Microsoft in Dealer Crackdown

Microsoft lawyers filed suits around the country to put
a halt to the sale of counterfeit versions of the company’s software,
officials announced Monday.

Microsoft officials say seven computer system builders were charged with
copyright and trademark violations for allegedly selling bogus copies to its
customer base, despite cease-and-desist orders in the past.

The eighth case includes the company’s first suit
against a company violating a recent software anti-counterfeiting bill.
President George W. Bush signed
the Anti-counterfeiting Amendments Act of 2003 in December 2004.

Bonnie MacNaughton, Microsoft senior attorney, said the lawsuits were filed
both to protect consumers from pirated software and to protect other systems
builders who have to compete with rivals who can sell their systems at a
much lower price.

“A lot of our motivation is to help what we call our channel partners, the
system builders, to level the playing field for them and to make sure
they’re in a position to compete fairly with other businesses,” she said.

This is the second round of lawsuits aimed at companies that try to pass off
legitimate copies of Microsoft products to their customers, many times by
applying faked versions of Microsoft’s Certificate of Authentication (COA)
to the hardware or software to make it appear legitimate. In November 2004,
Microsoft filed similar suits against eight other dealers for distributing illegitimate

The eight defendants entered the Redmond giant’s radar when their activities
were discovered by Microsoft as part of a test purchase program started in
1997. The company buys software and hardware from various resellers and determines whether copies of Windows programs are authentic.
Dealers are generally sent a cease-and-desist order if it’s found they are
selling counterfeit software, Microsoft officials said.

One of the owners of M&S Computer Products, a systems builder and repair
company in Boonton, N.J., categorically denies his company did anything
illegal. Sherman Leifer said his company has the receipts to prove it
bought the licenses to Microsoft products that were used in the systems they
put together. He said as much to the Microsoft lawyer he talked to Monday
morning. Leifer said he received the lawsuit late Friday afternoon.

“We’ve explained to [Microsoft] to come audit our books, to look at every
computer invoice and then we can show a corresponding invoice from a
distributor where we bought the software,” he said.

MacNaughton said M&S Computer Products has been on its watch list for some
time, beginning in May 2000 with evidence that showed the company was
involved in the sale of counterfeit Microsoft software. In December 2003,
she continued, the company was sent a cease-and-desist letter for selling
pre-installed Microsoft software on its computers, and one of the test
program officials bought another such system in December 2004.

In some cases, she said, the companies don’t heed Microsoft’s warnings, forcing it to take the next step to protect their software.

“We’re always amenable to resolve these cases short of trial, and we try to
be reasonable with people that we sue,” she said. “Our main motivator is to
get people to stop the piracy, so that’s why we send the cease-and-desist
letters in advance and we end up having some companies that won’t stop,
won’t take it seriously, until we file a lawsuit.”

The company also sent a letter in January to resellers and systems
builders that were outed by the test purchase program informing them of new federal legislation making the counterfeiting of COA tags illegal.

The first company to get sued by Microsoft under the Anti-counterfeiting Amendments Act is Odyssey
Computers of Pasadena, Md., a company MacNaughton said violated the
anti-counterfeiting act before and after the law was enacted by distributing
standalone COA labels. These labels can then be placed on pirated software
titles to give them an air of legitimacy.

“That was extremely concerning to us because it added to people’s ability to
deceive our customers,” MacNaughton said, “to pirate software and create
this whole unfair, competitive marketplace where genuine people who were
doing legal things were being undercut by people doing illegal things.”

Officials at Odyssey Computers were not available for comment at press time.

According to the Business Software Alliance, a group comprised of software and
hardware vendors, including Microsoft, that focuses on copyright
protection and cyber security, 22 percent of the software used on
U.S. computers is unlicensed.

The company’s Digital Integrity Group has had some success in the past
against targeted dealers. In September 2004, the company helped FBI agents nab nearly $87 million worth of Microsoft, Adobe and Symantec software in a sting called Operation Digital Marauder.

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