Software Licensing And Piracy Essay

In 1993 worldwide illegal copying of domestic and
international software cost $12.5 billion to the software industry,
with a loss of $2.2 billion in the United States alone. Estimates show
that over 40 percent of U.S. software company revenues are generated
overseas, yet nearly 85 percent of the software industry’s piracy
losses occurred outside of the United States borders. The Software
Publishers Association indicated that approximately 35 percent of the
business software in the United States was obtained illegally, which
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 software
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 at 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, pursuant
to Constitutional grant of legislative 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 state law,
and most jurisdictions have laws that criminalize the violations of a
trade-secret holder’s rights in the secret. The definition of a trade
secret varies somewhat from state to state, but commonly have the same
elements. For example, AThe information must be secret, Anot 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 or if the holder does not
take adequate precautions to protect the secret.
In 1964 the United States 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, Congress 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, and 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

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In 1980 The Copyright Act was amended to explicitly include
computer programs. Title 17 to the United States Code 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 Copyright Office in
Washington, D.C. for the program to be protected as copyrighted.
With that in mind then a copyright is a property right only. In order
to prevent anyone from selling your software programs, you must ask a
court (federal) 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 Public Law 101-650) was
approved by Congress in 1990, this Act prohibits the commercial
rental, leasing or lending of software without the express written
permission of the copyright holder. An amendment to Title 18 to the
United States Code was passed by Congress in 1992. This amendment.
Known as Public Law 102-561 made software piracy a federal offense,
and instituted criminal penalties for copyright infringement of
software. The penalties can include imprisonment of up to five years,
fines up to $250,000 or both for unauthorized reproduction or
distribution of 10 or more copies of software with a total retail
value exceeding $2,500 or more.
Under United States law duplicating software for profit,
making multiple copies for use by different users within an
organization, and giving an unauthorized copy to someone else – is
prohibited. Under this law if anyone is caught with the pirated
software, an individual or the individual’s company can be tried under
both civil and criminal law. A Civil action may be established for
injunction, actual damages (which includes the infringer=s profits) or
statutory damages up to $100,000 per infringement. The criminal
penalties for copyright infringement can result in fines up to
$250,000 and a jail term up to five years for the first offense and
ten years for a second offense or both. When software is counterfeit
or copied, the software developer loses their revenue and the whole
software industry feels the effect of piracy. All software developers
spend a lot of time and money in developing software for public use. A
portion of every dollar spent in purchasing original software is
funneled back into research and development of new software. Software
piracy can be found in three forms: software counterfeiting, which is
the illegal duplication and sale of copyrighted software in a form
that is designed to make it appear to be a legitimate program; Hard
disk loading, whereby computer dealers load unauthorized copies of
software onto the hard disks of personal computers, which acts as an
incentive for the end user to buy the hardware from that particular
dealer; and downloading of copyrighted software to users connected by
modem to electronic bulletin boards and/or the Internet. When software
is pirated the consumer pays for that cost by new software and/or
upgrade version being very expensive. Federal appellate courts in the
U.S. have determined that operating systems, object code and software
cotained in ROMs are protected by copyright, and some lower federal
courts have also determined that microcode (the instructions set on
microprocessor chips), and the look and feel of computer screens is
subject to copyright protection. Which leads to the problems of the
widespread development of multimedia applications that has brought out
major problems in clearing copyright for small elements of text,
images, video and sound.

The United States Government has been an active participant in
protecting the rights of the software industry. When the Business
Software Alliance (BSA) conducts a raid, Federal Marshals or local law
enforcement officials participate also. An organization known as the
Software Publishers Association (SPA) is the principal trade
association of the PC software industry. SPA works closely with the
FBI and has also an written enforcement manual for the FBI to help
them investigate pirate bulletin board systems and organizations
(audits). With the help of the FBI, the result of enforcement actions
resulted in recoveries from anti-piracy actions totaling $16 million
since the program started in 1990.

The Software Publishers Association (SPA) funds a educational
program to inform individuals and corporations about software use and
the law. This program provides all PC users with the tools needed to
comply with copyright law and become software legal. The SPA also
publishes brochures free of charge about the legal use of software for
individuals and businesses. Also available to help corporations
understand the copyright law is a 12-minute videotape, which is
composed of the most commonly asked questions and answers to them. The
video tape is available in French and Spanish and all together over
35,000 copies of the tape had been sold. SPA has also compiled a free
Self-Audit Kit with which organizations can examine their software use
practices. Included in the kit, is a software inventory management
program designed to help an organization track their commercial
software programs that are on all hard disks. The program searches PC
hard disks for more than 1300 of the most common programs used in

Also available is the SPA Software Management Guide which
helps companies audit their current software policies, educate
employees about the legal use of software, and establish procedures to
purchase, register, upgrade and backup computing systems. The guide in
addition also provides an Internal Controls Analysis and
Questionnaire. The guide also contains all of the SPA’s current
anti-piracy materials. The U.S. software industry is facing the
challenges of more sophisticated network environments, greater
competition among software companies along with hardware
manufacturers. At this moment more software than ever before is
distributed on a high volume, mass marketed basis. There are many
types of software out on the market and increasing every day. They
range from graphical user interfaces for application programs such as
mass-market spreadsheets, to more sophisticated technical software
used to design integrated circuits. The use of software plays a more
vital role daily in our lives such as embedded software, which is
critical to equipment in locations as a doctor=s office or an
automotive shop. The instrument and devices found there depend more
and more on software, because software provides the flexibility to
meet the many different needs to the end user. As our lives our shaped
and enhanced more by technology, there is already a greater demand
that impacts the software industry.

