“No. 1 pirate” status

The International Intellectual Property Alliance (IIPA) has recommended designating Ukraine as a Priority Foreign Country (a country that extremely ineffectively defends intellectual property rights) on its list of the states that infringe copyrights. It is in fact a country with “No. 1 pirate” status because no other country has this kind of status. Yet, according to the alliance’s information which we publish as illustration to the interview, there are a lot of other countries in which the level of piracy considerably exceeds that in Ukraine. Why is the alliance taking such a dim view of Ukraine? The answer is in an exclusive interview of The Day with Dinis COUTO, General Manager, Worldwide Anti-Piracy, Microsoft Corporation.

Is this the first time you are in Ukraine?

“Yes.”

What caused this visit?

“I am in charge of worldwide anti-piracy in Microsoft. Ukraine is a market which we are watching closely.

“According to the statistics the BSA [Business Software Alliance. – Ed.] recently published, pirated software in Ukraine has reached 84 percent. Unfortunately, it is the same situation that existed here 6-7 years ago. In other words, Ukraine shows no progress in software piracy control, whereas other countries all over the world are increasing this control, which helps spread innovations, create new jobs, and strengthen the economies of the countries that have gone this way.

“So the aim of my visit is to understand what the Ukrainian team is doing and what I can do in my office to support these efforts.”

What is the worldwide and region-wise software piracy rate?

“The global average is 42 percent. For more details, see the BSA statistics [a table to the article, ‘Software Piracy Rate in Various Countries of the World.’ – Ed.].”

THE BASIC RULE: LAW, KNOWLEDGE, AND APPLICATION

What do you think caused the piracy rate in Ukraine to be twice as high as the global average?

“This was caused by a combination of numerous factors. The first organization that is supposed to protect intellectual property rights in a country is the government. For example, ten years ago the Russian government took some serious anti-piracy steps. They have managed to bring the level down by 20 percentage points since then.

“These efforts can be divided into three components. The first is legislative initiative. The second is educational programs. People should be aware that intellectual property, such as literary works, music, and even this interview must not be stolen just at will. And, finally, the third is legal application of the adopted legislative acts.

“So the process should look as follows: laws are passed, people are informed that the legal field has changed, and they are told that the state possesses law application mechanisms and will punish the violators who will flout the rules.

“Today, we can really see certain progress in Ukraine in the first component, i.e., adoption of the necessary laws. Since October 2012, certain juridical mechanisms of protection have been applied against the civil servants who use pirated software. For example, if it is proved that the individual user pirated software, he or she is to pay a penalty tens of times as high as the cost of the licensed software the right to which they infringed – even if the individual tries to persuade you that they have never made use of this pirated program. The very fact of this program being in the computer is ample proof that you have breached the law.

“But we can so far see no progress in law application – in other words, there are no copyright protection mechanisms that would allow us to be convinced that these decisions work.”

But there has been a precedent. In October 2012 the Transcarpathian Oblast Business Court ordered Uzhhorod International Airport, a communally-owned enterprise, to pay compensation (over 66,000 hryvnias) to Microsoft for using computers with illegal software (for details, see the article “First ‘Harvest’ in Fighting Piracy at Town Halls,” Den, October 26, 2012). Besides, Ukrainian courts are handling about 100 software-related criminal cases.

“That’s right. There is some progress. But only time will show whether it is isolated instances or a true system that allows one to see that the law is being observed and people can trust it.

“For example, there is a law that obliges all drivers to use seat belts. But most of those on Ukrainian roads do not observe this.

“I hail from Portugal. I can remember that safety belts were not used in my country, either. Our government took a three-stage approach. Firstly, a law was passed, under which a driver could only drive a car with the seat belt fastened. Then, for several years on end, TV channels supported the government by showing adverts of seat belts. The chief message was: if you don’t buckle up, you may well die. This law began to be applied from scratch. It was valid, but nobody obeyed it. For as long as three to five years, patrols would stop and fine drivers for breaking this legal provision. As a result, the level of law observance rose to 80-90 percent.”

