Microsoft Files Actions Against Three Bay Area Companies For Allegedly Distributing Counterfeit Software

Local Nonprofit Organization Chosen as Recipient of Donations From Microsoft's Software Piracy Settlement Recoveries

REDMOND, Wash. - July 7, 1999 - Microsoft Corp. today announced it has filed software piracy lawsuits in the Bay area as part of its continued commitment to protect legitimate distributors and customers from the negative effects of software piracy. The suits were filed against three businesses suspected of illegally distributing counterfeit software to consumers. One of the lawsuits involves alleged violations of a previous settlement agreement with Microsoft.

As part of its pledge to donate $25 million from software piracy recoveries to various nonprofit organizations over the next five years, Microsoft announced last week that Gateway Business and Community Coalition Inc. of Watsonville, Calif., has been chosen as one of the initial recipients of the funds. Microsoft will assist Gateway Business and Community Coalition by providing computers and training to economically disadvantaged children as part of the Computers for Youth and Schools at Home Program. This project aims to enhance skills and learning and provide access to technology to advance students in their education and help prepare them for careers.

"We are very supportive of Microsoft's anti-piracy and community efforts," said Dennis Ortiz, director of Gateway Business and Community Coalition, a nonprofit education organization. "We are thrilled to be a beneficiary of Microsoft's generous donations of both money and software and look forward to using them to help educate the children and families of our community."

The three complaints in the Bay area allege that the defendants distributed counterfeit Microsoft® software to undercover investigators. The lawsuit against BESQ Systems of Milpitas, Calif., further alleges that BESQ violated a previous settlement agreement with Microsoft, whereby it agreed not to infringe Microsoft copyrights and trademarks. These companies were investigated as a result of tips to the Microsoft anti-piracy hot line, most of which are received from honest resellers or from consumers who receive suspicious products. According to the complaints, each of the defendants continued to distribute unauthorized Microsoft software even after receiving a written request from Microsoft to stop their unlawful activities.

The complaints, which were filed in the U.S. District Court for the Northern District of California, are as follows:

• BESQ Systems of Milpitas allegedly distributed counterfeit Microsoft Office Professional 97, Microsoft Windows® 95, Windows NT® Server 4.0 and
  Windows NT Workstation 4.0 (Case No. C-99-20620 RMW PVT ENE).
• Kulet Co. of Hayward allegedly distributed counterfeit Microsoft Windows 98, Office Professional 97, Windows NT Workstation 4.0 and Windows NT Server 4.0
  (Case No. C-99-3219 EDL).
• Starlight Computer Co. of Oakland allegedly distributed counterfeit Microsoft Windows 95, Office Professional 97, Windows NT Workstation 4.0 and Windows NT Server 4.0. (Case No. C-99-3218 CRB).

"SoftChoice and other honest software distributors lose a significant amount of business due to software piracy. This not only hurts individual businesses, but also leads directly to the loss of jobs, wages and considerable retail and tax revenue in the software industry on both state and national levels," said Josh Greene, Bay Area sales manager for SoftChoice. "We commend Microsoft for taking action against dishonest software resellers to combat the sale of illegal software, and we look forward to continuing to work with Microsoft and the rest of the software industry in the fight against software piracy."

The software industry lost more than $11 billion in revenue due to software piracy in 1998, according to a Business Software Alliance (BSA) study released last month. California's economy has also suffered serious losses due to its 22 percent software piracy rate. According to data gathered by International Planning & Research Corp., California lost more than 18,000 jobs and more than $2.5 billion in combined lost wages, tax revenues and retail sales in 1997, including more than $170 million in state taxes that instead could have contributed to local and state improvement projects.

In the past two years, organized criminal counterfeiting has grown dramatically 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.

Microsoft cautions that, in addition to the increased potential for viruses, consumers who acquire pirated software could find they are missing key elements, such as user manuals, product identifications, Certificates of Authenticity, end-user license agreements and even software code. Customers with pirated software are also ineligible for technical support or upgrades. Microsoft continually researches the viability of new anti-piracy technologies, such as the holograms on the hub of Windows 98 and Office 2000 CD-ROMs, to maintain the integrity of the distribution channel and reduce the costs of piracy.

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"
• 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
• 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 that incorporates a Certificate of Authenticity as the cover, as well as back-up 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/.

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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