Andrey Belousov
Crime-research.org

Software Legalization in Ukraine

Andrey Belousov Since March 1, 2003, State Department of Intellectual Property at Ukraine’s Ministry of Education and Science will start registering software producers and distributors and giving certificates of established standard to subjects of economic activities registered in it. The Register will allow securing more effectively owners and their successors’ rights connected with producing and using computer programs and database, and having reliable statistical data on creating and applying copyright objects. It will assure the transparency of procedures of product purchase, works and services as well.

Tolerant attitude towards the distribution of piratical software in Ukraine was seriously damaging the country image in the world community. However, since 2000 the situation has changed radically. The government started fighting against sellers and users of piratical software. The main reason of activation of home authorities and law enforcement agencies was the USA’s pressure on Ukraine up to introducing strict economical sanctions. Here America tries to protect interests of Microsoft US Company, which in fact became a monopolist on the software market.

Microsoft has told recently that its popular MS Office contains critical errors because of what some million users can lose their information during hacker attacks. It happens against rumors about a new version of Office, which is developed in Bill Gates’ Corporation.

Many users do not like Microsoft products because of their incorrect work and resource “voracity” (especially operational systems – games have better characteristics). Errors in Microsoft programs can be constantly found, however the company itself makes “apocalyptical” statements quite seldom. The corporation stated that an attacking hacker could launch programs on smb. else’s computer, change its data and even wipe away a hard disk by using e-mail.

Microsoft authorities have been worried recently by security problems. Early this year a special campaign called “Trustworthy computing” was started. Bill Gates has stated recently that $100 million were already spent on improving SW security. As to revealed errors, the company has already developed a special “patch”, which can be downloaded from Microsoft site. However many users will hardly execute this operation because they can even know nothing about critical errors. Reuters cites some utterances of Russ Cooper, a chief of True-Secure Corp security department: “It usually takes six-nine months to start widely using such “patches”.

Any scandal does not always arise in proper time. The detection of Microsoft Office critical errors coincided with the circulation of rumors about the process of developing a new version of the popular program. According to e-WEEK site the company develops tools for combining efforts to create the next Office versions and new network ideology. It means that new Office will be more “global” and security problems will become more serious. New software tools will be called “Trinity”. Results may be seen in 2003. The new Office is scheduled to appear at that time. As usual, Microsoft itself denies this information.

The usual pastime of computer community during the development of Microsoft new software versions is to spread rumors. The corporation almost never states anything officially preferring to keep an intrigue up to putting a new product on the market. Even when SW is ready and is passing numerous tests to reveal defects, special documents prohibiting the disclosure of information are signed up. The reason of such secrecy has an underlying: Microsoft opposes the ideology of “open code”. The company does not on principle make known initial texts of its software considering them a commercial secret.

On the other hand, there is the whole class of SW distributed on the base of “open code” ideology. Theoretically, anyone can test a program and suggest a producer how to improve it. Microsoft programs have been developed under such conditions for a long time due to its super-distribution. At least it concerns protecting means of this SW: hundred thousand programmers all over the world try to break programs, nearly all of them not being malicious hackers. Most these friendly hackers inform the company about detected errors.

It is known that Microsoft was ordered to publish some information on its programs owing to the last decisions of the famous antimonopoly trial. Who knows, may be these decisions and increased attention of world programmers to Microsoft products will make the company accept the policy of “open code”.

The recently broken out scandal with “1C” suggests that software producers themselves provoke users to purchase piratical SW. Instead of final “IL-2 Attack plane: Forgotten battles” a beta-version of the game was put on the market.

“1C” addressed to users:

Dear users and partners!

Because of the error committed at preparing master-disk of the “IL-2: Forgotten battles” first issue we released preliminary game version with some errors and time limits instead of the final one. The erroneous products are not marked with “1.0 R” on the disk front sides. After May 1, 2003, the game will be not started from such disks.

“1C” releases a special patch, which will change this game until the final version 1.0R thereby eliminating the problem.

“1C” and personally Oleg Maddox, a manager of “IL-2: Forgotten battles” project present their apologies for caused inconveniences.

1.0R patch aims at:

1. Correcting errors of Star Force protection, which cause operation system malfunctions at some personal computers and inner problems of the game itself that can make it impossible to start the game in time.

2. Correcting text information.

By the way, this patch size is 18Mb. You can imagine it.

A user waits for the game^; then he buys a licensed disk (for quite big money) but obtains a product that is worse in quality (and more expensive) than a piratical one. Then the firm starts releasing all sorts of patches, you downloading them through Internet for your own money. The disks cannot be always returned and here appears a problem with the producer dealer network.

In this connection, lawmakers should not forget about software producers themselves. They also must response “with all the severity of Law” for negative consequences caused by their program products. Users are not satisfied with statements that a program is written by a human being, errors are possible^; there is no ideal program. The companies-producers say in a loud voice about their enormous losses, protect their own rights but do not always maintain properly.

The “1C” representatives were put a question: Can “Star Force” be made answerable for the manufacture and “1C” for the distribution of protecting software, which spoils operating system in such a way that it requires to be reinstalled. And is such a “protective system” harmful?”

