addressing global software piracy

7/28/2019 Addressing Global Software Piracy

1/12

Addressing Global Software PiracyPartnering with Governments, Industry, and Customers to Strengthen Economies,

Drive Innovation, and Protect Information Systems


2/12

addressing global software Piracy2

f m m p, p v .m.m/p.

y m M p [email protected].
http://www.microsoft.com/piracyhttp://[email protected]/http://[email protected]/http://www.microsoft.com/piracy


3/12

addressing global software Piracy 1

The global information technology (IT) industry is a vital driver of economic growth, employingmore than 35 million people worldwide and generating an estimated US$3 trillion in spendingaround the globe. This vibrant IT ecosystem exists in large part due to an ongoing cycleof investment and innovation by hundreds of thousands of software, hardware, and ITcompaniesmany of them small and locally owned. These companies rely on intellectualproperty (IP) systems that offer protections and incentives to develop new ideas, bring themto market, and share them with other innovators.

Ensuring the health of the IT ecosystem and the IP incentives that drive investment andinnovation is important in the current economic climate for both established and emergingmarkets. A healthy and legal technology sector has long been a signicant factor in the growthand vitality of established economies. Likewise, emerging markets are increasingly recognizingthe importance of IP as they invest in becoming knowledge-based economies.

The loss of economic value through IP theft, including counterfeiting and piracy, results inmillions of lost jobs, an estimated US$750 billion in lost global revenues annually, and healthand safety risks from unsafe products. International criminal syndicates counterfeit and pirate

Addressing Global Software PiracyPartnering with Governments, Industry, and Customers to Strengthen

Economies, Drive Innovation, and Protect Information Systems

Policy Briefs from Microsoft

A convergence of innovative software and intelligent devices, complemented by cloud-based services, will stimulateeconomic growth, make government more effective, and benet citizens in areas ranging from education tohealthcare to the environment. This policy brief is one in a series from Microsoft about next-generation computing.
http://www.microsoft.com/publicpolicyhttp://www.microsoft.com/publicpolicy


4/12


5/12


genuine (left), counterfeit (right) genuine (left), counterfeit (right)

counterfeit counterfeit

The Risks of Counterfeit SoftwareThe security risks to individuals, businesses, and governments posed by counterfeit andpirated software are signicant and increasing. One seminal study by the market intelligencerm IDC in 2006 found that one in four Web sites offering counterfeit software attempted toinstall unwanted or malicious code upon downloading.1 The study also described a review ofcounterfeit Microsoft software purchased at resellers in 17 countries, which determined thatmore than 50 percent contained phony code or malware or could not even be installed. A 2009

study by the Business Software Alliance and IDC concluded that countries with high piracy ratesoften have high malware infection rates.2

A recent Microsoft study highlighted these dangers and how easy it can be for customers tounknowingly install risky software.3 A review of 30 mid-size businesses in the United Kingdomfound that more than one-third of the companies were unknowingly using counterfeitsoftware. These businesses spent an average of US$10,000 on the software. Each companyreported purchasing the software in good faith and expressed shock that it was not genuine.

The impact of using counterfeit software can be serious and costly. The effects of malwarecan range from annoying advertisements to a severe breach of information security. A recentHarrison Group study found that companies using pirated or counterfeit software were 73percent more likely to experience loss of or damage to sensitive data and 43 percent morelikely to have critical computer failures lasting 24 hours or longer.4 Recovery from an incident

of malicious software on a single workstation can exceed US$1,000, and the costs due to lostor compromised data can run into the tens of thousands of dollars per incident. Individuals andorganizations that knowingly purchase pirated or counterfeit software in the hopes of savingmoney can see those savingsand much morewiped out with a single security breach.

High-quality counterfeits are intended to deceive customers, and they pose signicant security and functionality risks.

1 The Risks of Obtaining and Using Pirated Software, IDC white paper, sponsored by Microsoft (October 2006).

2 Sixth Annual BSA-IDC Global Software Piracy Study, Business Software Alliance and IDC (May 2009).

3 The Surprising Risks of Counterfeit Software in Business, Microsoft white paper (2009).

4 Impact of Unlicensed Software on Mid-Market Companies, Harrison Group (September 2008).


6/12


The Economic Benets of Increasing Legal Software

Alarmingly, software piracy is on the rise. The global software piracy rate increased 3 percentbetween 2007 and 2008, to 41 percent.5 This increase was driven primarily by double-digitgrowth in the market for personal computers in developing countries and regions with highsoftware piracy rates. However, even in countries and regions with lower piracy ratessuch asthe United States, Japan, and Western Europepirated software can be found on one in everyve PCs. Even more alarming is the increase in global economic losses from software piracy,which amounts to a staggering US$53 billion annually.6

The good news is that even an incremental reduction in software piracy can have dramaticbenets for the global economy. Lowering the piracy rate by just 10 percent would create anestimated 600,000 new jobs worldwide and contribute US$24 billion in additional tax revenuesto local and national governments.7 In addition to supporting governments and their local andnational economies, these economic benets would ow to hundreds of thousands of legitimatebusinesses. For every dollar that Microsoft realizes from lower software piracy, other companies

in the software ecosystem will realize a total of $5.50 from increased revenues and lower costs.8

5 Sixth Annual BSA-IDC Global Software Piracy Study, Business Software Alliance and IDC (May 2009).

6 Ibid.

7 The Economic Benets of Lowering PC Software Piracy, independent study by IDC, sponsored by the Business SoftwareAlliance (January 2008).

