Software Piracy Essay, Research Paper

Software Licensing and Piracy

In 1993 worldwide illegal copying of domestic and international software cost

$12.5 billion to the software industry, with a loss of $2.2 billion in the United States

alone. Estimates show that over 40 percent of U.S. software company revenues are

generated overseas, yet nearly 85 percent of the software industry’s piracy losses

occurred outside of the United States borders. The Software Publishers Association

indicated that approximately 35 percent of the business software in the United

States was obtained illegally, which 30 percent of the piracy occurs in corporate

settings. In a corporate setting or business, every computer must have its own set

of original software and the appropriate number of manuals. It is illegal for a

corporation or business to purchase a single set of original software and then load

that software onto more than one computer, or lend, copy or distribute software for

any reason without the prior written consent of the software manufacturer. Many

software managers are concerned with the legal compliance, along with asset

management and costs at their organizations. Many firms involve their legal

departments and human resources in regards to software distribution

and licensing.

Information can qualify to be property in two ways; patent law and copyright

laws which are creations of federal statutes, pursuant to Constitutional grant of

legislative authority. In order for the government to prosecute the unauthorized

copying of computerized information as theft, it must first rely on other theories of

information-as-property. Trade secret laws are created by state law, and most

jurisdictions have laws that criminalize the violations of a trade-secret holder’s

rights in the secret. The definition of a trade secret varies somewhat from state to

state, but commonly have the same elements. For example, the information must

be secret, not of public knowledge or of general knowledge in the trade or

business, a court will allow a trade secret to be used by someone who discovered

or developed the trade secret independently or if the holder does not take adequate

precautions to protect the secret.

In 1964 the United States Copyright Office began to register software as a

form of literary expression. The office based its decision on White-Smith Music Co.

v. Apollo , where the Supreme Court determined that a piano roll used in a player

piano did not infringe upon copyrighted music because the roll was part of a

mechanical device. Since a computer program is textual, like a book, yet also

mechanical, like the piano roll in White-Smith, the Copyright Office granted

copyright protection under the rule of doubt.

In 1974, Congress created the Natural Commission on New Technological

Uses (CONTU) to investigate whether the evolving computer technology field

outpaced the existing copyright laws and also to determine the extent of copyright

protection for computer programs. CONTU concluded that while copyright protection

should extend beyond the literal source code of a computer program, evolving

case law should determine the extent of protection. The commission also felt

copyright was the best alternative among existing intellectual property protective

mechanisms, and CONTU rejected trade secret and patents as viable protective

mechanisms. The CONTU report resulted in the 1980 Computer Software Act, and

the report acts as informal legislative history to aid the courts in interpreting the

Act.

In 1980 The Copyright Act was amended to explicitly include computer

programs. Title 17 to the United States Code states that it is illegal to make or to

distribute copies of copyrighted material without authorization, except for the

user’s right to make a single backup copy for archival purposes. Any written

material (including computer programs) fixed in a tangible form (written somewhere

i.e. printout) is considered copyrighted without any additional action on the part of

the author. Therefore, it is not necessary that a copy of the software program be

deposited with the Copyright Office in Washington, D.C. for the program to be

protected as copyrighted. With that in mind then a copyright is a property right

only. In order to prevent anyone from selling your software programs, you must

ask a court (federal) to stop that person by an injunction and to give you damages

for the injury they have done to you by selling the program.

The Software Rental Amendments Act Public Law 101-650) was approved by

Congress in 1990, this Act prohibits the commercial rental, leasing or lending of

software without the express written permission of the copyright holder. An

amendment to Title 18 to the United States Code was passed by Congress in 1992.

This amendment. Known as Public Law 102-561 made software piracy a federal

offense, and instituted criminal penalties for copyright infringement of software.

The penalties can include imprisonment of up to five years, fines up to $250,000 or

both for unauthorized reproduction or distribution of 10 or more copies of software

with a total retail value exceeding $2,500 or more.

