IPR Protection and Piracy in Russia

Many growing businesses find emerging markets an attractive target to support further growth, with Russia serving as a prime example, especially for the IT sector and its software industry. However, when software companies review market entry opportunities, they have to consider local issues and barriers – one being software piracy.

"Piracy" is a vague term, which for commercial software products may be defined more formally as a violation of intellectual property rights (IPR) of a company or an individual. Many products can be considered intellectual property – music, movies, poetry, books, articles, photos, paintings, sculptures, etc. For the IT sector, the intellectual property is the software (or computer program or code) and all its components.

Piracy is the use, copying, disassembling or distribution of the software product without appropriate permission from the IP owner. Permission is usually in the form of a license that through which the IP owner provides the software user (or licensee) the right to use an agreed upon number of copies of the product in an agreed upon way. Various software companies propose different licensing models for individual, corporate, governmental and other types of users. Nevertheless, the license is usually a core component of the agreement and the basic principle remains – for every PC using the software product, there must be a license.

In Russia piracy takes a number of forms:

• Corporate piracy – use of unlicensed copies of a software product in an organization
• End user piracy – use of unlicensed copies of a software product by an individual
• Piracy on new PCs – pre-installation of illegal copies of software (operating system, word processors, utilities, games) on new PCs at the moment of purchase
• PC setup service – repair, tuning, and software installation by service companies using illegal copies of software
• Internet piracy – distribution of illegal copies via internet libraries
• CD resellers – sale by street vendors of unlicensed, illegal copies of software on CDs

As a social phenomenon, piracy has several root causes:

Lack of awareness. This cause is the most prevalent. In the quickly growing Russian market with its more than 5 million PCs sold annually, many are new users with little or no technical background. They simply do not think to ask about IP related issues and to verify that the software already loaded onto their newly purchased computer is licensed. Historically, IP wasn’t an important issue in the Soviet Union and, consequently, the mass population is simply unaware of IP, why they should pay fees to use through licensing and how to recognize a fake product.

As a recommendation for software producers or resellers planning Russian market entry strategies, a broad communication program emphasizing the benefits of buying licensed software will pay off quickly.

Buying power. Buying power in Russia is still relatively low. While a less dramatic problem than lack of awareness, it is important for individual consumers. Despite rapidly changing market conditions and a growing middle class, in many areas of Russia people have limited disposable income far below average prices for many software products. According to the Federal Committee of Statistics of the Russian Federation (http://www.gks.ru/), last year's average salary in Russia was about RUR 6,800 ($235).

According to the results of a Global Software Piracy Study (available at http://www.bsa.org/globalstudy/) by the IDC, the piracy rate in Russia last year was 87 percent for software. In the report, IDC says the rate remains the same as year before. But, during the last 10 years, the rate has fallen from 95 percent.

The UPC is another parameter used to evaluate the scope of piracy. The parameter shows which percent of newly shipped PCs comes with unlicensed software. There is no independent evaluation for this number. Announcing results from the last fiscal year, Microsoft officials said according to their experts' assessment, the UPC rate had decrease from during the last year from 72 percent to 60 percent.

Russian legislation includes sections covering IPR and its protection. In particular, the Criminal Code of Russia contains Article 146, which defines responsibility and punishments for IP violations.

Recently established units in the Ministry of Internal Affairs have the power and authority to search for IPR violations, and to remedy and prevent them. While in comparison with past years, the establishment of such units is a great step ahead. However, it should be noted that IP-related law enforcement can still be greatly improved.

There are a number of anti-piracy associations working in Russia. Among those specializing in software are BSA, an international organization of global software builders (www.bsa.org), and NPPPP, a local anti-piracy association uniting Russian software suppliers and resellers (www.appp.ru).

Software companies must protect their investments into IP development and should follow one of several paths to do so. Options include:

• TECHNOLOGICAL PROTECTION (software or hardware) of software. This may be efficient, but requires investments into the initial development or purchase of protection systems, as well as funding for continuous updates to maintain its integrity from world-renowned Russian code hackers.
• BUSINESS MODELS, which require customer to download regular updates via secured resources. Anti-virus tools or accounting systems are good example. This form of protection is better and more reliable, but depends on the business the company is in.
• VALUE DIFFERENTIATION is the third and most promising, though most expensive and long-term. It builds extended value around the product - customer support, value-based bonus systems, loyalty programs, etc.

Despite no 'silver bullet' to solve piracy, there are many software companies successfully doing business in Russia, using a combination of the options.

Article by Sergey Alpatov, License Compliance Manager, Microsoft Rus LLC.