Own analytical articles of "SV-consulting", LLC.

The problem of pirated software in Ukraine becomes a problem of a whole society?

The topic of pirate software in Ukraine is not new, but, unfortunately, it is still far from being solved. However, we decided to take another look at this problem after the reading news about using unlicensed software in China.
As reported, Microsoft in August 2012 filed a complaint against four Chinese state-owned companies. Representatives of the world largest software company say that China Railway Construction Corp (the second largest state-owned construction company in China after China Railway Engineering Corporation), China Post Group, China Petroleum Corp and TravelSky Technology (state-owned company, a leader in the supply of IT to the airline industry and tourism) use Microsoft Office software and Windows Server Client without permission. According to Microsoft, more than 40% of Microsoft Office and Windows server client, used by China Petroleum Corp is pirated, while 84% of Microsoft Office software and 97% Windows Server Cient in in China Railway Construction Corp also unauthorized. Almost all Microsoft Offices in TravelSky are unlicensed, while 93% of the software used by China Post are pirated versions.

However Charles Shen, Microsoft said that he had no information about that, but added that the company has an ongoing discussions with Beijing on intellectual property protection.

China Railway Construction Corp in its letter said that the achguisations were "overblown", but the company does not exclude a possibility that some of its units may used unlicensed software, although its part is much lower as alleged. The company said it treated this matter seriously and started an internal investigation.
Microsoft CEO Steve Ballmer met with Vice Premier Wang Qishan in Beijing in May 2012. The Chinese official promised to crack down on piracy, reported Xinhua.

It should be noted that using of pirate software in China is the biggest challenge for Microsoft in its attempt to succeed on the largest PC market in the world. According to the American company Business Software Alliance, 77% of all software in the country was obtained illegally, and the market value of pirated software is estimated at $9 bln. in 2011, while only $3 bln. were spent to purchase licensed software.
But, despite the difficulties, Microsoft continues to increase its investment in China and allocated $75 mln. to its research division in addition to ongoing investment of $500 mln.

In general, according to the Business Software Alliance, based in the United States, the commercial value of pirated software in the world increased from $58.8 billion in 2010 to $63.4 billion in 2011, and this was triggered by PC shipments in emerging economies, where the piracy rate is the highest.
The first place in terms of commercial value of pirated software belongs to the U.S. - $9.7 bln. (Table 1), the second and the third place occupied by China and Russia respectively.

Table 1. TOP - 10 economies in commercial Value of Pirated PC Software, 2011 (source - bsa.org)

# Country

Pirated value $M

Legal sales $M

Piracy rate

1 USA $9,773 $41,664 19%
2 China $8,902 $2,659 77%
3 Russia $3,227 $1,895 63%
4 India $2,930 $1,721 63%
5 France $2,754 $4,689 37%
6 Germany $2,265 $6,447 26%
7 Italy $1,945 $2,107 48%
8 UK $1,943 $5,530 26%
9 Japan $1,875 $7,054 21%
10 Indonesia $1,467 $239 86%

In Ukraine, according to BSA, the market value of pirated software reached $647 mln. and occupies the second place among countries of central and eastern Europe (Table 2).

Table 2. Piracy rate and commercial Value of Pirated PC Software in CEE countries (source - bsa.org)

Country Piracy Rate Commercial Value of Pirated PC Software, $M
2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
1 Russia 63% 65% 67% 68% 73% $3,227 $2,842 $2,613 $4,215 $4,123
2 Ukraine 84% 86% 85% 84% 83% $647 $571 $272 $534 $403
3 Poland 53% 54% 54% 56% 57% $618 $553 $506 $648 $580
4 Czech Republic 35% 36% 37% 38% 39% $214 $195 $174 $168 $161
5 Romania 63% 64% 65% 66% 68% $207 $195 $183 $249 $151
6 Hungary 41% 41% 41% 42% 42% $143 $131 $113 $146 $125
7 Kazakhstan 76% 76% 78% 78% 79% $123 $89 $74 $125 $110
8 Belarus 87% 88% 87% - - $87 $126 $55 - -
9 Croatia 53% 54% 54% 54% 54% $74 $70 $71 $77 $68
10 Slovakia 40% 42% 43% 43% 45% $68 $63 $65 $62 $54

And, as we see from the above data, the commercial value of pirated software in Ukraine almost constantly increasing, despite the fact that using pirated software leads to criminally responsible, remains the Ministry of Education and Science of Ukraine.

