GROUP VICE PRESIDENT
UNITED STATES SENATE COMMITTEE ON FOREIGN RELATIONS
FEBRUARY 12, 2002
THE GLOBAL THREAT OF SOFTWARE COUNTERFEITING
Mr. Chairman, members of the Committee, my name is Jeff Raikes, and I am Group Vice President of Productivity and Business Services at Microsoft Corporation. I am responsible for Microsoft Office, the Business Tools Division, Business Solutions and eMerging Technologies. Let me begin by thanking you and the Committee for holding this hearing. Microsoft commends you for focusing congressional attention on the serious threat posed by global intellectual property crimes. We appreciate the opportunity to discuss with you one aspect of intellectual property theft of particular concern to Microsoftsoftware counterfeiting.
Software counterfeiting and other forms of piracy cost our industry several billions of dollars each year, and yet enforcement and penalties are uniformly weak throughout the world. The highly effective Intellectual Property Rights Center cannot address the piracy problems alone. Globally, the failure to treat software theft as a serious crime is largely due to the misperception that intellectual property crime is a “victimless” crime. In fact, intellectual property crime has many victims, not just the software industry or the other industries represented here today:
Until the United States and its global trading partners treat intellectual property crime as a major law enforcement priority, counterfeiters will continue to threaten our economic prosperity, our consumers and society as a whole.
Microsoft invests literally millions of dollars each year to support law enforcement efforts and protect its products and the consumer from counterfeiting activities. Microsoft investigators and counterfeiting experts work closely with state and federal law enforcement agencies to investigate and prosecute counterfeit manufacturers and resellers.
In addition, Microsoft each year brings hundreds of civil actions against counterfeit resellers throughout the United States. In addition, Microsoft works with a number of industry organizations to address the counterfeiting challenge and software piracy generally. For example, the Business Software Alliance, an organization representing the leading U.S. software publishers, pursues both criminal and civil cases on behalf of its members in over 65 countries around the world. With the Committees permission, I would like to submit a statement by BSAs President Robert Holleyman for the record.
Consumer education is a critical component of Microsofts anti-counterfeiting efforts, particularly given the increasing sophistication of counterfeiters and the great difficulty most consumers experience in distinguishing between counterfeit and legitimate software. Many organizations and individualsas well as federal, state and local governmentsare unaware that counterfeit software is so pervasive in the marketplace or that its use can expose the user to various business risks, such as viruses and manufacturing defects. To increase public awareness, Microsoft sponsors worldwide campaigns that teach consumers to recognize the warning signs associated with counterfeit software, disreputable resellers and fraudulent software offers.
Microsoft and other software publishers are also experimenting with a number of copyright technologies designed to prevent the unauthorized reproduction and distribution by software products. As with our law enforcement investigations, Microsoft spends millions of dollars on research and development of highly sophisticated security features, including certificates of authenticity (COAs), and inner mirror band and edge-to-edge holograms on CD-ROMs. In order to prevent counterfeiting, Microsoft relies upon a variety of these security features that are affixed to, or embedded in, the software, user manuals and packaging. With each new version of our software, Microsoft incorporates state-of-the-art technologies that are extremely difficult and expensive to replicate. For a brief period, at least, counterfeiters are unable to duplicate new products in a credible way.
We also are taking steps to protect against a form of piracy known as “casual copying” or “softlifting.” Casual copying is the sharing of software between people in a way that infringes on the softwares end user license agreement (EULA). This form of piracy is prevalent and has been estimated by industry trade groups to account for a staggering 50 percent of the economic losses due to piracy. To combat this problem, we have incorporated Product Activation technology in Microsoft Office XP, Visio 2002 and Windows XP operating system in an effort to reduce software piracy as well as ensuring that Microsofts customers are receiving the product quality that they expect.
Only software acquired as packaged product will require activation. Customers required to activate their software must complete a simple and anonymous activation process that takes less than one minute when completed over the Internet. Activation can also be completed by telephoning Microsoft and speaking with a customer service representative. To make activation convenient, the products do not require activation immediately after installation. Office XP and its components will allow up to 50 launches before requiring activation. Visio 2002 will allow up to 10 launches before requiring activation. Windows XP will allow 30 days from first boot before requiring activation.
As a result of Microsofts investment in security features, however, the demand for genuine components has increased resulting in an increase in robberies, thefts and fraudulent schemes. Recently, for example, there has been a rash of thefts of COAs in Europe and the United States. These genuine COAs are then sold to counterfeiters who affix them to counterfeit products to make them appear genuine. In addition to these thefts, Microsoft now faces the pervasive practice among counterfeiters of tampering with components of our software product. Counterfeiters engage in such tampering both to make counterfeit software appear genuine and to increase the selling price of genuine software and licenses.
Mr. Chairman, thank you again for the opportunity to appear before the Committee this afternoon. Microsoft looks forward to working with you and others on the Committee in addressing this important issue.