One of the main concerns of the software industry is how to
deal with the issues of Asoftware licensing. More and more customers
want customized software suited for their business or personal need,
and expect the software development firms to accommodate to their
wishes. The other side of this issue is that software development
firms are concerned with unrealized revenue and excess costs in the
form of software piracy, unauthorized use, excess discounts and
lengthened sales cycles. For the customer and the software development
firm, both have high administrative costs in regards to software
programs. Software licensing policies were originally a result of
software developers’ need to protect their revenue base in the face of
potential piracy. Product delivery for software is made up of a number
of different components, which are referred to as ‘software
licensing’. The following factors are taken into consideration when
determining a cost for a ‘software license’; physical delivery
pricing, metric discounts, license periods support and maintenance,
license management Tech support, change in use bug fixes and Platform
Migration Product enhancements. The most commonly found type of
software license found in business is known as a, ‘Network license’.
There are four types of categories that are classified as a network

Concurrent use licenses authorized a specified number of users
to access and execute licensed software at any time. Site licenses
authorize use at a single site, but are slowly being phased out and
replaced by enterprise licenses. Enterprise licenses cover all sites
within a corporation because of more virtual computing environments.
Node licenses are also slowly being phased out because they are mainly
used in a client/server environment, since the licensed software may
be used only on a specified workstation in which a user must log on to
in order to access and execute the software application. Currently the
trend in a network system is to use measurement software, which allows
vendors to be more flexible in licensing arrangements. This management
software monitors and restricts the number of users or clients who may
access and execute the application software at any one time. This is
significant because a user pays only for needed use and a vendor can
monitor such use to protect intellectual property. A new type of
license that is emerging is known as a, ‘currency-based license’. This
type of license work on the basis that it provides to the end user a
specified dollar amount of software licenses. For example, licenses
for different business application software, so long as the total
value in use at a given time is less than dollars. Another type of
license emerging is known as a ‘platform-independent’ licensing, which
one license permits software to be used on a variety of different
computer systems within a business, instead of buying a different
license for each version of the same software used by different
systems. The most common type of licensing is known as ‘Shrink-wrap’,
the concept behind this that the licenses terms are deemed accepted
once the end user breaks a shrink-wrap seal or opens a sealed envelope
containing the software. A reason for these new types of licensing
emerging is that when software licensing was first introduced, the
software development firms assumed that most businesses would use the
software for a 8 to 10 hour period. Yet, did not take into
consideration that with the advancement of technology, more businesses
would want a ‘floating license’ across the world for 24 hours – thus
it was not cost effective for the software development firm. A
floating license is a license that is made available to anyone on a
network. The licenses are not ‘locked’ to particular workstations,
instead they Afloat to modes on the network.

Shareware, freeware and public domain are different type of
software available to the end user, and are distinguished by different
rules about how programs may be distributed, copied, used and
modified. The term ‘shareware’ refers to software that is distributed
at a low cost, but which requires usually a payment after a certain
time period and registration for full use. Copies of this software are
offered on a trial basis, the end user is free to try a scaled down
version of the program. If the end user wants the shareware program,
included in the program is information specifying how to register the
program and what fee is required. Once registered the end user will
typically receive a printed manual, an updated copy of the software
(often with additional features), and the legal right to use the
program in their home or business. The advantage that shareware has is
that it lets the end user thoroughly test a program to see if it=s
useful before making a purchase. The authors of shareware programs
retain their copyright on the contents, and as other copyrighted
software should not be pirated.

Freeware is also distributed at a very low cost and like
shareware is found mainly on the Internet. The authors of the freeware
program do not expect payment for their software. Typically, freeware
programs are small utilities or incomplete programs that are released
by authors for the potential benefit to others, but the drawback to
this is that there is no technical support. Public domain software is
generally found on the Internet and is released without any condition
upon its use. It may be copied, modified and distributed as the end
user wishes to do. A license manager is a system utility-like
application that controls or monitors the use of another end-user
application. It is generally implemented to protect intellectual
property (meaning to stop illegal copying) and/or to become more
competitive by offering new ways in which to evaluate, purchase and
pay for software. Since the license manager controls the number of
application users, there is not a need to control the number of
application copies. This process lets the end user run one or
more applications between machines, without violating the terms of the
license agreement.
SPA has created a program that companies can use to help
discover and correct problems before they result in legal actions,
fines and also negative publicity. The eight point program is as
1. Appoint a software manager to implement and monitor all aspects of
company software policy.

2. Implement a software codes of ethics for everyone to adhere to. The
ethics should state that copyrighted software, except for backup and
archival purposes, is a violation of the law.