Let us get back to the 84 percent rate. Who most often infringes the intellectual property law in Ukraine? Is big business among the culprits? Or does this indicator mostly refer to individual users?

“It is so far a question of state entities. Even the Ukrainian government admits that about a half of computers in governmental institutions are equipped with pirated software.

“So everything begins with the government. Then this problem extends to state-run institutions and organizations, and then to society as a whole.”

So how can one expect adequate actions from a government that breaks the law itself?

“This is exactly the way we are putting the question. The IIPA recommends the designation of Ukraine as a Priority Foreign Country (PFC) under the Special 301 statute. Currently, it is on the Watch List. According to the alliance, the government of Ukraine is the largest user of illegal software.”

Is Microsoft prepared to help the Ukrainian government to switch to licensed software? I mean preferential programs of supplying governmental institutions with software, etc.

“We are prepared to sit at the negotiating table and discuss not only the way we can help the government to use licensed software, but also the way we could help the entire society to eradicate pirated software. It is not only about protecting Microsoft business. I am trying to persuade you that we do not have mercantile interest alone in this matter. Naturally, business tasks and goals are important for us. But still more important is solution of the piracy problem with due account of the country’s future. If nothing is done, the economy will not develop properly, no new jobs will be created, and no innovations will be applied. And, on the whole, this will reduce competitiveness of the Ukrainian economy on the world market. For example, if Ukraine continues to be on the IIPA Watch List, this may result in the imposition of certain sanctions.”

Which ones?

“For instance, certain Ukrainian producers, which could sell their products to, say, the US, may be denied the right to supply them duty-free. The Obama Administration has established a fair business practices commission. In pursuance of its mandate, the commission has already sued three foreign producers that used pirated software to manufacture their products. These cases refer to producers from Thailand, India, and China.

“Secondly, who will wish to invest in innovations and high-technology development in Ukraine if they have no guarantees that their money will be returned? Therefore, the country is running the risk of remaining on the fringe of world progress.

The domestic market, particularly software designers, is also feeling a negative impact. There are up to 95,000 companies in Ukraine, which cannot work here for want of a relevant legislative field to protect intellectual property rights.

“And, finally, the ‘pirates’ are people who pay no taxes. As a result, Ukraine’s budget runs short of the revenues that could be reinvested in the economy.”

IS “PIRACY” AN ECONOMIC OR A MENTAL NOTION?

Do you see a relationship between the piracy level and the country’s living standards? Are there any examples when an economically developed country shows a high software piracy rate and, on the contrary, when the government and the populace of a “poor” country strictly observe intellectual property rights?

“The piracy rate in the developed countries ranges between 20 and 25 percent. But, of course, even in some EU member states this indicator is above 40 percent. I mean, in particular, Spain, Italy, and, much to my shame, Portugal.

“But it is difficult to answer off the cuff the second part of your question. I cannot recall a single developing country that has good laws on intellectual property rights observation.

“Yet there are some countries that managed to slash the piracy rate in a few years’ time. We have already mentioned Russia. The second country is Brazil which has reduced the piracy level by 15 percentage points in the past eight years. And the third one is Colombia.

“The countries that have taken a firm stand about protecting intellectual property right are aware that it is unrealistic to build an economy of the future unless piracy is eradicated. Obviously, the economy of the future means offering services rather than producing material benefits.”

Can you tell us, on the example of Brazil, Colombia, and Russia, about the positive economic effect of the piracy rate reduction, such as growth of investments in software development, higher tax revenues from the IT industry, etc.?

“Colombia is a good example. They adopted amendments to the tax law, which bind legal entities to declare not only their own profits, but also the software which they use for business purposes. So when the inspector comes, he can check whether the software is licensed.

“Meanwhile, Brazil has essentially improved its investment attractiveness by overcoming piracy. Such companies as Microsoft and IBM really began to create jobs and fund software research and development centers in Brazil. And the people who dealt with pirated software earlier can now design licensed products. In addition, Microsoft has even built in Brazil a factory that makes Xbox video game consoles.”

