Microsoft, police trace $900 million global software piracy ring

Monday, February 11, 2008

SEATTLE -- Near-perfect knockoffs of 21 different Microsoft programs began surfacing around the world just over a decade ago.

Soon, PCs in more than a dozen countries were running illegal copies of Windows and Office, turning unwitting consumers into criminals and, Microsoft says, exposing them to increased risk of malicious viruses and spyware.

The case began to turn in 2001 when U.S. Customs officers seized a shipping container in Los Angeles filled with $100 million in fake software, including 31,000 copies of the Windows operating system.

From there, Microsoft pushed the investigation through 22 countries. Local law enforcement officials seized software, equipment and records, and made arrests. A court in Taiwan handed down the last of the major sentences in December. Microsoft estimates the retail value of the software the operation generated at $900 million.

"That is a tremendous accomplishment," said James Spertus, a former federal prosecutor in Los Angeles who later led anti-piracy efforts for the Motion Picture Association of America. "There are only going to be a few cases like this a decade."

Now Microsoft is eager to talk about the experience because taking down that operation -- responsible for about 90 percent of the fake software the company found between 1999 and 2004, more than 470,000 disks -- didn't actually stop piracy. It just left room for more counterfeiters to rise. Microsoft hopes would-be pirates will think twice if they know how far it will go to protect the computer code worth billions in revenue each quarter.

The pirates mimicked complex holograms stamped directly onto disks and packaging materials embedded with the kind of tiny safety threads used in making money. In some cases, it took experts with microscopes to notice that disks printed with codes used by legitimate software factories lacked certain minuscule, unique smudges.

"The copies were so good, we went to tremendous forensic and scientific lengths to establish that the counterfeits were, in fact, counterfeits," said David Finn, an associate general counsel at Microsoft.

Spertus said the burden is often on the company holding the brand to travel the world collecting evidence, doing undercover work and coordinating with law enforcement agencies.

Few companies are willing to devote serious resources to anti-piracy enforcement, especially because the return is hard to prove. People who buy counterfeit software aren't likely to have paid retail prices anyway, Spertus said. But a big bust adds significant weight to lobbying efforts for stricter international intellectual property laws.

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