Dividing the Digital Plunder (Tech Trends Feature)

The clash of IP laws, pirated software, and protection technologies force us to reexamine our attitudes.

Microsoft, Adobe, and Autodesk — every vendor in the high-tech sector feels the weight of this burgeoning industry. Operating within a loose network with little or no structure, this relatively young market thrives on a supply chain that stretches across China, India, Russia, Latin America, and the Middle East. Its distribution channels include legitimate outfits such as eBay, dubious corners of the open-air bazaars in Bangkok and Mumbai, and anything in between.

The legitimate software market in the developed world is much greater than the pirated software market in the same region. The ratio is the reverse in emerging countries. However, because the software market in the developed world is eight times that of the emerging countries, the losses from piracy in the developed world still ranks higher than those from the emerging countries. (Graph created based on data from the Fourth Annual BSA and IDC Global Software Piracy Study)

According to the most recent study by the Business Software Alliance (BSA) and the International Data Group (IDG), pirated software accounts for 35% of what's installed on personal computers. The estimated value of the software pirated in 2006 is $40 billion. That's the equivalent of three times the money spent on product lifecycle management (PLM) during the same period, reported as $13.2 billion by CIMdata.

In the ambiguous intersection where intellectual property (IP) laws, consumer rights, and anti-piracy technology collide, we must wrestle with our ethics and principles. And depending on our personal stance toward IP, we may be part of the problem — or the solution.

Hackers Call for Tech Support

Roughly five years ago, when Michael Dager was the CEO of a software company, the company sold approximately $900,000 worth of software to a customer.

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"Very soon, we started getting support calls for the software from all around the world, from 15 different locations in Korea alone," he recalled. "Our maintenance people couldn't find their licenses on our records. The only location where this software should be in deployment was at a specific project in Seoul."

What he eventually figured out was that the buyer had been using "$11 million worth of licenses." What stewed him more than anything was that the perpetrator was not a cash-strapped small business. It was "a $30 billion company," he said.

From Russia with Love

Payback came when Dager took the helm of Arxan, an anti-piracy vendor, which describes its products as "software hardening solutions." Simply put, they make the pirates' job harder. One of Arxan's customers is an oil-field modeling software vendor. With their sales to a Russian oil company, they became the pirates' targets.

"With every new release they shipped, within 48 hours, they began to see hundreds of illegal copies appear at the client's site," Dager said. License control tools didn't help; the hackers always managed to find ways to circumvent them. Eventually, the vendor signed on with Arxan and closed up the loopholes.

"In March of this year, they shipped their latest release," said Dager. "They anxiously waited to see if illegal copies would crop up. They waited 48 hours, then a week, then a month . . . two months later, still no piracy."

Meanwhile, the Arxan sales team was getting random calls from Russia requesting copies of the anti-piracy software. Dager believes those calls came from people attempting to reverse-engineer his client's software. To do that, they must first deconstruct Arxan's protection layers. Hence, the frantic calls.

"They wanted to buy [our software] sight unseen, no matter the cost," Dager said. "They asked us to route it to them electronically." Dager passed on the suspicious transactions.

When the rate of piracy is ranked by region, Central/Eastern Europe, Latin America, and Middle East/Africa rank higher than Asia Pacific, considered by many to be the hotbed of software piracy. (Graph created based on data from the Fourth Annual BSA and IDC Global Software Piracy Study)

To Defend, Detect, and React

The cornerstone of Arxan's GuardIT product is the company's patented technology, which uses small security units that "not only defend against compromise but actively detect attempted attacks and react in fully customizable ways," Arxan states.

"One of the guard types we have is called traitor tracing guards," explained Dager. "They can obtain the identity of the perpetrator by capturing his/her IP address, serial number of the PC, and other information." Arxan uses approximately 13,000 guards along with binary-code obfuscation to protect its clients' products.

SolidWorks versus Verma

Earlier this year, the Indian authorities organized a conference to provide updates — the state of India, as it were — to scores of business leaders with investments in their country's economy. SolidWorks' CEO Jeff Ray was in the audience. Amidst the chorus of presentations, one speaker declared piracy was under control and IP was protected there.

