Pirates used to roam the oceans, plundering as they pleased. Now, they can use the vast reach of the internet to commit their crimes online, never needing to venture far from home.

But while today's digital pirates may lack the swashbuckling style of their seagoing forebears, they are just as ruthless in exploiting gaps in their victims' defences. The revenue losses from software piracy - which takes many forms, from blatant copying through illegal sales and downloading over the web to abuse of licences - have reached levels that would be staggering in other industries.

If retailers or manufacturers were to lose a quarter or more of their business to criminals, copiers and counterfeiters, there would be uproar. But that is what is happening in the PC-based software sector.

The problem is less obvious than in other industries because software is a digital product and its theft is often hard to identify. Yet piracy costs the global software industry more than $12bn a year in lost revenues, according to the US-based Business Software Alliance (BSA), an industry organisation representing leading software developers.

In the US and western Europe, this is equivalent to between a quarter and a third of sales of PC-based software products (excluding operating systems), but piracy rates exceed 90 per cent in the worst offending countries, such as China and Vietnam, and are above 70 per cent in Russia, Bulgaria and Turkey.

Robert Kruger, vice president for enforcement at the BSA, calls software piracy "one of the most under-reported business scandals of the last decade". Some companies estimate that more than half the software sold under their name is pirated.

The main victims are US companies such as Microsoft, Adobe, Autodesk and Symantec, much of whose software is used on PCs. Their products, which can cost up to several thousand dollars each, can be copied quickly and cheaply and sold to business and other users for a fraction of the real price.

Less vulnerable are the companies which sell customised company-wide systems for enterprise resource planning, customer relationship management, and other server-based applications. These can cost millions of dollars, often require the help of consultants, and cannot be easily pirated like retail packaged software.

As the world's biggest economy and software user, the US tops the list of losses from piracy. In 1999 these totalled $3.2bn, a rate of 25 per cent. Losses in western Europe were $3.6bn, led by the UK, Germany, France and Italy, but the rate was higher at 34 per cent.

Piracy rates have fallen in recent years - in 1996, the US rate was 27 per cent and that in western Europe 43 per cent - but the growth in the IT market has kept overall losses rising. The worldwide piracy rate is 36 per cent against 43 per cent in 1996.

It is all too easy to find pirated software on the internet - just type in "warez" (one of the most searched-for words on the web) and hundreds of thousands of sites come up offering cheap software - and just as easy to buy it, as well as other pirated digital products like music, films and games.

"The number of sites on the web offering pirated software is mind-boggling," says Mike Newton, the BSA's UK campaign manager. The BSA says most software sold on auction sites is also illegal, though auction companies are stepping up their policing efforts.

Both on their own and through the BSA, software companies have become more aggressive in pursuing the pirates. Many cases are settled out of court. Usually, a 'take down' notice to an internet service provider (ISP) is enough to have a pirate site removed.

But for offenders who are prosecuted, penalties can be severe. In the US, damages of up to $150,000 for each copyright violation can be imposed; criminal penalties can mean fines of up to $250,000, and prison sentences of up to five years. In the UK, use of unauthorised software can land heads of companies with unlimited fines (depending on the size of the offence) or up to two years imprisonment.

Other countries such as India, Malaysia and even China - keen to join the World Trade Organisation - are also cracking down on the pirates with varying degrees of force.

To the delight of software companies, the legal blows suffered by Napster, the free music downloading service, have highlighted the copyright issue. US courts have ruled against the free transfer of music and Napster has presented plans to charge its users.

One company keen to see greater recognition of the piracy problem is Adobe, the leading publishing and printing software group. Half the products sold under its name worldwide are pirated and the cost to revenues is around $500m, says John Warnock, who recently switched from being chief executive to chief technology officer.

"It's a lot. I would love to put that into more R&D and make people more productive." Asia is where most problems occur, but he says Italy, Spain and eastern Europe also cause concern.

Autodesk, the design software group, also suffers from pirates. It estimates that for every copy of its leading AutoCAD product sold, eight more are stolen or illegally copied. Such figures are based on discrepancies between the volume of software sales and the level that recorded computer sales would be expected to generate.

Whether or not they know it, users of illegal software are just as liable under copyright and counterfeiting laws as the pirates themselves. Robert Holleyman, BSA president, talks of "otherwise legitimate businesses that violate the laws of their country by using software without authorisation".

