By LAURIE FLYNN
c.1996 N.Y. Times News Service
(Cyber Times is coming soon at [4]http://www.nytimes.com )
When police raided the software mail-order business that Thomas Nick
Alefantes ran from his Los Angeles home, they uncovered a
counterfeiting operation on a scale typically found only in overseas
factories beyond the reach of American software-copyright enforcement.
Using relatively low-cost copying equipment, Alefantes, who pleaded
guilty to two felony charges and is to be sentenced this month,
amassed millions of dollars worth of CD-ROM counterfeits of Microsoft
business software and Autodesk computer-aided design programs, among
other pirated software.
For the U.S. software industry, Alefantes - or Captain Blood, as he
calls himself, after the high-seas pirate played by Errol Flynn in the
1935 film - is a personification of the sharp increase it fears in
software piracy. New, low-cost techniques are making it easier to
produce and distribute unauthorized copies of valuable programs.
Even as they worry about the multimillion-dollar offshore
counterfeiting factories that have bedeviled U.S. software companies
in recent years, industry executives are bracing for a surge of
on-shore counterfeiters abetted by inexpensive CD-ROM copying devices,
or by ever-easier access to the Internet, where bootleg software can
flow like hooch down the Mississipi.
``If the prices of CD-ROM recordables continue to fall, it opens up a
whole new front,'' said Robert Kruger, a former federal prosecutor who
directs copyright enforcement for the Business Software Alliance, an
industry group in Washington. ``And Internet piracy is going to take
us off in a hundred new directions if we're going to keep up with
it.''
A continuously updated ``piracy meter'' in the group's headquarters
indicated last week that the estimated level of illegally copied
software had reached nearly $144 million worldwide through the first
four days of 1996.
In recent years, the illegal distribution of U.S. software
internationally has been a major concern and a thorny diplomatic issue
for the United States and its Pacific Rim partners. In Japan alone,
estimated losses from piracy to U.S. and other software companies
exceeded $1.3 billion in 1994, the last year for which figures are
available.
In China, according to another U.S. trade group, the Software
Publishers Association, only 1 of every 50 copies of software is
legal.
Throughout Asia, software counterfeiters use high-speed CD-ROM
duplicating equipment that can cost $1 million to stamp out copies of
software programs, sometimes cramming dozens of different products
onto one disk.
Last year in Hong Kong, for example, Microsoft's general counsel,
David Curtis, said he was able to buy a CD-ROM containing nearly 70
software titles, including a dozen Microsoft programs. Curtis said he
paid $50 for a collection with total market value well over $30,000.
Yet the Software Publishers Association said that in the United
States, the level of software piracy had been falling - even though,
with the size of the U.S. market, total losses were among the highest.
In 1994 compared with 1993, the value of illegal software produced in
this country fell nearly 50 percent, to $1.05 billion, the association
said.
It attributed the decline in domestic software crime to an education
campaign aimed at corporations and to stiffer penalties.
But thanks to the explosive growth of the consumer CD-ROM industry and
the great popularity of the Internet, software piracy seems ready to
rise again in the United States.
``We always thought our biggest losses were in corporations, where
they were distributing more copies of software than they had
purchased,'' said Sandra Boulton, director of the antipiracy
department at Autodesk, whose $4,000 Autocad design software is
popular with architects and engineers, and has been a preferred target
of software counterfeiters.
``But now we're seeing new technologies like the Internet and CD-ROM
duplicators play a role,'' Ms. Boulton said.
The CD-ROM drives typically sold with home computers are ``read
only,'' meaning that they can be used to play CD-ROM disks containing
multimedia games or large reference works, but the computer user
cannot alter or copy the disks. But low-speed recordable drives for
use with home computers, will soon be priced as low as $500.
The CD-ROM recordable machines have legitimate uses, like storing
graphics and large quantities of data that would not fit easily onto
floppy disks. But the availability of low-cost duplicators opens a new
market to software counterfeiters, making it even cheaper for
operators following in Captain Blood's bootprints to do plenty of
damage.
For software programs that are not so large that they require a
CD-ROM's vast storage space, the Internet presents a potentially
bigger threat in dollar terms. (Because it lacks any central
authority, the Internet is particularly difficult for law-enforcement
agencies to monitor for piracy. Some software publishers have taken to
calling it the ``home shoplifting network.'')
While pirates had long ago discovered the advantages of distributing
software over private electronic bulletin boards, officials today
estimate there are already hundreds of Internet news groups, mostly
under the heading alt.binaries.warez.
On these, software pirates upload programs that any of the world's
estimated 30 million Internet users can download onto their own
computers.
Blurring the ethics and perceived criminality of this form of theft is
the fact that many software companies - including Autodesk and
Microsoft - are increasingly looking to the Internet as a medium for
selling their software electronically, Ms. Bolton said.
Customers might, for example, be able to download the program they
want to buy, and then pay to receive a code that unlocks it and makes
it usable. Publishers worry that network thieves will find a way to
unlock these programs themselves and distribute them.
There is also the challenge for law- enforcement agencies of having to
interpret copyright and counterfeiting laws written before the arrival
of a high-speed communications network.
``None of our laws were written with the Internet in mind,'' said
Lawrence Morrison, the assistant district attorney in Los Angeles who
prosecuted Captain Blood. ``It's going to be interesting to see if law
enforcement can keep up.''
Last year, a Boston judge dismissed a case against David LaMacchia, an
MIT engineering student accused of illegally distributing more than $1
million in copyrighted software over the Internet. The judge ruled
that there had been no financial gain involved.
The LaMacchia case ``shows the difficulty of applying existing laws to
emerging technologies,'' said Scott Charney, chief of the computer
crime unit at the Justice Department.
It used to be that industry and law-enforcement efforts to curb
software piracy focused on unlicensed copies circulating in
corporations, and on the casual copying of software among friends.
But now, with technology giving new power to the criminally inclined,
specialists say they are seeing gangs and even organized crime rings
move into software counterfeiting.
``In the last three years, so many new technologies have arrived,''
Kruger said. ``Now I look back and the old problems almost seem
quaint.''