In addition, during implementing of large projects, especially in cooperation with international organizations, using pirated software is not permissible, since partners from abroad require certificates on the used software, and therefore the presence even a one work station with pirated software may cause termination of the contract. Also, licensed software is a necessary requirement to get ISO certification.

BSA offers severa main steps to reduce software piracy, including the following:
- Upgrading security of software and other products that are protected by copyright in order to keep up with innovative solutions such as cloud computing;
- Creating a specialized law enforcement units in order to fight with violations of intellectual property rights, training its staff, developing and improving international cooperation between law enforcement agencies, as well as the fulfillment of obligations under the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

- Promoting of using legal software by state agencies, all contractors and suppliers.
- Increasing number of educational initiatives and raising awareness of piracy and intellectual property rights by law enforcement authorities and market players.

Ukraine has adopted a number of documents aimed to reduce piracy rate, particularly in government organizations. For example, Cabinet of Ministers of Ukraine of May 15, 2002 adopted decree № 247-r "Concept of software legalization in government organizatioins". The procedure of legalization regulated by decree form September 10, 2003 № 1433 "On approval of the using of computer programs in the government organizations".

According to the First Deputy Minister of the Ministry of Education and Science, Youth and Sports of Ukraine Eugene Sulima during a meeting of the working group on the legalization of software in July 2012, the measures for legalization of computer programs in government organizations show reduction in the use of unlicensed software from 89% in 2002 to 40% in 2012. Note that the reduction of unlicensed software in government depends on budget funding, but funds for such expenses are not allocated in full.
However, according to "Microsoft Ukraine" Lugansk leads the list of Ukrainian cities with the highest rates of illegal software in business: 90% of companies in the region are using pirated software.

The main sources of piracy in Lugansk and in Ukraine in general, are street sellers and service centers as well as online piracy (torrents, file sharings etc). In addition, users themselves often become sources of piracy because of using unlicensed software, or using licensed software with violations, reports cxid.info.

But is it possible to completely defeat piracy? Obviously not, because even in Western Europe, according to BSA, piracy rate has not yet fallen below 25%. But for our country, which declared the European choice and European values as priorities, it is very important to show tangible steps in fighting software piracy. And, by the way, it comes to paradoxical situation, because, according to the Head of Public Relations of the Ministry of Internal Affairs Vladimir Polishchuk, approximately 47% of the software in the Ministry is unlicensed software.

However, there is another way to solve the problem - using of free software. In Russian Federation, for example, more than 25% schools in the country use solutions, based on Linux, and this rate, as expected, will significantly increase over the next years.

Also, it is needed to pay attention to the moral aspect of the problem. Today children use PCs from a very early age. And together with the bad habit of downloading and installing pirated software, appropriate worldview is formed in kid's brains, which subsequently leads to, at least, copied school homeworks and diplomas...

Therefore, the problem of fighting software piracy is not limited to just hope actions form state institutions and law enforcement agencies, it has already become a problem of the whole society.

Yuri Omelchenko, Microsoft Ukraine, Head of the department of protecting of ntellectual property rights:
"Because of piracy the state, business and users loose money.

