Piracy crackdown

The net is starting to close in around resellers that have an interest in selling pirated or counterfeited software. Over the past six months or so, there have been a raft of prosecutions, with one of the most high-profile being the settlement made against distributor Netcom at the end of 2007.


The net is starting to close in around resellers that have an interest in selling pirated or counterfeited software.

Over the past six months or so, there have been a raft of prosecutions, with one of the most high-profile being the settlement made against distributor Netcom at the end of 2007. The case was brought by Microsoft following tip-offs that the distributor was parallel importing software, that it was passing on unbundled and recycled certificates of authenticity, and that it was distributing media kits to unlicensed users.

At about the same time, the vendor also issued writs against 52 individuals selling products on the eBay auction site, of which six were based in the UK.

So what is going on? Why the apparent increase in activity, and what can resellers do to avoid getting caught up in such nefarious happenings?

In practice, according to the Business Software Alliance's (BSA) annual Global Software Piracy Study, which was published at the start of this year, the amount of illegal software floating around is not actually on the rise at all. During 2007, the BSA's report indicated that about 27 per cent of all PC software being used across the business and consumer space in the UK was pirated - but that figure has only fallen by one per cent in the past three years.


More court cases

So rather than piracy levels being on the increase, it would appear that it is the number of court cases that is growing. And one of the reasons for this, says Robbie Richmond, managing director of software asset management (SAM) services provider EasySAM, is that rights owners are becoming much more vigilant in trying to raise awareness of the issue among the end-user community.

According to a survey by reseller Centennial, of the 150 companies it questioned, some 76 per cent had been contacted over the past 12 months by a software vendor asking them to demonstrate compliance.

Richmond says, "If an audit takes place and customers are not compliant, things move up the chain and the vendor will ask where they bought their software. The vendor will then contact the reseller and ask them why they provided licences incorrectly. The reseller will not want to be blamed, so they will point the finger at their source."

In Microsoft's case, says Michala Wardell, the supplier's UK head of piracy, most tip-offs come from consumers saying they have been conned after using the Windows Genuine Advantage validation system, which tells them if they are using a dodgy copy.

The main source of counterfeit software is China, followed by India and Pakistan, although Wardell points to the prison sentences handed down to the ringleaders of a Taiwan-based syndicate in February.

Huang Jer-sheng, owner of Taipei-based distributor Maximus Technology, and his associates were responsible for producing and distributing more than 90% of all of the counterfeit Microsoft software in circulation around the world between 1997 and 2003. They sold 21 different offerings in seven languages to at least 22 countries, including the UK, and ended up with jail terms ranging from 18 months to three years.


Shifting channels to market

Over the past 12 to 18 months, there has been a big shift in the channels by which such illegal software comes to market, says Wardell.

"In the past, the traditional scenario was your Arthur Daley character selling Gold CDs from the boot of his car, but this is -becoming less of an issue as the -problem moves online.

"There has been a huge increase in product sales through online auction sites and peer-to-peer downloads. Some are free and some are charged for, but that is where we are seeing a big shift in distribution. It is getting to the point where it is becoming a considerable problem. Online now accounts for at least 50% of these transactions," Wardell says.

One of the challenges is that non-traditional system builders are starting to sell software, but are obtaining it from questionable sources. "They have a full-time job doing something different, but the internet gives them access to a lot of new areas. So they start shopping around, find software at a good price, and think that if they sell 50 copies on their own or on an auction site, they can make a bit of money," she says.


Small resellers get caught out

Legitimate - usually small-scale - resellers are likewise getting caught out by going for apparent bargains from sources that turn out not to be bona fide.

"When they are shopping around they might find something for £2 cheaper than it would normally be from an authorised distributor and think that if they buy 15, they could save £30. So they buy from an unqualified source and the counterfeiters are smart enough that it is often difficult to tell the difference," Wardell says.

It is this pricing issue that is usually the biggest give-away that something is not quite right, says Paul Cooper, head of Microsoft reseller Grey Matter's SAMWise service. "If the price seems to good to be true, it probably is, and that is one of the best signs to watch out for," he says.

Unqualified sources are making themselves known in a variety of ways beyond simply advertising on websites, however. Some will prospect via email, while others will knock on doors after using search engines to find potential candidates.

Najeeb Khan, vice chair of the BSA's UK member committee, advises channel partners to take steps to assess the risks before getting involved. "Just ask a few questions such as 'where have you sourced these products from?', 'what trading records do you have?' or 'would you mind if I contacted the rights holder to verify your identity?' A lot of them will back off simply because you are being inquisitive," he says.

