Every year around this time, the Business Software Alliance (BSA) comes out with a report, put together for the BSA by IDC, about software "piracy" statistics. Every year, since 2004 I call them out on how misleading many of the stats are (or, more specifically, I jokingly refer to the BSA as Bogus Stats as Always). At times, even IDC, who puts the report together for the BSA, has admitted that the BSA has tended to misrepresent the results -- and yet IDC keeps putting together the report every year. The good news, honestly, is that over the past few years, we've seen a changing trend in the coverage of the reports on these numbers, in that more people are calling the BSA out for using the numbers in a misleading way. The BSA, to its credit, has at least tried to be more conscious of how it presents and explains its numbers... sometimes.

Perhaps because of this, in advance of the release of the latest report today, the BSA reached out to me (and I'm sure plenty of others as well) to talk about the report and address any concerns. I spent half an hour on the phone this afternoon with Neil MacBride, the BSA's VP of Anti-Piracy and General Counsel. With him was Marcel Warmerdam an associate VP from IDC. I really appreciate the two spending the time to discuss the latest study with me -- as (this should come as no surprise) we didn't agree on very much.

The report itself seems pretty similar to what's come out in previous years. IDC does a rather credible job in determining the rate of unauthorized use throughout the world. The report this year highlights the fact that the rate of unauthorized use appears to be falling in many countries while rising in a few rapidly developing ones (Brazil, Russia, India and China). This is no surprise, as it's pretty much what anyone watching this market knows happens. I have no problem with the reporting on the rate of unauthorized usage.

Where things get problematic, however, is when the report starts to look at the impact of such things. The report itself shifts back and forth between "retail value of the software" and "losses" as if they are one and the same. By now, it should be quite clear that they are not the same. My second problem is that the report also ties these faux "losses" to a separate IDC report claiming that a drop in unauthorized usage of software would increase jobs, increase revenue in the IT sector and increase taxes. That's inaccurate for a variety of reasons, specifically in that it double-counts the impact of certain things and also only counts the "ripple effects" in one direction.

I raised these questions to both Neil and Marcel, and the summary of the call as Marcel noted at the end is that we'll have to agree to disagree. We didn't discuss the ripple effects issue, because that's actually from a different study than the one released today (though, the one today does reference that report to back up its claims -- which is why I brought it up). However, Neil and Marcel defended the "losses" claim by pointing out that plenty of companies out there (they kept pointing to large companies) would go out and buy the software if they had no other option. Indeed. And, I would probably go out and buy lunch at Pizza Hut if I had no other options, but we don't count it as a "loss" for Pizza Hut when I go eat at McDonalds instead. The fact is that there are other options -- even if some of them break the license agreements. My point is that this is a business model issue that the industry needs to deal with by giving businesses positive reasons to pay, rather than threatening to whack them with a legal stick.

However, what became clear in talking to Neil was that the BSA really does seem to believe that the majority of these unlicensed uses really would be paid for -- which seems like a highly questionable claim. We also very much disagreed over calling unauthorized use of software "theft" (he says it is, and tossed out the old favorite about how it's no different than taking a CD or a pack of chewing gum out of a store). He specifically said "software is a tangible good." The problem is that this is simply not true. I'm sure plenty of software companies and the BSA itself would like it to be a tangible good -- but it is not, and no amount of pretending makes it so.

In the end, Neil suggested that maybe this is a "generational" thing (I guess I'm the young whippersnapper), which I don't think is accurate either. I think it's really more of a business model thing. The companies that make up the BSA have relied on a particular business model for many, many years. That business model depends on government-granted monopolies that allow them to create artificial scarcity. They like that business model and don't want it to go away. However, the market is shifting, and it's shifting due to companies recognizing the fundamental characteristics of software being infinite, which allows them to implement other business models that don't rely on artificial scarcity. We're seeing it all the time, even among some companies who are members of the BSA. IBM, for example, has learned that its real money-maker is in services, and free software helps build that market. Red Hat has shown a similar business model on a smaller scale. And Google, which is a software company (even if people don't realize it), has shown an entirely different model to make its software extremely profitable in a way that "piracy" is of no concern.

