Microsoft Exposes Worldwide Internet Scam

REDMOND, Wash., Sept. 22, 1999 — In the wake of one of the biggest issues facing consumers in the digital age, Microsoft Corp. today announced that the company has launched a nationwide crackdown on the growing problem of Internet fraud. Microsoft has filed legal actions against three businesses located throughout the country, alleging an elaborate scheme of consumer deception and distribution of counterfeit software on the Internet. The businesses spammed millions of consumers throughout the world and duped thousands into purchasing counterfeit Microsoft® software. Courts in Texas, Missouri and North Carolina ordered surprise searches, turning up thousands of copies of counterfeit software components. In addition, due to the extent of the illegal activity, the courts authorized asset freezes barring certain of the companies from transferring or accessing their assets without court permission, and issued injunctions ordering the defendants to stop offering or distributing counterfeit Microsoft software.

Each of the defendants in the case is composed of one or two individuals operating on the Internet from their homes and is linked to an unregistered business in Asheville, N.C., called Online Software Club of America (OSCOA). Microsoft first became aware of OSCOA through consumer complaints that the company was sending extremely large quantities of unwanted e-mail messages to the public advertising Microsoft software with a suspicious offering. After logging nearly 2,000 complaints on the Microsoft anti-piracy hotline in a period of a few months, Microsoft hired professional investigators to unravel what would turn out to be a convoluted tangle of counterfeiting and spamming activity.

During investigations of OSCOA and its records, Microsoft discovered that the defendant acquired counterfeit Microsoft software from various suppliers and distributed thousands of these illegal units of software per week based on responses to the Internet e-mail solicitations. Seizures conducted at OSCOA in Asheville and at a supplier and distributor doing business as Online Discount Software Club in St. Louis uncovered thousands of copies of counterfeit Microsoft software components. The investigation also led back to an Austin, Texas-based business that coincidentally had a criminal investigation pending by the Austin Police Department. A raid on the site turned up hundreds of copies of counterfeit Microsoft software as well as software from other companies, including Corel Corp. An investigation into this business is continuing.

In addition to organizing the mass counterfeit distribution scheme, OSCOA engaged a company doing business as NATM-NET to send unsolicited e-mail to at least 25 million addresses worldwide offering the counterfeit software at discounted prices. The business deceived 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, 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 amount of time. NATM-NET was also believed to be
“harvesting”
e-mail messages so that when a recipient of the message responded to unsubscribe, he or she would be identified as a real person and thus added to more e-mail lists.

NATM-NET charged OSCOA a rate of $850 for each million e-mail messages it sent to potential customers in places that included Australia, Great Britain, Italy and Brazil. Records obtained from OSCOA indicate that thousands of consumers – including many from public agencies, law firms and large companies – were duped into buying this counterfeit software.

“It is ironic that one of the keys to the nation’s current economic prosperity has the potential to pose such a great risk to the future economic vitality of the software industry,”
said 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.”

Formal complaints related to this counterfeiting scheme have been filed against the following Internet businesses:

  1. Online Software Club of America of Asheville for alleged distribution of counterfeit software [Civil Action No. 1:99CV173-C]

  2. NATM-NET, a k a Networld of Phoenix, for alleged trademark infringement, false designation of origin, false description and false representation [Civil Action No. CIV 99 1602 PHX RCB]

  3. IWI LLC dba Online Software Club, dba Discount Software Club, dba Online Discount Software Club; Information Warehouse Inc. of St. Louis for alleged distribution of counterfeit software [Civil Action No. 4:99CV01364CAS] , and .

“This case is a classic example of the power the Internet has in completely undermining legitimate online businesses and putting consumers at risk not only to receive counterfeit software but to have their personal data solicited under false pretenses,”
said Tim Cranton, corporate attorney in charge of Microsoft’s Internet piracy efforts.
“It is so important that customers be cautious when making purchasing decisions on the Internet.”

“Piracy is an inherent problem in this industry and we feel it is important that all vendors work together to find a solution,”
said Dr. Michael Cowpland, president and chief executive officer of Corel Corp.
“Corel is committed to combating software piracy. By exposing operations like the Online Software Club, we are protecting ourselves as well as our customers.”

When dealing with software vendors over the Internet, consumers should beware of the following:

  • 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

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

  • Online distributors that offer unusual inventory explanations (e.g., special deals with the software publisher, liquidated inventories or acquisition through bankruptcy sales)

  • Vendors offering software products at prices and in packaging inconsistent with offerings through legitimate retail channels

  • For 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, because these items are not distributed in this form through legitimate channels

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 last month President Clinton 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.

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, 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.

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 for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day.

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