Under United States law duplicating software for profit, making multiple

copies for use by different users within an organization, and giving an

unauthorized copy to someone else – is prohibited. Under this law if anyone is

caught with the pirated software, an individual or the individual’s company can be

tried under both civil and criminal law. A Civil action may be established for

injunction, actual damages (which includes the infringer=s profits) or statutory

damages up to $100,000 per infringement. The criminal penalties for copyright

infringement can result in fines up to $250,000 and a jail term up to five years for

the first offense and ten years for a second offense or both. When software is

counterfeit or copied, the software developer loses their revenue and the whole

software industry feels the effect of piracy. All software developers spend a lot of

time and money in developing software for public use. A portion of every dollar

spent in purchasing original software is funneled back into research and

development of new software. Software

piracy can be found in three forms: software counterfeiting, which is the illegal

duplication and sale of copyrighted software in a form that is designed to make it

appear to be a legitimate program; Hard disk loading, whereby computer dealers

load unauthorized copies of software onto the hard disks of personal computers,

which acts as an incentive for the end user to buy the hardware from that particular

dealer; and downloading of copyrighted software to users connected by modem to

electronic bulletin boards and/or the Internet. When software is pirated the

consumer pays for that cost by new software and/or upgrade version being very

expensive. Federal appellate courts in the U.S. have determined that operating

systems, object code and software cotained in ROMs are protected by copyright,

and some lower federal courts have also determined that microcode (the

instructions set on microprocessor chips), and the look and feel of computer

screens is subject to copyright protection. Which leads to the problems of the

widespread development of multimedia applications that has brought out major

problems in clearing copyright for small elements of text, images, video and

sound.

The United States Government has been an active participant in protecting

the rights of the software industry. When the Business Software Alliance (BSA)

conducts a raid, Federal Marshals or local law enforcement officials participate

also. An organization known as the Software Publishers Association (SPA) is the

principal trade association of the PC software industry. SPA works closely with the

FBI and has also an written enforcement manual for the FBI to help them

investigate pirate bulletin board systems and organizations (audits). With the help

of the FBI, the result of enforcement actions resulted in recoveries from anti-piracy

actions totaling $16 million since the program started in 1990.

The Software Publishers Association (SPA) funds a educational program to

inform individuals and corporations about software use and the law. This program

provides all PC users with the tools needed to comply with copyright law and

become software legal. The SPA also publishes brochures free of charge about the

legal use of software for individuals and businesses. Also available to help

corporations understand the copyright law is a 12-minute videotape, which is

composed of the most commonly asked questions and answers to them. The video

tape is available in French and Spanish and all together over 35,000 copies of the

tape had been sold. SPA has also compiled a free Self-Audit Kit with which

organizations can examine their software use practices. Included in the kit, is a

software inventory management program designed to help an organization track

their commercial software programs that are on all hard disks. The program

searches PC hard disks for more than 1300 of the most common programs used in

business.

Also available is the SPA Software Management Guide which helps

companies audit their current software policies, educate employees about the legal

use of software, and establish procedures to purchase, register, upgrade and

backup computing systems. The guide in addition also provides an Internal

Controls Analysis and Questionnaire. The guide also contains all of the SPA’s

current anti-piracy materials. The U.S. software industry is facing the challenges of

more sophisticated network environments, greater competition among software

companies along with hardware manufacturers. At this moment more software than

ever before is distributed on a high volume, mass marketed basis. There are

many types of software out on the market and increasing every day. They range

from graphical user interfaces for application programs such as mass-market

spreadsheets, to more sophisticated technical software used to design integrated

circuits. The use of software plays a more vital role daily in our lives such as

embedded software, which is critical to equipment in locations as a doctor s office

or an automotive shop. The instrument and devices found there depend more and

more on software, because software provides the flexibility to meet the many

different needs to the end user. As our lives our shaped and enhanced more by

technology, there is already a greater demand that impacts the software industry.

One of the main concerns of the software industry is how to deal with the

issues of Asoftware licensing. More and more customers want customized software

suited for their business or personal need, and expect the software development

firms to accommodate to their wishes. The other side of this issue is that software

development firms are concerned with unrealized revenue and excess costs in the

form of software piracy, unauthorized use, excess discounts and lengthened sales

cycles. For the customer and the software development firm, both have high

administrative costs in regards to software programs. Software licensing policies

were originally a result of software developers’ need to protect their revenue base

in the face of potential piracy. Product delivery for software is made up of a number

of different components, which are referred to as ’software licensing’. The following

factors are taken into consideration when determining a cost for a ’software

license’; physical delivery pricing, metric discounts, license periods support and

maintenance, license management Tech support, change in use bug fixes and

Platform Migration Product enhancements. The most commonly found type of

software license found in business is known as a, ‘Network license’. There are four

types of categories that are classified as a network license.

