Organized Crime and the Software Biz

Do you know the damage to your brand?
Software piracy is not the penny-ante nuisance that it used to be.
Perhaps you've heard how the use of illegally duplicated (or bootlegged) software is on the decline at corporations. But did you know a bigger problem is creeping into the business? Organized crime outfits increasingly are responsible for the manufacture and distribution of counterfeit software, say sources inside federal enforcement agencies and from the software industry. "We've known for some time that organized crime is involved," says Peter Beruk, vice president of the anti-piracy program for the Washington, D.C.-based Software and Information Industry Association.
Counterfeit software, unlike bootleg copies, is manufactured to look like--and often is presented as--genuine product. What's worse, crime organizations are not simply selling their bogus wares on the black market. They're getting counterfeit software into the hands of resellers, who then sell the pirated goods to hapless consumers, Beruk says. Such sophisticated crime outfits, not surprisingly, are difficult to catch. At the same time, the enormous number of sometimes-unwitting software resellers, combined with the proliferation of online auctions, makes it difficult, if not impossible, to keep counterfeit copies out of the hands of unlucky customers.
The problem is truly enormous. In some countries, such as China, Vietnam, Russia and Indonesia, nearly 100 percent of business software is pirated, either counterfeited or bootlegged. But it's not just a third-world problem; one of every four installed business applications in the United States is pirated. Software piracy now accounts for an estimated $11 billion loss per year to worldwide software revenues, according to the SIIA.
The financial cost of lost sales, however, is only the tip of the iceberg. "Software piracy doesn't just threaten revenues," says a spokesman from Lotus Development, Cambridge, Mass. "But it can create significant image problems for the company whose software is being copied."
Unscrupulous dealers have fooled many users into thinking their software is the bona fide item. When counterfeited or bootlegged applications fail or infect their systems, however, users blame software vendors, more so than dealers. "There's a definite danger that the company's reputation might be damaged if a pirated copy is faulty," says Philip Costa, director at Giga Information Systems, Cambridge, Mass.
In the past, most of the worry about software piracy focused on corporate bootlegging. That type of piracy, however, appears on the decline, says SIIA's Beruk. "We are seeing some limited decrease of corporate misuse worldwide," he says, noting how falling prices make software more affordable.
Another reason behind the decline