Pirated and unlicensed business applications made a dent in the UK software coffers to the tune of £290 million last year - up by £80 million on 1997, according to a report published last month by the International Planning Research Corporation. As well as stripping software developers of up to a third of their revenue, the prevalence of illegal product in the market is also 'threatening the livelihood of many genuine resellers in the UK', says Clive Bishop, general secretary of the National Association of Specialist Computer Retailers (NASCR).
Piracy in the channel is spiralling - Microsoft estimates that a quarter of all illegal copies of its software reach the market via this route.
Robin Lawrence, head of the digital crime unit at the Federation of Software Theft (Fast), says increased sales of computers into the home, squeezed margins on hardware sales and the opportunity to make a quick buck are at the root of the problem.
'There is a temptation for unscrupulous dealers to carry out illegal copying and put together deals using software as a sweetener to sell the hardware,' he says. 'If you are a reseller, they are taking money out of your pocket as well as the publisher's.'
NASCR is campaigning to stamp out the practice. Bishop says: 'The sooner we can find ways to eradicate or reduce piracy dramatically, the better.
It undercuts honest resellers and destabilises the market. The amount of illegal product out there is frightening - each illegal copy sold is a percentage of lost revenue for retailers and resellers.'
The organisation has been working in conjunction with Microsoft to tackle piracy for the past 18 months. It's an alliance that at one time seemed unlikely, after Microsoft launched a heavy-handed attack on small resellers and retailers selling illegal software. NASCR argues that at the time, 99 per cent of dealers targeted by Microsoft were selling counterfeit product unwittingly. 'It was out-and-out ignorance. Retailers were buying from what they thought were genuine sources,' says Bishop.
In response to NASCR concerns, Microsoft overhauled its approach. David Gregory, anti-piracy and legal licensing manager at Microsoft, says: 'NASCR was less than happy about the way Microsoft was fighting piracy in the channel because we were not talking to it about who we were targeting and why. We found a way forward through understanding NASCR's point of view.'
For its part, NASCR has undertaken to publicise the issue among its members.
Bishop says he would deal harshly with any members found to be breaching copyright law.
The problem is being fought from all angles. Fed up with escalating piracy statistics, the Business Software Alliance (BSA), which represents the big-name software developers, is tackling the issue at the sharp end by swooping on users with pirated and unlicensed software - including businesses in the IT industry. The association says almost one in three pieces of business software is being used illegally and is threatening to name, shame and fine those companies caught red-handed.
At the end of last year, the BSA launched its Crackdown 98 campaign, which saw a tough-talking, zero-tolerance association warn companies to 'get legal or face the consequences'. Aimed at medium-sized companies, it followed a similar drive in 1997, which was 'very successful' in picking off big businesses with illegal software.
Now, the BSA is turning its attention to small businesses - those with five PCs upwards - since it believes that at this level about 50 per cent of firms have illegal software installed. Its current offensive is targeting 80,000 chief executives of small businesses across the UK, according to Mike Newton, campaign relations manager at the BSA.
'We want to look at organisations that have been up and running for three years or more.
We want to talk to the people in stable business situations that should have software management in place by now,' Newton says.
In the initial stages, the BSA is taking a more softly softly approach than with previous campaigns. Newton adds: 'We have taken a slightly different stance because these are people we have never communicated with before.
Their awareness of issues is much lower than elsewhere and their ability to handle software management is not so great because they don't have IT managers.'
To kick off the campaign, the BSA is sending out an information pack detailing the role of the group and the risks of software theft. It will be followed by a questionnaire asking companies for basic details of their licensing policies. Targeted users are required to fill in a software declaration form stating that software at the company is legal and accompanied by the correct number of licences. The BSA hopes this tactic will force offenders into submission and those baffled by the licensing laws into seeking assistance.
'We are looking to persuade chief executives to take action within their own business - it's an educational process,' says Newton. 'They tend to move at a million miles an hour with a lot of issues on their plate, but we are trying to raise this to the top of their agenda for a period.'
The BSA is playing nice and nasty. Users who receive a letter and contact the BSA asking for support in straightening out their software setup will get 'help and advice'. Those who ignore the questionnaire will be blacklisted and their details added to a database of possible offenders. Businesses on the register may be 'categorised for further action' via direct intervention from the BSA, which will dish out penalties. The current campaign will be completed this month.
In the past, about 35 per cent of businesses contacted by the BSA have completed and returned questionnaires, and Newton believes it is on track for similar statistics at the small business level. The organisation concedes that besides the difficulties of fighting software pirates and unscrupulous dealers, it is battling a perception problem on the ground and hammering home the message that software theft in any form is a criminal offence. 'If you walked into PC World and walked out with a copy of software under your coat, you'd know you had done something wrong and would expect to be prosecuted.
