The Ethical Dimension of Software Piracy
The global information technology (IT) industry plays a critical role in the economic growth not only of developed countries but also of emerging countries, which are increasingly recognizing IT importance while investing into becoming knowledge based economies. Both small and large companies rely on intellectual property systems to protect and help them in the efforts to develop new ideas and products.
There are strong ethical aspects related to IT industry. There are arguments that software piracy may not be necessarily bad for technology industry as massive software distribution makes customers invest more into hardware. However, there are studies proving critical impact of software piracy on both companies and countries that do not rely on stolen software and end up paying more to operate, making them less competitive. Consequences of unethical practices are serious, including loss of economic value, lost jobs, and health and safety risks from unsafe products.
Software piracy, software theft, intellectual property, intellectual property theft, counterfeiting.
Introduction and problem formulation
The information technology is one of the main drivers of economic growth, innovation and prosperity with around 35 million employees worldwide. In this respect Microsoft expressively uses a term ‘IT ecosystem’ which exists thanks to ongoing cycle of innovation and investments . Both small and big companies rely on intellectual property protection in order to gain profits, which, in turn, can be invested into further research and development. People get jobs, create new ideas and solutions, advanced technologies push companies towards higher productivity and customers are happy. Is that really the case?
The growing importance of intellectual property rights in knowledge-driven economies has been rising concern about potential adverse effects of counterfeiting and piracy on national levels as well as worldwide. Research and extensive reports on illicit production, development and use of pirated software shows that piracy endangers job markets, slows down innovation, governments loose on tax revenues, and above all, threatens customers health and safety.
In spite of efforts to combat counterfeiting and theft, software piracy is on the rise and the size of the counterfeiting and piracy problem varies. While the overall world average of software piracy rate is around 35 %, the US is one of the countries with lowest rate of around 19 %. Relatively lower rates can also be found in Japan or Western Europe. However, according to BSA Global piracy study , there are notable exceptions, such as the following:
PC software piracy rates and commercial value of unlicensed software in selected countries
Pirated value ($M) Piracy Rate
2011 2007 2011 2007 Venezuela $668 $464 88% 87% Indonesia $1.467 $411 86% 84% China $8,902 $6,664 77% 82% Russia $3,227 $4,123 63% 69% India $2,930 $2,025 63% 69% Mexico $1,249 $836 57% 61% Brazil $2,848 $1,617 53% 59%
The table shows values for countries leading by both high piracy rates and high commercial values of unlicensed software. Some markets with lower volumes and trade are characterized by even higher piracy, such as Bangladesh or Moldova (both 90%).
The aim of this paper is to overview the software piracy issue, its main drivers, ethical dilemmas and consequences.
What constitutes software piracy?
Clearly, piracy occurs every time the copyright agreement or software license is violated. Consumers incentives to buy pirated products are numerous and consequences can be critical. Many times consumers do not even realize that they are doing something illegal and often they believe by purchasing they own software and have rights to install it on several devices (that is referred to as ‘softlifting’, action, which is against the law).
Still there are discussions about what constitutes software piracy. The idea that leads any discussion about software piracy is the intellectual property rights – who owns the software? Generally, there are three main types of software piracy: unlicensed use, counterfeit sales and hard disk loading. Thus, some forms of software piracy are rather obvious, such as those when companies try to produce, develop and sell software pretending they are outright copies (couterfeiting). Microsoft warns that counterfeit registration cards often come with unathorized serial numbers are often included in packages .
Cases related to licensing of the products occur when companies or individuals duplicate the linced software to share with others. The way software is sold reminds of leasing rather than buying. Users pay for the lease to use software, often for a limited time. In such a case the software becomes illegal as soon as the software lifetime expires. Hard disk loading occurs when hardware manufacturer takes one software package and illegally installs it on more than one computer (pre-installed software). In cases like that buyers usually do not receive support packages, license agreements or manuals .