Concurrent use licenses authorized a specified number of users to access

and execute licensed software at any time. Site licenses authorize use at a single

site, but are slowly being phased out and replaced by enterprise licenses.

Enterprise licenses cover all sites within a corporation because of more virtual

computing environments. Node licenses are also slowly being phased out because

they are mainly used in a client/server environment, since the licensed software

may be used only on a specified workstation in which a user must log on to in

order to access and execute the software application. Currently the trend in a

network system is to use measurement software, which allows vendors to be more

flexible in licensing arrangements. This management software monitors and

restricts the number of users or clients who may access and execute the

application software at any one time. This is significant because a user pays only

for needed use and a vendor can monitor such use to protect intellectual property.

A new type of license that is emerging is known as a, ‘currency-based license’.

This type of license work on the basis that it provides to the end user a specified

dollar amount of software licenses. For example, licenses for different business

application software, so long as the total value in use at a given time is less than

dollars. Another type of license emerging is known as a ‘platform-independent’

licensing, which one license permits software to be used on a variety of different

computer systems within a business, instead of buying a different license for each

version of the same software used by different systems. The most common type of

licensing is known as ‘Shrink-wrap’, the concept behind this that the licenses terms

are deemed accepted once the end user breaks a shrink-wrap seal or opens a

sealed envelope containing the software. A reason for these new types of licensing

emerging is that when software licensing was first introduced, the software

development firms assumed that most businesses would use the software for a 8

to 10 hour period. Yet, did not take into consideration that with the advancement of

technology, more businesses would want a ‘floating license’ across the world for

24 hours – thus it was not cost effective for the software development firm. A

floating license is a license that is made available to anyone on a network. The

licenses are not ‘locked’ to particular workstations, instead they float to modes on

the network.

Shareware, freeware and public domain are different type of software

available to the end user, and are distinguished by different rules about how

programs may be distributed, copied, used and modified. The term ’shareware’

refers to software that is distributed at a low cost, but which requires usually a

payment after a certain time period and registration for full use. Copies of this

software are offered on a trial basis, the end user is free to try a scaled down

version of the program. If the end user wants the shareware program, included in

the program is information specifying how to register the program and what fee is

required. Once registered the end user will typically receive a printed manual, an

updated copy of the software (often with additional features), and the legal right to

use the program in their home or business. The advantage that shareware has is

that it lets the end user thoroughly test a program to see if it=s useful before

making a purchase. The authors of shareware programs retain their copyright on

the contents, and as other copyrighted software should not be pirated.

Freeware is also distributed at a very low cost and like shareware is found

mainly on the Internet. The authors of the freeware program do not expect payment

for their software. Typically, freeware programs are small utilities or incomplete

programs that are released by authors for the potential benefit to others, but the

drawback to this is that there is no technical support. Public domain software is

generally found on the Internet and is released without any condition upon its use.

It may be copied, modified and distributed as the end user wishes to do. A license

manager is a system utility-like application that controls or monitors the use of

another end-user application. It is generally implemented to protect intellectual

property (meaning to stop illegal copying) and/or to become more

competitive by offering new ways in which to evaluate, purchase and pay for

software. Since the license manager controls the number of application users,

there is not a need to control the number of application copies. This process lets

the end user run one or more applications between machines, without violating the

terms of the license agreement.

SPA has created a program that companies can use to help discover and

correct problems before they result in legal actions, fines and also negative

publicity. The eight point program is as follows:

1. Appoint a software manager to implement and monitor all aspects of company

software policy.

2. Implement a software codes of ethics for everyone to adhere to. The ethics

should state that copyrighted software, except for backup and archival purposes, is

a violation of the law.

3. Establish a procedure for acquiring and registering software. Determine your

companies software needs, evaluate software packages, and also have

supervisors approve the plans. Keep the lines of communication open.

4. Establish and maintain a software log. The log should state the date of when the

software was acquired, the registration of it, serial number, network version,

location of where the software is in use, where the original is, licensing agreement

and the location of the original disks.

5. Conduct periodic audits or on a as needed basis comparing the software log

and/or other purchase records.

6. Establish a program to educate and train your employees about every

aspect of software and its uses.

7. Maintain a library of software licenses and provide users with copies of the

agreement.

8. Having done the above seven points, the company can benefit by having

obtained software legally, receive full documentation, technical support when

needed and also upgrade notices.

