Why intellectual property theft in emerging economies matters for America

Robert Holleyman Contributor
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Across the ideological spectrum these days, there is fear that America is in decline — that we are falling behind rising powerhouses like China. This anxiety is somewhat misplaced, however, because our success is actually tied to theirs: We need healthy foreign markets if we are to grow by exporting.

But we also need those foreign markets to play by the same rules we do, and it is on this point that there is real cause for concern.

The plight of the software industry, which is led by U.S. companies, illustrates the problem. A record $59 billion worth of software programs for personal computers were pirated last year, 14 percent more than in 2009, and the run-up has been driven by the rapid growth of the PC market in emerging economies where piracy rates are highest, according to a newly released analysis by the Business Software Alliance.

In other words, emerging economies aren’t buying U.S. software products; they are stealing them. That has broad implications for the U.S. economy, not just the software industry, because software is an essential tool of production for businesses of all sorts. When companies in places like China pirate software, they are often stealing tools from one U.S.-led industry to compete against other U.S. industries. And by dodging capital costs, they are gaining an unfair advantage that undermines legitimate product sales and imperils job creation in companies that buy all their software legally.

It has long been assumed that piracy is widespread in emerging economies because people in those countries lack respect for the intellectual property rights that give innovators control over how the products they develop are sold. But that turns out not to be the case. There is in fact overwhelming support around the world for the basic proposition that developers of new technologies should be paid for them, because it creates an incentive for further advances. More than seven in 10 people in emerging economies hold that view, according to surveys of approximately 15,000 computer users in 32 countries, conducted as part of the Business Software Alliance study.

Large majorities of people around the world also see themselves as direct beneficiaries of intellectual property rights. For example, six out of 10 believe intellectual property creates jobs and improves local economies. And yet software piracy is rampant in emerging economies: Four out of five programs installed on PCs in China last year were unlicensed. In Indonesia, it was almost nine out of 10. In Russia, it was two out of three. This was the case even though eight out of 10 people say they prefer legal software to pirated software, because legal software is more reliable and secure.

What is the explanation? One big factor appears to be that too many people are not aware they are stealing software. For example, the most common way of pirating software is to buy a single license for a program and then install it on multiple computers. In an enterprise setting, this can quickly add up to hundreds or even thousands of illegal copies. So it is especially jarring that surveys find 51 percent of business decision-makers in emerging economies wrongly believe the practice is lawful in offices.

The software industry tries mightily to bridge this awareness gap with public education initiatives, training programs for IT professionals, technology solutions, and other means. But none of this is enough; governments need to ratchet up their efforts, too. They should send stronger deterrent signals to the marketplace with more vigorous enforcement of intellectual property laws, and they should lead by example through better purchasing and management practices in their own operations.

Lower piracy in emerging markets will bring increased sales and exports for U.S. software companies. It also will benefit local IT economies in countries that curb the theft, because it will spur legitimate business activity for software retailers, distributors and service providers. Even beyond those direct benefits, it will correct a competitive imbalance in the broader marketplace — and deliver on the promise of intellectual property rights, which people around the world overwhelmingly support.

Robert Holleyman is president and CEO of the Business Software Alliance.