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Feds Seize $87M in Counterfeit Software Sting - InternetNews.
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Feds Seize $87M in Counterfeit Software Sting

UPDATED: FBI officials said they have netted close to $87 million worth of counterfeit software and components in California, Washington and Texas as a result of a sting operation called Operation Digital Marauder.

In what is called one of the largest seizures of counterfeit software in the United States, FBI agents executed search warrants in San Francisco and Austin, Texas that led to the seizure of more than $56 million worth of counterfeit Microsoft, Adobe and Symantec products, federal officials said.

The investigation, which targeted large-scale copyright infringement and theft of intellectual property, has resulted in 11 defendants charged with conspiracy to distribute counterfeit computer software and documentation with a retail value of well over $30 million.

The FBI said indictments were returned Wednesday in Los Angeles in the two-year investigation. In this case, $80 million of the seized goods were Microsoft products, the company said.

According to the FBI charges, the indicted defendants, including Tobias Grace of Vancouver, Wash., and Sanh Thai of Los Angeles, Calif., were involved in setting up a counterfeit replication site in the Los Angeles area, where they allegedly produced counterfeit Adobe and Symantec CDs. That operation was shut down in April 2004.

A printer in San Francisco, Thanh Tuong, is accused of printing counterfeit documentation for Microsoft server and other software products. He allegedly delivered the forged documents to a number of customers, including Arnica Grace, Tobias Grace's sister, in Austin, Texas, for distribution.

Investigators from Microsoft's Digital Integrity Group worked with the FBI and local law enforcement on the investigation.

"This was a target Microsoft has been after for some time," said Pat Mueller, Microsoft senior investigator and a former DEA special agent.

The FBI calls on Microsoft in its counterfeiting investigations for help in understanding how software is produced, as well as what to look for when evaluating the authenticity of its products. Microsoft investigators are on the scene when the FBI searches a facility to help identify counterfeit goods, Mueller said.

He lauded the FBI for taking its time to scope out the entire gang, from manufacturing to distribution. "Sometimes, we just take off a tentacle here and a tentacle there. But they weren't in a hurry to get it over with; they wanted to do it the right way."

U.S. Attorney Debra Yang, a member of the Attorney General's Intellectual Property Task Force, said the case illustrates the Justice Department's commitment to battle intellectual property crimes. "The scope of this case is unprecedented. In one indictment, we have charged both the manufacturers who supplied the counterfeit items and the distributors who flooded the market with the bogus goods," Yang said in a statement.

Frank Harrill, supervisory special agent with the FBI's Los Angeles Cybercrime Squad, said cybercrime is his organization's third priority, with only counter-terrorism and counter-intelligence considered more critical. And intellectual property crimes are a prime component of the cybercrime efforts.

"That's for good reason," Harrill said. "Intellectual property underpins a large portion of our local economy and the national economy. We have to deal with it just as vigorously as with physical assets." Harrill said the public will see an increasingly large emphasis on intellectual property crimes from law enforcement as a whole and from the FBI in particular.

According to a study by the Business Software Alliance and research firm IDC, 36 percent of the software installed on computers worldwide was pirated in 2003, representing a loss of nearly $29 billion.

Microsoft has a consumer hotline for piracy issues and a special Web site, How to Tell, that walks consumers through the process of looking for the distinguishing marks of genuine products.

For example, someone with Windows 2000 Professional that came preinstalled on a computer is asked to check whether the label has a certificate of authenticity, then, whether that certificate contains such things as "a copper holographic interwoven thread that reveals the words 'Microsoft and 'Genuine,'" or a 25-digit product key.

As Microsoft adds techniques such as special inks and holograms to make its packaging harder to fake, crooks respond by buying or stealing packaging elements. In the past few years, more than 540,000 certificates of authenticity, with a market value of $50 million, have been stolen from replicator sites in the US and Europe. They're sold to counterfeiters through a variety of brokers and distribution channels, including the Internet.

Mueller said the counterfeiters dummied up user license agreements, licensing papers and certificates of authenticity that were very high quality, yet counterfeits typically lack the full range if security features.

But Richard LaMagna, senior manager of Microsoft's worldwide investigations, told Congress in February, "Even the most sophisticated consumer would have great difficulty in distinguishing this counterfeit package from the genuine item."

Mueller said that Microsoft's hotline and anti-piracy Web site typically sees surges in traffic after the news of a big bust. Still, the onus is on consumers to keep track of what certificates and documentation they're supposed to get with a software or computer purchase, to make the effort to check out the authenticity of their software and to try to get their money back.

Those stuck with bogus goods are advised to ask the seller for a refund or replacement. If they're refused, they can report the dealer to Microsoft.

For those who are still shopping, Microsoft has advice that's a lot simpler: Beware of prices that are too good to be true.