Microsoft Files Suit Against Five Los Angeles Area Resellers For Alleged Software Piracy

New State Policy Should Help Combat $1 Billion Economic Losses in California

REDMOND, Wash. - Oct. 20, 1999 - Microsoft Corp. today announced that it has filed software piracy lawsuits against five Los Angeles resellers. The lawsuits, which charge copyright violations and trademark infringements, were filed against four software distributors in the Los Angeles area and one operating through a personal mailbox in Las Vegas for allegedly distributing counterfeit Microsoft® software and/or installing unlicensed software on computers sold to consumers. The lawsuits are part of the company's ongoing anti-piracy efforts, which aim to protect consumers and legitimate distributors from the negative effects of software piracy.

This past Friday, California Gov. Gray Davis signed an executive order that established a strong government policy to prevent software piracy in California state agencies. California is the second state to issue such an order, following President Clinton's national executive order of nearly a year ago. The newly signed policy requires all state agencies and recipients of state funds to use genuine and legally licensed software.

According to a recent study by International Planning & Research Corp., software piracy in California is increasing at the third-fastest rate in the country - up nearly 8 points from the 1997 rate of 21.8 percent to 29.7 percent in 1998. The study indicates that California's high piracy rate, which is nearly 5 percent higher than the national average, cost the state 18,344 jobs in 1998 and accounted for more than $1 billion in unrealized wages, salaries and tax revenue - dramatically higher than any other state. The same study reveals that Nevada's 45 percent piracy rate is the third-highest in the country.

"Computer outfits that distribute counterfeit software don't seem to think twice about selling software that may contain viruses or may not work at all to unsuspecting consumers at extremely low prices," said Christian Kelbiche, president of SCKLB Inc. in Long Beach. "They use this unfair and illegal competitive edge to draw customers away from honest businesses like ours. We're thrilled that Microsoft is taking a lead in seeking out these resellers and helping to prevent software piracy."

All of the lawsuits allege that the defendants distributed counterfeit copies of Microsoft software to investigators. One of the lawsuits also alleges the distribution of a computer system after hard disk loading, the practice of loading unauthorized copies of software onto the hard drives of computers that are sold to customers. The complaints, all of which are filed in the United States District Court for the Central District of California, are as follows:

• 1 Source Industrial Supply, a k a 1 Source Software & Computer Services a k a 1 Source of Sun City allegedly distributed counterfeit components of Office 97 Professional Edition (Case No. 99-10816 CBM [AIJx]).
• CD ROM of the Month Club, which operates on the Internet at www.cdromofthemonthclub.com, through toll-free telephone numbers and through a private mailbox address in Las Vegas, allegedly distributed counterfeit components of Office 97 Professional (Case No. 99-10814 DT [RCx]).
• Computer Doctors of Garden Grove allegedly distributed counterfeit components of Office 97 Professional and hard disk loaded the Microsoft Windows® 98 operating system (Case No. 99-10817 AHM [SHx]).
• Logisys Computers Inc. of Walnut allegedly distributed counterfeit components of Office 97 Professional and Windows 98 (Case No. 99-10818 GHK [SHx]).
• Tiger Tech, formerly known as Blue Parrot International a k a Blue Parrot Computers a k a Blue Parrot Inc. of Palmdale, operating on the Internet at www.22tiger.com, allegedly distributed counterfeit components of Office 97 Professional (Case No. 99-10815 CBM [AJWx]).

Most of the businesses named in the complaints were investigated as a result of tips to the Microsoft anti-piracy hot line. The tips are typically phoned in from honest resellers or from consumers who acquire suspicious products. According to allegations in the complaints, each of the defendants continued to distribute unauthorized Microsoft software even after receiving a written request from Microsoft to stop unlawful activities.

In the past two years, criminal counterfeiting has grown dramatically in California and around the world. For Microsoft's fiscal year 1999, the company reported more than 4.3 million units of counterfeit software seized by law enforcement authorities - nearly five times the amount recovered in 1998. Much of the counterfeit software was recovered in California; in a recent bust in Paramount, Calif., $56 million worth of Microsoft software was found and eight people were indicted by a federal grand jury.

"California, which arguably sets the standard for the technology industry in innovation, production and consumption, also far outpaces the rest of the country in the illegal manufacture and distribution of counterfeit software," said Anne Murphy, corporate attorney for Microsoft. "Microsoft will continue to fight this trend, which has such a deep impact on consumers, the economy, the industry and, ultimately, people's livelihoods."

Microsoft has announced that, in addition to its other community affairs activities, it plans to donate an estimated $25 million over the next five years - half of its anticipated software piracy recoveries during that time period - to nonprofit organizations worldwide focused on providing access to technology for disadvantaged communities.

Consumers and resellers are encouraged to become familiar with the warning signs that can help them identify counterfeit or illegal software:

• Prices that are "too good to be true"
• Software marked with a phrase, such as "For distribution with a new PC only," "Special CD for licensed customers only," "Not for retail or OEM distribution" or "Academic price - not for use in a commercial environment," that does not describe the transaction
• Microsoft OEM Windows 98 or OEM Office 2000 that is not accompanied by a user manual incorporating a Certificate of Authenticity as the cover as well as backup media and an end-user license agreement that is visible on-screen when the programs are first run

Customers or resellers with questions about the legitimacy of Microsoft software should contact the Microsoft anti-piracy hot line, toll free, at (800) RU-LEGIT (785-3448) or send e-mail to piracy@microsoft.com. In addition, a list of authorized distributors and details regarding the OEM System Builder program are available at http://www.microsoft.com/oem/. Consumers can obtain more information about software piracy by calling the Business Software Alliance anti-piracy hot line at (888) NO-PIRACY (667-4722) or by sending e-mail to software@bsa.org.

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