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 Article Published in The Economic Times  09 September 2002

How to Contain Software Piracy

The Annual Global Software Piracy study organised by the Business Software Alliance indicates a rise in piracy rate from 37% in 2000 to 40% in 2001. The industry is worried about the estimated loss of $10.97 billion in 2001. Here is the flip side of software piracy and some suggestions to contain it.

Software industry makes fat profits on its products -the average ranging between 30-40%. Some 'Business Software' earns as much as 80%. In the last two decades, drop in prices of software has not kept pace with those in hardware. High prices are a sure invitation for piracy. If prices are reduced by say 30-40%, sales volumes will grow and so will employment. Software industry, facing a severe crisis since last September, would thus benefit as a whole. An example to emulate here is that of the US Carmakers, who successfully enticed customers last year by reducing prices and offering zero-finance facilities. If software vendors did that, the effect of slowing tech-investment could be neutralised. Development centers would be humming with more activity and recovery will be faster.

Secondly, software vendors do not have a differentiated pricing mechanism for different markets. While Fuji or Kodak for their films have different pricing policies for India and US, software majors are generally pricing their products uniformly in all countries, irrespective of the users' capacities to pay. Thus poor consumers in Vietnam, China or Indonesia, countries with the highest piracy rates, conveniently make illegal copies of the pricey software. Therefore solution lies in developing a strategic differential pricing mechanism for different users in different markets.

Thirdly, the annual loss of $10.97 billion is exaggerated. If IPR laws were strictly enforced, would piracy stop and sales volumes of licensed software bloom? The answer is no. Recent searches conducted against several institutions in India using unauthorised MS products indeed confirm that the theory of product substitution comes into play. After the raids, some of these institutions migrated to Linux, a free software. Linux community, as a result is growing stronger by the day.

Fourthly, the existing IPR laws offer an unfair advantage to the software industry. Software purchased is strictly for self-use and cannot be lent under the terms of licensing, a harmful practice for consumers. Two years back, dirt-cheap second-hand PCs from US could not be shipped to Mexico for use by poor kids there, because Windows installed in the machines became unauthorised for use. The IPR Laws do not give a similar protection to other products; say to a manufacturer of branded garments. The restrictive licensing condition for use of software has thus created a negative image for software vendors. Solution lies in amending the IPR laws to permit such protection for software for a limited period only (say 1-2 years). This will permit recycling the products for use to bridge the digital divide between communities and regions.

Fifthly, unauthorised use of software such as Windows has brought unexpected gains to vendors (like Microsoft), which have received huge popularity in the market, without spending a penny on marketing and advertisement. The use of pirated copies in turn, has generated sales of licensed copies in the market, boosting the bottom lines of vendors.

Sixthly, the IT industry has traditionally enjoyed an over-protection from several enactments meant to safeguard consumers' interests. The industry is virtually exempt from the class action and product liability suits. The nascent debate to subject the software industry to such actions was laid to rest recently, since the US did not want to hurt Microsofts, Oracles and IBMs etc, champions of US supremacy in the new economy. Software consumers have to bear the losses for the faulty designs of products like Windows (which crash too often) and Outlook Express, where a 'sub-routine' programme can be run to infect your hardware with viruses. Remember the $10 billion loss, on account of 'I love you' virus created by a young Filipino, who used the Outlook Express to spread the virus in March 2000. Contrast this protection versus $150 billion settlement of the class-action suits by the cigarette manufacturers in the US. Asbestos manufacturers in US and Europe too, are facing litigations worth billions of dollars.

Last but not the least, software vendors, it appears, deliberately did not invest in developing anti-piracy systems for their products. They might have thought of gaining customers first (like the extinct dotcoms) and then selling products to them at inflated prices. Why is it that the digital rights management technology still remains under-funded? It is only now that the Windows-XP provides some anti-piracy mechanism. So aren't software developers equally responsible for the lackadaisical approach in putting an anti-piracy system in place?

Perhaps piracy will exist as long as there are authorised users of software. Containing piracy calls for developing the right strategies, keeping in mind the interests of consumers and the society as well.