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.

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