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RPE Description

A group of computer science students who feel that computer software is often prohibitively expensive and that there are no ethical difficulties in making copies of software from friends. They believe that the software companies have enough money and will not suffer unduly from copies which are not paid for. They also believe that it is impossible to legislate against unauthorized copying of software.

Introduction

Computer software is often prohibitively expensive and as a result many students have no option but to make unauthorized copies from friends. These unauthorized copies while illegal, are by no means unethical. In addition, software companies and the organizations which represent them would have us believe that this software piracy is resulting in billions of dollars in lost revenue, lost jobs and lost taxes. A closer look at their methodology calls these numbers into question. It is also hard to believe their claims of lost revenue, when many software companies continue to post revenue growth and fail to mention software piracy as a concern in their annual reports. In fact, several studies have examined the possibility that certain levels of software piracy are in fact benefiting companies by undercutting competitors and building market share. Regardless, laws exist legislating against software piracy and attempts are made to enforce this legislation. Why?

No ethical difficulties in making copies of software from friends

When we put a tape in the VCR to tape our favorite TV show, we do not usually consider it an ethical dilemma. Recently, the argument has been made against the duplication of copyrighted material on the grounds that it is unethical. This argument has been especially prevalent when arguing about the unauthorized duplication of software, which is more commonly know as piracy. With such negative connotations as robbery and theft it may seem only natural to deem piracy as unethical. But, perhaps piracy is not the most appropriate word in this situation. Piracy would seem to imply some act of theft, which Merriam-Webster defines as:

The felonious taking and removing of personal property with intent to deprive the rightful owner of it.

The unauthorized duplication of software has trouble fitting this definition because the act of producing a digital copy leaves the original perfectly intact. The person who actually bought the software being copied is not deprived of anything. If neither party is deprived of anything then software piracy becomes a victimless crime. However, the person making the copy is not the owner of the software. By signing an end user agreement the user of the software agrees to license it from the company who is the true owner. The question then becomes whether the company who owns the software being deprived of anything.

The act of making an authorized copy does not deprive software companies of any physical property, nor does it take from them money they already made. Some may argue that by copying software we are robbing companies of potential sales. This argument hinges on money a company could have made, but not all people who obtain pirated software would have bought it otherwise. Take for example a student who does not have the means to pay for an expensive piece of software. Were they to not obtain the unauthorized copy of the software, they probably would not have bought it. If there is no negative consequence for the company that produces the software, then it becomes ethical to obtain unauthorized copies of it.

If we could make exact copies of food at no cost, would we limit the distribution of this food? When shifted to another domain, such as the supply of basic necessities, the protection of copyright can seem very unnatural. In fact freedom of expression is guaranteed under the Canadian Charter of Freedoms and Rights, while copyright protection is not. In fact copyright protection is an abridgement of the freedoms of expression we enjoy. For example, people have the freedom to say and write whatever they want, except if that writing happens to use a long passage from a book to illustrate my point, in which case they are now in violation of copyright law. This also applies to computer programs where it can be illegal to use a snippet of code from someone else's program to improve my own. Imagine if Hoare had copyrighted Quicksort as Amazon has done with their one-click patents. Copyright protection was made law, not on ethical grounds, but to encourage companies to innovate by offering a limited monopoly on intellectual property. When the possibility of monetary incentive is taken away, as with a consumer who has no means or intent to purchase the software, copyright protection loses its purpose.

With the advent of Kazaa and other file sharing software, it is easier than ever to pirate software. Anyone can go online and with minimal effort download a pirated copy of their favorite software. Yet people must still be going to stores and paying money for software because revenues have continued to grow for large software companies. Given the chance people will choose to compensate a company for the software they use. The makers of shareware encourage users to make duplicates of the software for their friends. When a user is satisfied with the program they are not required, but simply encouraged to compensate the company. Shareware companies have shown that even when not required to do so, many consumers will pay for the software they use.

Software companies have enough money and will not suffer unduly from copies which are not paid for

Software companies and the organizations which represent their interests, such as the Business Software Alliance (BSA), would like to have people believe that piracy is responsible for the loss of $10.97 billion in worldwide revenue (BSA, web). They would also like to have us believe that piracy is responsible for the loss of 111,800 jobs, $5.6 billion in lost wages, and $1.2 billion in lost taxes in America alone (BSA, web).

