Microsoft Launches Worldwide Campaign to Crack Down on Internet Fraud

Campaign's First Wave Uses New Technology to Identify Illegal Content and Take Legal Action Against 7,500 Web and Auction Site Postings in 33 Countries

REDMOND, Wash., Aug. 1, 2000 — Microsoft Corp. today announced that it has launched the first wave of a new global campaign against Internet consumer fraud involving software products. Employing new technology and working with industry partners and law enforcement agencies, Microsoft has taken legal action against more than 7,500 Internet Web and auction site postings allegedly offering counterfeit and other illegal copies of software. The illegal content resided on Internet servers located in 33 countries on six continents.

"The growth of counterfeit software on the Internet is a threat not only to those who create content, but to consumers who are being asked to pay good money for bad products," said Brad Smith, deputy general counsel, Worldwide Sales at Microsoft. "The goal of this new campaign is to help ensure that Internet commerce is characterized by genuine products and honesty rather than dodgy goods and theft."

Microsoft is using new technology to support the worldwide campaign, including an Internet monitoring tool that can search suspect sites on the Internet 24 hours a day, 7 days a week to identify illegal online offerings and those behind them. By automating some of the most time-consuming work relating to illegal offerings, Microsoft will be able to identify and address thousands of illegal sites in a single day and work with Internet service providers and auction sites to remove illegal products from the Internet.

In the first wave of the new campaign, Microsoft sought the prompt removal of allegedly counterfeit offerings from Internet sites and then took further action if cooperation was not forthcoming. With the help of law enforcement officials worldwide and often in coordination with the other members of the Business Software Alliance (BSA), the campaign has already led to 64 criminal raids and 17 civil lawsuits in 15 countries worldwide, including Australia, Brazil, Germany, Hong Kong, Israel, South Africa, Sweden, the United Kingdom and the United States.

"While the recent Napster debate highlights the illegal downloading of content for free, we're also witnessing an upsurge in unauthorized Internet sites fraudulently offering 'special low prices,' collecting money, and then delivering fake CD-ROMs to unsuspecting consumers," said Robert Holleyman, president and CEO of BSA. "Although Napster is not designed to aid directly in the piracy of business software, new technologies can and should enhance ways to access and distribute copyrighted works legally. Unauthorized file sharing and the distribution of illegal creative works, through any means, pose a serious threat to consumers and the global economy."

"Fraudulent software sales over the Internet have prompted thousands of consumer complaints to Microsoft's anti-piracy hot lines around the world," confirmed Tim Cranton, corporate attorney for Microsoft. "In some cases, consumers never received any product at all, while in others they received a defective CD or a download infected with a virus that prevented proper installation of the software. Microsoft's new campaign should help eliminate some of the risk for consumers, but they must also become savvy Internet shoppers and learn to spot the warning signs of counterfeit and pirated software, such as deals that are too good to be true."

Microsoft's new campaign comes as emerging technologies such as Gnutella, Freenet and others seek to make it easier to distribute pirated copies of movies, music and software on the Internet. "We're committed to developing technology solutions that respond to technology problems," said Smith. "Ultimately we're going to need a combination of new technology and new relationships between the public and private sectors that protect the law-abiding interests of both creators and consumers. The protection of intellectual property rights on the Internet is essential to encourage creative individuals and companies to develop new products that will benefit consumers."

The majority of illegal Internet postings involved in today's worldwide enforcement efforts were discovered by Microsoft investigative teams using the new Internet technology. Microsoft backs up the automated search tool with a growing number of online and traditional investigators who examine suspect sites, make test purchases, work with ISPs and track down the pirates behind the illegal sites.

In the United States, where more than 3,000 Internet auctions were taken down in July, Microsoft is announcing six Internet anti-piracy lawsuits and two settlements today. One of the cases involves a New York company called Copy USA that uses auctions sites to advertise Microsoft® software at "too good to be true" prices. Microsoft investigators made test purchases from Copy USA and received counterfeit copies of the Windows® 2000 operating system. To date, Microsoft has shut down nearly 600 auctions posted by Copy USA. Microsoft has filed a similar lawsuit against Buy It Cheap Network in Texas for allegedly selling counterfeit Microsoft Office via the Internet.