But in an office, it's somehow acceptable to copy software,' says Newton.
He is quick to point out that it is not just the big-name software companies that feel the pinch: 'This isn't a victimless crime. A lot of people only think of Microsoft when they think of software companies.
But the software industry is made up of many smaller companies and losing a third of their revenue can be devastating to them.'
He adds it is not only software companies that suffer from illegal use of their products. Many affiliated businesses, such as packaging, marketing, leasing and, of course, channel players, are also dependent on software sales.
And it's not just the smaller players that are losing out. According to a Price Waterhouse/BSA report in 1998, piracy has a direct effect on employment levels. The survey forecasts that by 2001, an additional 23,000 jobs will have been created in the software industry. If piracy were reduced from 29 per cent to 27 per cent by 2001 - bringing it in line with US levels - the job count would rise to 31,000 in the UK.
For businesses unaware of the wider implications, the BSA hopes the threat of being caught and stung with a substantial fine will convince them.
Microsoft's Gregory says fines can amount to between twice and 10 times the cost of the original software.
Penalties could become tougher, however, if the UK decides to follow in the footsteps of other markets. Gregory cites a case in Brazil in September last year, where a company was fined $65 million after being found with illegal software on 82 personal computers. The fine, he says, amounted to 500 times the cost of the original software. 'The UK hasn't reached anywhere near that size of fine yet, but it does raise the question of whether it is increased fines or criminal and civil penalties that will send the message.'
In the UK, a sizeable deterrent is the risk of bad press if the story is picked up, argues Gregory: 'If the press are branding people criminals, they will lose customers and creditors.' Indeed, as a result of the BSA's name-and-shame strategy, a number of high-profile cases have hit the news-stands.
While the BSA itself has no legal right to search suspect premises, its members, the software publishers, armed with the appropriate paperwork from the civil court, are legally entitled to search for evidence. The BSA has neither the manpower nor the resources to raid every company that fails to return its questionnaire, but the hit rate is constant and there are some businesses that will get caught out.
'Every working day, one company has action taken against it by the BSA,' says Gregory. Newton adds: 'Most of the cases we choose to pursue, we win.' He knows it's a mammoth task, but warns businesses: 'It might not be this time, but until it's sorted out, the BSA is not going to go away.'
A statistic guaranteed to make businesses sit up and take note is that more than 85 per cent of calls to the BSA's hotline, reporting the use of illegal software, are tip-offs from ex-employees. The BSA receives two calls every working day and to encourage the response rate, it offers a £2,500 reward if cases are resolved.
Added to this, a survey by Ashdown Research, commissioned by Microsoft, has shown that businesses believe their chances of getting caught with illegal software have increased in recent years.
In October 1997, 68 per cent of small to medium-sized businesses believed it was 'not at all easy' to get caught with illegally copied or unlicensed software, compared with 28 per cent in 1998.
At the grass roots level, resellers in the software sector can play a pivotal role in helping to get small firms on the straight and narrow, says Newton. 'Resellers can offer these businesses a one-day software audit. They can check out which licences they have for what. A lot of businesses will want to ask what the cheapest way is to license their software legally and that is useful advice the reseller can offer the client.'
As well as generating consulting business, canny dealers can gain follow-through business by selling software licences to fill in any gaps. Since they are independent and not seen as BSA consultants, companies are happier to deal with them, Newton claims.
But in some instances, even where the BSA has persuaded businesses to seek help to overhaul their software holdings, the battle is far from over. 'One thing we have found in previous campaigns is that we have induced businesses to take action and they have fallen into the arms of illegal software resellers,' says Newton.
Genuine players can help eradicate this problem: 'What we are saying to resellers is that if they find they have lost business by being dramatically undercut by somebody else, let us know.'
Fast's Lawrence backs this up: 'Individual resellers are a fruitful source of information. We encourage people to come forward.'
Those found selling counterfeit software face more than a rap over the knuckles and a nasty fine. And concerned parties are making increasingly determined efforts to close the net on those at the root of the problem, driving home the message that prevention is better than cure. Stiffer penalties are being implemented. In one case last month, four men received prison sentences following an 18-month investigation into the sale of counterfeit Microsoft software. Fast says it handled about 1,000 cases in 1998, of which two-thirds were criminal cases.
But while the anti-piracy movement is gaining momentum, the job is getting bigger, since the internet is the perfect distribution medium for pirated software. Unofficial Websites posting existing and even beta versions of software spring up on a daily basis. The BSA says it has identified 90,000 illegal Websites within Europe and Newton describes it as a problem of 'epidemic proportions'.
