End-users are much more prevalent than counterfeiters in the world of software piracy. End-users? Worryingly, it could be you.
As Evan Cox sips his tea quietly in the London office of American law firm Covington & Burling, he appears an unlikely figure to be striking fear into the hearts of respectable British managers.
Murder One it isn't, but Cox and his client, the Business Software Alliance (BSA), are fighting a crime that - in their view - is deadly serious: software piracy. And this time they mean business. As this article went to press, the BSA was considering bringing criminal actions against two British companies. These are not businesses which manufacture or distribute counterfeit software, but end-users - ordinary businesses which have been caught using unlicensed software.
Until now, the software industry has pursued a civil remedy against end-users, but Cox believes the time has come to take a harder line in the UK. 'We've had jail sentences against managing directors in other countries,' he says bullishly. The message is clear - as far as the software industry is concerned, it's time to get tough. And with the prospect of an unlimited fine, or up to two years in prison for individuals found guilty of infringing copyright, businesses would do well to take notice.
The problem for the BSA is that while its members - which include US software publishers Adobe, Lotus Development and Microsoft, along with Infobank and Dr. Solomon's Software of the UK - may take the issue of software piracy seriously, many don't. Software piracy doesn't trigger the same moral warning bells as other forms of theft, and most executives would throw up their hands in horror if you even suggested they were doing something illegal. It appears that software piracy inhabits a grey area in corporate morality.
According to the BSA, about half the piracy problem can be ascribed to end-users. These divide into three sorts: the first group have simply not kept up with the technology and don't realise they need to pay attention to it in the same way they do their tax affairs. The second group have pre-installed software which is not properly licensed. Depending on the organisation and its IT set-up (for example, whether it is on a network), senior executives may, or may not know there is something fishy going on - although they will still be held liable if they are caught. But the third and largest group, according to Emilia Knight, BSA vice president and managing director, Europe, is 'where the problem happens because it is somebody's fault'. This could be anything from wide-scale infringement of licences condoned at management level, down to Fred in systems giving Sonia in support a copy of his word-processing program.
Cox has no time for excuses. 'What galls me most is when end-users say: "We don't understand the licences." If you have an IT function then you hire an IT manager.' Licences are an important factor in the profits that software manufacturers make from the sale of 'packaged' or 'shrink-wrapped' products, which can be bought off the shelf, as distinct from bespoke systems designed for a particular user. A company might have one physical copy of a piece of packaged software, but it is the licences which proscribe how many people in the company can use it, whether they can also run it on a laptop at home and whether the company itself is breaking the law.
Software houses have no inclination to set industry standards for the licences they offer, considered by some as overcomplicated and too varied, as they are as much a part of a product's marketing strategy and commercial edge as its price and contents.
According to BSA estimates, some £2.5 billion of potential revenue in Western Europe was lost as a result of pirated software in 1996. The UK had the lowest software piracy rate in western Europe at 34% in 1996 - a drop of 4% on the previous year. Greece had the worst rate at 78%.
Even so, the UK rate means that one in every three business software packages currently being used in this country is illegal.
The attractions for the BSA of prosecution are threefold: reduction in software fraud, compensation for lost revenues and effective publicity.
The benefits are felt even if the matter is eventually settled out of court. Settling can help the company on the losing end contain its costs.
Cox cites one case involving a health authority which decided to fight on through the courts: 'We recovered £19,000 in damages and then they had to pay £38,000 in our legal costs, and probably absorb as much again in their own legal costs. They could have settled with us for £20,000.' In 1995 the BSA, Cow & Gate Nutricia and two related companies reached a settlement over alleged copyright infringement. In 1991 there was a dawn raid on Mirror Group Newspapers, which again resulted in an-out-of-court settlement. Instead of the police, the Mirror Group Newspaper raid used something called an Anton Piller Order. It allowed the BSA to bring in a team of lawyers and technicians to carry out its own search of Mirror Group premises. Anton Piller Orders were part of common law in the UK, which is based on precedent, but earlier this year they gained a legislative niche under the Civil Procedure Act. A central purpose behind the act was to make litigation faster and cheaper.
A section tucked into the Criminal Justice and Public Order Act, which came into effect in 1995, would also allow trading standards officers to act in cases of copyright infringement.
They do not need a warrant to enter premises and these powers could be used against companies that are using software illegally.
End-user copying and licence infringement are not the only forms of piracy.
There is Internet piracy, where copyright-protected software is illegally posted on electronic bulletin boards from which it can be downloaded.
