The Social Science Research Council Comments on Software Piracy

The Social Science Research Council submitted a Comment to the USTR about software piracy, as part of the public hearing process for the 2011 Special 301 Report.  The submission cites, and largely echoes, my 2005 paper on network effects and software piracy.  Nice.

The SSRC provides the following summary of its submission:

• Unlike recorded media business models such as the CD and DVD businesses, piracy is not primarily a drain on the software business, but rather a critical part of the business model that allows the building market share in low income countries and the effective locking out of open source alternatives.  These network effects are enormously valuable to quasi-monopoly providers like Microsoft, but also smaller vendors seeking to establish a foothold in foreign markets.
• Unlike recorded media business models, the software industry has strong forms of technical protection at its disposal that go mostly unexercised because for fear of inconveniencing paying customers.
• Unlike recorded media business models, the software industry has an entirely viable business model in developing countries, based on institutional licenses to large businesses and the public sector.  The consumer/retail sector is effectively ignored through western-level pricing.  This model has allowed Microsoft, for example, to report 100% growth in sales in China in 2010, despite what the 2010 Special 301 report characterizes as a near total lack of enforcement.
• Enforcement plays a role in this strategy in the form of pressure on institutions to legalize.  But the key market factor is the threat of adoption of open source alternatives, which creates competitive pricing pressure and leads to lower-prices on licenses.
• The USTR plays and important role in this context by encouraging countries to legalize software in the public sector and to enforce against commercial pirate vendors under the TRIPS agreement.  But in our view, given the complex relationship between legal, unlicensed, and open source adoption, that is as far as the evidence of harms goes.  The assumption that there are massive overall losses to US software industries from piracy or significant benefits to stronger criminal provisions for end-user infringement should be heavily discounted.  The problem of business sector piracy is best left to the technical protection measures of the vendors and the civil courts.  The question of software choice, often involving open source adoption as a strategy for combatting piracy should be left to governments.

According to the SSRC, this conclusions are based on a 3-year study of software, film, and music piracy in developing countries, which is expected to be released soon.  I look forward to reading it.