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302 SOFTWAREPIRACYthat uses some other product. In this context, piracy can
be viewed as a form of price discrimination (the prac-
tice of charging different prices to different customers) in
which the software is effectively sold at zero price to some
customers. The resulting increase in the size of the user
community enhances the value of the software, leading
to increased sales and possibly also allowing the vendor
to charge higher prices for it to those customers that pay.
A key element of this effect is the existence of two dis-
tinct populations of users. Home users generally place less
value on software than businesses do and are less likely to
be willing pay for it. Businesses value the software more,
and are also likely to pay for it for the sake of reliability
and support. Businesses and other organizations are also
more easily targeted by antipiracy campaigns. Hence the
software companies may find it in their best interest to
turn a blind eye to home-use softlifting, knowing that it
is helping them to build market share that pays dividends
in the more lucrative business market.
For small firms attempting to enter the software mar-
ket, it is unlikely that the positive network effects of piracy
will be sufficiently strong to compensate for the revenue
losses. This is especially the case for non-U.S. software
producers. They have an inherent advantage in their home
countries for producing certain types of applications such
as manufacturing, banking, and financial software, areas
that are the most dependent on local laws and business
practices. But this advantage is defeated if they are forced
to compete against extremely low-cost pirated copies of
software produced in the U.S. (PricewaterhouseCoopers,
1999).MECHANISMS FOR PROTECTION
OF SOFTWARE
Introduction
Softlifting has been going on ever since there was anything
to softlift. The very first consumer application produced
by Microsoft was a Basic language interpreter for the Al-
tair microcomputer that appeared in 1975. A paper tape
containing a demo version of the interpreter was stolen
and soon the demo was circulating widely among the Al-
tair user community. Subsequent software products have
fared no better. Industry efforts at education and persua-
sion have met with only limited success. Therefore the
industry soon turned to legal and technical measures to
protect its interests.Legal Protection Mechanisms
Goals of Legal Protection Mechanisms
The laws protecting intellectual property rights generally
have as their primary goal the fostering of a healthy cre-
ative industry for the benefit of society as a whole. For
instance, Article I, Section 8 of the United States Consti-
tution states, “The Congress shall have Power to... pro-
mote the Progress of Science and useful Arts, by securing
for limited Times to Authors and Inventors the exclusive
Right to their respective Writings and Discoveries.” The
notion expressed in this phrase is that individuals will be
encouraged to create new inventions, writings, and other
creative works if they are assured of reasonable remu-neration for their efforts. Therefore the creator of a work
must be granted a temporary monopoly on the produc-
tion and sale of the work. Patent and copyright legislation
is carefully crafted to limit the property owner’s control
of the creation, because a healthy creative industry also
depends critically on the interchange of new ideas. The
monopoly protection is made contingent on the publica-
tion of the idea or its expression, so that others can build
on the idea in further creative works. Thus the goal of in-
tellectual property protection laws is not the enrichment
of the owners of the property. This is a means, not an end.
The end is the provision to society of an abundant sup-
ply of high-quality inventions, writings, music, and other
creative works.
Some have argued that existing legal conceptions of
intellectual property are not adequate for dealing with
software (Davis, Samuelson, Kapor, & Reichman, 1996).
Copyright laws have traditionally been applied only to
writings and other forms of expression, whereas patents
were applied only to discoveries and useful inventions.
But software is precisely a useful object that happens to
be expressed as a writing. Notwithstanding these objec-
tions, the existing legal framework has been adapted to
deal with software by a process of relatively narrowly
focused changes to existing legislation accompanied by
court decisions to establish precedents, just as happened
with earlier technological innovations such as audio and
video recorders.
Still, it should be kept in mind that this legal framework
is only one of a number of possible solutions to the prob-
lem of ensuring for society an abundant supply of creative
works. It is a solution that is situated within the Western
tradition of protection for intellectual property. Other so-
lutions, such as state support for software producers, or
a system of shared royalty payments funded by hardware
or media sales, can be imagined. The “open source” soft-
ware movement promotes an alternative mode of software
production in which widely dispersed programmers con-
tribute to development of an application. However, to date
none of these alternatives has found a viable mechanism
for funding the work at the levels that would be required
to support the current software establishment.
In what follows, the discussion will be mainly in terms
of the U.S. legal situation. This is reasonable because most
software is produced in the U.S. Also, various interna-
tional treaties have established a legal climate that is sub-
stantially the same in most countries. These treaties in-
clude the Berne Convention for the Protection of Literary
and Artistic Works, the Universal Copyright Convention,
and the General Agreement on Tariffs and Trade (GATT)
accord on Trade-Related Aspects of Intellectual Property
Rights (TRIPs).Software Copyright
Because a program must be copied from a distribution
medium to a computer’s hard drive in order to be installed,
and copied again from the hard drive to the working mem-
ory (RAM) in order to run, copyright in principle gives
the software maker complete control over the use of its
product. On this view, the customer does not purchase
the software, but only pays for a license to use it, under
whatever terms the maker chooses to dictate. In practice,