For tips on how to shop safely for software online, visit Microsoft's Anti-Piracy Web site at www.microsoft.com/piracy. 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.

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.

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Microsoft Fights Back Against Internet Fraud

Case Fact Sheet: The first wave of Microsoft's new campaign against Internet fraud has included legal actions in 33 countries on six continents today:

Argentina, Australia, Austria, Brazil, Canada, Chile, Colombia, Croatia, Denmark, Dominican Republic, France, Germany, Hong Kong, Israel, Italy, Netherlands, Norway, Peru, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, the United States and Venezuela.

Highlights of these actions include:

United States

• A civil action against Buy It Cheap Network (aka Insidernet Internet Marketing, Zsoftware, Software Direct, Surplus Software and Zye Marketing) of Arlington, Texas, for allegedly distributing counterfeit Office 97 Professional Edition through numerous Web sites.
• A civil action against Online Computer Store of Warner Robins, Ga., for allegedly distributing counterfeit copies of Windows 98, Windows 95 and Office 97 Professional Edition via its Web site.
• A civil action against Copy USA Technologies of Brooklyn, N.Y., for allegedly distributing illegal CD-R copies of Windows 2000 via auction and e-mail solicitations.
• A civil action against Black Sea Worldwide Trade Inc. of Virginia Beach, Va., for allegedly selling counterfeit Office 2000 Professional Edition and Office 97 Professional Edition advertised on several Web sites.
• A civil action against Godabuzz.com of Big Spring, Texas, for allegedly posting copies of Windows 2000 Professional Edition, Windows Millennium and other Microsoft software for illegal download.
• A civil action against Computers R Us of Westminster, Md., for allegedly distributing illegal downloads of Windows 2000 through an FTP Server.
• Out-of-court settlement with a college student from Sacramento, Calif., for allegedly distributing CD-R copies of Windows 2000 through unsolicited e-mail and Internet auctions. This resolution will include a prohibition on future sales of illegal software, a charitable donation and/or community service.
• Out-of-court settlement with "Matt the CD-R Guy," a student from the Chicago area, for distributing illegal CD-R copies of Windows 2000 through Internet auctions and unsolicited e-mail. This resolution includes a prohibition on future sales of illegal software, a charitable donation and/or community service.

Latin America

• Argentina: As the first Internet piracy action in Argentina, local Argentine authorities in conjunction with the BSA raided the home of a reseller who was allegedly offering pirated software. More than 400 CD-Rs containing illegal copies of Windows 2000 were seized.
• Brazil: The Brazilian Software Association - ABES, Microsoft and the Police Department of S ã o Paulo, Brazil, took down an illegal CD replication lab in the outskirts of the city. The lab owner allegedly distributed counterfeit product over his personal Web site.
• Chile: ADS/BSA local counsel and local Chilean authorities raided an individual who was alledgedly offering pirated software through the Internet. The authorities arrested the individual and local counsel has proceeded to file a lawsuit against him.
• Venezuela: The Venezuela police carried out their first raid against a reseller, Soft Trinidad, who allegedly advertised pirated software via the Internet. The tax authorities have opened an investigation of Soft Trinidad for tax evasion.

Europe

• Germany: Authorities carried out takedowns of more than 700 individual auctions offering copies of suspected illegal software. In the days prior to the official launch of Windows 2000, more than 130 auctions offering suspected counterfeit Windows 2000 software CD-ROMs were identified and removed.
• Netherlands: A pirate offering illegal copies of Windows 2000 CD-ROMs as well as video games, business software, magazines and film via his Web site Funsoft was raided in the Netherlands in the small village of Horn.
• United Kingdom: A civil action was filed against Matthew Borum and Warez-Central in London for allegedly distributing illegal copies of over a dozen different Microsoft products including Windows 2000, Windows 98 and Office 2000 via his Web site.

