"Don’t copy that IP!" Pirated and counterfeit software

Clothing — particularly footwear — holds the regrettable honor of being the most commonly counterfeited product type, with apparel vendors in 2020 losing about $26 billion USD in direct sales due to fakes. But bogus software presents significant risks in our tech-driven world, and we must fully understand the problem to tackle it, upholding the underlying Intellectual Property (IP) in the process. This starts with the distinction between pirated and counterfeit software.

What is the difference between pirated and counterfeit software?

The biggest differentiating factors between these two spurious products are the rights being violated and how the illegitimate goods are presented and distributed.

Piracy: the "kinder, gentler" product fraud?

Software piracy refers to the unauthorized copying of computer programs or the use of illegal copies. This includes running software without its proper license. According to the Business Software Alliance (BSA) Global Software Survey, 37% of all software used during 2018 (the most recent year for which data is available) was unlicensed.

It is important to keep in mind that while pirating programs or applications always denies software companies income, it does not necessarily involve resale. Someone could pirate copyrighted software and distribute it for free or download an unauthorized copy solely for personal use.

Pirated software can easily constitute copyright infringement, with any graphical, audio or text elements contained therein eligible for this kind of IP protection as well as the software's underlying code in many jurisdictions. However, pirating can only be patent infringement in the United States, European Union and various countries if the program is the subject of a valid software patent. That being the case, this type of IP has to meet strict eligibility requirements in each of the mentioned jurisdictions.

Counterfeiting: a wolf in sheep's clothing

Counterfeit software differs from its pirated counterpart in that the criminals responsible disguise the programs they illicitly market as genuine products from the original creator. The counterfeit goods being sold could be pirated products, or they might be completely falsified: crafted by unscrupulous software engineers to mimic – to a greater or lesser degree – the expected function, appearance and user experience of the original.

At any rate, presenting bogus items as genuine articles is what makes this act counterfeiting — and potentially introduces trademark infringement to the list of IP transgressions. If a counterfeiter replicates packaging, branding or labeling protected by (un)registered trademarks, they are violating trademark law in addition to copyright regulations and patent law (if applicable).

Economic damage and consumer danger

Pirated and counterfeit software contribute to a black-market economy and so divert sales away from legitimate businesses and funnel cash to criminal enterprises. Though fake software is not as pervasive as counterfeit clothing, the cost to the actual developers and distributors is huge. Even something as seemingly innocuous as broken software licensing agreements costs the industry at least $46 billion USD worldwide, per BSA data.

Software industry giants like Microsoft and Google can generally absorb the damages of piracy and counterfeiting and remain viable, but they are in the minority. The field's midsize and small companies, as well as independent software developers and mobile app designers, stand to lose a great deal. Revenue lost through IP infringement could lead to anything from staff layoffs to total business failure. Rampant counterfeiting and piracy might also discourage would-be innovators from entering the industry and turn investors away from avant-garde startups.

And then, naturally, there is the impact on the consumer. Those who receive counterfeit or pirated goods without deception (i.e., who know they are purchasing something fake) tacitly accept numerous risks: subpar functionality, glitches, progressive degradation, lack of updates and support and so on. But victims of underhand counterfeiting are often enticed through a combination of convincing fraud and bargain pricing and do not know they are buying something spurious.

Whatever the case, illegal software carries another insidious threat. Any illegitimate program can be an extremely effective delivery system for malware, which can destroy users' files, hijack their systems to nefarious ends, purloin their identity or even hold their data for ransom.

Fighting software crime with IP protections

Prolific file-sharing online means pirating will remain an unfortunate fact of life for software developers the world over. According to CreativeFuture, an advocacy group of U.S. entertainment organizations against copyright infringement, piracy costs the U.S. government $29.2 billion USD every year. The numbers are shockingly high and consistent, as witnessed by the annual Online Copyright Infringement Tracker report on behalf of the United Kingdom Intellectual Property Office (UK IPO). Having been following infringement behavior for more than a decade, the report's latest publication revealed that the "overall level of infringement for all content categories (excluding digital visual images) was 25%, which is 2% higher than the previous year but the same as in four of the previous five years."

Against such a resilient threat, the best solution is an equally determined policy of IP enforcement. By tirelessly asserting one's exclusive rights, sites hosting illegal downloads can be petitioned to remove the offending content and suspend individual users. Those sites that are complicit in black-market activities can be stricken from search engine results or even shut down by the server owners.

By sending accurate and legally sound takedown requests to the appropriate link in the internet service chain, copyright infringement is combatable. This process can be strengthened by registering copyrights if the option exists in a given jurisdiction. Additionally, civil or criminal court proceedings can be leveled against the most egregious offenders.

Against counterfeiting, an IP owner has even more tools at his disposal. Since brand imitation is involved, trademark registration is an effective defense mechanism. A strategy of registering and maintaining trademarks in all operating markets puts a stranglehold on counterfeiters' activities. While individually copyrighted assets can be difficult to detect online, a trademark is more readily spotted, making it possible to take swift action against infringement using many of the same measures described above. However, counterfeiting is more severely punishable than piracy, with the former being a federal crime in the United States if the government itself is the victim of the fraud. The crux of the matter is that counterfeiting is widely viewed as a criminal offense in addition to a cause of civil damages.

Finally, a patent grant is another means of tackling counterfeit software. If a computer program delivers a technical solution to a real-life problem, it may be eligible for a patent in many jurisdictions. In the European Union, for instance, a piece of software is patentable if it can be demonstrated that its effect extends beyond the computer system's normal operations.

Software piracy and counterfeiting are not "victimless crimes," but that does not mean you need to become a victim to prove the point. The legal experts at Dennemeyer bring the knowledge and reach to secure your software with the IP rights you need and enforce those same rights globally. And if the worst should happen, you can be sure you have the best in the business at your side.