Microsoft Cracks Down on Internet Fraud

REDMOND, Wash., September 22, 1999 — Microsoft today launched a nationwide crackdown on the distribution of counterfeit software on the Internet, filing legal actions against three businesses throughout the country for participating in an elaborate scheme of consumer deception and distribution of counterfeit software on the Internet. These companies were responsible for spamming 25 million consumers throughout the world and duping thousands of them — including many from public agencies, law firms and large companies — into buying counterfeit software.

In addition to distributing counterfeit software, these businesses were also deceiving customers by disguising the origin and source of the e-mail or forging the e-mail header and making it untraceable. In some cases, the e-mail looked as though it was coming from e-mail addresses outside of the United States, from countries such as Korea, Mexico, Israel and Italy. The disguised e-mail messages frequently requested credit card and other private information from the unsuspecting recipient. The Web sites to which these messages referred potential consumers were temporary, disguised sites that disappeared after a short time. One company was also believed to be
“harvesting”
e-mail messages so that when a recipient of the message tried to unsubscribe, he or she would be identified as a real person and thus added to more e-mail lists.

Customers who acquire counterfeit software could find that, in addition to the increased potential for viruses, such software may be 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. By spending money on counterfeit software, which is often manufactured by organized criminals, customers also are inadvertently contributing to the loss of tax revenue and employment. In 1998, software piracy caused losses amounting to nearly $1 billion in taxes and 109,000 jobs in the United States.

The Internet has increasingly become an indispensable medium for personal and business communication. According to Jupiter Communications, the online U.S. population reached almost 60 million in the beginning of 1998, representing 22.4 percent of the overall U.S. population. According to government statistics, at least 46 million Americans are expected to purchase products and services online by the year 2000, spending an average of $350 per person per year, with an even greater number obtaining product and price information on the Internet to make purchases off-line.

But this growth has also increased the Internet’s role as a medium for passing off fraudulent goods. Much of this fraud is promoted through spamming, a common nuisance for those who use the Internet regularly.

One type of fraud is Internet piracy, which is the newest and most unpredictable kind of software piracy. The Business Software Alliance estimates that there are more than 840,000 sites selling software over the Internet. Many disreputable online businesses have such professional-looking sites that even the most savvy online consumers can fall victim to them. Dishonest Internet businesses often use multiple e-mail addresses and Web sites, making it harder for law enforcement officials to locate them. In fact, Internet crime has become such a large problem that President Clinton last month set up a group of federal agency managers to study the phenomenon and report back on the most effective ways to utilize existing laws and technology to help defeat it.

Software piracy perpetrated on the Internet poses one of the single greatest threats to the nation’s current economic prosperity and to legitimate e-commerce. As the Internet’s speed, capacity and usage grow by leaps and bounds, so do opportunities to buy and sell illegal software. According to Brad Smith, general counsel, worldwide sales and support at Microsoft,
“When intellectual property rights are ignored and customers have their privacy violated on the Internet, we are at great risk of damaging the extraordinary promise the Internet holds for revolutionizing commerce in the new millennium.”

Education is a consumer’s best defense against spam and falling victim to counterfeit software. Some simple tips for safe and savvy Internet and e-mail usage include the following.

  • Beware of companies or individuals unwilling to verify their identity or full business name or provide a physical street address and telephone number for follow-up after the transaction has occurred.

  • When purchasing Microsoft software, software components being sold solely as a CD housed in a jewel case or as a loose or individual end-user license agreement are likely counterfeit, because these items are not distributed in this form through legitimate channels.

  • Online distributors unwilling or unable to provide adequate or satisfactory descriptions of their return, service or warranty policies should be avoided.

  • Users should not respond to spam. Responding to unsolicited mail only confirms that users have an active e-mail address. It could open them up to further solicitation and scams that can clog their e-mail inbox.

  • Users should forward spam to the customer service department of the source’s e-mail provider (usually the address is something like as well as to uce@ftc.gov to alert the Federal Trade Commission.

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