“1C” experts said that it is out of the question to make somebody answerable because the company-producer’s actions had no obvious intent. It was noted apropos of that: “Obvious” and “harmful” mean two different things! An accountant installs a licensed game with the manager’s consent. It puts the system out of action and thereby the accounts department for the whole day. Who must be responsible for that?” If you could not write a normal software that is some loss was inflicted you should carry the responsibility for that. Pirates have nothing to do with that. However, when forcing, copying and localizing SW, they commit errors causing system malfunctions. In addition, piratical copies can contain viruses, which are capable of striking separate computers and total networks.

The use of unlicensed program copies is a copyright infringement and can entail measures of juridical responsibility.

The software producer does not maintain unlicensed product copies. If there is a technical problem, it will be resolved without assistance.

Software market is characterized by two very serious problems: free “soft” and piracy. It should be noted that they are quite different but people cannot tell the difference between them. Piracy is an illegal distribution of author’s software. Piratical program copies can be sold at intently low price or free of charge. However, it is necessary not to mix up piratical copies with free and distributed without restraint software products, which are legal in their essence.

Outputs and market sales of author’s software considerably exceed now market outputs of free software. The mentioned market is profitable for the state from the standpoint of tax payments and a large number of vacancies.

According to Data-monitor SW industry created 137000 working places in East Europe countries. Data-Monitor predicts that the development of SW industry will allow increasing the number of employees by 69% (180000 till 2004). The highest level is expected in Russia and Ukraine. The reduction of piracy in Ukraine in 2003-2004 by 10% will result in considerably increasing employment from about 10,5% to 21%. Consequently, even such a low reduction of piracy gives an impulse to develop the labor market in East Europe countries, especially in Russia and Ukraine, thereby creating a modern technological economy there.

Today the use of unlicensed software in Ukraine makes up 87%.

It was said by Vladimir Dmitrishin, a vice-chairman of Intellectual Property State Department at the “round table” session on “Lawful protection of intellectual property”.

According to V.Dmitrishin when compared with 2000, the index of unlicensed software has been reduced only by 2%. In 2000, gross profits made up 265 million US dollars whereas the shortage of tax incomes was $93 million. He also noted that if the use of counterfeit program products is not lowered, losses of gross profits in 2004 are expected to be $47 million and shortage of tax payments will make up $165 million.

He says that the sum of Ukraine’s annuals sales of SW is $120-140 million, legal products making $25-35 million. Budget losses caused by tax shortages are about $30 million a year.

Software legalization by its size and consequences can be considered as the whole economy sector. It should be not forgotten that SW market can hardly exist independently and the growth of adjacent markets consuming software products depend on it.

The reduction of piracy favors the increase of wages, tax assessments and decrease of so-called “brain drain”. Every year 2,5-6 thousand experts in computer technology leave Ukraine. State losses inflicted by that are UAH 37,5-90 million a year. The budget allocates every year UAH 3 000 to train an expert.

However, the state receives main tax assessments not from physical persons but companies. Here tax payments directly depend on piracy level. According to Data-Monitor SW, market sales in Russia are $191 million. They are lower than in many East Europe countries for example Poland ($387 million), Czechia and Hungary ($279 and $232 million respectively). Quite radical backlog is explained as follows: Russia and Ukraine have younger software markets and high piracy (88%). High level of piracy resulted in that the state has lost $1,44 million in retail trade and $731 million in tax assessments. It is expected that market sales will be increased up to $395 million and tax assessments will make $201 million in 2004. According to IDC and BSA, losses of total profits will be $7,8 million in 2004 if the piracy remains on the level of 2000. If the piracy is decreased by 10% until 2004, losses will make up about $7 million. If the piracy is lowered to average level of West Europe countries (34%), losses of total profits will be $4,8 million.

According to experts from Communication and Information State Committee (CISC) press-service, one of the main reasons of widely using unlicensed software is a low consuming capacity and the lack of active mechanism of protecting intellectual property rights.

CISC informs that organs of Ukraine’s government operate now over 40 thousand Microsoft program products whereas uncovered demand in such products exceeds 50 thousand units for the next three years.

It is obvious that the government should pay more attention to problems of fighting against piracy and copyright infringement. They must not be among key difficulties for the association of information technology market to be created.

In May 2002 Ukraine’s Cabinet of ministers ratified the conception of legalization software and fighting against its illegal usage. In accordance with it, the main organizational measures of legalization software include, in particular, an obligatory purchase of licensed SW together with computing technique and prohibition of illegal installation of new SW. Such a decision can be negatively reflected on small firms. If large firms have no special problems with assigning means on transition to licensed software, small and middle ones can experience difficulties connected with substantial expenses on complete re-equipment of their technique with licensed software.

In conclusion, it should be emphasized that Microsoft products are the most popular but not one and only. Now there are many budget-friendly operating systems and office applications, which considerably surpass Microsoft products. For example, Linux and Lindows operational systems, as well as Open Office designed by Sun Microsystems. Open Office has been put on the market recently but it was widely spread and became much admired. The program package is intended for the broad circle of users ranged from home computer owners to corporate clients and officials of state establishments and allows resolving most problems of legalization software.

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