The more the BSA talks up fundamentally flawed "losses" the more difficult it makes it for many of its members to recognize that the market is changing, and they need to change their business models with it. The less these companies focused on made up "losses" and the more they focused on creating business models where there are good reasons for companies to pay money, the more they'd realize that unauthorized use isn't the problem at all. With the BSA reports on losses, though, too many of these companies are taught to think that the problem is elsewhere (those darn pirates), rather than in how they view the market themselves. And, that, fundamentally, is dangerous for the BSA's own members. So, I very much appreciate both Neil and Marcel for reaching out and taking the time to talk with me, and responding to my criticisms -- and I hope to continue the conversation with them. But, they did little to change my feelings about the BSA report and its misleading nature.

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William Patry points us to a court ruling in Australia that says, in effect, that television program guides are copyrighted material and anyone producing their own program guide needs to license that information from the TV networks. On this, it would appear that Australian law differs from US law, which doesn't consider factual information by itself to be copyrightable. However, the Australian ruling basically found that program guide information isn't quite "factual" information, but "created." Thus the copyright is on the creative decisions the TV network execs made in choosing when to show each show (yes, they're apparently serious about this). If that sounds a bit extreme (and a bit ridiculous), you're not the only one who thinks so. While the court didn't directly address the question, from this ruling it certainly sounds like you could be found to have violated copyright if you just sat in front of your TV and wrote down what played when -- and then predicted a similar schedule going forward.

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And here we go again with rumors about questionable DRM tactics involving Microsoft and NBC Universal. Just days after a (later denied, after first being confirmed) report that Microsoft was going to put a "copyright cop" into Zune devices, users of Microsoft's Vista Media Center were upset to find that they were unable to record certain NBC Universal television shows earlier this week. Instead, they received error messages reading: "Restrictions set by the broadcaster and/or originator prohibit recording of this program." That would suggest, at the very least, that Microsoft's Media Center does allow content broadcasters to block shows from being recorded -- even if it turns out that they didn't block these particular shows on purpose. My guess is that this was an accident in this case, because it would be quite surprising to find out that NBC Universal and Microsoft would do this officially without any kind of announcement. However, given that other DVR systems out there do not have any such restrictions, this should serve as yet another reason not to trust Microsoft and its DRM efforts. Update: Some folks in the comments reminded us that TiVo had a similar problem a year and a half ago, which was equally problematic. There are still other DVR offerings out there that do not include these "features."

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A couple months ago, in discussing The Streisand Effect with a reporter, the reporter asked if I thought lawyers would one day be accused of malpractice for not informing their clients of the potential implications of demanding some content be pulled off the internet. While I doubt it will reach the point of malpractice, it certainly does make you wonder what some lawyers are thinking when there are such clear examples of what happens when you try to suppress material online. Earlier this year, the lawsuit that brought plenty of new attention to the concept of The Streisand Effect was when a Swiss bank, Julius Baer, convinced a judge to shut down the site Wikileaks for hosting some documents related to a lawsuit Julius Baer was involved in. Of course, not surprisingly, the attempt to shut down Wikileaks got those documents much more attention (and did the same for Wikileaks as well). Eventually, the judge reversed the order and Julius Baer dropped the lawsuit. But the end result showed how badly the strategy backfired on Julius Baer. Before it demanded the documents be taken down, almost no one saw the documents or even knew that the bank was involved in a case that accused of it laundering money. Afterwards, a lot more people knew about the lawsuit and had seen the documents -- and they were still online.

That situation got so much publicity, you would think that anyone would think twice about going down the same path. No such luck. Last month, Scientology threatened Wikileaks for hosting Scientology documents, and this morning (as a whole bunch of folks have sent in) news is coming out that the Mormon Church is threatening Wikileaks as well, for hosting church documents. In this case, the Mormon Church isn't just going after Wikileaks, but also threatened the WikiMedia foundation and document hosting site Scribd. It went after WikiMedia because WikiNews ran an article about the document and linked to them (which is hardly copyright infringement). Scribd was apparently hosting a copy of the documents as well (since taken down). Wikileaks, however, true to its charter, is refusing to take down the documents.

