Losing $13.5 Billion to Piracy Spurs Europe Law Reformers: Tech

Microsoft Corp. (MSFT) and Adobe Systems Inc. (ADBE) are among software companies that lost $13.5 billion to program pirates and counterfeiters in Europe last year. Their message to lawmakers: Learn from the U.S. and punish the thieves.

As the European Union considers changes to its intellectual property rules, it needs to make sure that higher damage payments deter pirates, who often benefit because of insufficient fines, said Warren Weertman, manager of legal affairs for Washington-based Business Software Alliance. The group’s members include Microsoft, Adobe, Apple Inc. (AAPL) and Siemens AG. (SIE)

“Lump sum damages would act more as a deterrent than having two actuaries fight it out in a costly court case,” Weertman said in a phone interview from London. “It’s a vicious circle where the damages aren’t deterrent enough.”

In Europe, about 35 percent of software deployed on personal computers was pirated every year since 2007, compared with 20 percent in the U.S., according to a May study by BSA and researcher IDC. Ben Allgrove, a partner at law firm Baker & McKenzie LLP in London, said the gap is a result of the legal challenges for copyright owners.

“Most EU countries do not have statutory damages and right holders are forced to prove actual loss,” Allgrove said in an interview. “There is a material difference between monetary awards in the U.S. and many other markets,” he said.

France Tops List

Last year, France lost $2.6 billion in pirated software, while Germany lost $2.1 billion, Italy $1.9 billion and the U.K. $1.8 billion. The four nations were among the 10 most pirated worldwide. Across the EU, Bulgaria recorded the highest rate of software piracy in 2010 at 65 percent, while Luxembourg had the lowest at 20 percent, according to BSA.

Globally, the value of pirated software rose 14 percent to $58.8 billion last year, almost double the total in 2003. In China, almost four out of five programs in use are pirated, and 65 percent in Russia is stolen, according to BSA.

The European Commission, the 27-nation EU’s executive arm, last year published a report showing that some provisions of the current law, which was introduced in 2004, need “further clarification and have resulted in diverging interpretations at national level,” said Chantal Hughes, a spokeswoman for EU Internal Markets Commissioner Michel Barnier. The commission is also examining how to deal with the surge in online piracy.

Lobbying Efforts

Microsoft, the world’s biggest software company, isn’t aiming to export the U.S. system around the world, said Chris Oldknow, the company’s enforcement policy counsel. At the same time, the risk for pirates is “greater that they’ll wind up having to pay a substantial amount in America,” Oldknow said in an interview. “And lo and behold, America has the lowest rate of software piracy in the world.”

Microsoft told the commission in March as part of a consultation that lump sum or multiple damages, only available to some extent in 10 smaller EU member states such as Belgium, Austria and Malta, should be extended to the other 17 countries.

Fair damages should include lost profits and costs of enforcement, additional damages in the amount of economic benefit of the infringer, and fixed-sum or multiple damages, Redmond, Washington-based Microsoft said. Corporate end users may see an “economic benefit” in copying rather than buying software if they are only made to buy the legitimate product once caught or pay damages equal to the publisher’s lost profit, the company said.

Microsoft rose 0.5 percent to $27.12 and Adobe climbed 0.6 percent to $26.39 as of 12:05 p.m. in New York.

Under Licensing

Software firms such as engineering and design software company Autodesk Inc. (ADSK) say they also suffer from so-called under licensing, where clients only pay for some of the programs used.

“It’s a significant issue that does affect our bottom line and we take it very seriously,” said spokesman Noah Cole. Autodesk, based in San Rafael, California, uses internal technology to detect unauthorized use of its software.

The commission may make proposals on how to change the current law in the first half of 2012, spokeswoman Hughes said.

“Some claim that damages awards do not currently appear to effectively dissuade potential infringers from engaging in illegal activities,” she said. “The commission services will examine if changes are necessary.”

In Germany, Europe’s biggest economy, there are neither statutory nor punitive damages but it is up to the discretion of the court whether to fine, with no fixed amount, Weertman said. The highest total settlement in an “end-user case” was 1.5 million euros, he said. In the U.K.’s criminal courts, the maximum statutory fine is 10,000 pounds ($15,800) and punitive damages are not recognized, he said.

Punitive Damages

In the U.S., punitive damages are often awarded in piracy cases, with a statutory maximum rate per infringement of $150,000 if it is found to be willful, according to the BSA.

The low rate of piracy in Belgium, one of the EU countries where lump-sum or multiple damages are possible, backs up the software companies’ claim. About 25 percent of software deployed on PCs in the country was pirated in 2010, below the EU average of 35 percent.

“Belgium courts have been rather severe with software pirates by condemning them to pay damages which are double of the license fees,” Stijn Debaene, a lawyer at Field Fisher Waterhouse LLP in Brussels, said in an interview.

In the U.S., “counterfeiters can be subject to crippling, bankrupting sorts of penalties,” Scott Bain, the litigation counsel for the Software Information Industry Association, said in a phone interview from Washington D.C. The body’s members include Google Inc. (GOOG), Oracle Corp. (ORCL) and International Business Machines Corp. (IBM) “The position of virtually any copyright owner in the U.S. is that they wish the European institutions would have even better damages laws.”

To contact the reporter on this story: Katie Linsell in London at Klinsell@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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