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Essay/Term paper: Computer software piracy and it's impact on the international economy

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Computer Software Piracy and it's Impact on the International Economy

The PC industry is over twenty years old. In those twenty years,
evolving software technology brings us faster, more sophisticated, versatile and
easy-to-use products. Business software allows companies to save time, effort
and money. Educational computer programs teach basic skills and complicated
subjects. Home software now includes a wide variety of programs that enhance the
users productivity and creativity. The industry is thriving and users stand to
benefit along with the publishers. The SPA (Software Publishers Association)
reports that the problem of software theft has grown, and threatens to prevent
the development of new software products. Unauthorized duplication of software
is known as software piracy which is a "Federal offense that affects everyone"
("Software Use..." Internet). The following research examines software piracy
in its various forms, its impact on the end user and the international industry
as a whole, and the progress that has been made in alleviating the problem.
Software piracy harms all software companies and ultimately, the end
user. Piracy results in higher prices for honest users, reduced levels of
support and delays in funding and development of new products, causing the
overall breadth and quality of software to suffer" ("What is..." Internet). Even
the users of unlawful copies suffer from their own illegal actions: they receive
no documentation, no customer support and no information about product updates
("Software Use..." Internet).
The White Paper says that while virtually every software publisher
expresses concern about their software from unauthorized duplication, over time,
many have simply accepted the so-called "fact" that such duplication is
unavoidable. This has created an atmosphere in which software piracy is commonly
accepted as "just another cost of doing business" ("With the Growth..."
In a brochure published by the SPA it is stated that a major problem
arises from the fact that most people do not even know they are breaking the law.
"Because the software industry is relatively new, and because copying software
is so easy, many people are either unaware of the laws governing software use or
choose to ignore them" ("To Copy or not to Copy" Internet).
Robert Perry states that much of the problem of software theft arises
from the way the software industry developed. In the past, when a software firm
spent millions of dollars to write a program for a mainframe computer, it knew
it would sell a handful of copies. It licensed each copy to protect its
ownership rights and control the use of each copy. That is easy to do with only
a few copies of a program. It is impossible for a software company to handle
five million copies of there latest program (27).
Software piracy is defined as any violations of software license
agreements. In 1964, the United States Copyright Office began to register
software as a form of literary expression. The Copyright Act, title 17 of the
U.S. Code, was amended in 1980 to explicitly include computer programs. Today,
according to the Copyright Act, it is illegal to make or distribute copyrighted
material without authorization, the only exceptions are the user's right to
make as an "essential step" in using the program (for example, by copying the
program into RAM or on the hard drive) and to make a single backup copy for
"archival purposes." No other copies may be made without specific authorization
from the copyright owner (title 17 section 117).
A SPA press release shows that in December 1990, the U.S. Congress
approved the Software Rental Amendments Act, which generally prohibits the
rental, leasing or lending of software with out the express written permission
of the copyright holder ("Retailers Agree..." Internet). "It doesn't mater
whether the transaction is called "rental, "buy-back,' "try before you buy,'
preview,' "evaluation' or any similar term. If the software dealer does not have
written permission from the copyright holders to rent software, it is illegal to
do so." said Sandra Sellers, SPA vice president of intellectual property
education and enforcement ("SPA sues..." Internet.")
NERDC information services researched that the copyright holder may
grant additional rights at the time the personal computer software is acquired.
For example, many applications are sold in LAN (local area network) versions
that allow a software package to be placed on a LAN for access by multiple users.
Additionally, permission is given under special license agreement to make
multiple copies for use throughout a large organization. However unless these
rights are specifically granted, U.S. law prohibits a user from making duplicate
copies of software except to ensure one working copy and one archival copy
(NERDC Internet).
Without authorization from the copyright owner, title 18 of U.S. Code
prohibits duplicating software for profit, making multiple copies for use by
different users within an organization, downloading multiple copies from a
network, or giving an unauthorized copy to another individual. All are illegal
and a federal crime. Penalties include fines up to $250, 000 and jail terms up
to five years (Title 18, Section 2320 and 2322).
Microsoft states that illegal copying of personal computer software is a
crucial dilemma both in the United States and over seas. Piracy is widely
practiced and widely tolerated, in some countries, legal protection for software
is non existent; in others laws are unclear, or not enforced with sufficient
commitment. Significant piracy losses are suffered in virtually ever region of
the world. In Some cases, like Indonesia, the rate of unauthorized copies is
believed to be in excess of ninety-nine percent ("What is..." Internet).
Copyright laws vary widely from country to country, as do interpretations of the
laws and the degree to which they are enforced. The concept of protecting the
intellectual property incorporated in software is not universally recognized.
Asia is one of the most technologically advanced regions of the world.
As the software market continues to grow and flourish so does the black market
