Small business in cross hairs of industry's fight against piracy

WASHINGTON -- Michael Gaertner worried he could lose his company. A group called the Business Software Alliance was claiming his 10-person architectural firm was using unlicensed software.

The alliance demanded $67,000 -- most of one year's profit -- or else it would seek more in court.

An analysis by The Associated Press reveals that targeting small businesses is lucrative for the Business Software Alliance (BSA), the main copyright-enforcement watchdog for such companies as Microsoft Corp., Adobe Systems Inc. and Symantec Corp.

Of the $13 million the BSA reaped in software violation settlements with North American companies last year, almost 90 percent came from small businesses, the AP found.

The BSA is well within its rights to wring expensive punishments aimed at stopping the willful software copying that undoubtedly happens in many businesses. And its leaders say they concentrate on small businesses because that's where illegitimate use of software is rampant.

But software experts say the picture has more shades of gray. Companies of all sizes inadvertently break licensing rules because of problems the software industry itself has created. Unable or unwilling to create technological blocks against copying, the industry has saddled its customers with complex licensing agreements that are hard to master.

In that view, the BSA amasses most of its bounties from small businesses because they have fewer technological, organizational and legal resources to avoid a run-in.

In Gaertner's case, employees had been unable to open files with the firm's drafting software, so they worked around it by installing programs they found on their own, breaking company rules, he said. And receipts for legitimate software had been lost in the hubbub of running his company.

"It was basically just a lack of knowledge and sloppy record-keeping on my part," said Gaertner, who got a settlement that cost him $40,000.

In the U.S., the largest software market, piracy rates have not budged since 2004. BSA critics say that is because making examples out of small businesses has little deterrent effect because many company owners don't realize they're violating copyrights.

Yet the BSA is getting more aggressive. Its CEO says software licenses are not as difficult as critics contend. It has dropped an amnesty campaign. And this year it began dangling $1 million rewards to disgruntled employees who anonymously report their bosses for using unlicensed software.

Much of the BSA's fight against counterfeit software and illegal copying happens overseas. The BSA pushes governments to crack down, arguing that greater respect for intellectual property would stimulate investment in their economies. The BSA says the worldwide percentage of illegitimately obtained software has dropped to 35 percent, from 43 percent in 1996. However, the BSA says piracy still takes a $40 billion bite out of a $246 billion industry annually.

In the U.S., the piracy rate is a worldwide-low 21 percent, according to the BSA. It works with law enforcement and Web sites like eBay to stop suspiciously cheap software sales online.

Far more contentious, however, is its focus on forms of what it calls piracy by business users. The money harvested in these crackdowns stays with the alliance to fuel its operations.

Many BSA audits originate when a whistleblower reports a company is brazenly copying one program onto multiple PCs. In extreme cases, the BSA will get court approval to raid companies in search of evidence.

But there are ways to get in trouble that do not begin with intentional cheating. Companies often simply fail to follow the letter of the licensing agreements that accompany software programs. The problem is big enough that there are companies that help other businesses manage their software.

For example, if a computer gets handed down from one person in an organization to another, software on the machine needs to be deleted unless the company has multiple licenses for it. But many companies forget or don't realize that, especially if the recipient of the machine would never need to use the previous owner's software.

The situation is further complicated because software licenses vary greatly. Some programs can be shared on multiple computers, or used by the same person on a home and office computer.

Multiply such oversights by dozens of software programs, and suddenly a BSA audit can lead to a charge of big-time piracy.

These cases get costly because the BSA considers software pirated if a company can't produce a receipt for it, no matter how old it is. Then the BSA generally demands at least twice the retail price of software deemed out of compliance. Plus it charges the "unbundled" prices of software that generally comes together at a discount, like Microsoft Office.

Robert Holleyman, the BSA's CEO, countered many companies figure out how to get their software in order.

"I don't agree with the assumption that license management is necessarily a complex task," he said.

The BSA does have some software-management tools and advice on the Web. And it recently joined with the Small Business Administration to develop educational materials about software compliance.