Brass-Knuckle Marketing vs. the Pirates

Tired of being ripped off, companies like Microsoft and DirecTV are using in-your-face tactics against intellectual property thieves

New York subway rider Mark Milone has grown accustomed to seeing ads from top brands such as Nike and Johnny Walker, as well as a smattering of lesser brands like Willens & Baker (slogan: 1-800-DIVORCE -- When a diamond is not forever), on his subterranean jaunts. In recent months, these innocuous spots have given way to ominous ads that have left even jaded Gotham residents such as Milone, a New York attorney, slack-jawed.

One, from the Business Software Alliance -- an industry antipiracy group -- features a bull's-eye superimposed over a bright red apple, accompanied by the warning: "The BSA targets New York. Get your software licensed before they target you."

Software giant Microsoft recently launched a similarly toothy subway campaign, its first on New York public transit, aimed primarily at small businesses. "Ouch. New York software pirates can be fined up to $150,000," reads one ad. An accompanying spot features an authentic-looking newspaper headline touting a piracy bust.

With the stick comes a carrot: Those who do get licensed get a 20% discount. "The objective is to broaden awareness. We need to get people's attention," says Sherri Erickson, Microsoft's marketing manager for antipiracy. The ads have certainly gotten the attention of Milone and millions of other New Yorkers. "The first thing I thought about was 1984," says Milone of the ads. "It's so threatening. And I don't like to be threatened."


  Call it the ultimate in brass-knuckle marketing. The slowing economy and rough times in the technology sector have led to redoubled efforts by companies to turn pirates into paying customers. Aside from Microsoft and the BSA, satellite-television giant DirecTV in late July announced it would begin mailing out letters to hundreds of individuals it suspects of pirating signals.

Company officials say this represents a sea change from past behavior, when DirecTV for the most part took legal action against sellers of bootleg descrambling equipment or beamed down special broadcast signals designed to fry pirate reception systems. The recording and movie industries also have stepped up efforts to stamp out online pirates and sites trafficking in bootleg copies of their products.

The crackdown comes amidst an increasingly tense atmosphere between copyright holders and the public. The rise of Napster and subsequent peer-to-peer services has turned millions of otherwise law-abiding citizens into thieves, antipiracy campaigners say. "People think of stealing in physical terms. But they have no problem taking intangible intellectual property. Somehow this type of theft has been given a certain legitimacy," says Larry Rissler, the vice-president who is overseeing DirecTV's antipiracy campaign.


  That business attitude runs headlong into growing indignation about newly adopted digital copyright laws, which many technophiles see as overly restrictive. Across the country, thousands protested the arrest of Dmitry Sklyarov, a Russian programmer accused of selling code capable of breaking copyright-protection technology for Adobe E-books. A host of cases testing digital copyrights and piracy rules are now winding through courts in the U.S. and abroad.

The impetus for the enforcement push is clear. The U.S. software industry lost $2.6 billion in revenues in 2000 due to piracy, claims the BSA. In New York alone, it says, piracy was responsible for $541.7 million in lost retail sales. Much of that piracy, says Microsoft and the BSA, is perpetrated by small business. "In the small-business space, piracy can be as high as 50% because often there is no IT administrator who understands license agreements," says Microsoft's Erickson.

Microsoft and the BSA insist there is nothing new in their tactics, which include direct-mail and telemarketing campaigns, as well as BSA radio spots in many tech-heavy cities intoning: "Unless you have no former or current unhappy employees, you are one phone all away from a BSA investigation. Get licensed before the BSA comes back to New York."


  Still, Microsoft and DirecTV are clearly taking efforts to a new level. Microsoft recently switched to an antipiracy mechanism it calls "product activation," requiring purchasers to "activate" software either by phone or the Internet. If the software detects changes to the computer profile and suspects it is being used on multiple machines, it could freeze usage until the consumer contacts the company.

That has raised concern among some Microsoft users, who see the technology as too intrusive. But the company is not turning back: It's also developing an interactive education program for elementary school children that will teach them about intellectual property law.

Similarly, DirecTV has sent out hundreds of letters to suspected pirates -- and plans to send more. Individuals who have no subscription are asked to send in the "offending device" and pay restitution to the company. DirecTV customers who are using illegal cards to get premium services are sent a more "mildly worded" letter requesting that they maintain a valid subscription for 12 months. Those that do not respond to the letter could be sued for up to $10,000.


  Analysts estimate that signal piracy costs the satellite industry anywhere from $500 million to $1 billion in lost revenues. Until now, DirecTV has focused on targeting middlemen and developing sophisticated electronic countermeasures to turn off counterfeit access cards. However, the company says the pervasive casual attitude toward piracy has left it no choice but to increase its efforts. "These are not shady people. These are professional people," says DirecTV's Rissler.

Whether the stepped-up enforcement yields more ill will than added revenues remains an open question. The BSA reports that its Truce Web site received 14,000 hits in July, when the campaign was in full swing. About 5,000 calls were made to the Truce hotline, more than 10 times the number received by the BSA's traditional hotline. DirecTV says it has collected as many as 100,000 names of suspected signal pirates.

Others say the scare tactics will make little difference. "It's not a question of educating people. People know that when they buy a copy of Windows it isn't legal to install it on a dozen computers," says Jonathan Band, an intellectual property attorney at Washington firm Morrison & Foerster.


  Moreover, cracking down on individuals could backfire. Dmitry Sklyarov, for example, has become something of a folk hero. And experts say that by spotlighting the practice, Fox Films's public attempts on July 23 to stop pirated versions of Planet of the Apes from being traded on the Internet may have resulted in increased, not decreased, illegal trading.

Civil libertarians see the antipiracy efforts as part of a futile push to maintain outdated business models, which fail to account for the realities of today's technology. "This is a last-ditch fight to keep the old ways as we enter the all-digital world," says Shari Steele, executive director of the Electronic Freedom Foundation.

That may be, but in the same way the Internet and the rise of computer usage has increased piracy, they have also increased the means companies have to track and prosecute pirates. And a subpoena from Microsoft or DirecTV is hardly light reading for the average landlocked pirate.

By Jane Black in New York

Edited by Alex Salkever

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