Numbers Game

 
 
By Ericka Chickowski  |  Posted 2008-01-25
 
 
 

In many IT organizations, the Business Software Alliance’s three-letter acronym is akin to a four-letter word.

Known best as the software licensing watchdog for 30 major technology vendors including Microsoft, Adobe, Autodesk and Apple, the BSA collects millions of dollars in damages each year from errant businesses who fail to use properly licensed software or document that their software is legit.

2008 marks the group’s 20th anniversary. But after two decades, questions remain: Is the BSA really having an impact on software piracy? Do they often punish businesses that may be trying to play by the rules? And, are software vendors themselves contributing to the piracy morass with complex, convoluted licensing terms?

*Check out 12 companies that were fined in 2007 by the BSA. 

Operating out of three offices worldwide, Washington, D.C., London and Singapore, the BSA has garnered some praise from analysts and experts for its efforts to stem piracy around the world, but many businesspeople say that it comes at too high a cost. Critics slam the group for its aggressive pursuit of well-meaning organizations, particularly small and unsophisticated businesses with few resources to track software assets or seek legal counsel.

A recent Associated Press story highlighted the fact that 90 percent of the $13 million collected by the BSA in 2006 came from small businesses. Its policy makers use the funds it squeezes from businesses to bankroll its lobbying efforts to promote a host of legislation and regulations that favor its members’ business interests, leading some to question motives for enforcement.

“We're not just an antipiracy group by any stretch of the imagination,” said Jenny Blank, director of enforcement for the BSA. “We focus very much on intellectual properties and how that affects the public and our members. It is not just about piracy, it’s about improving the environment of the entire marketplace.”

The BSA’s pockets are deep and its lobbying tentacles run long. Since 1993 the group has collected an estimated $89 million in damages from businesses on behalf of its members, every penny of which it keeps. This sweetens a budget that is already bolstered by undisclosed membership fees, which are based on the member’s installed software base. BSA leaders are frequently granted face time in front of Congress and have helped influence laws that shape our technology landscape, including legislation on copyright, patents and worker immigration.

“It is a tricky tap dance, there's no doubt about it,” said Laura DiDio, a senior analyst at research firm Yankee Group. “On the one hand the BSA has to posture and they have to be big and bad and they have to walk the walk and talk the talk during enforcement. On the other hand, in some respects it works against them because they have been accused of being a bully, really rattling the saber and coming after people using fear and intimidation.”

*Check out Baseline's in-depth reporting and advice on the Business Software Alliance:

12 Companies Caught Stealing by the BSA

8 Ways to Avoid a BSA Audit

What to Do When You Receive a BSA Audit Letter 

 

Antipiracy and Antagonism
According to Blank, the BSA typically has around 500 piracy cases going at any given moment. The group does not disclose the number of cases it brings to settlement, nor the total amount in damages it has collected overall. However, it frequently publicizes its enforcement actions. Piecing together numerous press releases archived on the BSA web site and on the Wayback Machine, Baseline arrived at its estimate of $89 million.

Though the settlement money never reaches BSA members’ coffers to offset the losses from piracy, the reason the fines are so stiff is deterrence, Blank says. Those press releases are sent off with reports of new settlements to scare businesses straight and encourage them to get their house in order before the BSA comes around.

“We would really love it if the phones stopped ringing, if no one was pirating, so we wouldn't get any leads anymore,” Blank said. But many businesspeople who are coerced into a BSA audit and subsequent settlement negotiations claim that this organization’s tactics are more aggressive than they need to be.

“Obviously there is a punitive component to it,” said one technology start-up owner, who chose to remain anonymous in light of his pending negotiation with the BSA, “but it really feels like a shakedown to me and I can't imagine that it has much of an impact on the piracy issue, especially when they go after companies that want to do the right thing.”

*Check out 12 companies that were fined in 2007 by the BSA.

According to this man’s attorney, Rob Scott of Scott & Scott in Houston, many businesses stung by the BSA are not guilty of what the typical person would traditionally think of as piracy. As an attorney who specializes in BSA defense cases, Scott has seen many businesses that were simply disorganized with their asset management or were operating software honestly but lacked the high standard evidence required by the BSA to prove it. Most times these businesses are reported to the BSA through a program the organization set up to reward whistleblowers for providing information about businesses whose licensing is out of compliance.

“We have many clients who have told us they had no idea that this was going on, and several who have said that the very person they believe is responsible for making the tip was the person they had charged with managing the issue,” Scott said.

In the anonymous tech company’s case, the owner said that his company’s software non-compliance was borne out of the tech bubble bust following 9/11. The company missed out on a round of $7 million in funding when venture capital dried up and it found itself having a difficult time making payroll, let alone paying for software. It took a couple of years to get back on its feet, but when the business did so it began working on going legit with its software.

