More than 80% of Russian software that is used in the country, according to recent reports, is pirated. This is against the international law on intellectual property rights (IPR), and has been portrayed as a major stumbling block for Russia to gain membership of the World Trade Organization (WTO). It involves a serious violation of the trade related aspects of intellectual property rights (Trips) agreement of the WTO. According to the trade organisation?s rules, a prospective member has to effect domestic legislations that bring its laws in conformity with all the agreements of the WTO before it is granted membership.
Russia, of course, has had a chequered past as far as property ownership of any kind is concerned. But attitudes have been transformed in the business sector, and the country?s legitimate software producers, who are struggling for the soul of Russian intellectual property, are waging their own battle against the pirates who dominate software sales by an estimated ratio of 4:1. The trouble with a piracy-dominated market is that consumers become addicted to low prices and ignore whatever inconvenience they face on account of quality shortcomings in pirated products. Yet, such a market serves the interest of nobody other than pirates. The same way that a slave economy impoverished ancient Rome, keeping wages for freemen depressed, stolen intellectual property distorts incentive structures and inhibits innovation by keeping software production insufficiently remunerative.
Such illegal market deformations deter ethical producers from creating legitimate products because they rightly believe their creations will be digitally remastered and resold without their getting to lay a finger on the profits, even as the government turns a blind eye to the practice. Such an IPR environment in Russia has earned the ire of both the US and EU. The US recently claimed that Russia and China are the world?s worst IPR offenders. According to the last annual report by the US Trade Representative Office, Russia hosts massive production and distribution sites for pirated CDs and DVDs, and Internet piracy is rampant. In the light of these facts, the EU ambassador in Moscow, Mark Franco, recently informed the Kremlin that Russia might be stopped from joining the WTO in 2007. In Franco?s assessment, Russia had not taken the steps towards IPR protection that it had agreed to when pursuing WTO membership status. This echoed the concerns voiced by US Trade Representative Susan Schwab, who particularly stressed that Russia must work at eradicating music and software piracy.
In response to this, the Russian government passed legislation to limit the availability of pirated software in the market. As many observers see it, this has had its effect. It has resulted in a trend towards the greater availability of licensed software, a direct result of distributors looking to profit from the government and state dumas?s crackdown on piracy. The battle against IP theft now involves the State, creators, companies, manufacturers and distributors, all of whom have an interest in a legal software regime.
This proves that even the most piracy ridden IP markets can be rehabilitated if there is active pressure and cooperation from the world IP community. Russia?s move to join the WTO is a matter of enormous importance for legitimate businesses because of the sheer size of potential rewards for honest players. In the words of Robert Holleyman, CEO of Business Software Alliance, Moscow, ?The overall IT market in Russia is enormous?$18 billion this year, of which the software component is nearly $2 billion.?The IT market is growing 25% a year; and the software market is growing at 21%.?The gap between the two shows what the effect of piracy is.? It is large indeed.
Russia?s response to piracy, therefore, is quite heartening. It shows how well an integrated front against IP piracy can work, and also to what degree success is dependent upon broad cooperation. ?Basically, it is a two-way procedure,??as Dmitry Burkovsky of Nintendo Russia Distribution sees it. ?We have to promote our original products and fight piracy at all levels.?
The key to success against IP piracy is the selling of products in a tight distribution matrix that rebuffs crime syndicate entry and easy falsification. As anyone who has ever bought and registered a Microsoft product?which includes almost everyone?knows, the company uses an offline/online registration process that keeps pirated copies from being assured any form of customer assistance. Also, pirated Microsoft copies cannot be upgraded when updates are periodically released.
Russia is a fascinating combination of modernity and old world ways. As crime syndicates realise they cannot compete with legitimate IPR businesses and the government for new technology innovations and security, and as society at large realises that a legal IPR boom rewards mostly legitimate players, the sector?s prospects are brightening. Russia?s latest IP protection legislation is a move in the right direction, as it will ensure that violators of intellectual property laws are duly punished and the country?s innovators suitably rewarded. This will help Russia become an emerging software centre of consequence, and with hope, the 152nd member of the WTO as well.
?The author is trade professor at Icfai Business School, Chandigarh. Email: vasu022@gmail.com