While you can understand why the Church might not like it's documents being made public, it does seem ridiculous that whoever decided to start threatening everyone didn't do the most basic research to recognize what would happen as soon as they threatened sites. Given what happened with Julius Baer, it should have been abundantly clear that threatening Wikileaks would almost guarantee that the documents were both more widely seen than before and copied widely across the internet.

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There was a story last week that got a lot of press about how the FBI discovered that the military was using a ton of counterfeit technology equipment, including thousands of fake Cisco routers. Dan Wallach has an excellent writeup looking at the security implications of what happened. From the description, it certainly doesn't sound like any of the equipment was found to include any kind of questionable technology for spying, but the point is that it would have been easy enough if someone had wanted to do so. Basically, the background is that while the government only buys equipment from approved vendors, those vendors can subcontract out the actual tech purchases to anyone. That leads to situations where (no joke) one subcontractor purchased a bunch of fake routers off of eBay and then resold them to the government via an authorized vendor. Or, try to follow the details of the case of the US Navy contracting with Lockheed Martin for equipment. Lockheed outsourced the deal to an unauthorized Cisco reseller as a subcontractor. That subcontractor turned to its own subcontractor who (yup, you guessed it) hired another subcontractor who shipped the equipment straight to the Navy. If you lost count, that's five layers deep, with most of those layers having no real oversight on what they did. You would think the government (and especially the military) would be a bit more careful in where it sourced its products from, but it certainly doesn't seem as though that's the case at all. Given all that, it's almost difficult to believe that compromised equipment hasn't been sold to the government at some point.

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You may recall Bridgeport Music as a company that claims to own the rights to various musical compositions and has a long history of suing anyone who samples even the tiniest bits of that music. The worst part is that there are very serious questions concerning whether or not it really has the rights to much of the music it claims to control. George Clinton, for example, claims that Bridgeport used forged signatures to get control over his catalog. A recent Bridgeport case may be interesting for a different reason, though -- one that shows how the record labels have no problem contradicting themselves when on the receiving end of a copyright infringement lawsuit.

The lawsuit involved Univeral Music, who lost the original decision and was hit with a rather large fine. Universal Music appealed that decision on a variety of points -- and appears to have convinced the judge that the punitive damages tacked onto the copyright infringement claims were unconstitutional. This is quite interesting because, as Ray Beckerman notes in that link, Universal Music is involved in a bunch of lawsuits where it's pushing for extremely high fines for individuals found guilty of infringement. In fact, Universal Music is actually on the receiving end of a lawsuit that accuses the company of requesting unconstitutionally high fines. In that case, Universal Music is asking for fines that are more than 1,000x the actual damages. Pretty high, right? So what were the damages that Universal Music (and the court) found so unconstitutionally high in this case from Bridgeport? Turns out they were about 10x the actual damages. Funny how that works.

It seems like Universal Music may come to regret pointing out the variety of reasons (pdf) why punitive damages can be seen as unconstitutional, as one would imagine that UMG's own filing will be raised against it in its own copyright infringement suits:

"While the Supreme Court has declined to adopt concrete or bright-line constitutional limits for the ratio between actual or potential harm and a punitive-damage award, the Court nonetheless observed that, "in practice, few awards exceeding a singled-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."... The court cited a 4-to-1 ratio as being close to the line of unconstitutional impropriety."

Universal Music would likely claim in its own defense that it was complaining about punitive damages, and in the other lawsuits it's fighting for statutory damages, but there are already plenty of folks pointing out that there really isn't much of a difference in many cases.