of software piracy ("The Impact..." Internet). The worst countries in this area
are China and Russia. Named "one copy countries" two years in a row (1995 and
1996) by the SPA, studies show that ninety-five to ninety-eight percent,
virtually every copy, of U.S. business software is illegally pirated, which
costs U.S. software companies an estimated five-hundred million dollars a year
("SPA names..." Internet and "U.S., China..." D1 - 2). In Russia the latest
statistics from the SPA show that ninety-five percent of business software is
illegally copied, that cost the U.S. $117 million in 1994 ("SPA names..."
Although Asia has extremely high piracy rates, SPA Executive Director
Ken Wasch comments "China, Russia, and Thailand (the three countries in Asia
with the highest piracy rates) deserve credit for enacting copyright laws that
specifically protect computer programs and other software..." Russia and China
enacted copyright protection statutes several years ago, and Thailand enacted
its law late in 1994 ("SPA names..." Internet).
Asian countries have also taken action against offenders of copyright
laws. The SPA reports that "on Wednesday, May 22, 1996, Hong Kong Customs
officers arrested two suspected software pirate vendors and seized 20 CD-ROMs,
each containing software with an estimated total retail value of US$20,000 along
with the equipment capable of reproducing the pirate CDs" ("Hong Kong..."
Internet). A Software Publishers Association press release shows more examples
of Asia's fight against software piracy when Singapore police raided vans
carrying 5,800 CD-ROMs containing $700,000 U.S. dollars worth of pirated
software on March 25, 1996 ("SPA, Singapore..." Internet). The Bloomberg forum
reports that on August 7, 1995 China anti-piracy forces invaded stores in the
southwestern city of Chengdu and arrested 37 people. The Business Software
Alliance's "vice president Stephanie Mitchell said while that was the largest
number of people so far arrested in a single raid on software retailers, China
must dish out harder punishments to discourage pirates after their caught"
("China takes..." Internet).
A result of China's lack of strictness, the SPA called upon the USTR
(U.S. Trade Representative) "...to take action against China under Section 306
of the Trade Act of 1974 for failing to improve enforcement of intellectual
property right in computer software." Also Russia and Korea were placed on the
Special 301 Priority Watch List by the USTR so that the SPA is able to review
their intellectual property laws and enforcement ("China and Russia..."
Internet). "The United States and China signed a major accord in March of 1996
mandating tough enforcement against intellectual property piracy in China..."
(Parker np).
The BSA's European anti-piracy program is comprised of over 20
countries through out the region and was initiated in 1989 "...with the filing
of the software industry's first enforcement action for the illegal use of
software in Italy". Piracy continues to be a significant problem in spite of the
enactment of stronger copyright laws and successful prosecutions against
software theft. "The average piracy rates of 25 European countries was estimated
at 58 percent in 1994, with dollar losses exceeding $6 billion" ("The Impact..."
Microsoft's studies show that many European countries including some
which offer computer software protection, have "unreasonably burdensome"
administrative rules. Poland and the United Kingdom have displayed difficulty in
collecting evidence and Greece is blamed for "fragmentation of court process."
Most European countries do not have sufficient penalties and inadequate civil
enforcement possibilities to discourage piracy, especially Germany, Poland,
Sweden and the UK. "Several countries, for example, Belarus and Romania, have
general copyright laws that protect literary expression, but fail to clearly
protect computer software" ("What is.." Internet). Ireland is Europe's worst
offender with yearly losses of more then forty-four million dollars per year due
to the fact that eighty-three percent of software is pirated ("Software Piracy:
Ireland..." Internet).
The BSA "called for legislative reform and stricter observance of laws"
after reviewing a study examining Europe's software piracy rates. The BSA argues
that "experience has shown that improved legal protection for software copyright,
and better policing by private companies and governments, can lead to a
significant reduction in the number of illegal copies being made" ("Software
Piracy: Ireland..." Internet).
Latin America is the second fastest growing market for package software
("The Impact..." Internet). SPA president Ken Wasch said, "The encouraging first
quarters sales data (1995) confirms Brazil's status as a major market for U.S.
software publishers. With a rapidly growing and increasing sophisticated economy.
The potential for U.S. software companies in Brazil is enormous" ("Latin
America..." Internet). Gowning along with the increase of sales and production
is the threat of software theft "with the average piracy rate in 16 countries
estimated at seventy-eight percent in 1994" ("The Impact..." Internet).
The effect of international piracy organizations is a major problem that
everyone is aware of. Another element which is beginging to make its presence
known is the small-time software pirates that distribute software on BBSs
(Bulletin Board Systems) or over the Internet. As with most topics dealing with
the extremely new Internet underground and Internet crimes, it is very difficult
to obtain information on these subjects. In order to acquire information about
these underground Internet crimes, which are important to fully understand the
concept of software piracy, most of the subject matter is supplied by my own
personal observations and investigations.
Most small-time software piracy centers around bulletin board systems
that specialize in "warez" (common underground term for pirated software). On
these systems, pirates can contribute and share copies of commercial software.
Having access to these systems (usually obtained by contributing copyrighted
programs via telephone modem or money donations) allows the pirate to copy, or
"download," copyrighted software. All the participants benefit because
individuals must "upload" (copy files from their system to the BBS) copyrighted