To what level should Ukraine reduce piracy to encourage such big IT companies as Microsoft to invest in this country, open a software R&D center, or build a factory like the one in Brazil?

“The example I can give you straightaway is the opening of a Windows8 shop. We can discuss now the possibility of giving Ukrainian software designers an opportunity to sell their products via our shop. They can thus derive a profit from their designs on our platform.

“This is the first that comes to mind, but it’s far from all. Naturally, we cannot guarantee supporting all countries in the same way, but we know that the Microsoft team in Ukraine and its general manager Dmytro Shymkiv are inclined to help the economy switch to licensed S/W.”

This may produce a lot of jobless programmers who deal now with pirated software. What about them?

“As a matter of fact, we note that the very fact that a country uses pirated S/W testifies to the level of organized crime. We know instances when pirated S/W sale earnings were used to fund criminal groupings. Unfortunately, the government is taking a tougher attitude to such crimes as drug trafficking rather than to pirated S/W sales. Hence, the lack of protection mechanisms at the level of law-enforcement bodies results in a situation when criminals sell pirated S/W and thus earn money to acquire weapons or drugs.

“Incidentally, the FBI recently conducted, in conjunction with Mexican police, an investigation into the drug cartel La Familia. The business pattern of this thriving organization allowed it to reap considerable profits from selling fake software and then use them to ‘finance’ crimes. Unfortunately, this is not the only instance.”

“FREE” SOFTWARE SHOULD BE PAID FOR WITH PERSONAL INFORMATION

Let us change a little the subject of our conversation. The key conflict of present-day information society is a conflict between the copyright and a vogue for “free access to knowledge.” In what way do you think it will be settled in the future?

“Both approaches can exist in a global context. For example, Microsoft offers certain services free of charge to small-scale business, such as e-mail, antivirus and search resources… But there is some other software which we sell.

“We should not forget about competition, for Microsoft is not the only producer of software, which sells its programs. There are also some others which offer certain services free of charge to be able to sell their product.”

So this trend forces companies to be more flexible?

“Competition only makes us better.”

I can remember Google vice-president Amit Singh telling AllThingsD later last year that Google Apps was planning to win over 90 percent of Microsoft Office users. What do you think of this risk?

“One should know who the Google customers are. They are end users of S/W. They are advertisers. For this reason, Google really offered some programs free of charge to small and medium business. But they ceased to do so a month or two ago.

“Google claims it will be offering products free of charge to its end users but, in exchange, they will gain access to their personal data. Other companies can learn in this way from Google that there are such and such users that are interested in their products. So they will begin emailing you their adverts or other messages.

“In the US, people do not like the very fact that somebody other than they can have access to their email – even in exchange for the presumably useful information. But, of course, there are people who are indifferent to this.”

To conclude our conversation, would the Microsoft vice-president in charge of intellectual property protection say why the Ukrainians must pay for software?

“Most users do not even suspect that, by using unlicensed S/W, they infect their computers with viruses. In almost eight out of ten instances (a little more than 74 percent of computers), when the user applies unlicensed S/W, he or she loses personal photos posted in their computers, information about their banking account, etc. What I said about the criminal schemes, when drug trafficking is financed with the money derived from unlicensed S/W sales, is just one aspect. For, in reality, criminals kill two birds with one stone. On the one hand, they sell you their pirated product and then, with your own ‘assistance’ and with your own money, they rob you, infecting your computer with viruses.

“And, of course, by contrast with companies, ‘pirates’ give no guarantees or offer services for their product.

“And when unlicensed software is used in governmental institution computers, for example, in a ministry, the country’s national security is at stake. In Ukraine, where about 50 percent of civil servants use pirated S/W in the line of duty, this is a critical issue. For pirates can easily gain access, by means of viruses, to confidential information about some governmental decisions and questions that refer to the defense sector, energy supply, nuclear power plants, etc.”