~terry
Fri, Jun 6, 1997 (10:53)
#11
April 7 - 1997
Is Intellectual Capital the New Wealth or the Latest Consulting Wank?
Singapore Sting
By Richard Rapaport
Our man witnesses a rare Far East software piracy bust.
OMINOUS-LOOKING ARMED MEN are swarming over his retail store, but for a
man whose world has just come crashing in on him, Chng (pronounced
"Ching") Teck Bin seems unnaturally composed. Chng is the proprietor of
P&V Computer PTE, a dingy fifth-floor electronics store nestled among
tailor shops and beauty parlors in the Bukit Timah district of Singapore.
Chng stands mutely in the dim, box-lined corridor outside his shop while
five young policemen from the Intellectual Property Rights unit of the
Singapore police chase out his schoolboy techie customers and begin
tearing through cabinets, boxes, and files that fill the store. The leader
of the squad, a big man in jeans and T-shirt, informs Chng that his shop
is the subject of a warrant for software piracy.
Acting on information from a private security adviser, the intellectual
property cops are trying to find and confiscate pirated versions of
popular personal computer software programs. Throughout Asia, in shops
such as this, mass-produced CD-ROMs filled with purloined software sell
for a fraction of the legitimate market price. With as many as 30 programs
crammed onto the 644-megabyte disksincluding such hits as Adobe Photoshop,
After Dark, AutoCAD, Claris Works 4.0, CorelDraw, Netscape Navigator,
Windows 95, Microsoft Office, Norton Utilities, and on and on, the total
legal market value of the programs on one CD-ROM can reach into the high
tens of thousands of dollars. But because small, clandestine operators can
now stamp out CDs easily and cheaply, disks can be produced for as little
as a dollar and sold for between $7 and $25, depending on the buyer's
ability to bargain. Costs are low, needless to say, because pirates have
no R&D or third-party software licensing costs to cover. This is, after
all, one of the great things about being a pirate.
"Chng's whispered phone call is clearly a coded message to his suppliers
that a raid is under way. Several other shops have hastily closed."
Buyer Be Wired: An undercover operative working for Microsoft hides a
microphone and tape recorder before entering a legitimate CD-ROM plant to
try making a deal for unlicensed copies of popular software. The
fabricators took the bait and lost a Microsoft contract.
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The Fall Guy
MR. CHNG, HOWEVER, is not a pirate, just a hapless middleman. As the raid
progresses, he asks if he can use his telephone; so far he has been
cooperative, even obsequious, and the cop in charge tells him to go ahead.
"I'm going to call the owner," he tells the detective in fractured
English. "He asks me to take over temporarily."
"The owners of the shops never seem to be around for the raids," a voice
with a decidedly American accent replies sarcastically. It belongs to
Christopher Austin, a young attorney currently hunched over one of Chng's
ledgers. Austin is working both for the Business Software Alliance, a
Washington-based trade organization that deals with software piracy, and
for Microsoft. Microsoft is clearly the biggest loser to a regionwide
criminal enterprise that sells far more illegal copies of its popular
programs in Asia than Microsoft itself.
Austin roves Asia tracking down software pirates. He has become famous
throughout the more notorious shopping arcades of Asia as the man most
likely to ruin the day of pirates who run the illicit but wide-open market
in illegal software. Because of the work of Austin and others, software
pirates have been forced to add several sophisticated new twists to their
nefarious ways.
Rather than keep a large stock of CD-ROMs on hand that authorities can
confiscate, for instance, shop owners will page their suppliers, who
dispatch runners with the requested disks. Foreign customers in a pirate
software shop can now expect to hear the suspicious question, "Are you
from Microsoft?" Such changes in the business have made Austin a figure of
note here, a man with the task of trying to convince frugal Asians they
should pay full freight for programs readily available for pennies on the
dollar.
The job is as difficult as it is important. Recent Software Publishers
Association and Business Software Alliance statistics show that Singapore,
with an estimated 53% piracy rate, still has a long way to go. Yet it is
doing far better than its neighbors Malaysia, with a piracy rate of 77%,
Thailand at 82%, the Philippines at 91%, China at 96%, and Indonesia at a
staggering 98% use of illegal software.
Even with the lowest piracy rate in Asia, Singapore has become a pet
project of the pirate-hunters. With its squeaky-clean reputation, its
position as the most computer-literate society in the area, and a growing
indigenous software industry, Singapore is a key battleground in the
struggle for the hearts and minds of Asian technology consumers who have
little respect for or understanding of the notion of intellectual property.