3. Establish a procedure for acquiring and registering software.
Determine your companies software needs, evaluate software packages,
and also have supervisors approve the plans. Keep the lines of
communication open.

4. Establish and maintain a software log. The log should state the
date of when the software was acquired, the registration of it, serial
number, network version, location of where the software is in use,
where the original is, licensing agreement and the location of the
original disks.
5. Conduct periodic audits or on a as needed basis comparing the
software log and/or other purchase records.

6. Establish a program to educate and train your employees about every
aspect of software and its uses.

7. Maintain a library of software licenses and provide users with
copies of the agreement.

8. Having done the above seven points, the company can benefit by
having obtained software legally, receive full documentation,
technical support when needed and also upgrade notices.

Patents do not cover specific systems, instead they cover
particular techniques that can be used to build systems or particular
features that systems can offer. Patent grants the inventor a 17 year
monopoly on its use. Once a technique or feature is patented, it may
not be used in a system without the permission of the patent-holder –
even if it is implemented in a different way. Since a computer program
usually uses several techniques and provides many features, it can
infringe many patents at once. A computer program is built out of
ideal mathematical objects whose behavior is defined, not modeled
approximately, by abstract rules. An example of this is Borland
International, Inc. complained in the 1st Federal District Court gave
Lotus Development Corp. the benefit of patent protection to Lotus
1-2-3 menu commands and their order, but failed to require Lotus to
meet the requirements of patent law, including novelty, examination
and contribution to the prior art. The Supreme Court sided with the
1st Circuit decision that one entity cannot own the user interface to
programs. Meaning such as file formats, menu structures and
programming languages.

Software license agreements emerged as the most popular means
of protection of proprietary rights in computer software. They coexist
with other forms of intellectual property rights as patent and
copyright. Software license agreements serve several functions in
transactions involving the transfer of computer technology. One of the
most important legal functions is the protection of the proprietary
rights of the licenser in the transferred software. Other functions
include controlling the revenue generated by licensed software and
determining the rights and responsibilities of the parties regarding
the performance of the licensed technology. Issue related to these
functions include the applicability of Article 2 of the Uniform
Commercial Code, including offer and disclaimer of warranties,
determining the appropriate types of licenses to utilize, such as
single users/CPU licenses, Site/enterprise licenses and
network/concurrent licenses. Trade secret, copyright and patent law
are [emailprotected] forms of protection in the sense that they may exist
independently of any underlying business transactions and do not
necessarily require any transfer of intellectual property from one
party to another.
Whereas, the need for a license agreement usually arises as
one of the contractual forms of protection when the underlying
business transaction involves the transfer of intellectual property,
such as computer software. Transactions involving the transfer
of computer software are subject to both federal and state laws.
Generally, state law governs contractual and trade secrets aspects of
the transaction, while federal law governs aspects related to patent,
copyright and antitrust issues. Each state has its own version of a
doctrine of a trade secret, the common thread through these
state-specific laws is that if you show that you are seriously
treated information as confidential and that the confidential
information helped your competitive position, you can stop others from
using it if the information was improperly acquired by them, and even
collect damages from the wrongdoers.

A computer is useless without software. The two types of
software typically found on a computer are operating systems software
and application software. Operating system software ‘provides
interface’ that makes it easier to develop programs for the system by
reducing the amount of code that must be written. The operating system
acts as an interface between the computer hardware, application
programs and the end user. Application software consists of one or
more computer program that fulfill a specific function for the user
like word processing, bookkeeping or financial analysis. Two legal
cases recently within the last few years has brought to light the
controversy regarding the copyright protection of software elements.
Until 1992, most of the federal courts followed the decision in
Whenlan v Jaslow Dental Laboratory as a precedent of similar cases.
Whenlan, a small software company wrote a accounting program for
Jaslow Dental Laboratory company. Jaslow rewrote the software to run
on personal computers and proceeded to sell the product. The software
was identical to Whenlans in the data structures, logic, and the
program structure, except for the source code. Jaslow argued that the
duplicated elements were part by the of the idea – not the expression.
The court in response felt that the data structures, logic, and the
program structure comprised to make a single function of a computer
program, therefore copyright protection should be given to those
elements also.
In 1992, this protection was weakened by Computer Associates
v. Altai, Inc. , when Altai a software developer was accused of
copying various modules of a software package developed by Computer
Associates which controlled the running of applications on IBM
mainframes. The court rejected Whelan=s premise that a computer
program embodies one function because programs are made up of
sub-routines that contain their own idea. The court recognized this
would narrow the scope of software copyright protection and found this
in accordance with Congressional intent of computer programs with
copyright. This resulted in why currently software copyright is not as
broad as it once was.

Brandel, William, “Licensing stymies users,”
URL:””, Viman
Software, Inc., 1994.
Business Software Alliance, “Software Piracy and the Law,”
URL:””, Business Software
Alliance, 1995.
Software Publishers Association, “SPA Anti-Piracy Backgrounder,”
URL:””, Software Publishers
Association, 1995.


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