Then there is counterfeiting, where copies of the software are run off, packaged and filtered into the distribution chain. This is happening in Taiwan, the Philippines, eastern Europe and possibly a garage near you, cranking out disks and even CD-Roms. 'A few years ago you couldn't press a CD unless you went to a Sony plant. Now you can get a CD writer by mail order through a computer magazine,' says Luc Marin, director of marketing for Europe at Adobe Systems. Somebody could buy this form of counterfeit software and believe it to be legal. The same is true of hard-disk loading where software is loaded onto a computer at the time of purchase, but without the proper licences. A good business practice is to keep the licences that come with properly acquired software, also any packaging and at least the front cover and first few pages of any handbook - as well as an itemised invoice.
Pirated software has a knock-on economic effect, according to a study commissioned by the BSA from Price Waterhouse and published in September 1995. It concluded that if the level of illegal copying of packaged business software in all of Europe in 1994 had been reduced from 52% to 35% and maintained at that level, it would have created 87,000 more jobs (direct and indirect employment) and $2.3 billion more in tax revenues by the year 2000. Piracy also hits R&D, which affects not only business users but private consumers who also buy shrink-wrapped software packages.
Working out exactly what software is being pirated can be tricky. Knight singles out two key areas. There are basic packages where there is great demand, such as word-processing software; and specialised products which are a company's main tool for making money. This would include products like Adobe Photoshop, used by graphic designers. Abode's Marin points to the ease of piracy. Theft can be accomplished with 'a few clicks of a mouse'. Adobe also wants to de-glamorise the terminology. 'We are starting to call it theft. There's a kind of hacker cool to piracy which doesn't help.' While the BSA's membership obviously has a vested interest in pushing the issue, it is also getting some support from end-users. A key UK organisation in the fight against software crime is FAST - the Federation Against Software Theft - which currently runs a one-day training programme for software managers. Its 1,200 strong membership is mainly made up of end-users, as well as around 100 software publishers. One way to pre-empt running foul of organisations like the BSA and FAST is to carry out a software audit. Dr. Solomon's, best known for its anti-virus software and one of two UK members of the BSA, is among those which produces a special software package for just this purpose. Earlier this year Unwin Seeds reached a settlement with the BSA after conducting its own software audit which uncovered 33 illegal copies of BSA-member software in the process. 'We were without an IT department for about six months and suspect that during this time the problem with licences arose,' says Andrew Irwin, Unwin's finance director. 'We have our own patents so we take licensing and legality very seriously. Needless to say, we now have very strict procedures in place.' As well as reducing the likelihood of copyright infringement, a proper audit can have other benefits. It will reduce the risk of pirate copies infecting the company's PCs with viruses, and should reveal whether they are affected by the so-called Millennium Bug, rendering them unable to handle dates with a double zero at the end. Knowing exactly what the configuration of the company's PCs is can also help combat theft. An employee may not sneak a PC out in their lunch box, but a 16 megabyte SIMM chip could be whipped out of the back of a machine and sells for around £40.
Andy Thornton, co-founder of Westall, a specialist company which carries out audits for business, also points to another hidden benefit when a company announces it is going to carry out a software check. 'You suddenly find 100 megabytes of disk space gets freed up as people dump all the games and stuff they've brought from home.'
The battle for the software industry, as for others trying to protect intellectual copyright, such as the music industry, is to make people take the issue seriously in the first place. 'Some people still think "I've paid for the disk so I can do what I like with it",' says Nigel Miller, commercial and IT law partner with City law firm Fox Williams, and a member of the General Council of the Society for Computers & Law. But the net is tightening: as well the legal action now being considered, the BSA is promoting its freephone hotline which offers guidance on the legal use of software and up to £2,500 for tip-offs that result in a successful case. (Remember that secretary you sacked last week?). Meanwhile, a new campaign launched this autumn - Crackdown '97 - is aimed specifically at small and medium-sized companies, which, says the BSA, tend to grow quickly and may neglect software management. However big or small your company is, it seems that using unlicensed software is set to become a far more risky business in future.
* SIX GOOD REASONS WHY YOU SHOULDN'T
Code can be lost in shoddy counterfeiting and copying, making the software unreliable
Valuable hard disk space is not cluttered up with bootleg copies of Doom
Counterfeit disks or illegal versions downloaded from the Internet may have viruses
You don't get back-up or updates
The impact of software R&D spend means some software that could help your company does not get developed
You don't look good in stripes.