Microsoft Fights Latest Form of Software Piracy

Battle Targets Distribution of Incomplete Products via Retail Channel

REDMOND, Wash. - Feb. 19, 1998 - Officials at Microsoft Corp. today announced that the company has stepped up its battle against an increasing form of software piracy involving the distribution of software components obtained through the Microsoft® Easy Fulfillment (MEF) program and sold illegally into the retail channel.

Under the MEF program, customers who have purchased volume-licensing agreements for specific software are eligible to acquire supplemental components for that software. When orders for those components are placed through the MEF program, they are shipped as CD-ROMs packaged only in jewel cases. They do not include an end-user license agreement, a users manual, a registration card, a warranty or other features that accompany genuine Microsoft retail products.

But some distributors are misusing the MEF system, ordering software components for which they have no licensing agreements, and are illegally selling those components into the channel as if they were complete retail products. As a result, Microsoft recently filed a lawsuit involving the MEF program against a Maryland software distributor, Zebra Distribution Inc. of Annapolis. Also named in the suit, filed Jan. 20 in U.S. District Court for the District of Maryland, is Zebra's affiliated retail outlet, Computer and Communications Systems Inc., also known as Computer Etc., of Potomac, Md.

The software components the two companies allegedly obtained through the MEF program include CD-ROMs for Microsoft Office 97 Professional Edition, the Microsoft Windows NT® Server operating system version 4.0 and Microsoft Windows NT Server Academic version. Microsoft is seeking triple damages and attorneys fees for trademark infringement as well as a permanent injunction against both companies and their principals, Dean Zarpak, Mahnaz Zarpak and Shahbaz Zarpak.

The legal precedent for Microsoft's trademark infringement case against Zebra Distribution involves a lawsuit brought by Novell Inc. in 1993 against Weird Stuff Inc., a California company. In that case, Weird Stuff was charged with reselling Novell system disks that Novell's manufacturer had disposed of in a dumpster because they did not conform with Novell quality-control standards, though they were not defective. The court ruled in Novell's favor, saying the disks were not "complete products, but only a small part of [the] NetWare product."

Moreover, the judge ruled, the system disks were never intended to be sold or marketed as a standalone product. The court pointed out that the products could no longer be considered genuine even if they originally had met Novell's specifications if they were "sold or distributed in a manner which causes them to lose their original character, and the excellence indicated by the trademark."

"We're pleased if our earlier case was of assistance in Microsoft's current case," said Harrison Colter, associate general counsel for Novell. "We frequently work with Microsoft and other industry members to bring joint lawsuits against software pirates. The bottom line is that piracy costs Americans jobs and income."

In a similar case based on the same principles as Novell Inc. vs. Weird Stuff Inc., a federal District Court recently prohibited L&M Manufacturing Corp. of Miami from distributing MEF supplemental CD-ROMs as if they were complete Microsoft products, on the basis that such distribution violates federal trademark law. The court adopted Microsoft's argument that MEF disks, when distributed by defendants as if they were retail Microsoft or original equipment manufacturer (OEM) products, are not "genuine" Microsoft products under U.S. trademark law.

Microsoft plans to continue bringing legal actions to halt the unauthorized distribution of MEF components, according to Teresa Ducharme, Microsoft director of OEM sales in North America. "We are working hard to ensure a level playing field for legitimate OEMs, or system builders, as they are known within the industry," she said. "Obviously there is significant legal risk to system builders that do not acquire legitimate products through authorized distributors."

Companies that build PCs and want to obtain genuine Microsoft products for inclusion with their hardware systems should get them from Microsoft's 13 authorized Delivery Service Partners (DSPs). A list of DSPs is available at http://www.microsoft.com/oem/.

Microsoft receives more than 2,000 calls and e-mails each month that are reviewed by investigators to identify computer resellers and others that are using or distributing Microsoft software illegally. In addition to increasing enforcement efforts, Microsoft is working to help consumers recognize warning signs that could indicate they are acquiring illegal or counterfeit software:

• Prices that seem "too good to be true"
• No certificate of authenticity
• Products on retail shelves that include a line on the front cover of the users guide that reads, "For distribution with a new PC only." (Microsoft's agreements with computer manufacturers prohibit them from distributing Microsoft software without accompanying PC hardware. Microsoft does not provide consumer support for this type of product.)
• No end-user license agreement
• No product registration card
• No backup disks, manuals or other materials for software installed on a new computer system
• Backup disks that have handwritten labels, are not shrink-wrapped or appear to be of inferior quality
• Manuals that are photocopied, are not shrink-wrapped or appear to be of inferior quality

Customers or resellers with questions about the legitimacy of Microsoft products should contact the Microsoft anti-piracy hot line at (800) RU-LEGIT (785-3448) or send e-mail to piracy@microsoft.com. For more information about software piracy, call the Business Software Alliance (BSA) anti-piracy hot line at (888) NO PIRACY (667-4722) or send e-mail to software@bsa.org.

Founded in 1975, Microsoft (Nasdaq "MSFT") is the worldwide leader in software for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day.

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