Microsoft Files Cases Under New Arizona Anti-Counterfeiting Law

Company Continues Efforts to Protect Intellectual Property, Consumers

PHOENIX - Sept. 29, 1998 - Microsoft Corp. officials today announced they have filed three lawsuits alleging copyright violations and trademark infringement, two of which fall under Arizona's new anti-counterfeiting provision and are believed to be the first actions about counterfeit software that have been brought under the statute.

Arizona Revised Statute 44-1453 went into effect Aug. 22 and makes it a felony to manufacture or distribute more than $1,000 worth of counterfeit product. The new statute also provides for enhanced remedies in the civil cases filed by Microsoft, Microsoft vs. HT Computers Inc. of Mesa and Microsoft vs. Computer Works Inc. of Phoenix. The complaints allege that the defendants in these cases have distributed or sold counterfeit Microsoft® products. Under the new law, Microsoft can seek three times its losses in damages, in addition to attorney fees and court costs.

"Arizona has reinforced its responsibility to protect intellectual property rights by joining a growing number of states that have recently enacted stronger criminal and civil anti-counterfeiting provisions," said Brian W. LaCorte, of the Phoenix law firm Jones, Skelton & Hochuli, who testified before the Arizona legislature in favor of the new law. "This law will enhance our ability to take action against counterfeiters in the software industry and other industries plagued by widespread counterfeiting."

The third lawsuit alleges that Kevin Chan, d.b.a. Power Computers of Tucson, committed copyright infringement by "hard disk loading." Hard disk loading is a practice in which a reseller loads the hard drive of computers it is selling with an unauthorized copy of a software product. In this case, Chan allegedly loaded unauthorized copies of Office 97 Professional and the Microsoft Windows® 95 operating system onto computers he sold. Hard disk loading, counterfeit distribution by resellers, and unauthorized multiple installations of software in businesses are the three most prevalent forms of software piracy.

"Software piracy and counterfeiting among resellers gives illegal operators an unfair competitive advantage over companies that obey the law," said Anne Murphy, Microsoft corporate attorney. "By filing suits against Arizona companies engaging in illegal activities, we affirm Microsoft's commitment to protect legitimate resellers and innocent consumers from software piracy."

According to Ed Denison, executive director of the Arizona Software Association, software piracy cost the Arizona economy $180 million in lost wages, tax revenues and retail sales in 1997. "It is important that we work together to protect honest resellers and consumers from piracy," Denison said, "so the software industry can remain a significant source of employment and continue its contributions to the quality of life in Arizona."

The software industry is a significant driver of the current economic prosperity in the United States, accounting for the creation of more than 2 million jobs, $102.8 billion in software and software-related services, and payment of $7.2 billion in taxes. However, software piracy threatens the ability of the industry to continue to contribute to the American economy. According to a 1997 study by Nathan Associates of Arlington, Va., commissioned by the Business Software Alliance, software piracy in 1996 resulted in the loss of 130,000 jobs in the United States, $5.3 billion in wages and salaries, and nearly $1 billion in tax revenues.

Microsoft encourages consumers to become familiar with the warning signs that can help them identify counterfeit or illegal software.

• Prices that are "too good to be true." This may be counterfeit product, or product that has been misdirected, such as product authorized for distribution only to educational institutions but is being offered to the general public.
• Back-up disks or CD-ROMs with handwritten labels, or components that appear to be of inferior quality
• Manuals that appear to be photocopied or are of inferior quality
• Products 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

In addition, when users acquire a new computer system, it will include operating system software. If that software is the Microsoft Windows 98 operating system, it will be accompanied by a users manual that incorporates a Certificate of Authenticity as the cover. The customer will also receive a CD-ROM with the software program. There must be an end-user license agreement (visible online when the program is first run). If any of these elements is missing, the product is suspect.

Customers or resellers with questions about the legitimacy of Microsoft products should contact the Microsoft anti-piracy hot line, toll free, at (800) RU-LEGIT (785-3448), or send e-mail to piracy@microsoft.com. They can obtain more information about software piracy by calling the Business Software Alliance anti-piracy hot line at (888) NO-PIRACY (667-4722) or sending 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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