Software piracy: Malaysia and BSA join forces for clampdown

Posted on July 9, 1999 
Filed Under CNET, Julian

By Julian Matthews

The Malaysian government, working in tandem with industry watchdog Business Software Alliance is coming down hard on software piracy like never before.

By government estimates, from April to June, 4,629 raids had been conducted with seizures exceeding RM4 million (US$1.05 million). This figure is dramatic in light of the fact that only RM3 million (US$790,000) worth was seized for the whole of last year.

The nation-wide blitzkrieg is sending out real fear among corporate users and computer retailers, many of whom have been struggling to stay afloat in the past year.

The BSA issued a stern warning last month when it sued a Malacca manufacturing firm claiming RM300,000 (US$79,000) in damages, costs and aggravated damages for alleged copyright infringement.

Although only an estimated RM240,000 (US$63,000) worth of suspected infringing software had been seized from the premises of the firm, BSA was seeking additional punitive damages, suggesting it had adopted a more venomous legal stance.

Last month, BSA vice president and country manager Lee Tse Mei reportedly said the case was by no means its last. She said BSA had adopted the two-pronged approach of criminal and civil action to bolster its anti-piracy efforts.

Under the Malaysian Copyright Act 1987, companies found guilty can be fined up to RM10,000 (US$2,632) for each copy of illegal software seized and company staff can be jailed for up to five years.

Lee said a crucial tool aiding the BSA in its efforts was the set-up of a new toll-free hotline in April, and a cash reward system–RM10,000 (US$2,632) to information leading to a successful raid, and an additional RM5,000 to RM10,000 for assisting in the successful prosecution of offenders.

BSA and the enforcement division of the Domestic Trade and Consumer Affairs Ministry began the piracy clampdown from April 9 after the launch of a month-long nationwide awareness campaign. The BSA also called on suspect companies directly to confirm whether they were using legal software so they could be removed of a 7,500-company blacklist. Those found infringing were raided or warned.

Following the campaign, another month-long grace period was allowed for companies to comply. This grace period ended in early June. But the frequency of the raids has prompted public outcry.

Should software publishers meddle?

Certain quarters went so far as to allege that Malaysia was being held ransom by foreign multinationals wanting to invest in the country–but only on the condition that the country took serious steps to wipe out piracy. Government officials were quick to deny the accusation.

However, the allegation may not be too far removed from the truth. BSA represents some of the most powerful software developers in the world, including Microsoft Corp, Autodesk, Inc, Lotus Development Corp, Novell, Inc and Adobe Systems, Inc.

Microsoft, Lotus and Novell have taken a keen interest in Malaysia’s Multimedia Super Corridor (MSC) project, which is aimed at attracting such global companies to set up regional bases to spur research and development, particularly in new software applications and services.

Microsoft’s Bill Gates who has visited Malaysia and met Prime Minister Dr Mahathir Mohamad on several occasions is also known to have brought up the piracy issue to the negotiating table. Recently, Microsoft as part of separate consortia, was on the receiving end of at least three contracts related to the MSC’s key application–electronic government.

“Why are enforcement officials collaborating with the foreign copyright owners in the first place?” questioned Hamdan Adnan, president of the Federation of Malaysian Consumer Associations (FOMCA), indicating that the “relationship” may have a darker side and was open to corruption.

Hamdan said it is ironical that the same Government who wants to encourage the widespread use of software through its MSC initiatives is also putting software out of reach of most consumers. “Students can’t afford to pay for original software, so how do you expect them to acquire the skills required to participate in IT-based industries?” he said angrily.

Hamdan said the crux of the piracy problem was one of pricing. “Software publishers should and must bring down prices because they will never gain the markets they are trying to police otherwise. People can’t afford the software. If you put one retailer out of business, consumers will source it elsewhere anyway,” he said.

Hamdan added that if the Government is serious about encouraging software use, it must force the multinationals to meet consumers halfway. “Set up a system or Malaysian pricing structure that makes software more affordable.”

He also described recent tactics by software companies to force computer retailers to advertise apologies for copyright infringement in local press as “underhanded”. “That kind of authority belongs to the State, not to multinationals. You shouldn’t victimize the PC retailers when your high prices are what tempts them to sell pirated copies in the first place,” he noted.