Middle East and Africa

• Israel: Following the voluntary takedown of dozens of illegal sites, the BSA and Israeli police joined together to raid the home address for a Web site that offered cheap products. The site was run by a 20-year-old male who was caught distributing allegedly pirated Microsoft Windows 2000 over the Internet.
• South Africa: An ISP and dealer who advertised on the auction site www.bidorbuy.co.za was raided by the Commercial Crime Unit, who seized allegedly counterfeit product. The site owner indicated that he obtained counterfeit product through a U.S. Internet site.

Asia and Pacific

• Australia: The Federal Police in Australia conducted a raid on Peter Bishop, who was distributing a significant amount of counterfeit Microsoft Office 97 through his Web site.
• Hong Kong: The recently established Anti Internet Piracy Task Force of Hong Kong Customs carried out its first Internet enforcement operation in Hong Kong against http://fun.zz.st/software. Two suspects were arrested and equipment was seized during the raid.
• New Zealand: Civil proceedings were filed in the High Court of New Zealand against Mark Jenson for allegedly using false aliases to advertise illegal copies of Microsoft Office 2000 Premium through auction sites.
• Singapore: Frankie Ng of Singapore was convicted, and fined $20,000 for Internet software piracy. Ng was sentenced to 21 weeks' imprisonment in default of payment of the fine.

Q&A: Microsoft Battles Consumer Fraud on the Internet

Microsoft has taken action against more than 1,300 Internet sites around the world for the alleged distribution of illegal Microsoft software.

REDMOND, Wash., Aug. 1, 2000 — Microsoft today announced that it has struck a blow against Internet distribution of fraudulent software. In its first worldwide enforcement sweep to protect consumers from Internet fraud, Microsoft -- with the help of the Business Software Alliance and enforcement officials on six continents and more than 25 countries worldwide -- has taken action against more than 1,300 Internet sites around the world for the alleged distribution of illegal Microsoft software.

In the past eight weeks, Microsoft has removed more than 1,300 illegal postings as a result of the company's implementation of a special Internet Monitoring Program, including 500 today. To learn more about today's efforts and what consumers can do to avoid purchasing illegal software, PressPass spoke with Microsoft deputy general counsel Brad Smith, Microsoft associate general counsel Nancy Anderson and Microsoft corporate attorney Tim Cranton, about the company's efforts.

PressPass: What makes the Internet so attractive to software pirates?

Cranton : Just as legitimate businesses have seen e-commerce as a huge opportunity, criminals also see the Internet as a great way to advertise and distribute illegal software, music and other copyrighted material. In addition to the benefits of using the Internet as a global means of distributing pirated software for very low cost, there is also the anonymous nature of transactions on the Internet. Because of the anonymity on the Internet, consumers don't have the recourse of follow-up that they might otherwise have -- adding insult to the injury of the consumer fraud they've already experienced.

PressPass: You mentioned music piracy -- is software piracy on the Internet related to Napster?

Smith : Well, the digital piracy problem is brought into sharp focus by the recent Court order to halt the distribution of copyrighted material via Napster. Napster is a technology that has made it very easy for people to steal and distribute copyrighted material. We are using technology to fight back against the theft of copyrighted material.

While music and movie producers have been able to focus legal action on a series of hubs or funneling points like Napster, Scour.com and MP3Board.com, the problem for software publishers is already much more decentralized. Internet sites, ranging from auction sites and Web sites to IRC chats and FTP sites, offer illegal downloads or illegal CD-ROMs and CD-Rs by mail. Widespread intentional linking between these sites only make the problem worse. Emerging technologies like Gnutella, Freenet and others that enable the sharing of movies, music and software without the use of a central hub server continue to raise the issue of intellectual property protection on the Internet to new levels.

PressPass: How is Microsoft fighting consumer fraud on the Internet?

