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

REDMOND, Wash. — July 24, 2007 — 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® 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., hundreds of Microsoft customers and scores of Microsoft partners also assisted in the investigation.

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®, the 2007 Microsoft Office release, Microsoft Office 2003, Windows® XP and Windows Server®. 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 http://www.microsoft.com/athome/security/update/wga/default.mspx.

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 http://www.microsoft.com/genuine.

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.

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