“We hired a guy to go through and audit and get us legal, but he didn't work out,” the business owner said. “So we fired him and that’s when he went and ratted us out.”

The BSA is demanding upwards of $300,000 in this case, a figure not uncommon in these settlement negotiations. According to Steve Helland, a partner at the Minneapolis-based law firm of Fredrikson and Byron who specializes in software licensing. “On the one hand, I represent creators and sellers of software and I know that unauthorized copying of software is a significant problem. To the extent that the BSA is helping software vendors get paid fairly for their software sales and do enforcement against companies that intentionally steal their software, I applaud their efforts,” he said.

“On the other hand, I think that the BSA takes an overly aggressive approach toward the unintentional infringers and the poorly documented legitimate purchasers. It is easy for a well-meaning business to inadvertently install a few extra copies of software and to threaten those companies with over a $100,000 in damages for a software program that has as shelf price of a couple hundred dollars is, to me, fear mongering,” said Helland.

Indeed, analysts agree that many of the BSA’s membership have licensing schemes that make it really difficult for businesses to understand well enough to comply. Take Microsoft, for instance.

“Microsoft will tell you that they've made it simpler,” said Paul DeGroot of Directions on Microsoft about Microsoft licensing agreements. “All that they've done is that they've made the documentation that you sign to buy your software simpler. They've actually made the licensing rules far more complex, even in the last twelve months.”

This is the beef that Sterling Ball, owner of the renowned music instrument manufacturer Ernie Ball, had with his well-publicized scuffle with the BSA and Microsoft back in 2000. Ball has been a strident critic of the BSA ever since its agents stormed his office in an unannounced raid. He is one of the few businesspeople willing to speak out publicly against the organization after a settlement.

“My problem was that I think that they engineered the stuff in such a way that it was very hard to stay in compliance and I feel like a phone call could have gotten them everything they wanted,” he said. “Instead it was a media event in my expense that in the end was just there to sell more software. I think they've bloodied a lot of businesses and some of these probably deserve it for blatant piracy. But in our case we were only out of compliance by 8 percent.”

In the BSA’s defense, Blank explains that unlicensed use of software is piracy any way that you slice it, causing damage whether the offending organization means harm or not. “I don't understand this idea of 'real true piracy,'” she said. “Unlicensed use of software is piracy and selling unlicensed software is piracy, and they all cause damage. When you talk about financial harm, the use of software that is unlicensed through the company is an enormous damage to the industry.”

*Check out Baseline's in-depth reporting and advice on the Business Software Alliance:

12 Companies Caught Stealing by the BSA

8 Ways to Avoid a BSA Audit

What to Do When You Receive a BSA Audit Letter 

Numbers Game
The BSA has tried to quantify this damage with a yearly global piracy study conducted by the analyst firm IDC since 2004, but that too has come under criticism. According to the most recent study, the BSA claims that the software industry loses $40 billion each year due to piracy. But critics say that the number is exaggerated because it counts each instance of piracy as a loss of a retail-priced license. Many industry analysts say that not every pirate would buy a legitimate copy if forced to give up their pirated copy.

“I agree with them that having consistent methodology from year to year may provide us with some visibility into some of the trends that are happening,” said DeGroot with Directions on Microsoft. “I really don't agree very much with the BSA’s numbers on how much the software industry is losing.”

When pressed by the New York Times in 2004, even the analyst from IDC who wrote the study admitted that the loss figures were likely 10 times higher than they actually were.

*Check out 12 companies that were fined in 2007 by the BSA.

The other interesting aspect to the numbers crunched by IDC is the fact that they both help and hurt the BSA’s agenda. The large figures of piracy and estimated industry losses act as a platform for the groups lobbying efforts, but they also call into question the group’s claims of enforcement efficacy. When the group started the study in 2004, it found the global piracy rate to be 36 percent and the United States rate was 21 percent. The latest report indicated that the global rate dropped by one percentage point, and that the United States piracy rate remained the same.

Big Time Influencers
In spite of the questions surrounding BSA’s industry loss estimates, they have done enough to turn heads in Washington. So have the $11.8 million spent on lobbying since 1998, or so says OpenSecrets.org, which tracks lobbyist spending habits. Some of the policies that the BSA has supported in the past include the passage of Digital Millennium Copyright Act and a passel of other attempts to strengthen copyright protections, laws to increase the number of H-1B visas granted for worker immigration, and proposed legislation to crack down on peer-to-peer networks used to infringe on copyrights.

The BSA couldn’t make a policy expert available for an interview, but its public affairs officer, Diane Smiroldo, did chime in with a statement on what this money has been spent on over the years.

“There have been countless BSA policy successes since our inception 20 years ago, including stronger laws for protecting intellectual property, trade agreements with leading US trading partners, relaxed encryption regulations in the US, and defeating many efforts to weaken copyright laws,”Smiroldo wrote in an email.“Currently, BSA’s priority policy initiative in the US is patent reform legislation which has passed the US House of Representatives and is currently pending in the US Senate.”

