Someone in the office buys a copy of a software program such as Adobe Photoshop and before you know it, everyone has installed it - Sound familiar? While it may seem completely harmless, it is illegal. Your company is no longer in compliance with the software program's licensing agreement and could face stiff audit-related fines.

The typical fine imposed by the Business Software Alliance (BSA), a watchdog group representing software manufacturers, for non-compliance is $150,000.  Industry sources claim about thirty-five percent of all installed software is pirated, which represents billions of dollars in lost revenue every year.  With so much lost revenue, the BSA and its members don’t care if the piracy was intentional or not, they just want to recuperate some of the money. And surprisingly or not, the majority of the culprits fall into the category of small and medium size businesses.

What constitutes software piracy?

• Softloading: purchasing a single user license and loading it onto multiple computers or a server

• Counterfeiting: making, distributing and/or selling copies that appear to be from an authorized source

• Buying counterfeit copies of program disks

• Renting software without permission from the copyright holder

• Distributing and/or selling software that has been “unbundled,” or separated, from the products with which it was intended to have been “bundled”; and

• Downloading copyright software from “free” download sites on the Internet or bulletin boards without permission from the copyright holder

• Installing a software program on more than the permitted number of computers

• Allowing more than the permitted number of users to access the program simultaneously

• Using an academic license for commercial purposes

• Buying a computer with “pre-installed” software that is not accompanied by serial numbers or license copies

• Using shareware beyond its trial period

Now you know the crime and punishment, how do you determine your compliance?

Most companies do not intentionally commit software piracy.  More often than not, they are unknowing participants because they do not understand current licensing requirements.  As software gets more complex, so does the licensing making it almost enough to justify the role of a full time “licensing specialist.” The problem is, this is quite often not the case.

Even if you do employ someone who fully understands the licensing specifics, it is just as important to have an effective software management plan in place.  This software management plan should allow for the audit and inventory of all software assets installed on any and all company computers.  A number of commercial tools on the market can further assist you on managing compliance (e.g. Altiris.)

Make sure your asset management system accurately reflects what you have licensed

Rarely does asset management make its way to the top of the priorities list, which makes it too frequently unclear who should lead or how to fund asset management projects. It is important for your organization to implement processes to control purchases, not only to properly track assets, but also to ensure that personnel who are trained in technology contracts also have been involved in the software license negotiations.  Consider the cost involved in experiencing an unexpected audit if your enterprise does not have these processes in place.  In addition to the audit issues, you may discover that you are over-licensing and paying for software that is not being used.  In most cases asset management will pay for itself.

Your asset management system needs to accurately reflect what is installed and in use

Even though your organization keeps accurate purchase records, chances are you do not keep accurate records of  when the software has been installed. On top of this desktops and laptops are being moved around or taken out of use without proper recordkeeping.  In addition, employees may install unauthorized software on their corporate.  Even if your company has bought licenses for the software, you may still be penalized if you cannot prove the software is legitimate.

Desktop license usage rights may have changed

Recently, some desktop software vendors have made changes to their usage rights.  Organizations cannot and should not assume that what they were previously allowed to do still remains.  Examples of this are the rules applying to re-imaging PC’s, downgrading licenses to previous versions, and using revised original equipment manufacturer (OEM) licenses.  Secondary-use (for multiple device, such as laptops, personal digital assistants, cellular phones, and text pagers) and home-use rights could be problematic – some vendors allow them, while others do not.  In addition, some licenses are transferable from one PC to another, while others are not.

How does the BSA find their culprits?

Typically, disgruntled employees are the number one source of leads obtained by the BSA.  The BSA receives about 1,500 calls a year from its hotline (888-NOPIRACY) and about as many leads from e-mails sent to its Web site.  If an initial investigation turns up substantial evidence that a company is using unauthorized software, the BSA will move to obtain a court order to perform an audit on the offending company.

This audit is more like a raid because the BSA auditors, along with a few not so friendly U.S. Marshals, show up at the business under suspicion. They proceed to audit and inventory every piece of software installed on every computer system including workstations, laptops and servers.  Each software use for which the company cannot provide a valid license is fined up to $150,000.  These raids are usually highly publicized – a deliberate attempt by the BSA to promote awareness of the consequences of the illegal distribution of software.  If you think this scenario is extreme, think again.  The BSA is stepping up its efforts and is determined to make examples out of more companies.

Conclusion

With the risk of thousands of dollars in fines and a publicly embarrassing audit, executives need to be cognizant of their potential role and responsibilities when dealing with software piracy within the firms they work for.  Demonstrate to your organization that you have a keen understanding of licensing issues and bring to light any occurrence of noncompliance you find.  Go a step further and present ways for your company to assess and gain compliance in an effort to keep organizations like the BSA from knocking on the door.

Additional Resources:

SIIA Guidelines to Maintaining Compliance with Software Licensing Agreements