programs in order to download. This way new programs are appearing continuously.
My observation reveals how pirates have found ways to become more
efficient by creating mutual participation "pirate groups" (as referred to by
the computer underground). These groups are composed of ten to seventy members
contributing in different ways. The members usually are anywhere from thirteen
to thirty years of age. Some pirate groups are international, with members
operating from different regions of the world. Their primary purpose is to
obtain the latest software, remove any copy-protection from it and then
distribute it to the pirate community. The methods the pirates use to obtain the
software is only known by the members of the pirate groups themselves. Some
speculate that the members either "hack" (break into a computer via modem from
one's own system) into computers of software companies and steal the software or
"pay off" employees of software companies. The software they receive is almost
always less then one day old and is often referred to as a "zero day ware."
"The Internet is an incredible international electronic information
system providing millions with access to education, entertainment. and business
resources, as well as promoting new forms of personal communication, including
e-mail and on-line chatting" (Larson Internet). This also creates ideal piracy
breeding grounds. Software pirates utilize the services of the Internet to
"trade" copyrighted "warez." In 1994 the Washington Post reported about an
individual who had set up a computer bulletin board system connected to the
Internet, that allowed over one million dollars worth of software to be copied.
People using the Internet computer network were able to retrieve commercial
software from this BBS for free. The sysop (system operator or person operating
the BBS) was charged with fraud and copyright infringement but never convicted
because of "murky" laws (Daly, D1).
IRC (Internet relay chat) is an Internet service that enables people all
over the world to communicate with each other by means of "switching" channels
and typing messages on the screen. IRC also allows individual to "post" files in
selected channels most of which are copyrighted software available for trade. If
someone sees a particular program they want, all they have to do is "tag" the
file for download and it is copied onto their local hard drive.
With the exception of the real-time "chatting" capabilities of IRC, most
of the functions of USENET are the same. USENET is a message network available
on the Internet where users post public messages, on almost any topic imaginable,
in hopes of getting an answer. Like IRC users can attach files to the messages,
some of which are copyrighted programs. Through my own analysis I have found
that software pirates have found USENET and IRC to be extremely efficient ways
to provide and trade copyrighted software, which is beginning to make BBS use
On-line services such as America Online, Prodigy, and CompuServe combine
the ease of use of BBSs and the capabilities of the Internet. Most on-line
services provide e-mail, virtual chat rooms, file areas and even access to the
Internet. Software pirate groups are found utilizing these on-line services to
trade copyrighted software and with over 1.25 million other users on-line, they
can go about unnoticed. David Pogue, a writer for MacWorld says that members of
these pirate groups sign on by using fake credit card numbers and phony personal
information. While on-line, the pirates trade copyrighted software or "warez" by
e-mailing them to each other and using chat rooms to receive new programs
(Pogue 37).
Most anti-piracy organizations have taken little, if any, action against
this new wave of software piracy. The Software industry looses millions if not
billions of dollars to small-time software pirates. On the pirates' side is the
safety of private bulletin boards, unclear laws, the vast size of on-line
services and the fact that IRC and USENET are completely lawless. There are no
laws, no restrictions and no one to stop the software pirates from committing
their crimes. This permits pirates to go virtually undetected and free from
punishment. In a article on computer crime in Newsweek a spokes woman for the
on-line service Prodigy speaks about the Internet: "Its the Wild West. No one
owns it. It has no rules" (Meyer 36-38).
Microsoft says major software developers recognize that piracy is a
problem. They have begun taking steps to alleviate the problem. The software
industry realizes that the problem of software piracy cannot be solved by one
company alone. Computer companies have "made a commitment to address the problem
together." Software publishers are taking an active role in directly addressing
software piracy by monitoring markets, conducting investigations, and pursuing
litigation on their own as well as through the Business Software Alliance (BSA)
and the Software Publishers Association (SPA) ("What is..." Internet).
The White Paper lists "a number of potential solutions to software
piracy that software publishers have used over time." Package warning and
license labeling makes users aware of the consequences of illegal use of the
software but usually are ignored by the user. High profile "piracy busts" and
legal action against organized counterfeiters by anti-piracy organizations such
as the SPA and BSA are "essentially sending a message to pirates that there are
real risks associated with illegally coping software." Site Licensing is a
"popular" and "cost-effective" way of selling software to large organizations
who need more then one copy of the software. Forced registration and support
contracts only effect novice computer users because experts don't necessarily
need technical support or manuals ("With the Growth..." Internet).
Software piracy is a worldwide problem; one that is making an impact on
the international economy and currently costing the software publishing industry
more than fifteen billion dollars per year in lost revenues. With the growing
interest in the distribution of software over the Internet and on-line services,
the potential for these losses to increase is very real. Software publishers
have used a number of alternative methods to protect their intellectual property,
but have generally achieved marginal success in reducing losses to piracy.