The raid on Mr. Chng's shop is winding down, and he sits quietly at his
desk. In addition to the scores of CD-ROM compilations, other telltale
signs are a tip-off he is in the software piracy business. Christopher
Austin points out some of the tricks of the pirates' trade as he goes
through the shop. There are, for example, the boxes of empty CD-ROM "jewel
cases," mated to a CD-ROM only after a sale is made. Then there is the
carton of hard-disk drives under Chng's desk that dealers can load up with
pirated software and install on a personal computer.
"To help sell hardware, a dealer will load a machine with thousands of
dollars of illegal software," explains Austin, who later points out that
Chng was not accused of this crime.
Spinning Gold A software shop proprietor, Mr. Chng (left, in dress
shirt), identifies CDs loaded with pirated programs during a raid by
Singapore's Intellectual Property Rights police.
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Chng takes his downturn in fortune stoically, but complains about being
singled out. "Everybody does it," he says plaintively. He does have a
point. In the hazy world of intellectual property law throughout Asia,
governments have maintained a fairly ambiguous position on piracy. In
Singapore, for example, while the police and courts will cooperate when
pressed, the software producer must invest resources to privately
investigate piracy before the government will get involved.
According to Ng Kim Neo, senior director of the Trade Policy Division for
the Singapore Trade Development Board, the official reason is that the
country has long treated intellectual property like private contracts.
"You can't jail people for a contract," she says during an interview. And
so, with its history of benign neglect toward the software pirates, it is
not surprising that piracy is alive and well even in strict Singapore.
Chng's whispered phone call is clearly a coded message to his suppliers
that a raid is under way. Alan Solomon, the corporate security adviser
contracted by Microsoft who has kept P&V under surveillance for months,
and who has been lurking in a nearby stairwell during the raid, calls
Austin on his cell phone a moment or two later to tell him that several
other owners of stores selling pirated software have just hastily closed
up and decamped. "There are going to be doors slamming all over town
today," Solomon says during a later inspection of the shuttered shops.
Within hours of the raid's conclusion, however, it will be business as
usual. The shops here at Bukit Timah, the half-dozen pirate software
operations at the notorious Sim Lim Shopping Arcade, and possibly hundreds
of stores that sell pirated software or a mix of pirated and legitimate
floppies and CDs, will all be open and functioning as if the raid hadn't
happened.
Whether the government is lax or stringent, steep profits would drive the
shadowy market anyway. During his surveillance, Solomon has recorded
between 100 and 200 CD-ROM sales a day at P&V. He and other private
investigators estimate that on any given day in Singapore at least 5,000
illegal CD-ROMs are sold at an average of $20 apiece. This means that in
this one city software pirates clear at least 700,000 Singapore dollars
($525,000 U.S.) a week. Similar profits are estimated in Hong Kong,
Bangkok, Kuala Lumpur, and Manila.
Retailers are usually small businesspeople who can't see any reason they
shouldn't be part of this lucrative market. But at a higher level, above
the shopkeepers and the pirates themselves, control is in the hands of one
of several organized syndicates operating throughout southern Asia. These
syndicates are as sensitive to the marketing of illegal products as
legitimate companies are to aboveboard sales.
"We are approached by two shotgun-toting guards who do not appear to be
very happy about our presence. Solomon suggests a strategic retreat."
Microsoft's Singapore managing director, Paul Lovell, still receives phone
calls asking when an official copy of Windows 95 will be in the stores.
Pirates had taken a stolen beta-test version of Windows 95 and done a
little innovative marketing. And recently, when Microsoft offered a
three-CD set of its software for a special price, pirates responded with
their own pirated three-CD edition.
In Singapore and beyond, operations of the pirate software shops are far
too consistent to be coincidental. They all have more or less the same
physical setup and sell more or less the same program compilations in
similar packaging. "It's fairly clear that it's an organized thing, with
manufacturing sites all over Asia and shared technology and marketing
information," says Weiming Chua, a former Singaporean policeman who is now
licensing manager for Novell Asia Pacific.
Even the personnel policies of the stores are similar. They include hiring
people with failed businesses, gambling debts, or police records to front
the operations. Widely known as the "fall guys," they are paid handsomely
not only to sell the pirated software but also to take the fall if the
shop is raided. An informant recently spelled out the deal: The going rate
of payment is $5,000 a month to manage the business and $2,500 to $3,000 a
month for sitting in jail. In general, salaries are higher in the pirate
stores than elsewhere, and legitimate shopkeepers in places like Sim Lim
Arcade complain that it is hard to get help because potential employees
prefer working for the pirates.
