Piracy on the Web

The Internet celebrates its 30th birthday soon, but it acts like a newfound gold mine. Every Dick, Jane, and Spot is rushing headlong to surf it or set up shop on it. If you're a content owner, maybe you too are thinking it's about time to blaze a digital trail. Before you log your content onto the cyberworld, review the risks. The Western frontier was a lawless and unbridled place until the California Gold Rush of 1849 tamed it. But the cash influx onto the Internet has done nothing to domesticate it, and pirates are proliferating around the world.

Sun Microsystems, Inc. says they save $50,000 every month by distributing their popular program, Java, via the Internet as opposed to CD-ROMs. That statement makes the Internet seem a content provider's Shangri-la. Not quite. Sun doesn't tell the total they lose from software stolen from the Internet and trade in these contraband copies. The Software Publishers Association (SPA), the principal international trade group for the software industry, however, can tell you the total software stolen, and it's staggering.

The SPA been studying software piracy of business applications by both illegal duplication and illegal downloading since 1989. The good news? Software pilfering declined $1.9 billion in 1994. The bad news? The drop was entirely due to declining prices of business titles. The number of pirated programs increased 14% in 1994 from 1993. While business software sales reached $8 billion, $8.1 billion was lost to bootleggers. The worse news? The SPA hasn't started studying piracy in the multi-billion dollar consumer software market, which includes operating systems like Windows 95, education, entertainment, and personal productivity titles. In a sad harbinger for publishers, 20 percent of the respondents in an SPA survey admitted to openly copying consumer software. The SPA found people pirate software because they're greedy, they're careless, they don't know it's illegal, they don't care, or the timeworn "everyone else is doing it."

While digital bootleggers' revenues may rival the GNP of some third world countries, they do not begin to reveal the bleak story. While the software piracy rate in the U.S. has declined from 48% in 1989 to 25% in 1994, in Russia, 95% of all business software is illegal, in Thailand, 92%, and in China, 98%. An average of only $1 per PC is spent on legal software in China. The Chinese government itself has been linked to state-sponsored CD-ROM manufacturing facilities which mass produce pirated software for the domestic market and for export. Publishers who try to protect themselves from piracy by avoiding the Chinese market find themselves competing with counterfeit copies of their own titles in far-flung markets like Latin America and Australia. Modems, which provide private and direct access to 30 million consumers, have been a boon to buccaneers. One bulletin board system (BBS) sold $1 million in stolen software in just three weeks.

If you sell software, you're not isolated in being hijacked. Purveyors of movies and music are suffering similar losses to thievery. In China, 87% of all music CDs were pirated, in Russia 60%. Illegal duplication of audio tapes, videotapes, and CDs cost content owners about $4.5 billion in 1995. The Internet presents an even greater potential for pirates of movies and music. Contrary to tape, once content is digitized, there's no degeneration in quality from copy to copy. Copying is effortless and inexpensive. A product which costs $20 can be copied for free onto a hard drive or cheaply onto blank CDs or diskettes.

How Can You Defend Yourself?

So, if you're a small, scrappy entrepreneur or a multinational, mega-sized corporation, how can you sell your stuff on the Internet and not have it stolen? You can use an encryption algorithm to protect your product delivered electronically. After your content is encrypted, your consumer then is required to register his product with you, typically either on-line or through a toll-free number, to obtain his unique key which decrypts his product and renders it usable. To help ensure your encryption efforts, the National Information Infrastructure (NII) has proposed changes to the U.S. Copyright Act. These amendments would prohibit people from providing products like black boxes, devices which can circumvent encryption algorithms, and prohibit people from selling services which avoid encryption schemes. Before you use an encryption scheme, have any teenager with a modem try it out. Many encryption algorithms have been found to have flaws and are not currently either child or hacker-proof.

Even if encryption technology becomes crackerjack safe, it won't protect your content completely against consumer piracy. Once your consumer obtains his encryption key, he may make endless copies of your product, wielding his PC like a digital printing press. The Copyright Statute explicitly allows him legally to make one copy for backup purposes. To combat your average Jesse James, who may be copying your content directly or indirectly from the Internet, you will need a dose of legal and legislative remedies.

The NII has suggested some such remedies. They have stated that without such safeguards, "intellectual property owners will be unwilling to put their works at risk . . . and realize the full potential of the information superhighway as a commercial marketplace." The NII has already written amendments to the Copyright Statute to ensure electronic transmissions, without the content owner's consent, are illegal. Cases applying the Copyright Statute have ruled that unauthorized transmissions are covered. For example, Sega successfully sued a BBS operator for transmission of its video games without Sega's permission. Legal commentators, however, consider the NII-proposed changes in the Copyright Statute will make it easier for individual copyright owners like yourself to establish their case. In addition, under pressure from the United States, other countries like China, Russia, and Thailand have recently enacted copyright protection statutes for digital works delivered via the Internet.

These legal and legislative reforms insufficiently address the issue, and will not protect your content, because the statutes are largely untested or unenforced. And, while copyright infringement can cost a counterfeiter $100,000, that's piddling compared to the millions most pirates make in a month. The NII and the SPA, therefore, have recommended criminal penalties be imposed upon convicted infringers to deter both the counterfeiting and commercial-scale copyright infringement occurring in the United States and in many Asian countries. In addition, the SPA has suggested the U.S. impose trade sanctions on countries like China who do not demonstrate objective improvement in copyright protection and enforcement.

Your highest hope to defend your digital content lies not in enforcement, however, but in education. The SPA's educational efforts and public awareness campaigns have halved the U.S. piracy rate in five years. Now, the worldwide public needs to be educated that copying digital content is not copacetic. The NII is initiating a Copyright Awareness Campaign to reach the earliest consumers and teach school-age children about the concepts of computer property and ownership. The SPA has produced and distributed 20,000 copies of a rap music video called Don't Copy That Floppy in an effort to teach students in grades 4 through 8 that copying software is stealing. We can all teach our children well that copying isn't cool. Finally, before you place your content online, you might buy the SPA's 1995 Report on Global Software Piracy available free for SPA members and $10 for non-members. Some countries may be romantic hideaways but they're also pirate havens. Nice places to visit, but you might not want to live there online yet.

Courtesy of Marie D'Amico of Digital Media.