Software Computer Piracy

The personal computer (PC) has become a necessity for today’s successful
small business operations. These increasingly powerful machines use
sophisticated software programs for a variety of applications. Software can
help a small business correspond with its customers, keep track of inventory
and even answer the phone and process orders.

Unfortunately many computer users make illegal copies of computer software.
Called “piracy” in the computer industry, this theft is a violation of
federal copyright law. Software pirates hurt themselves as well as others
through their actions. They sacrifice the long term benefits of legitimate
software ownership for a cheap, short term fix. This fact sheet identifies
the hazards of illegal copying and the benefits for small businesses in
becoming “software legal.”

Software is developed by publishers, including many small businesses relying
upon steady sales not only to survive but also to improve their products and
invest for the future. The creative teams who develop software —
programmers, writers, graphic artists and others — also deserve fair
compensation for their efforts. Without the protection given by our copyright
laws, they would be unable to produce the valuable programs that have become
so important in our daily lives: educational software that teaches us much
needed skills; business software that allows us to save time, effort and
money making us more competitive, and entertainment and personal productivity
software that enhances our leisure time.

The fact sheet you are holding was produced using a licensed word processor
on a personal computer.

What is Software Piracy?

Computer software is protected under the federal copyright law which states
that, “Users may not make a copy of a piece of software for any other reason
than as an archival back-up without permission of the copyright holder.” The
unauthorized reproduction of a computer program is considered theft. In 1990,
the PC software industry lost $2.4 billion in the United States alone and
over $10 billion worldwide, according to estimates by the Software Publishers

Computer piracy is different from copying other recorded media, such as
videotapes and compact disks, because there is no degradation in the quality
of the copy. The computer industry is the only industry that empowers the end
user to become a manufacturing subsidiary. Trust and responsibility is placed
in the hands of the computer user. A computer program copied over and over
again will work exactly like the original. A program that took years to
develop can be copied in a few seconds. And, although software is expensive
to develop, almost any PC can be used to generate a cheap copy.

Why Is It Important?

Why should a computer user be concerned with software compliance? First and
foremost, computer piracy is illegal and there are stiff penalties for
breaking the law. Companies and individuals who break the law can be
penalized as much as $100,000 for every instance of software copyright
violation. Recently, a 75-employee Colorado embroidery and monogramming
company paid $30,000 in penalties, and a 200-person New Jersey commodities
business paid $46,000. These small businesses were caught and paid the price
for illegal software use.

There are also valuable benefits for becoming software legal. By using
original versions of computer software, users receive upgrade notifications,
usually at discounted prices. They are also investing in the quality
assurance and reliability of the product. Legal compliance means that the
business relationship does not end when the buyer walks out of the store.
Full documentation, technical support and product change notices await the
rightful owner of computer software. The user also enjoys efficient business
functions due to fully operational and productive employees, computer systems
and virus protection.

Who Pirates Software?

There is no one type of person who misuses computer software. Many people do
not even realize that what they are doing is illegal. People who would never
think of stealing a candy bar from a drug store may have no qualms about
duplicating a $500 software package. In a small business environment,
resources may be limited and an owner may even think that such a small
infraction can have any serious consequences. After all, a small business is
very different from a large corporation. But piracy is theft and theft is
against the law.

What Types of Piracy Exist?

Computer piracy comes in many forms. Software counterfeiting is the illegal
duplication and sale of copyrighted software in a form designed to make it
appear legitimate. Hard disk loading takes place when computer dealers or
consultants load unauthorized copies of computer software onto the hard disks
of personal computers, often as an incentive for the user to purchase from
that particular person. Electronic bulletin board services (BBS) may offer
the illegal opportunity to download copied software using a modem connected
to a telephone. Finally, there is the all too common practice of copying
software within companies for use in the home or office, or “sharing”
software among friends.

This last type of piracy accounts for over half the total revenues lost by
the industry. The reasons for piracy differ widely. A small business person
may copy one piece of software to trim costs. Another user may feel that
“everyone else is doing it” and they do not wish to stand out. Finally, there
are those who believe that piracy “doesn’t hurt anyone” or “isn’t really
stealing.” They are wrong.

Who Must Obey the Copyright Law?

Many people do not realize that the copyright law applies to organizations,
both large and small, as well as individuals. More and more businesses have
written policies against illegal duplication of software. In a small
business, there is a unique opportunity to initiate and oversee a
comprehensive software policy. In a smaller environment, software purchases,
installations and access can all be easily monitored to help the small
business become “software legal.” But compliance does not stop when a small
business person leaves his or her job. Employees may face disciplinary action
if they make extra copies of the company’s software for use at home or on
additional computers in the office. A good rule to remember is that there
must be one authorized copy of a software program for every computer upon
which it is run.

What About Upgrades?

Generally speaking, upgrading of software does not give a small business the
right to give away the earlier version. The upgrade is an improvement of the
original software and not a new copy. The earlier version and the upgrade
should be treated as elements of the same software product and not

What Can I Do?

Because the software industry is relatively new, and because copying is so
easy, many people are either unaware of the laws governing personal computer
software use or choose to ignore them. It is the responsibility of each and
every software user, big or small, to understand and adhere to copyright law.
Small business owners can take the initiative to make software compliance an
integral part of their daily procedures. If you are part of a small business,
see what you can do to initiate a policy or procedure that everyone respects.
Also, suggest that you or your management consider conducting a software
audit. You can also help spread the word that users should be “software

Finally, free educational materials, including a Self-Audit Kit, are
available. The Self-Audit Kit includes SPAudit, which helps as a software
inventory program. Using these tools a small business can find out what
software they have on their computers’ hard drives and what they must do to
become “software legal.” The benefits of becoming “software legal” far
outweigh the disadvantages. The Self-Audit Kit and SPAudit may be obtained
from: Software Publishers Association, 1730 M Street, N.W. Washington, D.C.
20036 phone: (202) 452-1600.

How to Get More Information

Information is power! – Make it your business to know what business
information is available, where to get it and most importantly, how to use
it. Sources of information include:

U.S. Small Business Administration

– SBA District Offices
– Small Business Development Centers (SBDCs)
– Service Corps of Retired Executives (SCORE)
– Small Business Institutes (SBIs)

Consult your telephone directory under U.S. Government for your local SBA
office or call the Small Business Answer Desk – 1-800-8-ASK-SBA for
information on any of the above resources. Also, you may request a free copy
of The Small Business Directory, a listing of business development
publications, from your local SBA office or the Answer Desk.

Other Sources:

– State Economic Development Agencies
– Chambers of Commerce
– Local Colleges
– The Library
– The manufacturers and suppliers of small business technologies and

The SBA’s participation in this publication does not constitute an expressed
or implied endorsement of any of the cosponsor’s opinions, products or
services. SBA Auth: 88-1307

All SBA programs are available to the public on a nondiscriminatory basis.

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SMB Reviews
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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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