While the BSA’s push for legislation certainly helps its membership, some question the effect on the greater good when it comes to technology innovation.

“What they advocate is typically for two basic things: one, that the industry should self-regulate and, two, to maintain a lack of transparency in the underlying architecture of how applications are developed,” said Lillie Coney, associate director of the Electronic Privacy Information Center (EPIC). She believes that both agendas could be detrimental to privacy rights of consumers and of the ability for business customers of BSA-backed companies to secure their IT environments.

*Check out 12 companies that were fined in 2007 by the BSA.

Some also believe that in many ways Microsoft is using the BSA as a front to establish even more clout among lawmakers. “It is ironic that while the government was trying to break up Microsoft, Congress was giving them all of these statutory rights through the BSA because they convinced them that the biggest threat to American economy is piracy,” Ball said. “They convinced them that America was in grave danger if people used unlicensed software.”

BSA doesn’t just set out to influence American politics, either. The group is also active in European Union politics and it has tried to ingratiate itself within governments ruling over developing nations most responsible for worldwide piracy, such as China. In the EU, BSA is a well-known player in the political scene, so much so that it has been accused of cozying up too close to lawmakers.

In 2002 scandal broke out when it was found that a European Commission proposal on software patents was actually written by a BSA official, as discovered by whistleblowers who found evidence in the Microsoft. Perhaps the most visible recent effort abroad is its collaboration with the government in Qatar. BSA officials took their message out to the Qatar Ministry of Economy & Commerce in December in a forum designed to guide that Middle Eastern country’s 2008 plan to crack down on pirated software.

*Check out Baseline's in-depth reporting and advice on the Business Software Alliance:

12 Companies Caught Stealing by the BSA

8 Ways to Avoid a BSA Audit

What to Do When You Receive a BSA Audit Letter 

Maintaining Relevance
According to Blank with the BSA, these lobbying efforts are what keep the BSA relevant in today’s changing digital world.

“Like the industry itself, the BSA has sort of morphed over time from a very small organization with a narrow focus on copyright to a much larger organization dealing with a very different software industry,” Blank said. “Our ability to change and meet those challenges keeps us relevant.”

It is hard to gauge BSA member satisfaction with this evolution considering many of the members don’t go public with their feelings either way. Baseline contacted a number of BSA members for this story, only to be rebuffed or redirected to contact the BSA directly. Microsoft claimed that it does not grant interviews regarding the BSA, but it did relay its opinions on the group in an emailed statement. “We support the Business Software Alliance’s ongoing efforts to raise awareness about the economic impact of global software piracy.” said Cori Hartje, director of the genuine software initiative for Microsoft. “Microsoft is also continuing to invest heavily in engineering world-class anti-counterfeiting technologies to protect our intellectual property, and to supporting government and law enforcement on enforcement actions against counterfeiters.”

One thing is clear, as long as Microsoft and other members continue to pay dues and allow the BSA to collect and keep settlement money, the group will remain a strong force in worldwide politics and for those upon whom it focuses its enforcement efforts. Some experts believe the BSA role will continue to be necessary for a long time, in spite of advancements in antipiracy technology.

“I'd make the argument that even though Microsoft and others built its technical measures into its software, you still need the BSA to provide human intelligence into the process,” said DeGroot.

Yankee Group’s DiDio agrees, noting that the piracy battle will likely go on forever. “This is an educated guess, but I think that without the BSA today you might see losses that were 20 to 30 percent greater than they are now,” said DiDio. “(But) you are never going to be able to stamp out piracy altogether.”

Plus, the BSA serves a very real role as a buffer between customers and member companies, allowing members to play the good guy to the BSA’s bad guy shtick. “The member companies have done a smart thing by creating the BSA, because it serves as a buffer in most cases,” Helland said. “My clients that feel improperly targeted usually view the BSA as separate and apart from the member entities. It is effective in that purpose.”

But those like Ball from Ernie Ball say that they aren’t fooled by that buffer and wonder if the BSA’s actions will hurt its members in the long run.

“I don't know of a business where you can get away with raiding a customer with armed marshals and expect them to continue to do business with you, maybe that’s just where I come from,” said Ball, who shifted his company to open source software after the raid. “They should learn from the RIAA (Recording Industry Association of America). You know, the RIAA went to Congress, they went to court, they sued grandmothers, because their model is threatened. But they are losing ground. In my opinion you have to change with the model, you can't legislate and litigate to protect your model.”

*Check out Baseline's in-depth reporting and advice on the Business Software Alliance:

12 Companies Caught Stealing by the BSA

8 Ways to Avoid a BSA Audit

What to Do When You Receive a BSA Audit Letter