From the manufacturers point of view, it is necessary to mention that software companies make large investments int research and development to create the software, usually for the purposes of recouping the costs and creating an income. These corporations legally create software licensing agreements that purchasers voluntarily enter into, when they purchase the software. Those agreements, in most cases, prohibit the unauthorized copying of the software for purposes other than backing up the software. As the purchase is voluntary and certainly not a necessity for life, one can conclude that the purchaser is ethically bound to abide by the licensing agreement. The fact that so many users, including both individuals and organizations, have voluntarily purchased software and abided by the licensing agreements, without major complaints, is further evidence that these licenses are generally accepted to be fair and ethical. Therefore, allowing for that software to be copied, in violation of the agreement, is unethical – it is the same as breaking any other contract where both sides, in full knowledge of the situation, voluntarily enter into an agreement following a set of rules. „Breaking those rules, especially unbeknownst to the other party, is clearly an unethical act, as it violates the other entity’s trust. It may not be stealing, in the material sense, but it is a violation of a voluntary contract, none-the-less“ .
Piracy drivers and ethical dilemmas
The software piracy is a theft. Why are we facing all this consumers behaviour so questionable and unethical? These and many similar questions are being asked and surveyed by many researchers.
Little or no understanding for the idea of intellectual property is one of the reasons for piracy in general. This is for. ex. serious issue in China. Hays  says “there is no stigma attached buying or even selling pirated goods even with a phony names like Sone instead of Sony”. Other examples may include iPhooe, Samsnug, Motolora, Nckia. There are even whole cities specializing in counterfeiting one line of products, such as cosmetics, auto parts, pens, and others. This is true of both tangible and non-tangible products. Fake products for a fraction of original prices are available within a few weeks upon launching the original. Fake iPads were available in Shanghai for $150 as opposed to $1,000 for the real ones .
It would be biasing only to blame Chinese for alarming piracy rates. Statistics show that two thirds of 15 million shoppers at the Beijing Silk market are foreginers , so when there is demand, there is supply and low income labor living on the edge finds greediness of foreign consumers as an opportunity to make quick money.
Reduced buying power seems to be one of many factors that have positive influence in software piracy. John Gentz, chief research officer at IDC finds direct relationship between global economic recession and piracy:
increase in piracy rates can also be justified by customers holding their PCs longer. While hardware persists, software licences time out and often they seek cheap solutions, thus increasing demand for pirated software .
Global spread of Internet access has been significantly influencing piracy. In 2009 IDC projected 460 million new Internet users within the following five years. Increase in Internet users number will make it easier to attract those who are interested in buying fake products .
Although violating intellectual property rights is illegal, there are opinions that software piracy is not as bad as it is believed and claimed. For example, buying counterfeit in China often presents a kind of social statement because Chinese believe it supports local businesses, creation of jobs and thus, they do not mind it presents loss of profits for foreign companies. Both businesses and government tolerate production and distribution of fakes, especially if they seem to bring added value or enhancement to original products . Other opinions defending software counterfeiting claim that its (software) proliferation attracts more customer purchasing hardware . Moreover, the quality of counterfeits has been improving and often it is not possible to recognize the fake from the original product .
There is another aspect which seems to support argument that piracy can be beneficial. Those voices justifying the ‚importance‘ of software piracy even claim that long term benefits of software piracy far outweight its short term cost  as duplication of software presents its preservation important for future generations that one day will care about history of technology. The piracy preserving effect is an interesting point of view as software life cycle is rather short compared, for example, to books or arts and preservation of digital works is important for every nation’s history and culture.
Overall, consequences of software thefts are believed to be more than alarming, which is one of the reasons IT companies that suffer from software piracy the most, initiate creation of pressure groups to decrease a size of software piracy effects. Business Software Alliance (BSA) is the voice of the world’s commercial software industry and its hardware partners with members of sound names, such as Adobe, Apple, Microsoft, McAfee, Siemens, and others. They invest a lot of money and effort into data collection, reports, studies and investigation to reduce piracy, especially in emerging markets where high piracy rates present a serious entry bareer for producers offering expensive licensed products. What is it that really motivates pressure groups to combat software piracy? Is it a public and customers goodwill or their own desire for more profits?
