The enormous popularity of the Internet and the tremendous advances in communication technology have opened a new distribution channel for the software firms. However, at the same time, the Internet also makes the distribution of pirate software much easier. In order to analyze software firms’ protection strategies for online software distribution, a game theory base model is presented in the paper. We find that as long as pirate software is in the market, the firm that protects its software products can set a higher price for its products. We also find that when the software protection environment is fast improving, software firms should not protect their software products, since piracy can help them to lock in customers now and make higher profits in the near future. However, if the protection environment does not improve enough or even gets worse, firms that do not protect their software will not be able to benefit from the customers locked-in by pirate software, and they will be better off protecting their software products.