Either they buy pirated products to save money or use more than they have paid for. "A vast amount of software theft occurs because businesses use more copies than they have licences for," he says. This is also called under-licensing and results from deliberate flouting of the law, careless management of IT assets, or a combination of the two.

But while companies may be saving money by using illegal software, they are also exposing themselves to huge risks. Pirated software could contain bugs and viruses and will certainly not enjoy vendor support and low-cost upgrades.

Despite the risks and penalties, many users of pirated software tend to shrug their shoulders over the issue. They perceive software piracy as a soft crime next to more blatant criminal gang activities such as drugs, prostitution and robbery. Small companies, and even some big ones, may not think they are doing much wrong.

"If I hear the argument that it's not really stealing, I say 'it is - it's stealing somebody else's ideas, assets and investment of billions in R&D'," says James O'Donnell, UK-based legal counsel for Autodesk. "If they're not stealing, what do they think they're doing?"

The view is echoed by Batur Oktay, senior corporate counsel for Adobe. "I hear people justify wrongdoing by saying software is expensive. You can justify theft, but it's still theft. It's not just illegal, it's morally wrong."

Although there is a widespread perception that software and anything available on the internet should be free, copyright laws are designed to protect and promote innovation and creativity, he says. "It does this by giving creators certain rights for certain periods of time."

If software companies do not get an adequate return from their development and marketing efforts, "society can be harmed as a result".

In such a fast-moving sector as software, it is hard to assess the damage done by piracy. But a study by PwC, the business consultancy, for the BSA in 1998 estimated that reducing piracy levels to US levels could lead to the creation of more than 200,000 new jobs in the European Union. In the US, Nathan Associates, the economic consultancy, said eliminating piracy altogether could have a similar result. Potential tax revenues are also being lost.

Thus the battle against the pirates has a much wider dimension than the missing revenues of the software companies. Investigators at the BSA's European enforcement unit in London, are on the front line, scouring the web for the worst offending sites. They can pinpoint sites' location and find out which ISPs they are using. They also make test purchases to determine whether copyright laws are being flouted.

Leads come from BSA and company hotlines, tip-offs and investigators' own searches. "There are an awful lot of ways to track people down," says Margo Miller, who heads the BSA's European enforcement unit. "In some instances, it's easier than in the physical world."

But the problem is too big and too widely dispersed for any single enforcement activity to be effective. Nor are all piracy sales carried out from websites.

Whether online or off, piracy takes several different forms. Sometimes, pirates bundle software from different companies onto one CD-ROM which is sold at a low price.

Other offences include: hard disk loading (suppliers installing unauthorised software onto computers before sale), redirection of cheap software for educational purposes to business use; and the sale by unscrupulous traders of pirated software to unsuspecting customers.

Increasingly, pirated software can be downloaded directly over the internet. Since this is a route the software companies themselves plan to use more intensively for legitimate sales, they have a strong desire to make the internet clean for legitimate downloads.

Piracy rises over the internet

"Technology will make it easier to distribute software," says Julia Phillpot, anti-piracy manager for Microsoft in the UK, of the internet's impact. "As the pipe [bandwidth] grows, this will be both an opportunity and a threat."

But she thinks the opportunity will outweigh the threat, especially since companies will be able to put more of their software management in the hands of application service providers (ASPs) and other organisations.

Ms Phillpot dismisses the argument that the internet will aggravate piracy. "If you had no supermarkets, would there be any less shoplifting?" But some companies are already finding that the internet is harming their business. For Macromedia, a US company which produces software for web designers and developers, internet downloading has become a serious problem.

"We're missing out on about 35 per cent of our business through piracy," says Sue Thexton, vice president for Europe.

Macromedia's customers are just the type of web-savvy people who know how to bypass normal sales channels. "We've always felt the abuse of piracy, even before the internet. But this has really exacerbated the situation."Companies can build in security and so-called locking devices to prevent the use of unregistered and unauthorised software. Along with the Business Software Association in the US and other organisations, they also work hard at educating users, lobbying governments and enforcing their legal rights.

But whether on or off the internet, there will always be computer hackers, crackers and pirates who can break through companies' defences and evade the law. "It's taken some very very clever people to develop the software we have," says Macromedia's Mr O'Donnell, "but there are equally clever people out there who can break it."