Fast is also throwing its weight behind this escalating threat. 'The internet has become a real player,' says Lawrence, adding that in the past 12 months, the number of criminal cases the organisation has dealt with on the internet has increased from 0 per cent to 30 per cent of its caseload.
Both Fast and the BSA are working with the law enforcement community as well as ISPs to try to eliminate these sites. They are sitting down with ISPs in particular, to try to thrash out a code of practice governing policing within providers' domains.
But the response from ISPs has been mixed, according to Lawrence. 'The ISPs are concerned with commercial activity - selling Web space and access.
We are trying to work out a commercially sensitive way to police it. We have a job to do, but nobody's trying to put anybody out of business,' he says. Newton agrees there is some ground to cover: 'From a legal standpoint, ISPs can say, "yes, we're aware of it but it's not us, guv". We are hoping they will take a different stance.'
It's an increasingly aggressive drive and the anti-piracy pundits are taking the matter to the top, brandishing statistics which show the damaging effect of piracy on the national economy. Microsoft estimates the Treasury loses £600 million of tax revenue each year through software theft. The BSA is lobbying the government to make copyright infringement a higher priority for criminal prosecution.
The government is also pushing to make civil search procedures less expensive and cumbersome. And in a move that hits at the heart of the issue, it is demanding government assurance that its departments use only legal copies of software.
As well as trying to get its voice heard as the e-commerce directive chugs through the system, the BSA has responded to the European Commission's Green Paper on counterfeiting and piracy in the single market and called for changes to the current laws to support the industry.
BSA - THE REAL THING
The BSA has warned businesses to be on their guard after it discovered an organisation has been masquerading as the BSA in an attempt to dupe companies into allowing their software to be audited.
The organisation, which has been operating throughout Scotland, has sent out letters on counterfeit BSA-headed paper telling unsuspecting companies to expect a software inspection from a BSA-authorised software auditor.
The BSA says it is anxious to alert businesses to this fraudulent attempt to gain access to companies' software details. It does not endorse the services of any individual auditing company, arguing that it is possible for most organisations to conduct their own software audit and avoid the expense of hiring an external company.
The fake letter is marked at the bottom of the page with the words 'UK Branch Registered in Bristol, England'. Any business which believes it may have been approached by the bogus organisation should contact the BSA.
PRISON FOR PIRATES
Last month, four men were sentenced to between four and eight months in prison after Surrey Trading Standards Organisation, working in conjunction with Microsoft, smashed a crime ring dealing in pirated software. A fifth man was ordered to do 180 hours of community service and pay £1,000 in court costs.
The successful prosecutions followed an 18-month investigation which uncovered the illegal counterfeiting network operating across the south of England.
More than 5,000 CDs were recovered in a haul worth more than £5.6 million. Most of the counterfeit products were copies of Microsoft software, including Office 97, Windows 95 and 98, and Encarta.
David Gregory, anti-piracy and legal licensing manager at Microsoft, says: 'We hope the message from this ruling is loud and clear to all counterfeiters - software theft is a crime. The penalties are now getting higher for ripping off the public by selling cheap, illegal copies of our software and exposing them to legal penalties.' He adds: 'All too often, organised crime has used software piracy to fund other areas of illegal activity because of the lucrative monetary gains and lax penalties.'
LAYING DOWN THE LAW
The BSA has put together a comprehensive guide to software management and the ins and outs of illegal software use, which can be accessed via its Website at www.bsa.org/uk.
According to the BSA, the most common type of software piracy occurs when companies or individuals make unauthorised copies of software.
In a basic bullet-point guide, it has put together a number of essential tips that businesses should follow to avoid using software illegally and to manage their systems more efficiently. All of the examples, it says, are equally hazardous to an IT system. It warns:
- Do not use one disk to install a program on multiple computers
- Do not copy disks for installation and distribution
- Do not take advantage of upgrade offers without having a legal copy of the version to be upgraded
- Do not download software from the internet
- Do not swap disks in or outside the workplace
For larger businesses with greater numbers of network users and more complicated IT infrastructure, systems management software provides a means of tracking installations and staying legal. Products such as Tivoli's Service Desk system are on the market and provide asset and change management.
Chief exec Jens Montanana claims Logicalis performed well despite 'currency headwinds'
All the photos from last night's event, which saw over 600 people congregate at the Hilton London Bankside
Five year deal with Essex NHS Trust will cover 400 sites, including hospitals, clinics and GP practices
18 individuals and three companies walked away as winners at CRN's inaugural Women in Channel Awards last night