"You can get a lot of people to be the fall guy," Chua tells me. "If you
get arrested, maybe you serve a short sentence, but you get taken care of.
If you don't squeal, they pay you a bonus and look after your family while
you're in jail." Considering the harsh sentences in Singapore for drug or
firearm sales, a bust for CD-ROM piracy is widely regarded as something of
a paid vacation.
Which sheds light on the placid mood of Mr. Chng Teck Bin of P&V Computer.
When Microsoft's Austin finds a secret compartment he can't open, Chng is
surprisingly helpful. "It's locked, sir," Chng says meekly. "I'll open it
for you." One of the cops suggests that Chng is in shock, saying, "Now he
has a lot of legal obligations. He is a confused man at this moment."
Asked why he is so complaisant, Chng says dreamily, "Human life is short;
you must be happy." He does not seem at all upset, and security adviser
Alan Solomon, the man who has spent the last year investigating the ins
and outs of software piracy in the region, isn't surprised. "Fall guy," he
snorts.
Confronting the Faux Pirates depend on innovation just like their
legitimate business counterparts. Real Intel chips are "upgraded" to a
more expensive level with forged labels.
--------------------------------------------------------------------------------
Underground Singapore
THE FOLLOWING DAY, Solomon takes me on a tour of the Singapore software
piracy underground he has come to know so well. The first stop is the Sim
Lim Arcade. The modern glass-and-steel mall is as well known throughout
Asia for its wide-open piracy as Hong Kong's notorious Golden Arcade.
Sim Lim is the place where, in March 1996, Solomon pulled off Singapore's
most successful software piracy raid. Acting on a hunch while staking out
a Sim Lim shop, Solomon followed a courier to a parking lot under the
mall. There he discovered two vans filled with CD-ROMs, rolling warehouses
from which disks are delivered to shops throughout Singapore. More than
5,600 disks were confiscated, worth more than $150,000 on the black
market, with a legitimate software value into the millions.
Solomon's gumshoeing was rewarded; not only were huge fines levied but
three of the software pirates received jail sentences, one for four
months, plus a $45,000 fine or nine additional months if the fine remained
unpaid. The second got 30 months; the third was sentenced to 18 months. In
neither case, however, did the pirates give up the names of their bosses.
Rather, they remained silent, did their time, and left Solomon and others
to track down the CD pirate masterminds from the outside.
�"This is like returning home," says Solomon as he retraces the steps of
his big bust. As he predicted, when we enter Sim Lim, the first shop we
pass is a wide-open, pirated- software bazaar. The setup is familiar:
pirated popular computer games and "edutainment" CDs on racks around the
walls and a table in the middle, with labels from the best-known CD-ROM
compilations. Names like Solid Gold, Master Installer, Software Governor,
Super Installer 8.0, and Macintosh CD are visible. The shop is filled with
young techies pawing over the piles and clerks happy to haggle over
prices. A pirated CD-ROM copy of the Encyclopedia Britannica, which
retails in the United States for $299, is listed for 30 Singapore dollars
and can be bargained down to 15 dollars.
Ironically, a sign points to the struggle between the better and worse
sides of Singapore's technological nature: "We encourage you to buy
original software...that is, if you can afford it!"
As we tour the six bustling levels of electronics stores at Sim Lim
Arcade, we find a half-dozen shops with virtually the same look,
differentiated in some cases by simple, easily removable neon signs.
Others are marked with cardboard marquees hung at the entrance. The stores
are movable software feasts, ready to be broken down in minutes. Even on a
weekday afternoon, they're filled with browsers and buyers devouring
pirated software.
Why are the shops at Sim Lim Arcade allowed to operate so openly? Bryan
Ghows, regional counsel for Lotus and the Business Software Alliance's
former manager in Singapore, has a surprisingly ambiguous answer for
someone in his position. He admits that the problem of piracy "is not
really a social or moral wrong in the Singaporean context." This is in
contrast, Ghows suggests, to pornography. He points out, for example, how
quickly the government moved to set up proxy servers in 1996 to protect
citizens from the fleshpots of the World Wide Web. Ghows suggests a
rationale for the government's casual attitude about software piracy: "A
certain amount of piracy is welcomed, because very few people can afford
software at market prices."
