DOJ Gets Another Copyright Cop

from the not-looking-good dept

Among the tech community, there was some belief that the Obama administration understood some of the key issues, such as the damage done by draconian copyright laws -- and they had shown that with the way they went about running their campaign. However, there's an increasing realization that the techies on the campaign are entirely separate from the policy people now involved in the administration. First there was the appointment of one of the RIAA's top lawyers as associate attorney general, and now comes news that Neil MacBride, the BSA's antipiracy enforcer, has also been appointed to a high level role in the Justice Department.

You may recall MacBride, because last year, right before the BSA released its usual entirely bogus stats on the impact of piracy, he was kind enough to call me and walk through why he stood by those numbers. In that post, you can see some of how MacBride approached these issues -- insisting that piracy represents a real loss, not a business model issue, and even suggesting that it's all a generational thing. This is somewhat worrisome, as I believe it's the wrong approach to understanding what an impact copyright issues have on business, society and culture. That two such individuals are now in high level positions in the Justice Department does not bode well at all for the idea that we may have more reasonable copyright policy and enforcement coming out of the Justice Department any time soon.

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A Detailed Explanation Of How The BSA Misleads With Piracy Stats

from the and-on-and-on-it-goes dept

A couple months ago, when the Business Software Alliance (BSA) released its latest stats on "piracy," it's VP of anti-piracy, Neil MacBride, gave me a call to discuss my earlier complaints about the organizations methodology. Needless to say, we did not see eye-to-eye, and the phone call did little to resolve our differences. I'm still hopeful that eventually the BSA will recognize that it's doing more damage to its own position by publishing obviously bogus numbers. So, with the organization releasing another bogus stat today, it's time to explain why it's wrong and misleading.

Today's report is an attempt to get the government involved in protecting BSA member companies' business model, by claiming that the US is losing out on $1.7 billion in tax revenue due to "pirated" software. And, of course, it comes with a lovely quote from Mr. MacBride: "The most tragic aspect is that the lost revenues to tech companies and local governments could be supporting thousands of good jobs and much-needed social services in our communities." And the BSA is even so kind as to quantify what that (not really) lost tax revenue could do: "For example, the lost tax revenues to state and local governments -- an estimated $1.7 billion -- would have been enough to build 100 middle schools or 10,831 affordable housing units; hire 24,395 experienced police officers; or purchase 6,335 propane-powered transit buses to reduce greenhouse gas emissions."

Except that this is almost entirely incorrect and it's relatively easy to show why:

1. The report counts every unauthorized piece of software as a lost sale. You have to dig through separate PDFs to find this info, but when you finally get to the methodology it states:

   The software losses are based on the piracy rate and equal the value of software installed not paid for.

   That's a huge, and obviously incorrect assumption. Many of the folks using the software likely would not have paid for it otherwise, or would have used cheaper or open source options instead.
2. The report makes no effort to count the positive impact of unauthorized use of software in leading to future software sales. This is something that even Microsoft has admitted has helped the company grow over time. But according to the BSA's report, this doesn't matter.
3. The report also proudly notes: "Software piracy also has ripple effects in local communities." However, "ripple effects" are easily disproved as double or triple counting the same dollar. Using ripple effects like that inflates the final number by two or three times. In the link here, Tim Lee explains this (in reference to an MPAA study done by IPI, but it applies here to the BSA study done by IDC as well):

   If a foreigner gives me $1, and I turn around and buy an apple from you for a dollar, and then you turn around and buy an orange from another friend for a dollar, we haven't thereby increased our national wealth by $3. At the beginning of the sequence, we have an apple and an orange. At the end, we have an apple, an orange, and a dollar. Difference: one dollar. No matter how many times that dollar changes hands, there's still only one dollar that wasn't there before.
   
   Yet in IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefited by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

   This is a huge fallacy that the BSA an IDC refuse to acknowledge. When I discussed it with them in May, they insisted that they only wanted to talk about piracy rates, not the loss number. I wonder why...
4. Next, if they're going to count ripple effects in one direction, it's only fair to also count them in the other direction. That is, they complain that:

   Lost revenue to technology companies also puts a strain on their ability to invest in new jobs and new technologies. For example, the $11.4 billion in piracy losses to software vendors and service providers in the eight states would have been enough to fund more than 54,000 tech industry jobs.

   But what they don't acknowledge is the ripple effects in the other direction. That is, if (going by their assumption, remember) every company that uses an unauthorized copy of software had to pay for it, that would represent $11.4 billion in money that all of those other companies could not use to fund jobs at those companies. What about all of those jobs?
5. The BSA/IDC stat on lost tax revenue also miscounts on the point above, since it includes the lost income tax revenue from those 54,000 lost jobs, but does not count the equivalent income tax revenue from those other jobs. In fact, in the fine print, the report notes:

   "Employment losses are calculated from revenue losses, and only apply to employment in the IT industry, not IT professionals in end-user organizations. Tax revenue losses are calculated from revenue losses (VAT and corporate income tax) and employment losses (income and social taxes)."

