There are many misconceptions about the software industry and copyright laws that make the environment ripe for software theft. Too many people believe that it is acceptable to copy software without a valid license. Most software pirates, whether individuals or firms, do not understand the financial and economic consequences of their actions and do not consider it a serious crime. Following are the top ten misconceptions and facts to clarify how grave the software piracy issue is today.

Misconception #1: Piracy is a victimless crime, only affecting large software companies.
Software piracy decreases the amount of jobs, tax revenues, retail sales, and technological innovation. In the United States, for example, a recent Business Software Alliance (BSA) study by Nathan Associates found that by 2005, more than three billion workers will be employed because of the software industry, earning more than $139 billion in wages. According to a state study, conducted for the BSA by International Planning & Research Group (IPR) in 2000, software piracy cost the United States 118,000 jobs. By destabilizing the marketplace, piracy affects smaller companies with narrow profit margins the most. Piracy also affects all the surrounding industries directly and indirectly that help develop, market and service the products such as designers, suppliers, distributors, manufacturers, advertisers, consultants, programmers, resellers and trainers.

Total losses in state and federal tax revenue in 1999 are estimated at $1.9 billion. In the subsequent three to seven years, the software industry will contribute approximately $25 billion in tax revenues to U.S. federal, state and local governments. According to a 1998 study conducted by Nathan Associates, eliminating piracy could generate $1.6 billion in additional tax revenues by 2005.

Misconception #2: Software companies have built-in safety nets against potential piracy losses.
Many people feel that software companies are overcharging for software programs and have these losses built into their pricing strategies. The truth is that most new software being developed requires substantial capital expenditures for research, development, and production, creating narrow profit margins. The Business Software Alliance (BSA), a consortium for software piracy prevention, estimates that in the United States alone, dollar losses due to software theft amounted to just under $3 billion in 2000. One out of every five dollars lost to piracy worldwide in 2000 occurred in the US. As piracy losses increase, it raises operating costs and affects investment decisions, which may have the effect of raising software prices on future products.

Misconception #3: With lower piracy rates than in Asia and Europe, the U.S. economy doesn't suffer significantly.
Developing markets generally are the worst offenders, with piracy rates higher than 80 percent in parts of Asia/Pacific (51% overall) and Eastern Europe (63% overall). North America enjoys the lowest rate of theft, 25 percent and just under $3 billion in losses. The disparity in software theft rates between North America and other regions can give people in the United States and Canada an ill-advised sense of complacency. When the subject of piracy arises, people in North America tend to immediately think of far-away places like Vietnam, China or Indonesia. Granted, the respective 97, 94 and 89 percent figures in these countries are a huge concern. However, a closer look at statistics puts a different light on the problem. Because North America has the largest base of computers and installed computer programs, software publishers lose more money there than anywhere else in the world as a result of software copied illegally onto the large base of computers. In the United States alone, dollar losses due to software theft amounted to just under $3 billion in 2000, compared to $1.1 million in China. One out of every five dollars lost to piracy worldwide in 2000 occurred in the US.

Misconception #4: Only hackers commit piracy.
In the infancy of computer technology, people who broke into high security programs, known as hackers, typically had to be very proficient in computer programming language. Today, however, the abundance of software programs, the fact that 33 percent of Americans own computers, and the mainstreaming of the Internet make piracy increasingly prevalent among the average citizen. According to a finding by the BSA, software piracy blankets all ages, income levels, education and occupations. Retailers who pre-install software, individuals, companies and even government institutions generally are ignorant of existing copyright laws. Advancements in technology and user-friendly software that enables people to copy software with the click of a mouse only encourage piracy.

