the governmental approaches of piracy problems, which will provide answers to the following questions:

- What does the scope of software piracy comprise?
- What are the pirates’ reasons, and why?
- What damages can be allocated to software piracy?
- What strategies are appropriate to contain software piracy?
- What are the benefits from stemming piracy rates?

The investigations lead to a conclusion about the effectiveness of anti piracy approaches and their ability to curb software piracy rates.

2 The Scope of Software Piracy

Software piracy is the illegal duplication of computer software whereas the developer does not receive any money for their work. There are several kinds of appearances of software piracy. Hacking into software and cracking the copy protection by disabling it, is one kind. Herein sticking to carry on the idea, to make software a registered version, hackers develop tools which generate key codes to unlock a trial version (Housley, 2004). Another form of software piracy is when a software pirate purchases software once and installs it on multiple computers. The internet has become the main and most rapidly growing platform where pirated software is distributed (www.spa.org).

The particular relevance of software piracy becomes clear when considering that every third copy of software which is in use is unlicensed, and thus pirated (Pratt, 2005). Beyond, Asia exhibits the world’s vastest piracy rate. Worldwide, individual countries disclose piracy rates which range from 21 % (USA) to 92 % (Vietnam) (BSA and IDC, 2005a). In 2003, an annual loss of $ 11-12 billion of revenues by the software industry, which was a raise of more than 50 % from 1995, was accounted of software piracy (Higgins and Wilson and Fell, 2005). Hence, this indicates the frightening evolution of software piracy. Why is software piracy in the eastern parts of the world more prevalent? It is linked with many factors such as income, culture, regional laws, education, attitude etc.

Furthermore, China’s boosting economy and its vastly growing online population contributes supplementary the world’s software piracy. Whereat the number of netizens was just 620.000 in 1997, by late 2005, it was expected that China’s online population reach 134 million (Guo, 2005).

2.1 The Software Pirates

Software piracy can be defined as a group activity; hence, they purchase a copy of software and distribute multiple copies of it (Shin et al, 2004). As mentioned above, the highest software piracy rates in the world are in the Asian region. Unfortunately, it is hard to say who exactly the pirates are because of the lack of investigations on this particular section.

Shin et al (2004) estimate that the stereotyped idea software piracy is a poor man’s responsibility, offers a justifiable assertion for the prevalence of software piracy in preponderant poorer countries. But according to Fischer and Rodriguez (2005), they estimate that people with the lowest income are not an important determinant of software piracy, simply because they cannot afford their own computer to run the pirated software. Moreover, Fischer and Rodriguez (2005) assume that the highest income class, except in Western Europe and North America, are more considered about their reputation to be caught than saving a little amount of money by obtaining an actionable copy. This suggests that the suppliers of pirated software are neither the people with the lowest nor with highest income (except Western Europe and North America), therefore, the middle income households are potential suppliers of piracy but compose basically the demand side. They cannot inevitably afford all required software but they are in the position to purchase a Personal Computer (Fischer and Rodriguez, 2005).

There is a significant difference in Fischer’s and Rodriguez (2005) study: the relationship between income and piracy has got a regional factor. Whilst the lowest income class contributes piracy only in the more developed parts of Central Asia and Eastern Europe, the highest income class encourages software piracy particularly in Western Europe and North America, whereas the upper class indicates a contrary impact in all other parts in the world (Fischer and Rodriguez, 2005).

Aside from Fischer’s and Rodriguez study about the relationship with income and piracy rates, who was never in the situation to buy, lease or download pirated software? Sharing software with colleagues or friends compose more than half of lost revenues of the software industry, thus, it is estimated that it is the most pervasive form of software piracy (Shin et al, 2004).

2.2 Why Software Piracy?

Thanks to high-speed internet connections, that can deliver any program within a short period of time, and user-friendly file sharing (peer-to-peer) applications, nowadays, becoming an owner of an expensive software without paying anything, is easier than never afore. Thus, the significant question is, why should a consumer purchase a licensed software when there is the possibility to get a unlicensed one for less money or even for free from the internet?

