Senate Committee Holds Hearing on Global Software Piracy

(May 1, 1999) The International Economic Policy Subcommittee of the Senate Foreign Relations Committee held a hearing on Thursday, May 29 on the effect of global software piracy, and what the U.S. government is doing about it.

The hearing was conducted by the International Economic Policy, Export, and Trade Promotion Subcommittee, of the Senate Committee on Foreign Relations. The Committee heard from Colleen Pouliot, Brad Smith, and Stuart Eizenstat.

Pouliot testified that a PriceWaterhouseCoopers study just released shows that "the software industry has only been operating at 60 percent of its potential due to the devastation caused by rampant software piracy."

Colleen Pouliot is a SVP and General Counsel of Adobe Systems Inc., and the Chairman of the Business Software Alliance (BSA). Brad Smith is General Counsel, International, for Microsoft. Both Pouliot and Smith testified on behalf of the BSA.

BSA worldwide members include Adobe, Attachmate, Autodesk, Bentley Systems, Corel, Lotus, Macromedia, Microsoft, Network Associates, Novell, Symantec, and Visio. Additional members of BSA's Policy Council include Apple, Compaq, IBM, Intel, Intuit, and Sybase.

Stuart Eizenstat is the Under Secretary of State for Economic, Business, and Agricultural Affairs. He previously served in this Administration as Ambassador to the European Union, and as Under Secretary of Commerce for International Trade.

Stuart Eizenstat's testimony focused mainly on efforts by the U.S. government to protect intellectual property rights abroad. "Protecting our intellectual property rights internationally in this cutting edge technology," said Eizenstat, "is one of the highest priorities of U.S. international economic policy."

"In many foreign countries there often is no will to prosecute end-user piracy, even when the end-users are large companies or governments. Sometimes, government's themselves are the single largest source of unauthorized software use."

"The cornerstone of our approach to piracy of U.S. software and other intellectual property infringement is our effort to engage countries multilaterally to strengthen international IP standards." said Eizenstat. "This is the reason why the Administration has been so vigorous in its commitment to the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO) and the important conventions and treaties that are under the auspices of these organizations; the key agreements include the Berne Convention for the Protection of Literary and Artistic Works, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the new WIPO Copyright Treaty and Performances and Phonograms Treaty."

Eizenstat explained that "TRIPS incorporates the substantive standards of Berne and makes each explicit member country’s obligation not just to adopt adequate legal standards but, just as importantly, to provide efficient and effective mechanisms for enforcing those standards. TRIPS also makes explicit that computer programs shall be protected as literary works."

"Under Uruguay Round commitments, developed country members have been obliged to adhere to these TRIPS standards since January 1996," said Eizenstat. "The focus now shifts to developing country members, which must comply with TRIPS as of January 1, 2000."

"The WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty were concluded in Geneva in December 1996. The treaties are essential to extend copyright protection to the Internet and digital technology. Emerging digital technology is a two-edged sword for copyright holders."

"We will not be reticent when we see unique country-specific problems. When the nature and magnitude of a country’s violation of our intellectual property rights warrant our doing so, we will employ Special 301 to its fullest extent in order to secure fair and effective remedies for U.S. industries and intellectual property rights holders," said Eizenstat.

Colleen Pouliot

Colleen Pouliot's testimony was devoted mostly to explaining how software piracy occurs, and how it harms the software industry and the U.S. economy.

Pouliot stated that "software producers face some significant trade barriers. None is more important--or economically damaging--than software theft."

Pouliot outlined four types of software piracy: end-user piracy, hard disk loading, optical disk piracy, and Internet piracy. "End-user piracy" takes place, for example, when a licensed user of a software product makes an extra copy for use by a friend or relative.

"Hard disk loading" takes place when "manufacturers and retailers of computer hardware illegally load software onto computer hard drives in an effort to boost sales of their hardware products."

"Optical disk piracy" involves the "mass production of counterfeit product, packaging, manuals, and holograms. Most mass-produced counterfeit software is in the form of replicated CD-ROMs." It is "also a major problem for the sound recording, motion picture, and video games industries." Finally, there is "Internet piracy."

Pouliot estimated that "of all the software installed onto computers worldwide in 1997, fully 40% was illegal. The market value of this massive amount of stolen software was $11.4 billion."

Pouliot stated that there are several things that the U.S. government can do:

• "ensuring that developing nations meet the January 1, 2000 deadline for upholding their obligations under the WTO's Agreement on Trade-Related Intellectual Property Rights (TRIPS);"
• "pressing governments around the world--who are among the largest users of software--to legalize their own software use, as the U.S. is doing through the President's Executive Order on software piracy;"
• "encouraging nations to implement the two new treaties put forth by the World Intellectual Property Organization (WIPO) to battle theft of creative works in the digital age; and"
• "effectively utilizing the "Special 301" process to ensure that our trading partners tackle theft of U.S. software and other creative works in their own economies."

Brad Smith's testimony included an extensive discussion of what should be done to reduce piracy. The solution is for other nations "to implement WTO TRIPs fully and effectively, ratify the WIPO Copyright Treaty, and adopt an effective government legalization policy."

Smith elaborated on each of these three points. First, he addressed TRIPs. "The TRIPs Agreement is the first major international treaty to recognize that intellectual property rights are meaningful only if accompanied by adequate enforcement procedures and remedies. TRIPs accordingly establishes core elements that must comprise every WTO member's IPR enforcement regime, including the production of documentary evidence, compensatory damages, civil ex parte search orders and criminal penalties. However, TRIPs does more than articulate the basic procedural and remedial standards for IPR enforcement. It requires that IPR enforcement regimes meet specific "results-oriented" performance standards."

"BSA urges that, when necessary, the U.S. Government continue to instigate WTO dispute-resolution proceedings against countries that fail to fulfill their TRIPs obligations," said Smith.

Next, Smith addressed WIPO. "The WIPO Treaty (1) makes clear that a copyrighted work can be placed on an interactive network only with the consent of the relevant rightholder; (2) makes clear that the Berne Convention’s reproduction right applies to electronic uses of works; (3) protects all forms of expression of computer programs; and (4) prohibits “hacking” of technical protections that have been applied to works. The WIPO Copyright Treaty was a critical step towards recognizing the rights of copyright owners in the digital era and combating the theft of copyrighted works over the Internet. Internet piracy poses unique and daunting challenges to U.S. software publishers."

"The U.S. government was among the first countries to implement the WIPO Copyright Treaty through enactment of the 1998 Digital Millennium Copyright Act," said Smith. "The U.S. government should strongly urge other governments to follow suit – to ratify this important treaty and enact whatever legislation is needed to protect the rights of copyrighted works over the Internet."

Finally, Smith covered government legalization. "Government agencies and public institutions are typically among the largest users of computer software. As such, government leaders have an obligation to establish legalization policies and procedures that both prevent software piracy within the public sector and set an example for the private sector to follow."

Smith complimented the efforts by the U.S. Trade Representative to press foreign governments to adopt government legalization policies. He singled out the example of the USTR's success in dealing with the Chinese government.