Contract With GE Unit Buoys Westlake Village Firm : Vault Corp. Fights Piracy on Software’s Seas

In the 1970s, W. Krag Brotby was a computer buff in the real estate business. So he used his hobby to develop software that could analyze the complex tax ramifications of syndication deals.

In 1979, during the recession, Brotby got out of real estate and decided to market the software. To his consternation, he soon found that it was being pirated--copied and distributed illegally.

So Brotby went into the software security business, forming Vault Corp. with an idea for preventing the sort of software piracy that victimized him three years earlier.

Last month, his Westlake Village company announced that its Telelok protection system will be used by General Electric Information Services Co., a unit of General Electric Co., for its planned “electronic warehouse” of software.

Royalty Arrangement

The contract is likely to bring privately held Vault just $300,000 to $400,000 by Feb. 1, the end of its current fiscal year, said Brotby, company chairman and president. But Vault has a royalty arrangement that will bring in money on every sale from the electronic warehouse.

“The potential downstream on this is explosive,” Brotby said.

GEISCO plans to sell software over its existing computer network, permitting corporate customers to order by computer and take delivery electronically.

Vault will provide software security. Each user of the GEISCO system will get a Vault master disk giving him access to the electronic warehouse, really a network that charges for software. Each master disk will bear a “fingerprint” identifying the user through a special electronic code.

Using the fingerprint as a key, GEISCO’s central computer will scramble any software a user buys into a code that can only be decoded by the fingerprint on the master disk. That master disk, which can’t be copied, is required to translate the encoded software every time it is used.

System Called Convenient

Many software authors worry about electronic piracy, said Martin Reese, manager of microcomputer applications for GEISCO. “Vault has the most convenient and economical system for securing electronic software.”

Reese said that GEISCO’s computer network will start delivering software electronically in January.

Despite the widely publicized problem of illegal copying of software, the software security business remains small. Estimates vary: Brotby calls it a $20-million to $25-million-a-year industry, whereas Paul Cubbage, an analyst with Dataquest Inc., a market research firm, says it probably doesn’t exceed $10 million.

“It’s all spy versus spy stuff,” said Cubbage. He noted that, as with securing a home, it is relatively easy to shut out an amateur thief but virtually impossible to exclude a determined pro.

Sales More Than $5 Million

“There are commercial programs that break these protective devices,” Cubbage said. Vault, however, does not make them.

Vault doesn’t disclose profits, but annual sales are $5 million to $10 million, said Brotby. The company has about 45 employees, he said.

Ironically, Vault now makes weapons that can be used by both sides in the software security wars. Although software security systems account for most of its sales, the company also makes a machine that can copy dozens of disks in rapid succession.

Brotby acknowledged that the device could be useful to software pirates. But he said that it was designed for legitimate copying, such as by software creators who want to sell their products. It also has a variety of other uses, such as permitting the information from many disks to be fed into a computer automatically.

For example, accountants auditing a single company with many different offices could do their work on disks and then use the machine to combine them in the accounting firm’s main computer.

Brotby said that Vault now has about 30 shareholders, including himself; Ashton-Tate, a Culver City software company, and a New York investment banking firm.