Cranton : We've got a three-tiered approach. First, we're focused on education and awareness to help sensitize consumers to the risks of Internet piracy, especially on auction sites. Second, we have developed a global investigative effort that we're announcing today to identify and eliminate sites that defraud consumers into buying illegal software. Finally, Microsoft is developing industry solutions that can help consumers, Web sites and industry organizations work together to establish codes of conduct that are essentially "rules of the road." These rules help set expectations and business guidelines for auction sites, Web sites and Internet Service Providers (ISPs) so that consumers have a better understanding of what to expect when they're shopping online.

PressPass: I understand there is a new tool that enables Microsoft to be more proactive about tracking Internet piracy?

Cranton : We are using an automated search tool that trolls the Internet 24 hours a day, seven days a week, to identify pirate sites or illegal online offerings. The tool enables us to quickly review the sites and determine whether or not illegal activity is occurring. We can identify and address in excess of 500 illegal sites in a single day -- while it might take a month to manually shut down that many sites.

PressPass: How long has this tool been in use?

Cranton : We first started using the tool in a test program in November, and fully deployed it around the time that we launched Windows 2000.

PressPass: How many sites have you shut down using this tool?

Cranton : Microsoft has used this and other more traditional Internet search tools to remove more than 7,500 illegal postings for downloads and offers of counterfeit and/or CD-R copies of Microsoft software on Web and auction sites. This tool will enable us to streamline that process to take down even more sites, more efficiently and more accurately.

PressPass: What's the scope of this tool? How broadly is it being used?

Smith : It's being used very broadly. The tool monitors and screens sites and postings on Web sites, download sites, newsgroups, chat systems, classified ads and the major file swapping networks. This covers servers around the world. We also are expanding the tool to cover all of the major languages on the Internet. This tool is available to other copyright holders as well. And this technology can be used just as easily for any copyrighted material -- its value is not limited to the software industry.

PressPass: What are some specific cases that you have brought?

Cranton : We are working on a number of cases involving illegal downloads and the distribution of counterfeit versions of Windows 2000 and other Microsoft programs. In the United States, we are announcing five lawsuits and two settlements today. One of the cases involves a company called Copy USA. That company uses auction sites to advertise Microsoft programs at incredible prices and invites consumers to contact Copy USA directly if they're interested in making a purchase. Our investigators have made test purchases from Copy USA and received illegal copies of Windows 2000 on CD-Rs. To date, we've shut down nearly 600 auctions posted by Copy USA.

We've also successfully negotiated some settlements with Internet software pirates. In these cases they have agreed to cease their infringing behavior, and donate the profits they made to local charities.

Internationally, we have cases on six continents -- some of these have been Microsoft actions, some are actions taken by the Business Software Alliance (BSA) on behalf of Microsoft and other software publishers, and some have been referred to local authorities for criminal actions.

PressPass: What is Microsoft doing generally to combat piracy of Windows 2000 software?

Smith : Generally, Microsoft is pursuing three broad initiatives to deter piracy of Windows 2000. The first is the substantial strengthening of the anti-counterfeiting features in the product. These are designed to make it more difficult for counterfeiters to create illegal copies of the product and defraud consumers. The second initiative is a broad set of new enforcement measures. The company is working closely with law enforcement agencies around the world to stop counterfeiters and others from making illegal copies and putting them into channels of distribution such as the Internet, new personal computers or separately on CD-ROMs. We've also begun a new education campaign because our best defense against counterfeiting is an educated consumer.

The company has devoted substantial resources to providing both software resellers and the general public with more information so that they'll know to look for certain security features when they purchase a copy of Windows 2000.

PressPass: How bad is the piracy problem?

Anderson : In the U.S., the Business Software Alliance estimates that 25 percent of the software products in use are illegal -- that's one in four products on the market. And we've got the lowest piracy rate in the world. This causes tremendous financial losses, not only to the industry but also to governments in the form of lost tax revenue. It also affects local economies which experience lost jobs both for software publishers and for the substantial third party industry that supports the software industry. In the U.S., in 1998, 109,000 jobs were lost -- jobs that would have otherwise existed but for the illegal use of software. Federal and state governments lost just under $1 billion in tax revenue in 1998.