"I just couldn't let that one go," Ray said, "so I raised my hand, introduced myself, and told the story [of the theft of SolidWorks' source code]."

In 2002, Shekhar Verma, a programmer, was arrested in India for selling the stolen source code of SolidWorks to an undercover FBI agent. The entire transaction, captured on video, seemed like sufficient evidence for a watertight case. Yet, Verma walks the streets of Delhi a free man even today, continuing to earn a living as a programmer (for more, see "What Happens in Delhi, Stays in Delhi," Cadalyst, September 2006).

Ray reminded the officials at the briefing that Verma's case had yet to come to trial. As Ray recalled, the speaker grew uneasy. The only response he could muster was, "The court moves slowly in India."

Vernor versus Autodesk

Whereas the Verma incident might strike many of us as a clear case of IP theft, another incident, now moving through the U.S. court system, is not so straightforward. When Timothy Vernor, a used comics collector, tried to sell a used copy of AutoCAD Release 14 on eBay, he found his eBay account suspended for a month. He believed Autodesk's actions had prompted eBay's response. So he filed a complaint with the U.S. District Court. He's now represented by Public Citizen, a nonprofit organization founded by Ralph Nader.

The complaint reads, "Defendant Autodesk . . . wrongly represented to eBay that Vernor's sale of an authentic, used copy of Autodesk's software infringed Autodesk's copyright. Autodesk's misrepresentation caused eBay to suspend Vernor's eBay account, causing him to lose his primary source of income for a month . . ." (For the full text, visit www.citizen.org.)

In a letter to Vernor, Autodesk's attorney Andrew Mackay argued, "Autodesk software is licensed, not sold . . . The limiting terms of the license . . . provides that Autodesk software licenses are 'nontransferable' . . . Thus, your attempted sale of Autodesk software violates the agreement."

Initially, Vernor sought to collect $7,000 in compensatory damages, $350 for filing fees, and $10 million in punitive damage. In the amended complaint submitted through Public Citizen, he seeks relief in the form of actual damages and punitive damages, treble damages, attorney fees and expenses, a declaratory judgment that his resale of AutoCAD is lawful, an injunction prohibiting Autodesk from further interfering with his resale, and more.

Community Reaction

When the story appeared on Techdirt (www.techdirt.com), it prompted a wide range of reactions. "Autodesk is the most pirated software, and that makes [the company] a bit overprotective," commented someone. Another wondered, "How is it that [Autodesk] can just sell you a license? If you buy the product in the store, retail box, how can that be just a license?" Someone else suggested, "Maybe the software should be required to print the license on the outside of the box . . ." As of December 13, the site logged 72 comments about the story.

Though a rival of Autodesk, SolidWorks finds itself on the same side in its stance against software resale. "When you buy a software, you get a license," SolidWorks' Ray remarked. "You get the right to use it, but you don't actually own the code, like you would a car."

William Patry, Google's senior copyright counsel and former counsel to the U.S. House of Representatives, observed in his blog, "If . . . the substance of the transaction is a sale, calling it a license shouldn't change matters and copyright owners should be left to pursue contract remedies. If the substance is a license as that term is used in other fields of law, then there is no first sale." (Vernor believes he can legally transfer the used software under the first-sale doctrine.)

When a confused reader requested clarification, Patry responded, "If a court construes the transaction as a sale, and therefore finds for defendant under the first-sale doctrine, the copyright owner would still have a contract action against whoever sold the copy to defendant." (To be honest, the legalese still eludes me, so I'm not sure if an average CAD user will find this helpful.)

On an Optimistic Note

SolidWorks' Ray is aware of the existence of anti-piracy software solutions, but he's somewhat skeptical of their value. "Besides, we don't want to make [the license control mechanism] so draconian that it impedes the legitimate users and their collaboration," he said.

He has no plan to launch a navy after the pirates. He prefers to rely on his customers' conscience instead. "I'd like to believe in the goodness of human nature," he said. "I believe, when people see a wrong, they'll report it." That puts the burden on us.