8 The Impact of Software Piracy and License Misuse on the Channel, IDC white paper, sponsored by Microsoft and theInternational Association of Microsoft Certied Partners (June 2008).

Source: The Economic Benets of Lowering PC Software Piracy,IDC, January 2008.

Source: The Impact of Software Piracyand License Misuse on the Channel,IDC, June 2008.

59%genuinesoftware

41%pirated

software

+$141 billion*contribution to GDP

+$24 billion*additional tax revenues

Piracy Reduction Impact

Global economic benets from a 10 percent

reduction in software piracy:

+600,000new jobs

Software Piracy Rate

Worldwide, 41% of software

in use is pirated.

* in US dollars

=$1 $5.50

For every dollar that Microsoft realizes from reduced software piracy...

...other companies in the software ecosystem will realize $5.50.

INCREASED REVENUES LOWER COSTS


7/12


Public-Private Collaboration: The Key to Combating PiracyThe growing global threat of software piracy is one that neither governments nor the ITindustry can tackle alone. Government and industry cooperation on a range of enforcementand policy issues is crucial to ensuring that ofcials have the tools they need to addresspiracy effectively. Microsoft and our local partners are working with governments, otherindustry members, and trade associations to provide training and other needed collaboration

on anti-piracy issues.

When industry-government partnerships on IP incentives are strong and sustained, the benetsthat ow to economies and society are signicant. Onepowerful example is the partnership between the softwareindustry and the Russian government. In 2007, Russianauthorities and the software industry began collaboratingon an IP awareness and enforcement campaign. Thiscampaign was designed as a sustained effort to supportlegal software innovation, distribution, and use. It includedtraining for hundreds of law enforcement ofcials ininvestigating and prosecuting software pirates and led tomore than 3,000 criminal raids in a single year.

The effort also included a highly visible public awarenesscampaign in multiple Russian cities about the risks ofpiracy. The results were dramatic. Software piracy inRussia dropped a record 7 percent in 2007, and another5 percent in 2008. These gains have contributed millionsof dollars and thousands of jobs to local IT companies(including Microsoft partners) and the Russian economyand have led to an environment in which legal softwareinnovation can ourish in the future.

Year-Over-Year SoftwarePiracy Rates in Russia

Collaboration between theRussian government and thesoftware industry has resultedin steady declines in businesssoftware piracy.

80%

2006

73%

2007

68%

2008


8/12


Another example is the campaigns in Colombia, Serbia, Italy, and Greece that require softwareinspections during tax audits of businesses. This approach, which also includes the enactmentof relevant IP and scal laws, training, and cooperation with the private sector, has led tomeasurable drops in overall software piracy rates and increased tax revenues in all four countries.

In Colombia, the tax inspection law requires companies to include in their annual reportsa declaration of compliance with copyright laws, and it empowers the Colombian Tax andCustoms Administration (DIAN) to inspect software licenses during routine tax inspections.The law treats software piracy as a form of tax evasion. According to DIAN, Colombias value-added tax revenue from the software industry grew $87 million between 2008 and 2009.

In Serbia, tax inspectors audited more than 1,000 companies in 2008 and led more than100 complaints with the public prosecutors ofce for alleged use of pirated software. The

Serbian software piracy rate has begun to decline and is expected to decline even furtherdue to the governments efforts in this area. In Italy, the program led to a dramatic decline insoftware piracy rates, from 92 percent in 1991 to 55 percent in 1996. In Greece, the softwarepiracy rate decreased by 7 percent from 2005 to 2008. Based on these positive outcomes, werecommend that every country, particularly those in emerging markets, seriously consideradopting a tax audit initiative that supports the use of legal software.

Dismantling Criminal SyndicatesStrong enforcement against criminal syndicates is another critical building block in aneffective global anti-piracy strategy. In the largest counterfeiting case in history, Microsoftworked with law enforcement authorities in China and the U.S. to build a high-prole caseagainst a criminal syndicate based in southern China. This software counterfeiting ring isbelieved to be responsible for producing US$2 billion in counterfeit Microsoft softwarebetween 2003 and 2008 and distributing it to unsuspecting customers in at least 36 countries.

On December 31, 2008, the Futian PeoplesCourt in Shenzhen, China, convicted 11members of the counterfeiting syndicateand sentenced them to prison terms rangingfrom 1 to 6 yearsthe longest sentencesever handed down in China for IP rightsviolations. This landmark case was the resultof unprecedented international cooperationbetween U.S. and Chinese law enforcementofcials, who, together with Microsoft and our

local partners, developed leads and evidencefrom more than 1,000 Microsoft customers andpartners victimized by the syndicate.

