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Net execs warn peers about anti-piracy trap

From...

by Carolyn Duffy Marsan

(IDG) -- Time is running out for network executives who have until the end of this month to turn themselves in to the software police or risk paying steep penalties for running unlicensed software.

The Business Software Alliance (BSA) is promoting a month-long compliance truce in five U.S. cities: Boston, Chicago, Cleveland, Dallas and Denver. People in these cities can acquire needed software licenses without getting in trouble for past infringement.

Although the odds of getting caught with unlicensed software are slim, the consequences are grave. Companies face year-long investigations, fines as high as $500,000 and bad publicity when a settlement is announced.

"It was the longest year of my life," says Neal Underwood, IT director at Best Consulting in Kirkland, Wash., of his involvement with a BSA settlement.

Underwood says he was auditing his company's licenses when a recently terminated employee contacted the BSA's piracy hotline. After the audit turned up 120 missing licenses for Microsoft Windows and Office on the firm's network of 1,100 PCs, Underwood found himself embroiled in months of legal wrangling.

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When Best Consulting finally settled with the BSA last October and agreed to pay a $300,000 fine, Underwood was mortified to see the story picked up by local newspapers and radio stations.

"It became very personal," Underwood says. "The IT community here is very small, and it was embarrassing to have this blemish on your record."

Chris Piccirilli, MIS director at Turnberry Isles Resort and Club, says that with 20 years in the IT business he thought he was up to speed on software licensing.

"I always preached that we needed to be in compliance, and we still got in trouble," he says.

Following an upgrade from DOS to Windows, the Florida resort was hit with a BSA investigation. An internal audit showed that Turnberry Isles was missing licenses for 20 copies of Office and 25 copies of Windows running on its 150-computer network. The resort paid an $85,000 fine in June.

"We're doing internal audits twice a quarter"' says Piccirilli, who keeps detailed records and invoices in a safe. "We have a letter going out to employees three times a year that says anybody caught loading software will be terminated."

Few network professionals realize that their companies are liable for $150,000 in damages for each unlicensed software package. They certainly don't see themselves as criminals when they get behind on purchasing software licenses. And they find maintaining up-to-date licenses to be a tricky and time-consuming task, particularly for far-flung and fast-growing organizations.

"Our top management is now extremely, painfully aware of software licensing,'' Underwood says, adding that the BSA settlement affected the firm's profitability last year. Being out of compliance "has the potential to put you out of business....This is one of those hidden threats to your company."

The BSA, a Washington, D.C., trade group that includes Microsoft, Symantec, Network Associates and other software makers, has enforced copyright laws for eight years. But, with more than $58 million in collections, the BSA is getting more aggressive in going after scofflaws and encouraging voluntary surrenders through high-profile media campaigns. BSA uses the money it collects to fund its education and enforcement programs.

Last year, the BSA settled with more than 200 U.S. violators and identified 34 of them, including Temple University, the City of Issaquah, Wash., and a Pepsi-Cola bottling plant in Illinois. Manufacturers, law firms and even software companies came up short when the BSA audited their operating systems, applications and utilities.

Altogether, the BSA collected $4.5 million from the identified companies last year. Fines ranged from $33,000 paid by North End Composites, a Rockland, Maine, manufacturer of fiberglass boats, to $434,489 levied against North American Medical Management of Texas, an HMO management company in Houston. The average settlement was $132,654.

However, the dozens of companies caught last year represent only a small fraction of the overall software piracy problem. The BSA says more than $3 billion in retail software revenue is lost each year due to piracy in the U.S., and that one in four software copies is illegal. BSA uses its lawsuits and the publicity surrounding them to hammer home the message that businesses face hefty fines if caught without enough licenses.

Bob Kruger, vice president of enforcement for the BSA, says offenders run the gamut from companies that deliberately make illegal copies of software as a way of cutting IT costs to those whose software management policies aren't being followed by all employees.

"One of the reasons this happens is that people don't fully appreciate that what they're doing could have serious consequences," Kruger says. "They think they won't get caught, or if they do get caught, it will be like a traffic ticket."

Most companies get caught because a current or former employee contacts the BSA's hotline, which receives a dozen or more calls a day. A phone call launches an investigation by the BSA, which can access software publishers' databases to determine how many copies a company is licensed to run.

BSA usually invites the company to cooperate with its investigation. But in some cases, the BSA will get a court order that allows it to conduct a surprise audit with the U.S. Marshals Service in tow.

For example, the BSA in September raided Ernie Ball, a California manufacturer of musical instruments.

The BSA typically demands millions of dollars in damages but then negotiates that figure downward. While the BSA can seek $150,000 for each unlicensed copy, the group often settles in the $25,000 to $50,000 range.

"If a company does get caught, it's too late to go out and buy the software," Kruger says. "Otherwise there's no incentive for companies to deal with this on their own. We make it expensive for the companies that get caught."

Most of those caught by the BSA say any illegal copying of software was accidental and done by rogue employees. Nonetheless, the BSA forces these companies to delete the illegal software, buy legal copies, put a software management program in place and pay damages.

"Many companies are under pressure to keep their costs down, but they don't steal their office furniture off the truck," Kruger says. "One of the reasons people steal software is that it's easy to do."

The City of Issaquah, Wash., is typical of how an organization can inadvertently run afoul of copyright laws. City administrator Leon Kos says his sole IT staff person didn't understand software licensing and neither did he. When an audit found the city was missing 120 licenses for software from Adobe, Autodesk, Microsoft and Symantec, the city agreed to settle with the BSA for $80,000.

Kos now forbids the city's 200 employees from installing software on their PCs without approval from the IT department. He also expanded the IT department to three people and requires regular audits.

Still, Kos isn't sure that he's in full compliance.

"Licensing requirements are so complex," he says, adding that if the BSA conducted another audit, "I'm confident they would find a problem."

Companies frequently run into copyright problems with Microsoft operating systems and applications.

"Microsoft products are the most confusing," says David Roth, a technical support analyst with Americo Financial Life and Annuity in Kansas City, Mo. "They have full-blown licenses, upgrades and upgrades from an upgrade. Twice they've changed the way they do their licensing in the last three years."

Roth was conducting an audit of the insurance company's 1,000 PCs, servers and laptops when the BSA contacted him. Roth says Americo was short about three dozen licenses for Microsoft Word, Office, Project, Access and Windows. Americo paid the BSA a $215,000 fine.

"At one time it was believed we had a site license and could install Microsoft products wherever we wanted," Roth explains.

Now Americo runs all software purchases through one IT staff member and uses one software reseller.

Despite the consequences, few network managers are fired or even disciplined if found short on licenses.

"We didn't fire our IT person because we didn't consider it his fault," Kos says. "We had him totally buried in keeping our systems going....We didn't fully understand what was required."

Indeed, IT recruiters report that software licensing is never mentioned when companies interview candidates for top IT management positions.

"In all the CIO searches that I've done, I can't recall a single discussion with a client about software licensing," says John Daily, managing director for technology at Christian & Timbers. "I guess it's just Management 101. CIOs are expected to keep track of their assets and pay for what they need."