Indeed, there is no difference between shoplifting and downloading software from the internet. But a recent research of two United Kingdom universities discovered that people do not share the idea that downloading unlicensed software from the internet is a criminal action (Hermida, 2005). In contrast, they rather think that downloading illegal software from the internet is not a crime (Cronan and Douglas, 2005). That indicates that attitude plays an important role in promoting software piracy. Herein sticking to the idea of attitude, according to Peace, Galletta and Thong (2003), attitude was the strongest influence to commit software piracy. Furthermore, it is rather a mix between attitude, economic wealth, culture, education and income whereat they influence each other.

Why is there a disparity of software piracy across the world? The Asian region has got a lower per capita GDP than Western Europe and North America (the USA and Canada) (Shin et al, 2004). Hence, the people in the Asian region have less money to purchase software than the Western European and North American people. So, a little income influences the attitude towards the disposition to promote counterfeits, and in this case pirated software. Therefore, it is a natural that they are more involved in software piracy activities than the Western part of Europe and North America (Shin et al, 2004).

The magnitude of intellectual property protection and the proportion of software prices relative to income concur to regional discrepancies in software piracy as well (IDC and BSA, 2004). Hence, some software vendors have not a clue that their pricing strategies are not affordable for normal people in nations such as some Asian regions e.g. Vietnam, where per capita income is often a fraction of that in the USA (Moores, 2005). Even Time Warner’s strategy offering DVDs for a low price of $ 2.65 in some Asian regions made it difficult to compete with disks for $ 0.60 where 5 movies are compressed onto it (Guo, 2005). Film piracy will be excluded from further investigations.

2.3. Economical Damages

As mentioned, every third copy is unlicensed software across the world. Recent studies estimate that one of the vastest piracy rates were in China, where 90 % of all installed software on computers were pirated, whereupon, Ukraine (91 %) and Vietnam (92 %) had an alarming higher piracy rate (Anon, 2005). These are not isolated cases because there are more then a dozen nations where the piracy rates are 80 % or even higher (Pratt, 2005).

The negative repercussions of high piracy rates are devastating. In 2005, the worldwide damage of software piracy was estimated with $ 33 billion per year (Lora, 2005). This was an increase of $ 4 billion to 2004, despite big efforts to curb piracy rates (Kroeker, 2004).

The problem is people do not realise that piracy causes a chain reaction, whereas, the bottom line is, everybody is a victim of it. The International Data Corporation (IDC) and the Business Software Alliance (BSA) (2004) state that some economic consequences of high piracy rates within that chain:

“Local software industries crippled from competition with high-quality pirated software from abroad, lost tax revenues and jobs from lack of a legitimate market and costs of ineffectual enforcement. These costs reverberate up and down the supply and distribution chains.”

E.g. a research estimated that the US economy denoted an annual loss of $ 1.9 billion, which determined more than 105.000 lost jobs (Germain, 2004). The last link in the chain is the consumer. The impact on them is reflected in accretion of unit cost of software programs (Morphy, 2004) hence, he has to pay more for software.

3 Approaches of Control

The tremendous damage caused by software piracy and particularly the infringement of Intellectual Property Rights (IPR) such as copyrights (European Commission, 2005), and the call for ordinance did not stay out of legislative attention. Especially the explosive growth of internet piracy triggered a crucial first step in the fight against the piracy menace. In 1996, the World Intellectual Property Organisation (WIPO) concluded two copyright treaties: the WIPO Performances and Phonograms Treaty (WPPT) and the WIPO Copyright Treaty (WCT), whereupon both constitute the WIPO Internet Treaties (Guo, 2005). The principal component of the WIPO Internet Treaties is to increase the global minimum standards of intellectual property protection, basically concerning to internet-based distribution of copyright works, therefore, it represents in combination with existing agreements like the Trade Related Aspects of Intellectual Property Rights (TRIPS), the unity view of the world community to dispose any residual gaps in copyright protection on the world wide web (Guo, 2005). An increasing number of countries implemented the WIPO Internet Treaties and have already taken steps to improve their laws (BSA and IDC, 2005a).

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