PressPass: What is the international situation like?

Smith : Worldwide, the piracy rate is at 36 percent, which is a decrease of two percent in the past year. However, there continues to be a huge range of rates, from more than 90% in some of the least developed nations to the 25 percent rate in the U.S. Of course, the industry as a whole continues to grow -- there are more PCs being sold each year -- which means that the economic implications of a constant piracy rate are growing.

PressPass: How do you explain the worldwide decrease?

Smith : Every year we see some incremental progress. A number of governments have passed new laws or made new commitments to enforce those laws. We've seen governments throughout Latin America and Asia, for example, come to appreciate the economic losses that they suffer because of the software piracy problem. Similarly, the U.S. and the European Union are making new commitments to fighting counterfeiting. They see that this is a problem affecting not only the company that creates the software, but also the people who unknowingly buy the software. It also has broader social implications because groups that are involved in counterfeiting software often are involved in other forms of criminal activity.

PressPass: Why is Microsoft combating software piracy so aggressively?

Smith : We really do it for three reasons. First, it's important to our company. Intellectual property rights are the lifeblood of any software company, including our own.

Second, we recognize that it's important for the computing industry as a whole. Since the personal computer was first developed, leading software companies have worked on behalf of the industry to reduce software piracy levels. Third, we combat piracy because it's important to our customers. The last thing we want is for our customers to pay good money for bad product.

PressPass: How would consumers know if they purchased fraudulent software?

Cranton : We advise consumers to get to know who they're dealing with on the Internet. Trusted vendors will identify themselves and are willing to give a physical address in case follow-up is needed. They will also be willing to explain warranty and other information. If a seller is not willing to provide adequate explanations, the consumer should be extremely cautious before making a payment.

Smith : I would advise consumers to follow the basic rule that if a price seems too good to be true, it probably is. For example, if people see a copy of a software product on sale at a retail store for a particular price, and then it is offered over the Internet for half of that price, they should be suspicious.

PressPass: If it's a good copy, what is wrong with using it?

Smith : Counterfeiters don't care about quality control. An individual CD contains millions of bits of data. Unless all of that data is replicated with perfect accuracy, there's a good chance that the software program won't run properly. Legitimate CD manufacturers have very stringent quality control standards to ensure that they replicate that data accurately. Counterfeiters do not. Even if an illegal CD works okay, it's against the law to use it. Software is protected by copyright laws, as are musical works, films and books.

PressPass: What's wrong with using software you copy from a friend?

Smith : Often, people think if they copy software, no one's going to get hurt. That is not true. It takes a lot of time and energy and money to create a software product and when a product is copied, the people who made it are not going to be paid for it. It also hurts the ability of the industry to invest more in research and development and bring even better products to market in the future.

Anderson : Think of it this way -- if you're not willing to go down to a software reseller on the corner and steal the package of software from the store, you shouldn't be willing to steal in any other way.

PressPass: How do you go about investigating claims of counterfeit software?

Cranton : Our team of in-house investigators works with outside investigators worldwide. We collect leads through hotlines that we maintain around the world. The U.S. number is 1-800 RU-LEGIT. We also solicit information through our Web site, http://www.microsoft.com/piracy/. Our investigators collect evidence by test purchasing potentially fraudulent products and working with consumers who believe that they've been defrauded. Ultimately, we work with law enforcement to bring criminal or civil charges against software pirates.

PressPass: How does Microsoft use the monetary settlements from restitution for damages?

Smith : We donate half of what we recover to charities around the world. We use the other half to help pay for the anti-piracy program. We focus on charities that expand access to technology for people who otherwise might not have it. We also focus on programs that provide people with the skills they need in order to use technology.

PressPass: What should consumers do when they think they have bought counterfeit software?

Anderson : 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 or send email to piracy@microsoft.com. In addition, a list of authorized distributors is available at http:// www.microsoft.com/oem/ . Finally, consumers can get more information about software piracy by calling the Business Software Alliance anti-piracy hot line at (888) NO-PIRACY or by sending email to software@bsa.org.