While this case was a major breakthrough, muchmore remains to be done in China and othercountries to limit the volume of counterfeitsoftware being produced and distributed, andto protect consumers from the risks of usingfake software.

t c c

Evidence gathered from over1,000 customers and partners

19 different products in 11languages found in 36 countries

$2 billion+ in counterfeitsproduced

11 members of thecounterfeiting ring, includingthe ringleaders, convicted andsent to prison

Government tax audits of businesses have resulted in the collection of

millions of dollars in tax revenues from the use of pirated software and

dramatic declines in software piracy rates.


9/12


Microsoft forensicsexperts useintelligence to tracecounterfeit discs totheir source.

Supporting Governments with Intelligence,Innovation, and ExpertiseOur collaboration with international, national, state, and local law enforcement on softwarepiracy investigations has resulted in raids, seizures, and arrests of IP criminals in virtuallyevery country in the world, including many smaller emerging economies that increasinglyunderstand the importance of a healthy, legal technology sector. Microsoft is committedto maintaining and expanding cooperative anti-piracy efforts with governments across theglobe to ensure that police, prosecutors, border authorities, and the judiciary have the toolsand assistance they need to address counterfeiting and piracy more effectively.

Microsoft has developed a variety of forensic and intelligence systems to support our anti-piracy efforts. Nine regional forensic crime labs around the world examine and processsuspected counterfeit software. In 2008, these labs evaluated more than 500,000 piecesof evidence that were used to support both civil and criminal cases and for businessintelligence. A signicant amount of this evidence came directly from our customers andpartners through tips and voluntary product submissions.

Microsoft has also invested in technologies that enable us to connect the dotsbetween pieces of evidence. These technologies identify ngerprintsspecic physicalcharacteristicsof counterfeit discs and match them to ngerprints of other knowncounterfeit software. This enables Microsoft and law enforcement ofcials to trace illegaldiscs to the criminal syndicates that produced them and to estimate production volumes.For example, in the China case, we linked thousands of counterfeit discsencompassing

19 different Microsoft products in 11 languagesto the same syndicate. Weve alsodeveloped improved techniques to detect malicious code and spyware in counterfeits sold tounsuspecting consumers around the world.

One of the latest breakthroughs in anti-piracy forensics is a tool that works remotely todetermine the manufacturing facility where counterfeit discs were produced. The tool readsdata error patterns unique to each Laser Beam Recorder (LBR) used in mastering. Theseunique LBR ngerprints are matched to ngerprints in our extensive library of discs fromknown counterfeit manufacturing facilities. When a disc exhibits the same characteristics,we can trace the counterfeit to a particular facility.


10/12


For the online version of this document and more information about our Public PolicyAgenda, please visit www.microsoft.com/publicpolicy .

Left: Disk-specic ngerprints help Microsoft forensics experts and law enforcement uncover criminal counterfeitingsyndicates. Right: Microsoft interactive holograms help customers detect counterfeits.

Microsoft also relies heavily on business intelligence in our anti-piracy efforts. Our global anti-piracy team routinely monitors the marketplace through data mining, mystery shopping, testpurchases, and other internal and public intelligence sources to identify pirate suppliers andpiracy trends. This intelligence enables us to uncover the sources of piracy and address themwith technology solutions and enforcement. It also helps us better protect our customers andpartners from the risk of counterfeits and follow up on the tips they provide.

Microsofts arsenal of forensic tools and capabilities enables police and prosecutors to get thefull story behind a single test purchase or seizure of evidence. The intelligence ties counterfeitsoftware to particular production facilities and to known counterfeiting syndicates, and itdemonstrates to judges and juries the true extent and nature of the damage that has beencaused. We will continue to invest in innovative technologies and anti-piracy forensics thatallow us to partner effectively with governments in responding to this increasingly complexglobal threat.

Building Stronger Partnerships for the FutureThe wide range of software, services, and computer and communication devices available todayenables people and businesses to pursue their ideas and opportunities in ways only dreamedabout a decade ago. A decade from now, the possibilities created by technology innovationswill be equally groundbreaking. As Microsofts vision of life without walls becomes a realityfor the billions of people connected through personal computers, mobile devices, and the Web,protecting the integrity of the worlds technology infrastructure, and the intellectual propertythat fuels it, will become increasingly critical.

To fully realize the benets from innovation and a system of IP incentives, our partnerships and

collaborations must grow and strengthen to meet new challenges. We will need continuedimprovements in our investigative and analytical tools and skills, more robust and effectiveinternational cooperation and coordination in investigations and prosecutions, more effectiveIP laws and enforcement rules, and increased commitments by governments around the worldto programs that protect IP. Only then will we be able to succeed against the multi-billion-dollar global threat of counterfeiting and piracy and fully realize the economic growth andsocial opportunities that a healthy, legitimate technology ecosystem can help create.
http://www.microsoft.com/publicpolicyhttp://www.microsoft.com/publicpolicy


11/12


12/12


.m.m/p
http://[email protected]/http://[email protected]/

addressing global software piracy

Documents