Patents do not cover specific systems, instead they cover particular

techniques that can be used to build systems or particular features that systems

can offer. Patent grants the inventor a 17 year monopoly on its use. Once a

technique or feature is patented, it may not be used in a system without the

permission of the patent-holder – even if it is implemented in a different way. Since

a computer program usually uses several techniques and provides many features,

it can infringe many patents at once. A computer program is built out of ideal

mathematical objects whose behavior is defined, not modeled approximately, by

abstract rules. An example of this is Borland International, Inc. complained in the

1st Federal District Court gave Lotus Development Corp. the benefit of patent

protection to Lotus 1-2-3 menu commands and their order, but failed to require

Lotus to meet the requirements of patent law, including novelty, examination and

contribution to the prior art. The Supreme Court sided with the 1st Circuit decision

that one entity cannot own the user interface to programs. Meaning such as file

formats, menu structures and

programming languages.

Software license agreements emerged as the most popular means of

protection of proprietary rights in computer software. They coexist with other forms

of intellectual property rights as patent and copyright. Software license agreements

serve several functions in transactions involving the transfer of computer

technology. One of the most important legal functions is the protection of the

proprietary rights of the licenser in the transferred software. Other functions include

controlling the revenue generated by licensed software and determining the rights

and responsibilities of the parties regarding the performance of the licensed

technology. Issue related to these functions include the applicability of Article 2 of

the Uniform Commercial Code, including offer and disclaimer of warranties,

determining the appropriate types of licenses to utilize, such as single users/CPU

licenses, Site/enterprise licenses and network/concurrent licenses. Trade secret,

copyright and patent law are Astatic@ forms of protection in the sense that they

may exist independently of any underlying business transactions and do not

necessarily require any transfer of intellectual property from one party to another.

Whereas, the need for a license agreement usually arises as one of the

contractual forms of protection when the underlying business transaction involves

the transfer of intellectual property, such as computer software. Transactions

involving the transfer of computer software are subject to both federal and state

laws. Generally, state law governs contractual and trade secrets aspects of the

transaction, while federal law governs aspects related to patent, copyright and

antitrust issues. Each state has its own version of a doctrine of a trade secret, the

common thread through these state-specific laws is that if you show that you are

seriously treated information as confidential and that the confidential information

helped your competitive position, you can stop others from using it if the

information was improperly acquired by them, and even collect damages from the

wrongdoers.

A computer is useless without software. The two types of software typically

found on a computer are operating systems software and application software.

Operating system software ‘provides interface’ that makes it easier to develop

programs for the system by reducing the amount of code that must be written. The

operating system acts as an interface between the computer hardware, application

programs and the end user. Application software consists of one or more computer

program that fulfill a specific function for the user like word processing,

bookkeeping or financial analysis. Two legal cases recently within the last few

years has brought to light the controversy regarding the copyright protection of

software elements. Until 1992, most of the federal courts followed the decision in

Whenlan v Jaslow Dental Laboratory as a precedent of similar cases.

Whenlan, a small software company wrote a accounting program for Jaslow Dental

Laboratory company. Jaslow rewrote the software to run on personal computers

and proceeded to sell the product. The software was identical to Whenlans in the

data structures, logic, and the program structure, except for the source code.

Jaslow argued that the duplicated elements were part by the of the idea – not the

expression. The court in response felt that the data structures, logic, and the

program structure comprised to make a single function of a computer program,

therefore copyright protection should be given to those elements also.

In 1992, this protection was weakened by Computer Associates v. Altai, Inc. ,

when Altai a software developer was accused of copying various modules of a

software package developed by Computer Associates which controlled the running

of applications on IBM mainframes. The court rejected Whelan=s premise that a

computer program embodies one function because programs are made up of

sub-routines that contain their own idea. The court recognized this would narrow

the scope of software copyright protection and found this in accordance with

Congressional intent of computer programs with copyright. This resulted in why

currently software copyright is not as broad as it once was.

Bibliography

Brandel, William, “Licensing stymies users,”

URL:”http://www.viman.com/license/license.html#policy”, Viman

Software, Inc., 1994.

Business Software Alliance, “Software Piracy and the Law,”

URL:”http://www.bsa.org/bsa/docs/soft_pl.html”, Business Software

Alliance, 1995.

Software Publishers Association, “SPA Anti-Piracy Backgrounder,”

URL:”http://www.spa.org/piracy/pi_back.htm”, Software Publishers

Association, 1995.