   In other words, the income tax losses only count one side of the equation and totally ignore the lost income tax revenue from the lost jobs on the other side of the equation. Oops.
6. It seems likely that the eventual tax benefits of the unauthorized use of software is most likely to greatly outweigh the lost tax revenue elsewhere. That's because the use of software within industries is a productivity tool that increases overall productivity and output, which would increase taxes beyond just the income taxes of the employees. The study, of course, ignores this point.
7. Worst of all, the report seems to assume that direct software sales are the only business model for the software industry, ignoring plenty of evidence from companies that have adopted business models that embrace free software -- generating billions of dollars for the economy (and in taxes). And that's what this really comes down to. It's a business model issue. If others started adopting these business models as well, there wouldn't be any "losses" at all.

Oh, and just for good measure, the report also falsely claims that: "What many don't realize or don't think about is that when you purchase software, you are actually purchasing a license to use it, not the actual software." That's not exactly true and goes directly against a recent court ruling that said the opposite and goes through a detailed explanation for why a piece of sold software is a sale with restrictions, rather than a license, using previous court precedents.

Most of these points have been made to the BSA and IDC in the past, and both organizations chose not to address them. The fact that they're continuing to use these obviously false numbers and methodology to now push for the government to prop up an obsolete business model should be seen as troubling not just for the dishonesty of it, but for the negative impact it will have on the software industry and our economy as a whole.

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BSA Releases Latest Stats; Stands By Same Old Story

from the we've-heard-this-before,-haven't-we dept

Every year around this time, the Business Software Alliance (BSA) comes out with a report, put together for the BSA by IDC, about software "piracy" statistics. Every year, since 2004 I call them out on how misleading many of the stats are (or, more specifically, I jokingly refer to the BSA as Bogus Stats as Always). At times, even IDC, who puts the report together for the BSA, has admitted that the BSA has tended to misrepresent the results -- and yet IDC keeps putting together the report every year. The good news, honestly, is that over the past few years, we've seen a changing trend in the coverage of the reports on these numbers, in that more people are calling the BSA out for using the numbers in a misleading way. The BSA, to its credit, has at least tried to be more conscious of how it presents and explains its numbers... sometimes.

Perhaps because of this, in advance of the release of the latest report today, the BSA reached out to me (and I'm sure plenty of others as well) to talk about the report and address any concerns. I spent half an hour on the phone this afternoon with Neil MacBride, the BSA's VP of Anti-Piracy and General Counsel. With him was Marcel Warmerdam an associate VP from IDC. I really appreciate the two spending the time to discuss the latest study with me -- as (this should come as no surprise) we didn't agree on very much.

The report itself seems pretty similar to what's come out in previous years. IDC does a rather credible job in determining the rate of unauthorized use throughout the world. The report this year highlights the fact that the rate of unauthorized use appears to be falling in many countries while rising in a few rapidly developing ones (Brazil, Russia, India and China). This is no surprise, as it's pretty much what anyone watching this market knows happens. I have no problem with the reporting on the rate of unauthorized usage.

Where things get problematic, however, is when the report starts to look at the impact of such things. The report itself shifts back and forth between "retail value of the software" and "losses" as if they are one and the same. By now, it should be quite clear that they are not the same. My second problem is that the report also ties these faux "losses" to a separate IDC report claiming that a drop in unauthorized usage of software would increase jobs, increase revenue in the IT sector and increase taxes. That's inaccurate for a variety of reasons, specifically in that it double-counts the impact of certain things and also only counts the "ripple effects" in one direction.

I raised these questions to both Neil and Marcel, and the summary of the call as Marcel noted at the end is that we'll have to agree to disagree. We didn't discuss the ripple effects issue, because that's actually from a different study than the one released today (though, the one today does reference that report to back up its claims -- which is why I brought it up). However, Neil and Marcel defended the "losses" claim by pointing out that plenty of companies out there (they kept pointing to large companies) would go out and buy the software if they had no other option. Indeed. And, I would probably go out and buy lunch at Pizza Hut if I had no other options, but we don't count it as a "loss" for Pizza Hut when I go eat at McDonalds instead. The fact is that there are other options -- even if some of them break the license agreements. My point is that this is a business model issue that the industry needs to deal with by giving businesses positive reasons to pay, rather than threatening to whack them with a legal stick.