Works Cited

"China and Russia Again Named 'One Copy Countries' by the SPA in special 301
Report." Software Publishers Association. Press Release. Washington D.C.
20 Feb 1996. URL: http://www.spa.org/gvmt/spa301.htm.

"China Takes Software Piracy Clampdown Inland." Bloomberg Forum. 1995.
News and Observer. URL: http://www.nando.net/new...fo/080785/info518_5.html.

Daly, Christopher B. "Judge Dismisses Fraud Charges Against Student in Software
Case." Washington Post. 30 Dec 1994: D1. NewsBank CD-ROM 1995. "Hong
Kong Software Pirates Arrested Due to SPA Investigation." Software Publishers
Association. Press Release. Washington D.C. 4 June 1996. URL:
http://www.spa.org/piracy/releases/hongk.htm. Larson, Megan J.
"Copyright in Cyberspace." ts. U of Oregon, 1995. URL:
http://gladstone.uoregon.edu/%7Emega/Copy.html. "Latin America Software
Sales Reach $48.2 Million in First Quarter 1995." Software
Publishers Association. Press Release. Washington D.C. 13 Feb 1995. URL:
http://www.spa.org/research/95q1lati.htm. Meyer, Michael. "Stop!
Cyberthief!" Newsweek. 6 Feb 1995: 36-38. SIRS Researcher
CD-ROM, 1995. Art 103. Parker, Jerry. "China Tackles Software Piracy at
State Agencies." Reuters: 14 April 1995: np.NewsBank CD-ROM 1995. Perry,
Robert L. Computer Crime. New York: Franklin Watts, 1986. "Retailers Agree Not
to Rent Computer Software Without Permission From Publishers."
Software Publishers Association. Press Release. Washington D.C. 7 Feb, 1996.
URL: http://www.spa.org/piracy/releases/swrental.htm. "Software Piracy -
It's not Worth the Risk." NERDC Information Service. URL:
"Software Piracy: Ireland is Europe's Worst Offender." IBCE News. URL:
Software Publishers Association. Software Use and the Law. Washington D.C.:
SPA 1995. URL:http://www.spa.org/piracy/sftuse.htm.
Software Publishers Association. To Copy or Not to Copy. Washington D.C.:
SPA 1996. URL: http://www.spa.org/piracy/okay.htm.
"SPA Names Russia, China 'One Copy Countries.'" Software Publishers
Association. Press Release. Washington D.C. 13 Feb 1995. URL:
"SPA, Singapore Police, and AACT Raid Vans Carrying Pirated Software."
Software PublishersAssociation. Press Release. Washington D.C. 4
June 1996. URL: http://www.spa.org/piracy/releases/singapor.htm.
"SPA Sues Six U.S. Software Rental Companies." Software Publishers
Association. Press Release. Washington D.C. 28 Feb 1996. URL:
"The Impact of Software Piracy on the International Market Place." URL:
United States. U.S. Code: Copyright Acts. Title 17, Sec 17. United States.
U.S. Code: Copyright Acts. Title 18, Sec 2320 and 2322.
"U.S., China Avert Trade War." Sun-Sentinel 18 June 1996: 1D - 2.
"With the Growth of Worldwide Software Piracy and the Emergence of On-Line
Software Distribution, Protecting Intellectual Property is now More
Critical than Ever." The White Pages. URL:
"What is Software Piracy?" Microsoft Anti-Piracy Home Page. 1995. URL:


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