An examination of the methodology used by the BSA in their studies reveals that these numbers may over exaggerate the effect of piracy. For instance, the greatest weakness of their reports stem from their calculation of the piracy rate upon which all other figures depend:

The difference between software applications installed (demand) and software applications legally shipped (supply) equals the estimate of software applications pirated.

This definition raises a number of issues. Most troubling is that they are calculating demand by estimating PC shipments based not on actual PC shipments or sales data but instead by extrapolating from employment and population figures, while they use "detailed industry sales data" for the supply estimate. Note, that shipment numbers are always greater or equal to sales numbers. Other questions their methodology raises are; why is free 'open source' software not taken into account on either side of the supply and demand relationship? What about software which was legally purchased and installed on a replacement computer? What about software licenses which allow for software to be installed on more than one machine at once (such as Office XP)? Their definition also assumes that every pirated copy of software is equivalent to a lost sale, when in fact many people would pirate a program but would never actually purchase it even if given the means and opportunity to do so.

The BSA then uses these questionable piracy rates to quantify the effect of piracy on individual software developers. Though one certainly wonders how the BSA is supposed to generate sympathy for software developers when in their own report entitled, U.S. Software State Piracy Study, they acknowledge that the "average salary in the packaged business software industry is estimated to be $80,100, significantly higher than for the economy as a whole in 2001."

The BSA also argues that piracy hurts governments because lost sales translate into lost tax revenue from both lost sales tax and lost corporate tax. However, this is based on the assumption that if someone fails to purchase a legal license for a software program then their money will go otherwise unspent when in reality it is likely that if someone saves money by not purchasing software they will then spend their money on an alternative product. In this case tax revenue is not lost, merely shifted from one industry to another.

Regionalized BSA reports also hint at other liberties taken while trying to ascertain the level of piracy. For instance in their U.S. Software State Piracy Study:

Certain states had a disproportionate amount of software sales. Some of these excess software sales were reallocated to other states.

Also in the Canadian Report:

PC shipments by province were estimated from a detailed review of the employment and population of each province, and the application of U.S. market research to estimate the PC penetration rate among provinces.

Which is certainly questionable. Also, consider:

We have allocated all of the software industry jobs lost to Canada and distributed them by province based on the existing distribution of software employment.

This does not take into account the fact that the majority of software used by Canadians is imported from the US. Also in the Canadian Software Provincial Piracy Study.:

PC shipments by province were estimated from a detailed review of the employment and population of each province, and the application of U.S. market research to estimate the PC penetration rate among provinces.

The BSA numbers cannot be believed, so let us examine several individual member companies of the BSA who claim that piracy is hurting their business. Adobe, Autodesk, and Microsoft are all BSA members. All companies claim that piracy is hurting their business, though over the last four years revenue has grown for each of these companies; $270 million in growth at Adobe, $330 million of growth at Autodesk, and $13 billion of growth at Microsoft (see Appendix A). At the same time cash and short term equivalents have also increased for all these companies; $413 increase for Adobe, $40 million increase for Autodesk, and Microsoft has $38 billion in the bank, up from $24 billion four years ago (see Appendix A).

A read through of annual reports for Adobe, Autodesk, and Microsoft do not list piracy as a concern or threat to business.

For a $90 billion industry, (BizStats, web) where piracy is supposedly such a concern, why then is so little spent on money spent on lobbying the government to step up enforcement? According to OpenSecrets.org, during the 2002 election cycle only $12 million dollars was contributed to American political parties and only $13.6 million was spent on lobbyists during 2000 by software companies. Overall, the Computers/Internet industry is ranked eleventh in total contributions for the 2002 election cycle. If $10 billion dollars really were being lost one would hope that the industry would spend more money lobbying governments to increase the enforcement of their intellectual property.

With positive revenue growth, large cash reserves, no warnings to shareholders, and very little contributions to political parties and lobbyists it is hard to take claims about software piracy hurting these companies seriously. Perhaps, unlikely, as it is, companies are benefiting from software.

In fact, a working paper by Carlos A. Osorio of MIT entitled a A Contribution to the Understanding of Illegal Copying of Software: Empirical and Analytical Evidence Against Conventional Wisdom concludes:

There is enough evidence to show there is a threshold of illegal copying over which its aggregated effect on the software market is positive, and this is an efficient mechanism for market creation.

In another paper entitled, A Strategic Approach to Software Protection", economists Oz Shy and Jacques-Francois found that "companies faced with certain duopolistic market settings dropped software protection as a marketing strategy and benefited from the decision" (Williams, web).

