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Software Industry Takes Hard Stand Against Piracy

Technology: Illegal Use Of Programs Costs Firms $2 Billion a Year

Richard Custard was in China five days after the launch of Microsoft Corp.’s Windows ’95.

He bought the software product for $5 on the street.

“I brought it back to Microsoft and they weren’t too happy,” said Custard, now president of the San Diego Software and Internet Council.

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It’s not an uncommon story in the software industry, where pirates abound.

Some pirates do it for money; others do it for pure fun. Some companies don’t even know they’re using unlicensed software.

To crack down on software pirates, the Washington, D.C.-based Business Software Alliance recently launched its latest Sting Operation campaign.

The public education campaign includes billboards and live spots on the Howard Stern radio show that call on workers to do the right thing and report software piracy in the work place.

It’s estimated piracy costs the software industry about $2 billion a year. According to the BSA, the software industry lost more than 109,000 U.S. jobs, $4.5 billion in wages, and nearly $1 billion in tax revenue in 1998 due to software piracy.

The BSA estimates that one out of every four software programs is pirated.

Although the software industry may suffer from piracy, companies still make plenty of money, Custard said.

“It’s hard to say you’re losing money when the profits of all software companies as a whole are up. Even Apple is making money now. It’s just the question of whether you want to make $1 billion or $1.3 billion.”

Some San Diego software company officials say their companies don’t even have a problem with piracy. In fact, Bob Meighan, vice president of consumer tax for Intuit, doesn’t mind it.

“It is a problem (industry-wide), although I think we take a liberal approach to it,” Meighan said.

A Different Approach

Intuit’s philosophy, he explained, is to use piracy as a marketing tool. Once people try Intuit’s TurboTax software, they generally come back the next year and buy it, he said.

“If we got paid for all our software that’s pirated we would make a lot of money,” Meighan said. “What I’d rather do is earn new customers by demonstrating the software. If that means that they pirate the software the first year, then that’s the position I’m going to take.”

He pointed out one of the reasons piracy isn’t as much of a problem for Intuit is because the company’s tax software must be upgraded every year.

Motiva Software Corp. in Del Mar doesn’t have a problem with piracy either.

“It’s not like some individual can load our software and run it because we install it on a server,” said Alan Kiraly, director of product management for Motiva, which provides software for companies to manage the lifecycle of products or projects.

“Our customers have even demanded the ability to track usage. We have a licensing capability in the software that keeps track of who’s using the software when.”

Kiraly said the software industry has helped decrease pirating by lowering the cost of certain products.

“It’s also more of a try-it-and-like-it environment now. Most software companies are very liberal in letting you try the software before buying it.”

Although some software companies aren’t too concerned about piracy, it’s still a crime that needs to be dealt with, said Bob Kruger, the BSA’s vice president of enforcement.

The organization even has an anti-piracy hot line number at (888) NO-PIRACY.

The BSA’s Web site (www.bsa.org) also offers a free software management guide. Kruger said the amount of piracy would drop if companies managed their software programs better.

‘There’s almost an ignorance to the rules,” he said. “You see a lot of companies being lax when it comes to managing their software.”

Local Problem

Kruger said it’s unfortunate when the new management team of a company has to clean up a piracy problem left by the old management. Such is the case with NTN Communications, a Carlsbad-based interactive entertainment company.

Last November, NTN agreed to pay $339,000 to the BSA after NTN distributed a DOS operating system with the firm’s proprietary software. The money paid to the nonprofit BSA will go toward anti-piracy programs.

Stan Kinsey, NTN’s chief executive, said the piracy happened about five years ago under old management.

“I think it was a case of a company that was working very hard to get products into the market,” said Kinsey, who’s been with NTN for a little over a year. “Ninety-five percent of the application software was proprietary to NTN and management assumed that any other licenses to get these computers to run were being handled by the engineering group and the engineering group thought it was being handled by management.”

Kinsey pointed out that NTN’s new management keeps a close eye on piracy.

“The company continues to follow the strictest standards with regard to application software,” he said.

The BSA has collected $9.1 million from California companies since 1993, making it the largest state for BSA software piracy settlements. The organization released a press release earlier this month pointing out that NTN and Orange County-based Global Sciences, Inc. had paid piracy settlements.

“We certainly don’t issue these press releases to embarrass the companies involved,” Kruger said. “Our purpose is to educate other businesses and other organizations. Very often the companies are good, reputable, well-managed businesses. It just doesn’t happen in bad businesses; it happens in good businesses, so unless you pay attention you could be next.”

At the end of the day, Kruger said, there’s no silver bullet to combat software piracy.

“You’re going to need to educate people to respect and abide by the copyright protection laws.”

The San Diego Software and Internet Council tries to keep its members informed about piracy. The organization is holding a software piracy workshop for the local business community next month.

“I think there’s a fundamental flaw in the perception of buying software,” Custard said. “You don’t buy software. What you are buying is the license for the software. People don’t realize that.”

Angel Studios in Carlsbad protects itself from other companies getting a hold of its proprietary software by simply not giving it away. The interactive game and location entertainment developer has software called Angel Real Time Simulation (ARTS).

“It’s a super tool that allows us to make a lot of different games,” said Robert Bacon, the firm’s communication director.

When Angel Studios develops a game for publishers such as Microsoft, the company doesn’t give away its source code for its technology.

“A lot of companies like Angel Studios are developing proprietary software that includes physics simulation and artificial intelligence , software that takes a lot of research and skill,” Bacon said. “Any game developer that is doing cutting-edge stuff would be similarly concerned about not selling their best stuff.”

In the PC game industry, he said, the publishers, not the developers, are the ones who lose money over piracy.

Bacon also noted companies that supply game developers with software usually require them to use a dongle, a small device that plugs into the back of the PC. When a game developer is using a certain expensive software program, it is programmed to make sure the dongle is attached, verifying legal use of the software.

“As far as I’ve seen in the professional game developing industry, there’s a very high degree of loyalty to what is legally right,” Bacon said.

“Developers will get licenses to use a software program. They rarely cheat. It’s a do unto others as you would like them to do unto you philosophy.”

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