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Piracy crackdown targets small businesses

Michael Gaertner worried he could lose his company. A group called the Business Software Alliance was claiming that his 10-person architectural firm was using unlicensed software.
/ Source: The Associated Press

Michael Gaertner worried he could lose his company. A group called the Business Software Alliance was claiming that his 10-person architectural firm was using unlicensed software.

The alliance demanded $67,000 — most of one year's profit — or else it would seek more in court.

"It just scared the hell out of me," Gaertner said.

An analysis by The Associated Press reveals that targeting small businesses is lucrative for the Business Software Alliance, the main copyright-enforcement watchdog for such companies as Microsoft Corp., Adobe Systems Inc. and Symantec Corp.

Of the $13 million that the BSA reaped in software violation settlements with North American companies last year, almost 90 percent came from small businesses, the AP found.

The BSA is well within its rights to wring expensive punishments aimed at stopping the willful software copying that undoubtedly happens in many businesses. And its leaders say they concentrate on small businesses because that's where illegitimate use of software is rampant.

But software experts say the picture has more shades of gray. Companies of all sizes inadvertently break licensing rules because of problems the software industry itself has created. Unable or unwilling to create technological blocks against copying, the industry has saddled its customers with complex licensing agreements that are hard to master.

In that view, the BSA amasses most of its bounties from small businesses because they have fewer technological, organizational and legal resources to avoid a run-in.

In Gaertner's case, employees had been unable to open files with the firm's drafting software, so they worked around it by installing programs they found on their own, breaking company rules, he said. And receipts for legitimate software had been lost in the hubbub of running his company.

"It was basically just a lack of knowledge and sloppy record-keeping on my part," said Gaertner, who got a settlement that cost him $40,000.

In the U.S., the largest software market, piracy rates have not budged since 2004. BSA critics say that is because making examples out of small businesses has little deterrent effect, since many company owners don't realize they're violating copyrights.

"If you were driving down the street and you got a speeding ticket, and there was no speed limit sign, it probably would be thrown out of court," said Barbara Rembiesa, head of the International Association of Information Technology Asset Managers.

Yet the BSA is getting more aggressive. Its CEO says software licenses are not as difficult as critics contend. It has dropped an amnesty campaign. And this year it began dangling $1 million rewards to disgruntled employees who anonymously report their bosses for using unlicensed software.

"The software vendors have every right to collect the license fees they're entitled to," said Tom Adolph, an attorney who has defended against BSA claims. "It's the tactics of the BSA that rankle me."

Much of the BSA's fight against counterfeit software and illegal copying happens overseas. In countries with the highest piracy rates, like China, the BSA pushes governments to crack down, arguing that greater respect for intellectual property would stimulate investment in their economies.

One result is that the BSA says the worldwide percentage of software that was illegitimately obtained has dropped to 35 percent, from 43 percent in 1996. However, the BSA says piracy still takes a $40 billion bite out of a $246 billion industry annually.

In the United States, where the piracy rate is a worldwide-low 21 percent, the BSA works with law enforcement and Web sites like eBay to stop suspiciously cheap software sales online.

Far more contentious, however, is its focus on forms of what it calls piracy by business users. The money harvested in these crackdowns stays with the alliance to fuel its operations.

Many BSA audits originate when a whistleblower reports that a company is brazenly copying one program onto multiple PCs. In extreme cases, the BSA will get court approval to raid companies in search of evidence.

But there are ways to get in trouble that do not begin with intentional cheating. Companies often simply fail to follow the letter of the licensing agreements that accompany software programs. The problem is big enough that there are companies that help other businesses manage their software.

For example, if a computer gets handed down from one person in an organization to another, software on the machine needs to be deleted unless the company has multiple licenses for it. But many companies forget or don't realize that, especially if the recipient of the machine would never need to use the previous owner's software.

The situation is further complicated because software licenses vary greatly. Some programs can be shared on multiple computers, or used by the same person on a home and office computer.

Multiply such oversights by dozens of software programs, and suddenly a BSA audit can lead to a charge of big-time piracy.

"They call it something awful, but sometimes you grow so fast, you can't keep control of everything," said Mike Lozicki, president of MediaLab Ventures LLC of Tampa, Florida, which paid the BSA $125,000. Lozicki said 12 percent of MediaLab's software was deemed out of compliance, much of it sitting unused. "It was some really obscure stuff," he said.

These cases get costly because the BSA considers software pirated if a company can't produce a receipt for it, no matter how old it is. Then the BSA generally demands at least twice the retail price of software deemed out of compliance. Plus it charges the "unbundled" prices of software that generally comes together at a discount, like Microsoft Office.

Robert Holleyman, the BSA's CEO, countered that many companies figure out how to get their software in order.

"I don't agree with the assumption that license management is necessarily a complex task," he said.

The BSA does have some software-management tools and advice on the Web. And it recently joined with the Small Business Administration to develop educational materials about software compliance.

However, software-management gurus say the BSA could do far more to assist companies — which are, after all, its members' customers.

"Instead of just being the software police, be the police in the sense of helping old ladies across the street," said Barbara Scott, a software consultant for Redemtech Inc. "The BSA could become more of a partner with organizations that they're hammering as well."

The BSA points out that under copyright law, it could collect up to $150,000 per infringed work if it prevailed in a lawsuit, or $30,000 if the incident was unintentional. By seeking less, BSA leaders say, they give violators a break.

The BSA also used to offer occasional grace periods. The BSA would alert companies to the piracy question and give them 30 days to buy licenses without penalty.

But the BSA no longer offers such amnesties.

Instead it has pushed harder for unhappy employees to "nail your boss" with anonymous tips about piracy. In 2005, it sweetened the deal, offering $50,000 rewards to whistleblowers in the U.S. It raised the limit to $1 million this year.

Having rewards has raised questions of whether the BSA creates a perverse incentive for employees who discover their organizations out of compliance: Should they help their bosses get squared away or try for a BSA jackpot?

BSA enforcement director Jenny Blank disputes the notion that her group is encouraging employees to exploit mere technicalities and "onesy, twosy random noncompliance." That's why, she said, it focuses on the worst offenders.

Yet in 2005, her group pursued Mediaport Entertainment Inc. of Salt Lake City, where an audit revealed just two unlicensed copies of Microsoft software. Retail value: $6,500. The BSA pressed for $16,500; the sides reached an undisclosed settlement.

Although the BSA's campaign has failed to lower the piracy rate in recent years, some software companies praise the group for keeping the problem from getting worse.

They might be overlooking something. Rob Scott, an attorney who specializes in defending BSA targets, says many are so put off that they explore a switch to open-source software that lacks such legal entanglements.

Gaertner, who worried his BSA encounter would crush his business, wants to rid himself of the Autodesk, Microsoft and Adobe software involved in the case.

"It's not like they have really good software. It's just that it's widespread and it's commonly used," he said. "It's going to be a while, but eventually, we plan to get completely disengaged from those software vendors that participate in the BSA."