Misconception #5: Piracy rates are largely determined by individuals selling software for a profit.
According to a finding by the BSA, software piracy is prevalent at every level, and is not just committed by individuals for profit. The media often reports on individuals who sell illegal software for profit, download it off the Internet, buy it on the street or trade it on the Black Market. While it is true that in China software piracy is most significantly impacted by individuals selling illegal software on the Black Market, the U.S. has a very different culprit - small and medium-sized businesses. A majority of those committing piracy are companies in growth mode, who are looking to cut costs and are unaware of copyright laws. Adding to this problem, many small and medium-sized companies lack the regulatory structure of large corporations. Furthermore, larger corporations are more cautious and less likely to commit piracy to avoid damaged business reputations and public humiliation. Ironically, smaller companies vying for leadership in a highly competitive market should equally be concerned about establishing a positive reputation and an ethical work environment.

Misconception #6: Sharing software programs is acceptable if the original program was purchased legally.
Anyone who purchases a software program, installs it on their computer, and then allows an associate to duplicate it, is stealing. Many people believe they are purchasing all the rights to use the program, when in fact they are really only licensing the right to use it. As intellectual property, software is protected by copyright laws. The Computer Software Copyright Act of 1980 states, "It is illegal to make or distribute copies of copyrighted information without authorization." As of December 1999, the law provides copyright owners with civil recoveries up to US$150,000 per infringed work, destruction of the illegal copies, and the payment of attorney's fees and costs. The law also allows the government to prosecute criminal copyright infringement and provides for penalties including fines of up to US$250,000 and jail terms of up to five years. In November 1990, the U.S. Congress approved the Software Rental Amendments Act prohibiting "the rental, leasing, or lending of commercial software without the express written permission of the copyright holder."

Misconception #7: When I upgrade my software, I can sell or give away the previous version.
While each software manufacturer's policy may differ, typically when software is upgraded the license for the previous version becomes invalid. For example, Autodesk states in its license agreement that users must cease use of the previous version of the product being upgraded within 60 days after installing the new version. This provision is designed to permit users to complete the transition to a new product version smoothly. When the 60-day period is over, the previous version is no longer valid and must be deleted from their system. The old version of the product is then inactive and cannot be sold or given away.

Misconception #8: Software companies could prevent piracy by embedding software codes or by requiring locking devices.
Many software companies discourage piracy by having "soft locks" or "hard locks" on their products. Soft locks are encoded security measures actually imprinted in the software itself. Hard lock devices such as Digital Content Protection (DCP) chips perform encryption/decryption right on the chip. Other security devices include secure server cryptographic accelerators and tokens for secured network equipment such as routers, switches or firewalls, etc.

Despite these industry efforts, sophisticated hackers find joy and a challenge in breaking codes and circumventing locking devices. Security implementations are usually unsuccessful, resulting in a futile exercise and wasted development expense. Further, many security devices cause customer frustration when legally transferring pre-purchased software from an older system to newly purchased hardware as re-installations are prevented by the program. The effort it takes for the user and the company technical support representatives to resolve the issue costs both parties valuable time and money.

Misconception #9: Programs listed on Sharewarez and other Internet sites are not illegal.
It is illegal to download any software programs from the Internet that are not intended as freeware or shareware. The only legal software is purchased from the software company directly or from one of its authorized resellers. Many freeware sites now offer "warez," a slang term for pirated software. These sites are becoming breeding grounds for pirates who give, barter, and sell unauthorized software. Illegally pirated programs are also available in other areas of the Internet through News Groups, E-mail, and IRC (Internet Relay Chat).

The U.S. government addressed the issue of software theft over the Internet with the "No Electronics Theft" (NET) Act of 1997, which allows for criminal prosecution of copyright infringement. And in October 1998, the government signed The Digital Millennium Copyright Act (DMCA), legislation that enhances the protection of intellectual property and copyright management information transmitted in a digital environment.

Misconception #10: Software piracy hasn't hindered innovation to date, so there is no reason to believe it will in the future.
Creative people will always exist and the desire to innovate will remain. However, piracy affects software developers the most, creating disincentives for them to pursue, research and develop new technologies. Many software innovators are small, start-up companies and individuals with limited budgets and narrow profit margins who cannot afford producing software that will be available in pirated form only weeks from the initial product launch. In these smaller companies, revenues from sales determine future growth, new ideas and better products for the consumer.