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Attitude Key to Success of the Digital Economy Bill

John Lovelock, Chief Executive of FAST IiS (the Federation Against Software Theft and Investors in Software), discusses possible threats to the digital economy.

The ‘digital economy’ has received much publicity over the last year, and especially the last few weeks. The Government’s Digital Britain Report has led to the Digital Economy Bill - a piece of legislation supported in the main by rights holders like the software industry who seek to maintain creativity in the fast moving digital age. The Bill has resulted in a mixed public response, particularly due to plans to allow rights holders to go to court to force ISPs to temporarily suspend Internet connections. In a world where businesses and consumers rely so heavily on the Internet, we should evaluate our Internet use and ensure that we are complying with copyright and licensing regulations.

Issues of software piracy, software counterfeiting, the grey market, illegal file sharing, lack of compliance in business and a lack of respect for copyright amongst the public are all current and serious threats to the digital economy. These threats are varied, but all impact upon the security of users’ IT and businesses, and on the funding for new digital creativity for future growth.

Digital content producers are pleased that the Government is now paying attention to a neglected aspect of the economy – it’s about time! The creative industries are what the old manufacturing industries used to be to the UK. Intellectual property (IP) is important, the UK used to be a big manufacturing economy, but no longer. Now it is IP that contributes £53 billion to our GDP. Eight per cent of our gross domestic product is down to IP, and 1.9 million people are employed in our creative industries. Yet still, popularly, digital piracy is seen as a victimless crime, certainly not equated to the seriousness of physical theft. A survey from Microsoft this month demonstrated that over a third of British people think that using pirated software is acceptable - and high rates of other digital piracy are reported by the music and video games industries as well. The online world seems to be a Wild West frontier land where laws are yet to be honoured properly.

IT has a fundamental role in driving the productivity of UK business sectors. Just taking the manufacturing industry as an example, a 1999 Department of Trade and Industry report found that IT facilitates advances in the manufacturing value chain by improving product design, product manufacturing, internal processes, supply chain management, distribution, marketing and after-sales care (Manufacturing in the Knowledge-Driven Economy, DTI 1999). ‘Seizing the Benefits of ICT in a Digital Economy’, from the OECD in 2003 showed that studies of individual UK firms indicated that ‘purchasing through electronic networks can make particularly important contributions to improved productivity’.

The Department for Culture, Media and Sport demonstrated in 2009 that out of the creative industries, software, computer games and electronic publishing have had the highest average growth at eight per cent per annum. This shows that demand for these products are high and growing, but if piracy and copyright infringement severely cut into profits then quality suffers, and so will the economy as a whole.

We have to be clear that issues of Internet piracy and under licensing cannot be solely focused on the music and film industries as the popular press is inclined to phrase the debate. The world of business software is worth more to the UK economy than film and music combined.

Businesses often find that they are under-licensed when they examine their software estate. What managers don’t realise is that software is an asset and can be worth many times the value of the hardware on which it resides. Under licensing is a symptom of not having a handle on one’s IT resources, but it happens all too frequently as a result of organic growth, staff turnover, or merger and acquisition activity. Clearly under-licensing is bad news for software vendors, and it’s bad news for firms when they audit and true up to the right amount of licensing - an unexpected cost can be destabilising. Very worryingly 27 per cent of the software used in UK businesses is illegal, and that equates to over a £1 billion per annum loss to the software industry.

The UK software sector is of vital importance to the UK economy, employing over 400,000 and estimated to contribute well over £20 billion. Copyright law has not been able to keep up with technology which is why Clause 17 of the Digital Economy Bill - recently replaced with Clause 18 - was written to future proof illicit file sharing and illegal software use. Clause 17 gave Parliament the ability to approve amendments that keep the law up-to-speed with technology. Clause 18, which handed the high court powers to grant injunctions forcing ISPs to block access to online sites, was withdrawn in early April during the wash-up period of the second Commons reading of the Bill. However, it was replaced by a government amendment, which will effectively achieve the same outcome by different means, assuming that it clears and is enacted on the statute books by the new Government.

A Software Asset Management programme (SAM) enables organisations to stay on top of their IT, deleting software instances where it is not being used, and redeploying unused licenses to new staff members as needed. SAM programmes stop firms paying over the odds by over licensing, and stops the problem for vendor revenue of under licensing.

Under licensing is a problem for software vendors and the IT channel, but isn’t a threat to the well being of the whole economy per se. In a similar vein software counterfeiting is troubling to the whole IT community - from end users caught out to resellers and vendors. Goods bought on the ‘grey market’ from unofficial (usually out of region) regional sources can also be problematic for the end user organisation if features are not fully functional or vendors cannot honour guarantees and warranties. These grey imports also reduce vendors’ revenue, putting their ability to innovate afresh into question. Most software vendors are actually small operations whose livelihood depends on only a narrow margin of profitability. Sadly the debate is often framed as users versus large multinational software vendors, of which there are only a handful that the public could even name.

The grey market, which while legal, can have a serious effect on the digital economy. It involves trading a product through distribution channels that does not comply with the manufacturer’s original intentions for a particular commodity. This topic however is not considered illegal, it is not covered in the Digital Economy Bill whose focus is on illegal Internet and software use, which have a disastrous effect on the digital economy. It is estimated that by cutting software piracy alone (not taking into account other digital content) by 10 per cent, an extra $8,904m (£5,951m) would be spent on IT, 13,622 jobs would be created, and $2,150m (£1,437m) in taxes would be raised (BSA, 2008).

The most serious threats to the digital economy come from illegal file sharing of copyrighted materials coupled with the common attitude of a large section of the computer literate public who see digital theft as a victimless crime. There are different levels of illicit file sharing; to download a few files would be a civil offence, whereas, to download hundreds of files and make money from them would be a criminal offence. For a company director who allowed piracy to occur at his business a jail term could be applied as well as an unlimited fine.

Illegal file sharing is not just a problem for vendors and the reseller community. By allowing files through the corporate or personal firewall sharers bypass security measures and open themselves up to malware as well as legal action from rights holders. The consequent effects of repairing damage to networks and computer assets, as well as financial, legal and reputational penalties are also severe. Many Internet users view the web as an unlimited free resource for digital content, but by stealing copyright content like computer software, movies, and audio they deny the creators the revenue to go on making these works, as well as halting the tax flow that would enrich the whole country.

For the digital economy to flourish it needs, like all markets, trust and honesty. Perhaps the biggest threats to the Digital Economy are people’s attitudes towards piracy: the nonchalance of UK organisations, who do not keep their software licences in order, and the illegal file-sharers, who refuse to acknowledge the effect that their actions have on the Digital Economy. Threats born from a lack of respect and understanding of the rights of digital content creators by end users results in vendors tightening restrictions and implementing protective measures - often unintentionally causing annoyance to legitimate users. In the future, we can expect to be faced with as yet unknown methods of piracy from emerging technologies that the economy will have to deal with. With the Digital Economy Bill in place, in whatever form, hopefully slowly but surely those breaking copyright laws will no longer be able to hide behind the anonymity of the Internet and the costliness of archaic, longwinded legal processes.



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