It is Microsoft's suspicion, particularly among the company's local
executives, that Lotus's Ghows is not as concerned as he might be about
Microsoft's status as prime piracy target. Lotus is, after all, owned by
Microsoft rival IBM. This has led the Redmond, Washington, firm to launch
its own attack on piracy. And to employ Alan Solomon as its hired gun.
Solomon's second stop of the day is on Microsoft business. He has planned
to wire one of his employees and send him into a seemingly legitimate
CD-ROM replication plant to see if the managers will agree to copy
software for a phantom company without the proper copyright agreements. A
large, legitimate contract to replicate Microsoft software depends on the
correct response. "Entrapment is okay here," Solomon notes as we drive
toward an industrial park in the Ang Mo Kio district.
At the plant, "Mike," who does undercover work for Solomon, puts on his
equipment and heads inside. In 30 minutes he's back, mission accomplished.
He plays the tape, and on it an employee clearly agrees to do whatever
copying is required, as long as Mike signs an indemnity form. "Got him,"
Solomon says with unconcealed glee. "He can kiss that contract goodbye."
Next stop is a stakeout of what Solomon and others suspect is a
functioning CD-ROM factory in a housing block nearby. We cruise by a
boarded-up storefront guarded by several tough-looking men lounging on the
sidewalk in front. More toughs eye us as we pull up in a parking lot
around the back. The windows above the storefront are smoked and
double-paned. On the side of the apartment, an industrial-sized
air-conditioning unit stands out incongruously in this residential
neighborhood.
Solomon has been surveilling the building for weeks, watching
suspicious-looking couriers picking up brown-wrapped packages at the site.
The tip-off to the site came half a world away when a package containing
pirated CD-ROMs was seized in Cyprus. Sherlock Holmes was not needed; the
package had the Ang Mo Kio address on it.
"But we need physical evidence," Solomon says, referring to the fairly
stiff requirements to request a police raid. He is moving very carefully
with the Ang Mo Kio factory. He suspects his operation was compromised by
another investigator working for the factory. A bust will have to wait
until someone can sneak inside and take pictures, a dangerous assignment
considering the high security around the building. But Solomon is content
to wait. "We'll come back," he says as we drive out of the parking lot,
dozens of suspicious eyes following our Mercedes.
On my final day in Singapore, Solomon has agreed to go over the causeway
into Malaysia to check out some of the pirate software stores in Johor
Baharu. Malaysia is more wide open than Singapore and far more dangerous.
"Life is as cheap as a bullet," we've been warned. Solomon doesn't like to
work there, considering the authorities much less trustworthy than the
"straight as a die" Singaporean police. A raid a colleague conducted in
Johor weeks before came up empty, and Solomon suspects the pirates were
tipped off by a Malaysian official.
For cover, he has taken the precaution of using a car that has never been
across the causeway. Malay pirates sometimes strap drugs under cars bound
for Singapore, so he also takes along a trusted bodyguard to watch the car
while we snoop around.
By the time we cross the causeway and clear Malaysian customs, a hard rain
is falling. We drive another half hour into Johor Baharu. The place is
beat-up and colorful and looks like ultramodern Singapore must have in its
more romantic days. We park the car at a hotel and walk the rest of the
way to a mall containing a number of stores selling pirated software. The
same CD-ROMs for sale in Singapore for $15 to $30 are half that here, with
room to haggle. In addition, there is a wide variety of ultra hard-core
pornography available on CD-ROMs, material that would cause stores to be
shut down instantly in Singapore.
Things go fine until Nikolai Joyce, Forbes ASAP's photographer, takes out
his camera and begins shooting. There are none of the jocular "Are you
from Microsoft?" queries we heard in Singapore. We are suddenly approached
by two shotgun-toting guards, who do not appear to be very happy about our
presence. They make threatening motions with their weapons, and Solomon
wisely suggests we make a strategic retreat.
But once we are on the street, a group of young Malays, several carrying
baseball bats, begins to follow us. Solomon orders us to split up, lose
ourselves in one of the crowded malls, and regroup at the hotel in a half
hour. The group is confused by our actions, and we lose themor bore themby
moving randomly up and down several levels of another mall.
The ride back to Singapore is uneventful. The customs officials are far
more concerned about any illegal chewing gum than the pirated software
disks we are bringing back from Malaysia. We are carrying thousands of
dollars worth of unlicensed software. Luckily, we hadn't bought any gum. �
�
Illustration by Don Arday
Photography by Nikolai Joyce
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