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Back in January, we wrote about how best selling author Paulo Coehlo was happily pirating his own books via BitTorrent, noting just how much it was increasing sales. Since he couldn't initially convince publishers to go along with it, he set up a site that pretended it was from a fan giving away various translations of his book, even though it was really run by him. He admitted it in a speech in January that got his efforts a lot more attention. TorrentFreak has checked in with Coehlo to see how things have gone since he admitted to pirating his own books. Not surprisingly, the increased attention has helped drive even more sales -- even though the attention was all about how people could get his books for free. Because of that, a couple of his books are back on the NY Times Bestseller list. It also resulted in his publisher, Harper Collins, being a bit more willing to embrace the experiment, putting a new Coehlo book online each month. Of course, as we pointed out at the time, this was still a really crippled and annoying-to-read way of offering free books online, but at least it's a step in the right direction.

What may be even more interesting is that Coehlo isn't sitting back and leaving things as is. He continues to experiment. For example, rather than selling the movie rights to one of his books, he's running an experiment to have fans make a movie out of the book, dividing up the work. Since the book involves multiple perspectives, each person is expected to choose one perspective and film it. Coehlo and his team will then piece together the movie, awarding 3,000 euros to the best film segments, and also offering up 1,500 euros to whoever composes music to go with the film. This reminds me a bit of Jonahtan Lethem's experiments with making a story of his freely available to movie makers. Hopefully we'll be seeing more such creative endeavors going forward.

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The press is happily covering the news that some journalists are launching a new (paper) magazine called "Dispatches" by focusing on the supposed "contrarian" nature of the operation: it's focused on print, rather than the internet (though it will have an internet presence), and it's only going to publish once per quarter. The folks behind the magazine say they're trying to slow things down a little, and will focus on providing better analysis than the rapidfire approach of internet reporting. That makes sense -- but it's hardly new. Plenty of other press outlets have done the same thing -- and, realistically, the analyst business is based on this same premise (just with the idea that the content is paid for by companies receiving it rather than advertisers). Either way, even if the concept isn't particularly new, at the very least it's nice to see a magazine launch with a plan as to how to differentiate. That said, the differentiation is meaningless if it can't execute well and get people interested in the sort of in-depth content it hopes to provide.

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The recording industry hasn't had much of a strategy for dealing with the changing marketplace over the past decade (and, no, I don't consider lashing out and suing music fans as a "strategy"), so far be it for them to start now. That's why it's amusing to see articles about how the recording industry honchos are now betting on a new generation of mobile phones to save them. Funny how that works. This is the same group of executives who will claim that the phones themselves have no value without the music -- and yet here they are hoping and praying that the devices will save their industry.

But the real problem is that this isn't a strategy. It's wishful thinking. It doesn't involve any actual insight into what's happening in the market. It doesn't involve any proactive movement towards accepting new business models and changing the way business is done. It's merely the old way of thinking, trying to figure out what the "next" platform will be on which to sell music. It went from vinyl to cassette tape (we'll skip 8-track) to CD to computer... and now they want it to go to mobile. But they're missing the fact that the more popular mobile devices get, the sooner it is that we'll see file sharing apps for mobile devices pop up. Rather than waiting and praying that some new platform will be the savior, isn't it time that the industry started taking lessons from the past 10 years, and worked towards adapting to the age of digital content?

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Last month, we wrote about how MySpace had won its case against Sanford "Spamford" Wallace -- the infamous 1990s "Spam King" who (despite losing many court battles and owing millions in fines) simply can't seem to give up his obsession with scammy marketing techniques. The win was a default judgment, mainly because Wallace simply disappeared and stopped responding to court requests. Today, a judge ruled on the punishment, officially awarding MySpace $234 million from Wallace and his associate Walter Rines. Given Wallace's disappearing act (which he's done in the past as well) it's unlikely that MySpace will ever see a dime of the money, but that hasn't stopped the company from touting this as the largest ever award under CAN SPAM. Amusingly, the extremely short court ruling also bars Wallace from setting up any new MySpace profiles. It doesn't say anything about Facebook, though, so perhaps that's where we'll see him next...

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