Economic Consequences of Software Crime


In 1996 worldwide illegal copying of domestic and international software cost
$15.2 billion to the software industry, with a loss of $5.1 billion in the
North America alone. Some sources put the total up-to-date losses, due to
software crime, as high as $4.7 trillion. On the next page is a regional
breakdown of software piracy losses for 1994. Estimates show that over 40
percent of North American software company revenues are generated overseas,
yet nearly 85 percent of the software industry’s piracy losses occurred outside
of North America. The Software Publishers Association (SPA) indicated that
approximately 35 percent of the business software in the North America was
obtained illegally. In fact, 30 percent of the piracy occurs in corporate
settings. In a corporate setting or business, every computer must have its
own set of original software and the appropriate number of manuals. It is
illegal for a corporation or business to purchase a single set of original s!

oftware and then load that software onto more than one computer, or lend, copy
or distribute software for any reason without the prior written consent of the
software manufacturer. Many software managers are concerned with the legal
compliance, along with asset management and costs to their organizations. Many
firms involve their legal departments and human resources in regards to
software distribution and licensing.

Information can qualify to be property in two ways; patent law and copyright
laws which are creations of federal statutes, which are subject to
Constitutional authority. In order for the government to prosecute the
unauthorized copying of computerized information as theft, it must first rely
on other theories of information-as-property. Trade secret laws are created by
provincial law, and most jurisdictions have laws that criminalize the
violations of a trade-secret holder’s rights. The definition of a trade secret
varies somewhat from province to province, but commonly have the same elements.
For example, the information must be secret, not of public knowledge or of
general knowledge in the trade or business. A court will allow a trade secret
to be used by someone who discovered or developed the trade secret
independently if the holder takes adequate precautions to protect the secret.

In 1964, the National Copyright Office began to register software as a form of
literary expression. The office based its decision on White-Smith Music Co.
v. Apollo, where the Supreme Court determined that a piano roll used in a
player piano did not infringe upon copyrighted music because the roll was part
of a mechanical device. Since a computer program is textual, like a book, yet
also mechanical, like the piano roll in White-Smith, the Copyright Office
granted copyright protection under the rule of doubt.

In 1974, the government created the Natural Commission on New Technological
Uses (CONTU) to investigate whether the evolving computer technology field
outpaced the existing copyright laws and also to determine the extent of
copyright protection for computer programs. CONTU concluded that while
copyright protection should extend beyond the literal source code of a computer
program, evolving case law should determine the extent of protection. The
commission also felt copyright was the best alternative among existing
intellectual property protective mechanisms. CONTU rejected trade secret and
patents as viable protective mechanisms. The CONTU report resulted in the 1980
Computer Software Act, and the report acts as informal legislative history to
aid the courts in interpreting the Act.

In 1980, the Copyright Act was amended to explicitly include computer
programs. It now states that it is illegal to make or to distribute copies of
copyrighted material without authorization, except for the user’s right to
make a single backup copy for archival purposes. Any written material
(including computer programs) fixed in a tangible form (written somewhere –
i.e. printout) is considered copyrighted without any additional action on the
part of the author. Therefore, it is not necessary that a copy of the software
program be deposited with the National Copyright Office for the program to be
protected as copyrighted. With that in mind a copyright is a property right
only. In order to prevent anyone from selling your software programs, you must
ask a (federal) court to stop that person by an injunction and to give you
damages for the injury they have done to you by selling the program.

The Software Rental Amendments Act was approved in 1990. This Act prohibits
the commercial rental, leasing or lending of software without the express
written permission of the copyright holder. Another amendment to the
Copyright Act was passed in 1992. This amendment made software piracy a
federal offense, and instituted criminal penalties for copyright infringement
of software. The penalties can include imprisonment of up