Behind the problem of piracy in the Australian channel

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This article appeared in the June 2015 issue of CRN magazine.

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Behind the problem of piracy in the Australian channel
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It was a day like any other for ‘Frank’*, owner of an IT business that employed a dozen people, when he got a phone call set to cost him thousands of dollars.

Frank had fired two employees, Brad* and Janet*, who had an office romance over which the three of them fell out (*not their real names). The caller was a lawyer for a business software enforcer with knowledge of illicit applications allegedly installed throughout Frank’s firm.

“Before they left, the pair went through the office and installed software that wasn’t licensed [then] they dobbed the company in,” says intellectual property lawyer Kay Lam-MacLeod. The business software agency said “pay up or we’ll sue”.

“The business said, ‘We didn’t install or authorise it’, ” she says. Frank’s arguments fell on deaf ears as the claim rose from $5,000 to $20,000, says Lam-MacLeod, founder of IdeaLaw, a legal consultancy that specialises in such cases and advising resellers on software licence compliance. “They said, we don’t care. You should have regularly audited your machines to ensure there was nothing unauthorised on those machines. Now pay up or we’ll sue.” 

Frank paid.

Lam-MacLeod says the copyright enforcer rewarded the couple with a bounty. She’s critical of the “standover merchant” tactics used in such cases. “You can’t defend yourself because you don’t have the resources and you’re over a barrel. What can you do?”

It shows how even SMBs must have proactive software compliance. Had these policies been in place, Frank could have batted back piracy allegations. 

Another reseller that Lam-MacLeod has represented also fell foul of Microsoft licensing and, despite trying to get a clear answer, was referred to the software maker’s lawyers. 

“It happened over a couple of years where they were trying to get their Microsoft rep to confirm they were doing the right thing, only to get a letter eventually from a Microsoft lawyer who was not involved in the licensing process and was just a litigator saying, ‘OK, pay up’.

“It didn’t seem Microsoft were making much effort… to communicate with the reseller or no one wants to put their arse on the line. Even though these clients were spending hundreds of thousands of dollars with Microsoft, they got the angry letter saying you owe us millions of dollars for the wrong type of licensing.”
Lam-MacLeod says the average reseller or punter is at a great disadvantage: “It took us a while to unravel it all and we’re the lawyers”. 

“Sometimes the software companies are their own worst enemies by making their licensing so difficult to comply with.”

After initially agreeing to participate in this article, Microsoft representatives declined repeated invitations to comment.

SaaS to the rescue? 

Lam-MacLeod says software-as-a-service (SaaS) introduced sanity into software licensing terms that are now easier to understand than many traditional licences. 

But these now present difficulties for SaaS vendors, says Tom Canning, Asia-Pacific vice president of software asset management system Flexera. 

“The world is a long way from being 100 percent on [SaaS],” Canning says. The problem for SaaS vendors is managing their side of the licence. Don’t assume that every software company has very sophisticated back-office systems in place.

Canning says that “software publishers have many levels of agreements with customers”, which makes this “a complex problem”, especially for novice apps vendors that lack licence-compliance systems. 

This is prevalent in ‘freemium’ apps where base software is given away and consumers switch on features inside the app. Marketplaces or app stores don’t help because the vendor “has no direct connection to the customer”, Canning says.

If SaaS is staunching piracy losses, the effect is “minimal”, says Roland Chan, compliance director of the Software Alliance (BSA), which patrols “unlicensed software installations” for the likes of Microsoft, Adobe and Salesforce.

The BSA estimates that in Australia, pirated copies represented 21 percent of software use or US$743 million (A$837 million) in 2013. 

“In 2013, less than 10 percent of software solutions were cloud,” Chan says. “At some point, there will be an impact but we don’t have any indication of how fast that shift is moving.”

And while online activation and hybrid models such as that deployed in Adobe Creative Suite and Microsoft Office 365 should improve compliance, Chan says BSA has “no evidence” that it works. “But in theory, it would be far easier for organisations [end-users] to subscribe to such models.”

Next: A rise in settlements

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