While Microsoft continues to speak out against the piracy of its software it recently signed a memorandum of understanding with China worth $750 million over three years with no provisions for intellectual property protection. The Register believes, "this of course means that MS is prepared to see its precious intellectual property defiled in every way imaginable just so it can get a toe-hold on the mainland" (Greene, web). It is evident that Microsoft agrees with the above reports that conclude that under certain conditions piracy is in fact beneficial to their business.

It is impossible to legislate against unauthorized copying of software

While it is quite easy to legislate against the unauthorized copying of software it is difficult to enforce legislation against individuals, such as students partaking in 'casual' copyright infringement (as opposed to individuals or organizations involved in the unauthorized production and sale of large quantities of software which we will refer to as 'organized' copyright infringement). What makes enforcement difficult in 'casual' infringement situations is that the unauthorized copying occurs between individuals who know each other most likely in a private setting making it difficult for law enforcement agencies or the BSA to be aware of the infringement.

However, if the appropriate agencies found out about such 'casual' copying through perhaps, one of their toll-free snitch lines, the companies whose software was being copied would have to make the difficult decision of whether to prosecute individuals. While the cost of prosecuting 'organized' infringement is higher than prosecuting 'casual' infringement the potential gains for companies in terms of settlements or awards is much higher if they go after the larger scale 'organized' infringement.

The difficulties with 'casual' software infringement are analogous to the difficulties faced by the music or movie industry who have recently decided to go after unauthorized copying of music and movies by individuals. In fact, Microsoft employee, Brad Brunell wondered aloud during a panel discussion at the International Broadcasting Convention in Amsterdam "why Hollywood execs insisted on setting the piracy threshold down to the level of individual users" (Williams, web), indicating that Microsoft has recognized that fighting unauthorized copying at the individual level is a war it does not want to wage.

This view is confirmed by Joe Kraus, co-founder of the fair-use advocacy group DigitalConsumer.org,

The software industry learned its lesson in the 1980s. They copy-protected a ton of software only to find that the only people inconvenienced were the legitimate customers who wanted to make backup copies. The real pirates always found a way around the copy protection.

While enforcement is possible it is unlikely to occur on the 'casual' level.

Conclusion

Questionable research methodologies, continued revenue growth, little lobbying and no mention in annual reports suggest that perhaps, unauthorized software copying is not the problem everyone believes it to be. Consider too academic research showing that certain levels of piracy may be benefiting companies. Is then the unauthorized copying of software from a friend unethical? No since, the digital duplication of software from one friend to another who has neither the means nor the intent to actually purchase the software has no negative effect on large software companies .

Bibliography

Adobe. 2001 Annual Report. http://www.adobe.com/aboutadobe/invrelations/pdfs/2001_ar.pdf

Autodesk. 2002 Annual Report. http://www.autodesk.com/annrept/2002/AR2002.

BizStats.com http://www.bizstats.com/marketsizes.htm

Business Software Alliance. (2001). U.S. Software State Piracy Study. http://www.bsa.org/piracystudy/press/State_Piracy_Study_2001.pdf

Business Software Alliance (2002). Seventh Annual BSA Global Software Piracy Study. http://www.bsa.org/usa/policyres/admin/2002-06-10.130.pdf

Canadian Alliance Against Software Theft. (2002). Canadian Software Provincial Piracy Study. http://www.caast.org/english/pdf/2002ProvincialSoftwarePiracyStudy.pdf

Kerstetter, J. Greene, J. (2002). Software: Few Bright Spots, Apart from the Home PC http://www.businessweek.com/magazine/content/02_02/b3765629.htm

Greene, T. (2002). Ballmer to China: 'Steal all the software you want, so long as it's ours' http://www.theregus.com/content/4/25411.html

Microsoft. 2002 Annual Report. http://www.microsoft.com/msft/ar.mspx

Opensecrets.org http://www.opensecrets.org/industries/indus.asp?ind=C5120

Opensecrets.org http://www.opensecrets.org/lobbyists/induscode.asp?code=C5120&;year=2000

Osorio, C. (2002). A Contribution to the Understanding of Illegal Copying of Software http://opensource.mit.edu/papers/osorio.pdf

Williams, S. (2002). Profits from piracy http://salon.com/tech/feature/2002/09/26/piracy_unlimited/index1.html