Software Piracy and the Small Business

By Cloud, Jill; Sarikas, Zeke | The National Public Accountant, September 1995 | Go to article overview
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Software Piracy and the Small Business

Cloud, Jill, Sarikas, Zeke, The National Public Accountant

The employees of a small business may yield to the temptation of illegally copying computer software that they have no legal right to use, resulting in considerable legal exposure and possible loss of reputation. The ease of copying software and the associated seemingly low risk is enticing to the employees of a small business. The Software Publisher's Association (SPA) offers a hot line where informants can expose companies for software theft. All it takes is one phone call from a disgruntled former employee to set hostile legal wheels in motion.

Because the SPA may choose to make a public example of a pirating company, more than legal penalties may result from software piracy; the small business may also suffer severe damage due to loss of reputation. The small business that wishes to eliminate illegal software must go through a costly and time-consuming clean-up process, but that cost is likely to be justified, considering the potential risks involved with an audit by the SPA.

The Law

Illegally copying software is a violation of federal copyright law. Title 17 of the U.S. Code states that "it is illegal to make or distribute copies of copyrighted material without authorization." The typical license that accompanies a purchased copy of software states that the owner has the right to load that copy onto a single computer and to make another copy for archival purposes only. The fine imposed by the federal copyright law is $100,000 per infringement and up to five years in jail.

How a Small Business Becomes a Pirate

Limited budgets, employee ignorance and time constraints make the small business particularly vulnerable to software piracy. The advent of PCs and the ease of copying software have made it more common for end users to make decisions regarding software acquisition and use.

Software piracy may be unintentional and can often be attributed to ignorance on the part of the employee. Some employees do not realize that they are breaking the law when they use the "copy" command to duplicate a version of a software package. An employee who copies a software package would probably never consider stealing software out of a retail store.

Tight budgets can lead to intentional piracy. However, by investing what is needed in software for the company, the small business can remove the incentive for employees to make unauthorized software copies.


The SPA, founded in 1984, is the principal trade group of the PC software industry and has over 900 members. Key members include Adobe, Aldus, Apple, Borland, IBM, Lotus, Microsoft, Novell, WordPerfect and Xerox. Members serve as plaintiffs in cases of litigation where their software is pirated.

The SPA's Agenda

The SPA has an active litigation program against companies who are engaged in software piracy. In the last three years, over 100 lawsuits have been filed. Many have resulted in significant settlements, some over $300,000. The SPA is currently filing lawsuits at a rate of two per week. In the last three years, the SPA collected more than $3,000,000 in penalties from software pirates and generated a substantial amount of new sales for the software industry as a whole. Recoveries from settlements are used to fund future litigation as well as anti-piracy educational efforts.

How the SPA Targets Pirates

The SPA targets pirates based on tips received from their anti-piracy hot line. About 30 calls per day are received. A temporary, former or disgruntled employee typically submits their company's name to the SPA. Most cases of piracy involve companies that have between 50 and 500 PCs; very few reports pertain to Fortune 500 companies. The SPA regularly files lawsuits against companies with only a few PCs. The typical violator, according to one of the SPAs prosecuting attorneys, is a small or medium-sized company that buys four or five copies of WordPerfect and puts them on 25 or more machines.

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