Licenses cost the same wherever they are sold, however, unfortunately, customers income levels differ greatly over the world. While they are affordable in some countries, to potential customers elsewhere may seem to be insanely expensive and unaffordable. In reference to China, Microsoft CEO Bill Gates famously said: „As long as they are going to steal it, we want them to steal ours. They’ll get sort of addicted and then we’ll somehow figure out how to collect sometime in the next decade.“ Here the „biggest loser“ of software piracy seems to be condoning it to some degree .
Another ethical argument that can be considered is consequentialism, which can be defined as „the consequences of a particular action form the basis for any valid moral judgement about that action.“ Traian Basescu, Romanian president as of 2010, invoked a consequentialist argument when he said: „piracy helped the young generation discover computers. It set off the development of the IT industry in Romania.“ .
According to IDC study , about 41% of software worldwide is pirated  and it remains to be on the rise. Business Software Alliance (BSA) survey revealed that in 2012 over half of the world's computer users — 57% — admit they pirate software , see the graph below. Consequences can be critical: they not only include economic losses, such as tax revenues, organizational profits, or lost jobs but they also bring health and safety risks because pirated software can be unreliable and unsafe.
Global self-reported piracy
Source: BSA (2012). BSA Global Software Piracy Study. May 2011
4.1 National level
The good news on the national level is that governments are motivated to combat software piracy due to the fact there is a monetary benefit of doing so. The annual global economic loss is as high as $53 billion and even an incremental decrease of piracy rate results into significant benefits . The independent study by IDC from 2008 shows that lowering the piracy rate by 10% would provide space for 600.000 new jobs worldwide and contribute $24 billion in additional tax revenues to local and national governments .
The United States has the lowest piracy rate of around 19% worldwide, however, its losses caused by piracy are highest ($9.1 billion in 2008) as a result of largest software market. BSA ambition is to make progress against PC software piracy in many countries as it has severe effect on US economy, local companies and security – all of which can not be afforded in such an extent during the times of economic stress .
Even in emerging economies companies no longer want to compete by cheap labor. In order to contribute to innovation and creation of new ideas, especially if doing business internationally, even in regions typical by higher piracy rates, piracy has been experiencing decrease. Organizations realize that in order to be competitive with their rivals in developed countries, they have to play by the rules. This was true, for ex. in China, where the software piracy rate has come down from 90% just a few years ago to 78%. However, growth of PC sales in China has not been followed by the same growth in sales of software, which means that companies, such as Microsoft, have been proportionally loosing more money than before when the piracy rate was higher .
4.2 Organisational level
Piracy is a form of unethical business behaviour driven by vision of quick profits so dangerous for individual companies. In order to remind of necessity to fight software piracy and increase the awareness of consumers, Microsoft incepted annual events called Play-Fair Day in 2008. The one in 2011 revealed results of a survey, according to which software piracy in Brazil, Russia, India and China “creates an aggregate competitive disadvantage of $8.2 billion over five years for companies that play by the rules” . Software piracy is taking away revenues that would be deserved by people who work hard to develop new ideas and foster innovation.
5% Most of the time 9% Occasionally 17% Rarely 26% Never 38%
Did not answer 5%
"How often do you acquire pirated software or
software that is not fully licensed?"
Sadly, companies that rely on use of illegal software and do not respect intellectual property rights, put into disadvantage those that behave ethically making them less competitive.
Fighting the piracy is especially critical in emerging markets, where companies, such as Microsoft, find the biggest potential for entrepreneurship. As mentioned already, no longer do emerging economies want to compete by cheap labor; instead, they are interested to develop new ideas, support innovation and participate in doing business internationally. Of course, the only way how to get involved in healthy economic environment is to respect intellectual property rights and do the business fair-play. One of the reasons is the fact that pirating eliminates investments into research and development, thus is dangerous for the future technology as well as organizational progress.
4.3 Individual level
People installing pirated software undertake risk of infecting their computers by harmful viruses, which can cause a lot of damage and lost data. Remedies become costly, if, at all, possible. Any of the following acts are considered software piracy by the BSA: “copying, downloading, sharing, selling, or installing multiple copies onto personal or work computers.” .
