Microsoft and Disctronics Announce Agreement In Software Counterfeiting Action

Disctronics Pledges to Fight Counterfeiting Problem in Replication Industry

REDMOND, Wash., June 13, 2000 — Microsoft Corp. and Disctronics Texas Inc., a major independent U.S. CD manufacturer today announce a settlement in connection with the replication of CD-ROMs containing counterfeit Microsoft® software. The replication occurred at Disctronics' plant in Plano, Texas, in late 1996 and early 1997. Disctronics has taken a number of steps to improve order screening and copyrights compliance in its plants. Other terms of the agreement are confidential.

Disctronics received a number of orders from two companies to produce a large quantity of CD-ROMs containing Microsoft software, including the Microsoft Windows® operating system and Microsoft Office Professional, later identified by Microsoft and the FBI as counterfeit. Disctronics had no knowledge of any criminal intent, but its internal procedures at the time did not identify the product as counterfeit. The two companies placing the orders subsequently were discovered to be operating with criminal enterprises that distributed the counterfeit product throughout the United States and internationally.

Microsoft began to learn of the counterfeit CD-ROMs as a result of numerous hotline calls from dissatisfied customers who had unwittingly purchased counterfeit CD-ROMs, as well as through street-level seizures by police and private investigators in many locations. Legitimate manufacturers, such as Disctronics, use IFPI numbers marked on their discs to identify the location where the discs were made. Using these numbers, Microsoft identified Disctronics as the manufacturer and contacted management at its Texas plant. Upon learning that they had been replicating unauthorized product, Disctronics promptly halted its production and provided valuable assistance to Microsoft, the U.S. Attorney's Office, the FBI and state police in their ongoing investigations into a counterfeiting ring that was behind the illegal orders and distribution.

"The problem of software piracy continues to plague the optical disc replication industry," said David Mackie, CEO of Disctronics Ltd., the parent company of Disctronics Texas Inc. "This unfortunate situation arose because awareness of the problem was not high enough in the past. Like many in the industry, we have now improved the controls in place in all of our plants to ensure that all orders received are properly screened and verified for copyright and trademark authorization. We believe our procedures are now amongst the best in the industry."

"Our entire business would not exist without the creative efforts of companies like Microsoft and others," Mackie continued. "We have an obligation and a self-interest to help prevent copyright and trademark piracy that otherwise undermines our legitimate customer base."

According to Microsoft associate general counsel Nancy Anderson, "Once Disctronics management recognized that it was not replicating genuine Microsoft software, the company took the necessary steps to rectify the situation and has since put in place new screening procedures to prevent similar incidents in the future. We greatly appreciate their cooperation in addressing this serious matter."

Anderson continued, "It is situations like the one in which Disctronics found itself that demonstrate how prevalent the problem of software piracy is, and how important it is for all members of the software industry, the replication industry and the distribution channel to work together to halt piracy. The financial cost to manufacturers who fail to identify illegitimate product that their plants may be asked to press can far outweigh the limited contribution these orders can make to company profits."

Disctronics has a rigorous anti-piracy compliance program and now employs several individuals to oversee internal anti-piracy programs in all of its plants. The company has designed and implemented procedures for screening all incoming orders for copyright and trademark compliance. Working through its trade association, the International Optical Disc Replicators Association (iODRA), Disctronics is committed to educating other replicators and its customers about the counterfeiting operations and other scams that can befall honest businesses. Disctronics is a member of the European Leisure Software Publishers Association (ELSPA) "Best Practice Suppliers' Scheme" and is accredited by Federation Against Copyright Theft (FACT). Disctronics is also a strong supporter of initiatives such as the International Recording Media Association (IRMA) Anti-Piracy Compliance Program.

Software piracy, the theft of software through illegal copying of genuine programs or through counterfeiting and distribution of imitation software products, is a growing worldwide problem. Piracy undermines the value and integrity of software, threatening technology innovation and diminishing the economic opportunities created by the software industry, all while putting consumers at risk. The U.S. piracy rate is approximately 25 percent, with nearly $1 billion in lost tax revenue and $4.5 billion in lost wages for American workers.

Customers or resellers with questions about the legitimacy of Microsoft software should contact the Microsoft anti-piracy hotline, 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 hotline at (888) NO-PIRACY (667-4722) or sending e-mail to software@bsa.org.

About Disctronics

Disctronics is one of the largest independent CD and DVD disc manufacturers. Its plant in the United States and group companies in Europe offer a total capacity of nearly 1 million CD and 100,000 DVD discs every day, seven days per week. It offers premastering, mastering, copy protection, replication, fulfillment and e-commerce services for the music, software, entertainment and video industries, and is accredited by ELSPA, FACT and other industry organizations.

About Microsoft

Founded in 1975, Microsoft (Nasdaq "MSFT" ) is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software -- any time, any place and on any device.

Microsoft and Windows are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries.

The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

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