It is also worth checking references and establishing whether the potential source belongs to a given vendor's approved list of suppliers. As Wardell points out, "If you buy from an authorised distributor, you have a 100 per cent guarantee that they are legitimate."

Kahn says, "Legitimate sources have landlines and web pages, so check to see that there is a history there and it is not a brand new site."

Other tell-tale signs include websites only providing an electronic form for sending questions, with no contact details, or the number being withheld if the potential source telephones and the call is missed.

"It is about using your business sense, so if there is an element of doubt, it is best to stay on a high level of alert until things are clearer. And do not be in a hurry or be tempted by people saying 'if you don't buy it now, it will be sold out tomorrow and you will be too late'," Khan says.

If there are any doubts, Cooper recommends contacting the relevant vendor and verifying the integrity of a sample of product keys to check that the batch is legitimate.
There are other tell-tale signs to help organisations establish whether software is counterfeit. In Microsoft's case, it may be that the disk includes a hologram that can be scrapped off with a coin rather than it being embedded, for example. The vendor has set up a website providing more in-depth hints and tips as to what to look out for.


Volume licensing deals

It is not just in the world of off-the-shelf boxed software that problems arise. There can also be problems even with volume licensing arrangements.

Wardell says, "In some cases, the key is leaked. People get hold of a media kit, or disgruntled staff take company keys and post them online or sell them on auction sites, which means that the key is available for everyone to use. It is becoming a real challenge."

One customer ended up with their key being abused by one million users in 43 countries, although when Microsoft spotted the huge rise in activity, it contacted the company concerned, replaced its key and switched off the old one. "The problem with this is that the whole channel loses out because it impacts on the sale of legitimate products," says Wardell.

Another issue in the volume-licensing world, says Cooper, is that of parallel importing - or purchasing volume licences outside of the region in which they are authorised for use.

Such activity results in customers not being officially licensed and becoming subject to sanction by vendors.

Cooper says, "The only way you can do this legally is if you, as a UK company, have an office in that location and you use it as a centralised purchasing place and buy software for other global offices."

Another common problem relates to hard-disk loading. This is where resellers build PCs, buy one copy of Windows from a distributor, and use the same CD over and over again without paying for new licences.

"Resellers do this knowingly, and we are taking people to court every week for it because the good guy down the road suffers. If a consumer shops around, they will go for the cheapest price, which means that the good guy loses sales time and time again. It is a big problem and comes second in importance to the online situation," Wardell says.

Khan likewise confirms the commonplace nature of licensing violations, whether as a result of selling educational licences for the full commercial price or of splitting up bundled OEM products and selling them separately. "It tends to happen most with very popular software due to supply and demand," he says

Such activity is not always innocent, but some licence mis-selling undoubtedly is. This can easily be rectified by staff training, which is provided by authorised distributors and vendors.

"It is often not intentional - it is purely about awareness," says Richmond. "If a customer phones and the account manager looks through the price list to find the lowest-cost licence but does not know that it is an upgrade licence, the customer will not be licensed properly."


If you have been duped

As to what resellers can do if they have been genuinely duped or discover that something has gone wrong, Kahn recommends simply coming clean with either the vendor, their distributor, or the BSA.

"It is our ethical and business duty to assist those coming to us and, obviously, habitual offenders would not do it. But for people genuinely looking for help, we can provide advice to help them recover their money," he says.

The downside is that if resellers submit counterfeit software to the relevant party, it will not be released back to them, although they will be provided with a receipt. "So they stand to lose money. But it is one of those business situations that is best avoided because any such dispute is a distraction," says Kahn.

Working with interested parties can have spin-off benefits, however. "It can leave a positive taste in the end-user's mouth if you say 'I made a mistake, but I am trying to rectify it'. Where people can end up in trouble is if they bury their heads in the sand, because they can create a world of problems for themselves. So it is best to try to be as transparent as possible. It will cost you less in the long-term," says Richmond.
In a worst-case scenario, this world of problems can mean unlimited fines, a prison term for company directors as well as adverse publicity and resultant damage to reputation of the business concerned.

With this in mind, it is worth taking simple steps, such as creating a list of approved software suppliers and periodically checking with the vendor that they remain authorised sources.

Kahn says, "It is sometimes quite difficult to tell pirated products because a lot of them are of high quality. So if there is any doubt involve the rights holders. They may be able to inform you of any tell-tale signs on the phone, because they can quickly identify mistakes in a batch. It is important that we all work together."

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