Consequences of software piracy on the individual level may not be as visible as those when faking tangible products. Usually sectors that impact health and safety, or even lives of consumers include automotive (car spare parts), food and drinks, electrical components (appliances), or medicines. When dealing with software piracy, consumers usually face financial losses resulting from lost data; sub-standard and unreliable systems, high costs for recovery and lack of product support.
Free pirated software is also a subject of possible malware and identity theft. IDC software piracy report states that 29% of websites offering pirated software and 61% of peer-to-peer download sites offering pirated software tried to infect computers with Trojans, malware and other tools for identity theft. That allows for ex. for stealing passwords or credit card data .
Policies and measures
OECD distinguishes between two important sub-markets. In the primary market, consumers buy counterfeit or pirated products in a good faith they are genuine originals. In the secondary market, consumers seek for bargains, that is why they purchase fake products knowingly. The policies and measures taken within the efforts to combat piracy in these categories differ, therefore it is necessary to understand how much of a threat each poses . Mechanisms to combat counterfeiting and piracy meet basic obligations stipulated by World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property (TRIPS). The ambition over recent years has been is to make the civil and criminal sanctions stronger, although, many still find them inadequate .
Combating piracy requires synergy efforts of all, governments, organizations and consumers. Unconditional factor necessary for success is increasing public awareness and more effective enforcement support. OECD calls for better cooperation between governments and the industry as well as better data collection that would allow more realistic reports and statistics. It is time for governments to consider legal and regulatory frameworks, deepen evaluation of current policies and measures, programs and practices . Factors contributing to decreasing of piracy rates include legalization programs provided by software producers and local governments, specialized education programs with majors focusing on IT security, public-private partnerships in education and enforcement, or better technical protection measures, such as digital rights management .
One of the strongest strategies how to fight piracy mentioned above is tight cooperation between governments and software industry, of which Russia is an excellent example. In 2007, Russian authorities started closely collaborating with the software industry in the area of intellectual property awareness and compliance with IP in order to support legal software innovation, distribution and use. Hundreds of law enforcement officials have been trained on investigation and prosecution of pirates followed by 3,000 criminal raids. The effect was remarkable: piracy rate droped by 7% in 2007 and by another 5% during the following year .
And last but not least, a lot of progress in terms of raising consumers awareness of piracy harmful effects can be accomplished by cooperation with universities. Not only many technology schools offer specialized programs focusing on how to create secure systems, but they also come with creative activities, such as the „REAL Fake“ competition for schools, the aim of which was to design a logo for the European Observatory in Counterfeiting and Piracy, or posters, short films, games and other material related to counterfeiting and piracy. This initiative launched by European Union was one of the steps made to increase awareness in young people
Software piracy is harmful and illegal. It has brought many ethical dimensions, including not only serious effects on economies, companies profits and individual losses in terms of money, safety and health, but also those related to pricing policies and software license terms and conditions.
Ways how to fight software piracy are numerous. To decrease a size of software piracy issue, the technology sector has been initiating creation of pressure groups working hard on increasing public awareness, most recently, by presenting collected data, reports and studies from all over the world.
The cost issue has significant influence on piracy rates, however, it is not an ethical excuse because there are other free alternative services that provide computer software that customers need. For example, there is open source computer operating system GNU/Linux as an alternative to Microsoft Windows. There are also free and sharable alternatives to other programs, such as Open Office as a free alternative to Microsoft Office.
Many technology schools offer specialized programs focusing on how to create secure systems. Job market needs experts combating intelectual property thefts and evidently, at current piracy rates, IT jobs within security systems, seem to be of long term demand.
In addition to all above, close cooperation between governments and IT industry accompanied by legal enforcement measures proved to be efficient in decreasing software piracy rates
To conclude, software piracy demotivates software creators, decreases innovation and violates contracts on all levels. It is necessary to discuss its ethical aspects and seek for solutions how to decrease it. Further discussion and research of the ethical dimension of software producers pricing policies might present a new paradigm in software piracy and its ethical issues. Introducing new pricing models coping with market income disparities might result not only into pirace rates decrease but also increase of companies profits.
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Andrea Stropková, M.B.A. Vysoká škola manažmentu Bezručova 64