However, what became clear in talking to Neil was that the BSA really does seem to believe that the majority of these unlicensed uses really would be paid for -- which seems like a highly questionable claim. We also very much disagreed over calling unauthorized use of software "theft" (he says it is, and tossed out the old favorite about how it's no different than taking a CD or a pack of chewing gum out of a store). He specifically said "software is a tangible good." The problem is that this is simply not true. I'm sure plenty of software companies and the BSA itself would like it to be a tangible good -- but it is not, and no amount of pretending makes it so.

In the end, Neil suggested that maybe this is a "generational" thing (I guess I'm the young whippersnapper), which I don't think is accurate either. I think it's really more of a business model thing. The companies that make up the BSA have relied on a particular business model for many, many years. That business model depends on government-granted monopolies that allow them to create artificial scarcity. They like that business model and don't want it to go away. However, the market is shifting, and it's shifting due to companies recognizing the fundamental characteristics of software being infinite, which allows them to implement other business models that don't rely on artificial scarcity. We're seeing it all the time, even among some companies who are members of the BSA. IBM, for example, has learned that its real money-maker is in services, and free software helps build that market. Red Hat has shown a similar business model on a smaller scale. And Google, which is a software company (even if people don't realize it), has shown an entirely different model to make its software extremely profitable in a way that "piracy" is of no concern.

The more the BSA talks up fundamentally flawed "losses" the more difficult it makes it for many of its members to recognize that the market is changing, and they need to change their business models with it. The less these companies focused on made up "losses" and the more they focused on creating business models where there are good reasons for companies to pay money, the more they'd realize that unauthorized use isn't the problem at all. With the BSA reports on losses, though, too many of these companies are taught to think that the problem is elsewhere (those darn pirates), rather than in how they view the market themselves. And, that, fundamentally, is dangerous for the BSA's own members. So, I very much appreciate both Neil and Marcel for reaching out and taking the time to talk with me, and responding to my criticisms -- and I hope to continue the conversation with them. But, they did little to change my feelings about the BSA report and its misleading nature.

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People Beginning To Question The BSA's Vindictive Campaign Against Companies Using Unauthorized Software

from the a-bit-out-of-touch-with-the-times dept

The BSA is famous for overhyping its claims. It puts out completely bogus stats about how much unauthorized software "costs" the industry -- which count pretty much every unauthorized copy as a lost sale and doesn't count back in any of the benefits software firms get from people using copied versions of their software. The BSA is also the firm that hypes up how you can get a million dollars for turning in your boss for using unauthorized software, even though the details suggest that the firm rarely pays out more than $5,000. Now more people are hitting back at this program, not just for the bogus numbers, but because the BSA seems to take great joy from squeezing small businesses for thousands of dollars when they often simply couldn't figure out the terms of the software licenses they purchased. The Associated Press looked into the BSA's tactics and found that the organization makes a ton of money from going after these small firms, and also notes that its advertisements telling people to rat out their bosses for unauthorized software usage push employees to turn in their employers rather than actually fix the problem by making sure the firm properly licenses its software. Of course, when squeezing small firms is so lucrative, why would the BSA and its big software backers want more legitimate licenses? That just takes away from the ability to squeeze much more money out of small firms than they ever would have paid for in purchased software. And people wonder why more small businesses are looking to make use of open source products whenever possible? Update: Changed the link to a longer version of the AP story that includes even more details about problems with the BSA's tactics, including a couple of interesting points. First, it notes that the BSA keeps the money it gets, rather than distributing it to the software companies who support the BSA. In other words, the group has every incentive to keep squeezing money out of companies, rather than actually reducing unauthorized use. Second, the article points out that the BSA's actions are, indeed, driving more people to swear off the software of the BSA's supporters.

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Presidential Candidates Asked If They've Stopped Beating Their Wives With Weak Copyright Laws

from the big-content-propaganda dept

Patrick Ross apparently has no shame. For years, at the Progress and Freedom Foundation, he presented ridiculous statement after ridiculous statement about intellectual property. There was the one about how fair use harmed innovation. Then there's my personal favorite, where he argued that the DMCA shouldn't be changed because markets shouldn't be regulated -- ignoring the key point that the DMCA, itself, was a regulation that was tremendously distorting the market. After attacking me for suggesting that his viewpoints were influenced by the fact that he was paid to promote the positions of the entertainment industry (when I hadn't even suggested that), Ross went on to make it official that he was shilling for the entertainment industry, by creating a super-lobbying group that represented all the different big copyright groups under one umbrella: The Copyright Alliance, made up of the MPAA, the RIAA, the BSA, the ESA and others.

Ross' latest stunt is to demand that all presidential candidates answer his survey of stunningly loaded questions about copyright. The questions are all of the "and have you stopped beating your wife?" variety -- even causing the reporters attending Ross's press conference to make fun of the questions as being ridiculously leading. Of course, the questions are publically available (pdf) for anyone to view. Let's go through them one by one in order to help the presidential candidates step around the incredibly loaded nature of the questions to do a better job with them. Hopefully, Ross won't accuse us of a copyright violation in reposting the questions.

