Are Your Computer Applications Licensed and Legit?

vince dicecco

Vince is a dynamic and sought-after seminar speaker and author with a unique perspective on business development and management subjects, primarily in the decorated- and promotional-apparel industries. With 20+ years of experience in sales, marketing and training, he is an independent consultant to various decoration businesses looking to profit and sharpen their competitive edge. Visit his website or send an email to Vince@ypbt.com.

Many of us cannot remember what life was like before computers—either because we weren’t yet born or we are so old our memories have failed us. Computer applications—such as Microsoft Office suite (Word, Excel, PowerPoint et al) and Adobe Illustrator—have certainly made our work better, easier and faster to produce.

Ah, but have you ever heard of the Business Software Alliance (bsa.com)? It is a digital-industry trade group whose members include computer and software giants the likes of Microsoft, Adobe, Macromedia, Symantec, McAfee, Apple, Dell, Hewlett-Packard and IBM. The organization was formed in 1988 by its member companies and is “dedicated to promoting a safe and legal digital world.” How is it trying to do that? By targeting small businesses that are—either knowingly or unintentionally—using and copying unlicensed programs on its company computers.

One would think the software developers would go after the devious hoodlums that are selling and distributing illegal copies of their products. But, actually, it’s a smart—and lucrative—strategy for the BSA to concentrate its efforts where the illegitimate use of software is rampant. Of the $13 million that the BSA collected for software-violation settlements with North American companies in 2006, almost 90 percent came from small businesses.

Care to find out how to get your decorated-apparel business in compliance or calculate what is at stake if your company receives an investigation letter from the BSA? I thought you might. Let’s cast off. . . .

Software piracy defined and measured

Remember back to the last time you bought any piece of computer software. If you are like most of us, you could hardly wait to get back from the store or open the package to load it up on your computer and start “playing with your new toy.” Pop in the disk and the AutoPlay typically launches. Soon, you will be asked to agree to the terms and conditions of the software license. You know what it looks like. It’s that little window with a right handed scroll bar that contains all of the lawyerly gobbledygook that you should read but never do. Just click “I agree” and get on with it, right?

Well, if you were to take the time to read and understand it, you’d probably find out onto how many computers you can legitimately load the program and what documentation you must retain to prove you legally have the right to use it. Minor stuff like that.

Why, if you buy one copy of an application, would the software developer care if you loaded it on all the computers in your shop? Because doing so represents lost revenue for them . . . to the tune of $40 billion out of a $246 billion industry in 2006. It is estimated that the worldwide piracy rate is 35 percent. In fact, the United States has the best record of honoring software copyright with only 21 percent of all computer programs being unlicensed. China has a long-time reputation of runaway software piracy—82 percent of the software in that country was not legitimately purchase in 2006—which is better than the whopping 96 percent of a decade ago. Much of that progress is directly attributed to the efforts of the BSA.

A final interesting—and little known—point about what constitutes software piracy. Computers often get handed down from employees who perform very sophisticated work—like graphic design—to colleagues with lesser needs. Commonly, a graphic design artist can transfer a copy of her computer applications to a newer, faster machine, but many times forgets or doesn’t realize that the software must be removed from the old computer if the company has only one license for it—even if the receptionist who inherits the old PC never uses the designing software. Please bear this in mind.

What’s at risk?

Already in 2008, the BSA has collected sizable claim settlements from companies that didn’t want to incur legal fees and penalties from a court battle they would almost certainly lose. Three N.Y.-based businesses paid $269,000 in damages to settle claims that they had unlicensed software installed on office computers. Three financial-services companies in Illinois and Missouri paid over $420,000 for damages in an out-of-court settlement because they had more copies of Adobe and Microsoft software on their computers than they had licenses. It is important to note that the BSA has no independent law-enforcement authority of any kind.

“The software vendors have every right to collect the license fees they’re entitled to,” says Tom Adolph, an attorney with Jackson Walker LLP, who defends clients against BSA claims. “It’s the tactics of the BSA that rankle me.” The BSA’s modus operandi is to send a threatening letter indicating that an investigation has commenced, then offers to forego litigation if the target company provides a self-audit. That audit consists of a listing of all BSA-member software running on company computers and networks, and appropriate documentation of ownership—including copies of media, manuals and dated proof of purchase—for each title.

Where did the BSA catch wind of an impropriety on the user’s part? It offers rewards of up to $1 million for qualifying reports received via its hotline or online reporting form. The BSA markets to disgruntled employees and vendors to encourage them to “rat out” businesses under the promise of confidentiality and without any accountability for false reporting. Of course, reward payments are subject to eligibility requirements but, if someone thinks you’ve treated them badly and just wants to “get even,” the hassle may be reward enough.

The BSA has developed a standard formula for assessing fines as part of its settlement process. Let’s say a single Microsoft Office suite bundle sells for $339. It contains, among other titles MS Word, Excel, Outlook and PowerPoint. If a business is found in violation of the MS Office license agreement, the proposed fine is double to triple that of the cost of software product. But, that’s not the entire story. BSA considers the “unbundled” retail price of each application. So, as the components of one copy of MS Office now retail separately for $1,126, the fine could be up to $3,378 for each license violation. To add insult to injury, the BSA tacks on an additional $3,500 to pay for its attorney’s fees. The BSA accurately points out that, under copyright laws, it could collect up to $150,000 per infringed work, if it won its lawsuit; up to $30,000 if the incident is deemed unintentional. Often, such a fine can exceed the violator’s profit for a year.

Oh, sure, the BSA is working with law-enforcement and websites such as eBay to stop suspiciously cheap software sales online; but, by far, the chief source of BSA’s revenue is money harvested in small-business crackdowns. In 2006, BSA’s worldwide settlements were $56 million—up 53 percent from the prior year. Its members, whose copyrights were infringed, do not even see most of that money. Most of the funds stay with the BSA to fuel its operation.

What can I do?

If your business has unfortunately been served with a letter from the BSA, ignoring it is an option—albeit not a very wise one. Attempting to ignore the problem by not responding will likely make your problems worse, forcing the BSA to institute litigation against you and your company.

Going out and buying enough licenses to cover the software titles you have on your computers, after receipt of a BSA letter, is not a viable alternative either. The BSA will not give you credit for any purchases made after the date of the audit letter based on the spoliation (withholding, hiding, destruction) of evidence in the event of litigation.

But, for your own peace of mind about whether your business is in compliance or not, here are some simple things you can do:

Locate and safeguard the original boxes, disks, manuals and purchase receipts for every software title on every company computer. By far, the most important piece of evidence you’ll need is the paid receipt. Original media and certificates of authenticity alone are no help since the BSA will assume the software could have been obtained from an illegitimate source. If you come across software titles that you cannot account for or no longer use, remove the programs and their components using your computer’s control panel. This is particularly true if you acquired a used computer that already had the software installed on it.

Establishing a basic software-asset-management (SAM) program that includes a software audit can ultimately protect your organization from the risks associated with using pirated software, penalties and ethics problems, while maintaining accuracy and security. Believe it or not, the BSA itself offers software-audit tools to businesses trying to determine whether their organizations are using unlicensed software. You can download these tools at bsaaudit.com.

Conduct a self-audit using your internal staff, an outside IT vendor, or the services of an experienced law firm such as Jackson Walker LLP (jw.com) or Scott & Scott LLP (bsadefense.com). A big difference between an attorney-conducted audit and the other audits is the fact that you are fully protected by the attorney-client privilege and the audit results cannot be used against you or your company in court.

Good luck!