Raids in Southern China Target $2 Billion Global Software Counterfeiting Syndicate

Hundreds of Microsoft customers provide evidence to help FBI and China's

Public Security Bureau crack counterfeiting ring

Jul 24, 2007, 01:00 ET from Microsoft Corp.

    REDMOND, Wash., July 24 /PRNewswire-FirstCall/ -- Raids and arrests in
 China over the past two weeks mark the culmination of a multiyear
 investigation into a major software counterfeiting syndicate based in the
 southern China province of Guangdong. The syndicate is allegedly
 responsible for manufacturing and distributing more than $2 billion worth
 of counterfeit Microsoft(R) software. The investigation into this
 syndicate, which is believed to be the largest of its kind in the world,
 was led by the FBI and China's Public Security Bureau (PSB). Microsoft
 Corp. (Nasdaq:   MSFT) , hundreds of Microsoft customers and scores of
 Microsoft partners also assisted in the investigation.
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     These raids and arrests by the PSB, drawing on information provided by
 the FBI Los Angeles and Microsoft, targeted sources behind the illegal
 commercial production of Microsoft software, software components and
 certificates of authenticity. Law enforcement authorities and forensic
 specialists identified numerous replication plant lines that were involved
 in the CD production and were the source of counterfeit Microsoft products
 that had been supplied and sold to business customers and consumers around
 the world. The counterfeit software, found in 27 countries and on five
 continents, contained fake versions of 13 of Microsoft's most popular
 products - including Windows Vista(R), the 2007 Microsoft Office release,
 Microsoft Office 2003, Windows(R) XP and Windows Server(R). The
 counterfeits were produced in at least eight languages: Croatian, Dutch,
 English, German, Italian, Korean, Simplified Chinese and Spanish.
     "Microsoft deeply appreciates the work of China's Public Security
 Bureau in taking such strong enforcement action with these arrests and
 raids in Southern China," said Brad Smith, senior vice president and
 general counsel at Microsoft. "This case represents a milestone in the
 fight against software piracy - governments, law enforcement agencies and
 private companies working together with customers and software resellers to
 break up a massive international counterfeiting ring. This case should
 serve as a wake-up call to counterfeiters. Customers around the world are
 turning you in, governments and law enforcement have had enough, and
 private companies will act decisively to protect intellectual property."
     During the course of the multiyear investigation, more than 55,000
 sophisticated-quality copies of counterfeit software were traced back to
 the same southern China criminal syndicate. These counterfeit products came
 from seizures by law enforcement and customs authorities, through
 submissions made by Microsoft customers and partners, and from test
 purchases. The 55,000 examined discs are believed to constitute less than 1
 percent of the millions of counterfeit copies that are estimated to have
 been produced and shipped to distributors and countries across Europe, the
 Middle East, Asia, Australia, the United States and Canada. Countries
 around the world are expected to experience a significant decrease in the
 volume of counterfeit software as a direct result of this action.
     According to World Customs Organization Secretary General Michel Danet,
 "Customs around the world, from Cairo to London, Vancouver to Hamburg, and
 New York to Beijing, seized dozens of shipments numbering thousands of
 counterfeit Microsoft software products produced by these criminals. This
 clearly shows that customs around the world are at the forefront of the
 battle to protect consumers from harm by counterfeit goods, and that
 sharing information is vital in order to build strong enforcement."
     Customers and Resellers Report on Syndicate
     Microsoft customers and software resellers played a major role in
 ultimately helping the FBI and the PSB identify and build the case against
 the China-based counterfeiting syndicate. Tens of thousands of customers
 used Microsoft's anti-piracy technology in Windows Genuine Advantage to
 identify the software they were using as fake. More than 1,000 of these
 customers then submitted physical copies of counterfeit Windows XP for
 analysis, which Microsoft was then able to forensically link to the
 counterfeit syndicate. In addition, more than 100 Microsoft resellers
 played a key part in helping to trace the counterfeit software and provided
 physical evidence critical to building the case, such as e-mail messages,
 invoices and payment slips.
     "The evidence provided by Microsoft customers through the Microsoft
 piracy reporting tool proved to be essential in tracking down this criminal
 syndicate," said David Finn, associate general counsel for Worldwide Anti-
 Piracy and Anti-Counterfeiting at Microsoft. "It is no exaggeration to say
 that the ability of our customers to identify counterfeit software through
 Windows Genuine Advantage, and the subsequent help of our customers and
 partners, was absolutely critical in ultimately identifying this massive
 counterfeit manufacturing and distribution network. We take seriously our
 responsibility to protect customers from the productivity and security
 risks associated with counterfeit software, and we are committed to
 educating customers on what to look for and what to avoid, deploying
 engineering innovations to better protect the software, and pursuing
 criminal prosecutions to protect customers and partners when appropriate."
     Protecting Customers From the Risks of Counterfeit Products
     Customers expect to receive genuine, high-quality software, but
 counterfeit copies often contain malicious code and/or malware and fail to
 operate properly, presenting real risk through potential security breaches
 and the loss of business data, reputation and cost to recover from them.
     According to an October 2006 IDC white paper sponsored by Microsoft,
 acquiring and using counterfeit product keys, pirated software, key
 generators and crack tools for Windows XP and the Microsoft Office system
 may increase the risk of exposure to viruses, worms and other damaging
 code, including spyware, Trojan horses and modified code. The study can be
 found at
     The Costs of Piracy
     Globally, counterfeiting robs the software industry of an estimated $40
 billion (U.S.) per year. Lost industry revenue is just the beginning; the
 fourth annual BSA and IDC global software piracy study (May 2007) estimated
 worldwide piracy rates at 35 percent in 2006. According to the study,
 reducing this rate by just 10 percent over four years could potentially
 generate 2.4 million new jobs, $400 billion in economic growth and $67
 billion in additional tax revenue for the world economy. In the last 18
 months alone, worldwide law enforcement agencies have seized more than
 914,177 units of counterfeit Microsoft software.
     The Microsoft Genuine Software Initiative
     Microsoft launched the Genuine Software Initiative in 2006, and since
 then it has intensified its efforts to protect customers and channel
 partners from the risks of counterfeit software through an increased focus
 on education, engineering and enforcement.
     More information about Microsoft's Genuine Software Initiative is
 available at
     Windows Genuine Advantage
     As part of the Genuine Software Initiative, Microsoft is continuing to
 invest in anti-counterfeiting technologies and product features that
 protect the company's intellectual property and alert consumers to the
 presence of counterfeit software. Windows Genuine Advantage enables
 customers to validate their software remotely with Microsoft, giving
 customers the power to check whether they are using genuine software. Since
 July 2005, 512 million users worldwide have validated their copy of Windows
 through Windows Genuine Advantage. In 2006, there were nearly 400 million
 validations, with a failure rate of 22.3 percent.
     About Microsoft
     Founded in 1975, Microsoft (Nasdaq "MSFT") is the worldwide leader in
 software, services and solutions that help people and businesses realize
 their full potential.

SOURCE Microsoft Corp.