• How would you promote the progress of science and creativity, as enumerated in the U.S. Constitution, by upholding and strengthening copyright law and preventing its diminishment?
  
  Well, first, it might help to point out that the U.S. publishing industry was initially built on extremely loose copyrights, so the very idea that strengthening copyright law is necessary to promote progress of science and creativity is provably false. Even the biggest defender of copyrights these days (and a backer of Ross' organization), Disney, owes much of its early success to being able to use the characters others created. That, alone, should be argument enough for a stronger public domain, rather than stronger copyright. On top of that, plenty of research has shown that by strengthening copyright, you will often diminish how much content is created. More to the point, with the rise of modern communications tools, and a world where content is made by everyone, rather than just a small group of professionals, the entire concept of copyright needs to be revisited from scratch to figure out what really is necessary.
  
  
• How do you feel the rights that have served our economy and spurred creativity in the physical world should apply in the digital world?
  
  The rights that have served our economy and spurred creativity are quite important. The First Amendment, for example, is a key right, preventing the government from passing laws that take away freedom of speech. It's that freedom that is important and clearly should be (and is) extended into the digital world. In fact, we should reinforce that by removing dangerous and creativity harming restrictions on speech, found in laws like the DMCA that hold back perfectly legitimate and reasonable uses of content, often hindering creativity.
  
  
• How would you protect the incentive to create by committing sufficient resources to support effective civil and criminal enforcement of copyright laws domestically and internationally?
  
  There's a false assumption there, that the incentive to create is copyright laws. If you look at the incentives to create historically, you'll see that copyright has rarely had much to do with it at all. Instead, plenty of other factors, often coming from the marketplace had much stronger incentives. In fact, copyright has all too often held back incentives to create. As you well know, plenty of people created plenty of content prior to copyright existing. And, famously, once copyright was put in place, it often gave those who had created content earlier less incentive to create, as they could just sit back and rely on royalties from earlier content. More importantly, modern communications systems have shown that the incentive to create often has little to do with monetary rewards. Much of the internet is filled with user-generated content that was created not because of copyright, but for many other reasons. In fact, we're seeing a tremendous explosion in content creation these days -- often in spite of copyright rather than because of it. So, the best way to protect the incentive to create is to continue to get restrictions on creation out of the way, remove barriers to creation, expand the public domain, broaden the definition of fair use and get rid of pointless restriction such as those found in the DMCA.
  
  
• How would you ensure inclusion of copyright protections in bilateral, regional and multilateral trade agreements to protect creators and foster global development?
  
  Aha! A trick question! Why would we want to include monopoly protections in a free trade agreement? Monopoly rights deserve no place in any free trade agreement -- and, in fact, are against the very idea of free trade.
  
  
• How would you protect the rights of creators to express themselves freely under the principles established in the First Amendment?
  
  An excellent and important question. I would do so by getting rid of much of the DMCA, which unfairly puts excessive restrictions on the rights of creators to express themselves freely. I'd also look towards lowering the copyright burden on creators, expanding the public domain, rolling back unlimited copyright extensions and increasing the power of fair use -- all with an eye towards protecting the rights of the majority of content creators today not to be bullied by a bunch of companies with huge lobbying budgets and increasingly obsolete business models.

Thanks, Patrick, for giving us the chance to address these important questions.

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Techdirt Extends Promise To Pay Up To $1 Million For Proof Of BSA $1 Million Reward

from the again,-please-note-the- dept

You may recall that, over the summer, the Business Software Alliance, got a lot of press for supposedly offering $1 million to folks who reported their employers to the BSA for using unauthorized software. A $1 million reward seems like a big deal -- the type likely to generate lots of press and (the BSA hoped) get more people to snitch on their bosses. Except, when you looked at the fine print, you realized that the BSA had all sorts of conditions, and the reward was really "up to" $1 million, pretty much entirely at the discretion of the BSA. So they could claim a $1 million award, and then pay out a lot less. In fact, when a CNET reporter went searching for how much the BSA had actually paid out, she could only find awards of about $5,000. So, that prompted us to promise "up to" $1 million to anyone who could prove the BSA gave a single person a $1 million reward -- with how much we actually pay out entirely up to our own discretion. Anyway, it would appear that the original announcement didn't get the BSA enough attention (or enough snitching), so it's now announced that it's extending the (not really) $1 million reward program that supposedly had an end date. And, of course, the press dutifully report this news. So, in response, we'd like to announce that we're also extending our "up to $1 million" reward to anyone who can show that the BSA actually has paid an individual $1 million for snitching on his boss for using unauthorized software. Given how much press attention the BSA announcement got, we're surprised no one's reporting on our offer as well.

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