Speech Transcript – Richard C. LaMagna, Oral Testimony regarding “The Anticounterfeiting Amendments of 2003”

Oral Testimony of

Richard C. LaMagna

Senior Manager, Worldwide Investigations

Microsoft Corporation


H.R. 3632,

The Anticounterfeiting Amendments of 2003

Before the

Subcommittee on Courts, the Internet, and Intellectual Property

U.S. House of Representatives

2141 Rayburn House Office Building

February 12, 2004

Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to testify on this important and much-needed anti-counterfeiting legislation. My name is Richard LaMagna, and I am Senior Manager of Worldwide Investigations at Microsoft Corporation. I joined Microsoft in 1999 after a 28-year career as a Special Agent with the DEA and the FBI investigating international drug trafficking organizations.

Mr. Chairman, Microsoft supports and commends you for introducing H.R. 3632, the Anticounterfeiting Amendments Act of 2003, legislation that would prohibit an increasingly pervasive activity that directly facilitates counterfeit software sales. Microsoft views this legislation as the single most important step that Congress can take to fight software counterfeiting in this country.

Software counterfeiting is a particularly pernicious and widespread form of criminal piracy that defrauds American consumers and funds a wide array of organized criminal enterprises. As a founding member of the Business Software Alliance, Microsoft has, for many years, worked closely with BSA and law enforcement to halt the manufacture and sale of counterfeit software. These efforts have led to annual seizures of almost $2 billion in counterfeit Microsoft products.

Software counterfeiters go to great lengths to make pirated software look genuine, in an effort to deceive the consumer and maximize illicit profits. Here is an example of counterfeit Office 97 – a version of Microsoft’s most popular product suite. Even the most sophisticated consumer would have great difficulty in distinguishing this counterfeit package from the genuine item.

Software counterfeiters use state-of-the-art technology to create counterfeit CD-ROMs and packaging that bears all of the hallmarks of the genuine product. For many years, Microsoft has worked to outpace counterfeiters by developing physical security components that help consumers and law enforcement agencies distinguish legitimate software from sophisticated counterfeits, much in the same way the US Government uses physical security features to authenticate its paper currency. For example, Microsofts certificate of authenticity incorporates several proprietary technologies, including special inks and micro-text.

Because these physical security components are increasingly difficult to reproduce, counterfeiters are now combining pirated CD-ROMs and packaging with genuine components obtained through theft and fraud. In the past few years, more than 540,000 certificates of authenticity, which we call COAs, with a market value of $50 million, have been stolen from replicator sites in the US and Europe. The stolen COAs are sold to counterfeiters through a variety of brokers and distribution channels (including the Internet).

Currently, federal law does not provide adequate remedies to prevent trafficking in genuine physical security components, even though there is no legitimate business purpose for this activity. The persons who traffic in COAs and other physical security components know fully well that the components have no intrinsic value or use other than to facilitate the sale of counterfeit software. Nevertheless, because these brokers are a few steps removed from the component thefts or the counterfeit sales, prosecutors find it impossible to take any legal action, even though the components will unquestionably fall into the hands of counterfeiters.

H.R. 3632 would amend Section 2318 of Title 18 to prohibit trafficking in genuine physical security components used by Microsoft and other copyright owners to verify that a copyrighted work is legitimate and not counterfeit. With this narrowly-tailored amendment to Section 2318, federal law enforcement and copyright owners will have the tools needed to prevent trafficking in genuine physical security components. Microsoft looks forward to working with the Chairman and the Members of this Subcommittee to obtain passage of this important anti-counterfeiting legislation.

It is imperative that our laws keep pace with developments in software counterfeiting, particularly given the involvement of international organized crime in the counterfeiting trade. Like drug traffickers, software counterfeiting operations consist of global networks of well-financed and sophisticated criminal groups, capable of producing and distributing billions of dollars worth of counterfeit software each year.

Federal and local law enforcement in California — with the help of Microsofts investigative team — seized over $100 million in counterfeit Microsoft software. The raid disrupted a major international counterfeiting operation financed by criminal groups in Asia.

The Anticounterfeiting Amendments will help combat the growing threat of international counterfeiting crimes by ensuring that U.S. laws address all aspects of counterfeiting activities. In closing, Microsoft strongly supports this important legislation and urges this Subcommittee to pursue its swift enactment.

Thank you.