Digging up techdirt

One PC retailer who spoke only on anonymity said piracy investigators sometimes pose as home users and ask for specific software to be downloaded. Then after purchases are made, they either bring in enforcement officials or lawyers to “trap” the retailers into settlements. The settlements usually include placing public apologies in local newspapers.

He said that such moves work against PC retailers who are in the business of selling hardware and peripherals, not software.

“Most retailers don’t make money from the software. Margins for selling the PCs are already razor-thin, as little as 10 percent. We make about RM300 to RM600 per box. We used to throw in the software for free or at marginal cost because customers demand it. If you put in original software that may load on 60 – 100 percent more onto the price per PC, consumers cannot afford that,” he said.

The retailer is located in Petaling Jaya, a satellite town of capital city Kuala Lumpur, which has become a hotbed for information technology businesses. He added that established retailers have become more wary of raids and load software only for “known” customers, sometimes even making personal calls at their offices or homes to do so.

“For customers we’re not sure of who insist on ‘free’ software, we send on to Imbi Plaza,” he said, referring to a shopping complex in KL which is notorious for repeated raids on PC retailers who somehow sprout up again.

The retailer explained that new players are more willing to take risks. “They don’t have the customer base yet and sell clones at rock-bottom prices. If they can make additional money from loading software and games, why not? I don’t blame them. It’s a tough business to make a buck.”

The retailer, however, agreed that anti-piracy efforts were in the long-term interest of the industry, but would rather that enforcement focus on the bigger corporate users and not the retailers, smaller offices or home users. “Let the copyright message and education filter down from that direction. Then we, too, can establish the software end of our business and gradually move the SOHO (small office/home office) market in that direction,” he said.

The Association of Computer Industry Malaysia (Pikom) said there is no simple or short-term solution to the piracy problem in Malaysia. Its executive director Alan Fung said that although retailers were not entirely to blame, a “few bad apples” are spoiling the industry by their flagrant disregard for the law.

He said the dual approach in educating home and corporate users and enforcement was crucial in the long term. “I am not agreeable to certain tactics being used, but if it improves the piracy rates, it should be a cause for celebration,” he said.

Fung, whose association represents 300 computer vendors, retailers and traders, said the enforcement efforts make the industry more viable and credible, especially against the larger context of the MSC which is aimed at growing the software industry.

Fung added that he does not see software publishers reducing their pricing to alleviate the piracy problem. “That’s the premium they charge for doing business overseas and that won’t change.”

All bark and no byte?

Malaysia is adamant about tightening intellectual property laws, and sealing off existing loopholes in its fight to curb the piracy threat.

At least three pieces of legislation are likely to be considered at the next sitting of Parliament this month. These include the licensing of commercial manufacturing of copyrighted work on optical disks; the classification of polycarbonate, the raw material used to produce optical disks, as a controlled item; and amendments to the Copyright Act 1987 to enable foreign-based copyright owners, without local representatives, to take legal action against local offenders.

The new laws will give authorities more bite to cut off piracy at its source.

However, new legislation may not be enough to prevent the increasingly central role that the Internet is playing in the illegal distribution of software. Retailers are also cashing in on users’ adoption of the PC as an entertainment medium for music and movies. One retailer was caught recently in KL selling PCs pre-loaded with hundreds of songs encoded in MP3, the wildly popular audio format that has incensed music publishers and distributors worldwide.

BSA estimates that Malaysia’s piracy rates dropped from 80 percent in 1996 to 70 percent in 1997 but rose slightly to 73 percent in 1998. Losses in retail revenue were estimated at US$79.3 million last year.

One previous study by PriceWaterhouseCoopers estimated that sales of packaged software in Malaysia are projected to grow at an average annual rate of 17.4 percent between 1996 and 2001, reaching revenue of US$664.5 million and stimulating US$1.2 billion in total economic activity by 2001. This is despite the current piracy rates.

The study concluded that an increase in the percentage of legal software used and sold in Malaysia could yield dramatic gains for the nation’s economy. If Malaysia, by 2001, can bring its piracy levels to as low as the 25-27 percent levels of the U.S., the Asian country could double total sales for its software industry and generate some 11,628 jobs.

Given the tax revenue that the Government is likely to derive from the spike in sales and jobs, the opportunity would be too tempting to pass up.

Published in CNET Asia, July 9, 1999: Pg 1 | Pg 2 | Pg 3 | Pg 4


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