Several years ago, IDC company said that reducing software piracy in Ukraine by 10% over four years could bring additional of GDP. This is equivalent to a four-year salry to almost 40.000 teachers in Ukraine. And most of these funds would remain in the domestic market, contributing to the emergence of the new jobs and to increasing tax revenues. The following year will expire this hypothetical 4-year period, but the additional $500 mln. and will not appear in the country because in recent years the piracy rate dropped by only 2% to 84%.
This slight decrease was primarily due to the legalization of the software used by large business. It begins to understand what risks cause using pirated products. At the same time, the situation in the public sector and small business is catastrophic: more than 70% of software in governmant organizations is pirated, and in some regions of the country (for example, in Luhansk) more than 90% of small businesses use pirated software.
That is why Ukraine is in the top ten countries with the highest piracy rates. The international community has reacted very negatively to such ineffective copyright protection: Ukraine moved up in the "List of 301" - the international list of the most "pirated" countries. Moreover, recently the U.S. Congress has recognized Ukraine as one of the pirate world, and this could lead to economic sanctions.
Pirated software is one of the main issues of information security of the state, business and users. According to IDC, a every fourth site in the world that offers downloading of unlicensed software also downloads malware to your computer. 43% of counterfeit software in the world, installed from a CD or downloaded from the Internet, are sources of a serious risks, and most of this software does not work at all.
According to Microsoft Ukraine, 56% of the CDs in Ukraine with unlicensed software contains viruses and other malicious programs, and more than 40% of the software in the Ukrainian segment of the Internet is downloaded with malware.
Each computer with unlicensed software is more likely to become a part of botnets and therefore, can become a dangerous weapon. In addition, pirated software can be harmful to the users - they can lose business/personal information, credit card information and other important information. Recently, we were reported by a number of cases throughout Ukraine, when computers were locked by software, developed by criminals, who later demanded money for unlocking. Largely because of the wide use of pirated software Ukraine occupies the first places on the number of computers connected to botnets.
Under serious risk not only individual users, but also the companies that decided to install unlicensed software on their PCs. According to research of Harrison Group, companies, which use unlicensed software, have a 73% greater chances of losing valuable information and 43% more likely to face critical failures of the computer systems in comparison to those companies, which use licensed software. In this case, according to IDC, the recovery of the single infected computer is on average costs $1000. In order to solve problems associated with unlicensed software, IT administrators typically spend 20-30% more time ".

Oleg Stefanyuk, President, SV-consulting, LLC:

"Pirated software can be compared with medical definition of a "silent killer ". Just as dangerous and insidious disease, pirated software is actually invisible. Millions of Ukrainians use it for many years, often not only thinking about consequences, but often even not knowing what do they do. PCs surround us almost everywhere. Internet deeply impacts daily life of the state and majority of the people of the country. Our PCs users easily can be divided into several major groups. The first group consists of responsible people and companies who understand more than others, that they must use only legal software. They understand the difference between pirated and legal software, advantages of official products and properly assess risks from using pirated software.
The second category consists of advanced users-hackers. For these people using illegal software is like a kind of lifestyle. They are ready to spend much time to download from the Internet everything for free. Unfortunately, this refers to the majority of the most active Internet users.

And people, who ever not thinking about the origin of the software of their PCs, as well as music, movies, games, or those who just do not know that software can be licensed or pirated, belong to the third category,
It is likely that if people knew about all disadvantages and dangers of the pirate software, they would try to buy legal software. Software vendors need to explain and even to educate the market, and not just endlessly and unsuccessfully negotiate with the state. Also, it is needed to revise the prices of legal software. The prices in the Ukrainian market, taken into account poor economy and low purchasing power of our people, simply are not acceptable. The monopoly of Microsoft is literally a "double-edged sword." In terms of reliability and security this is a clear advantage. But in terms of monopoly and lack of direct competition it's definitely disadvantages. It is needed to seek for compromise and negotiate: the state, on one hand, and Microsoft on the other. Replacement pirated software for legal software costs a lot of money, because it is not just about software. To install new software it is necessary to replace nearly all old PCs. And this costs billions of dollars".

Dmitry Nazvanov



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