Microsoft Helps Nab $900M Piracy Ring

Microsoft is telling the tale of a major software piracy investigation that weaved through 22 countries, hoping would-be pirates will think twice if they know how far the company will go to protect its computer code worth billions in revenue each quarter.

Near-perfect knockoffs of 21 different Microsoft programs began surfacing around the world just over a decade ago. Soon, PCs in more than a dozen countries were running illegal copies of Windows and Office, turning unwitting consumers into criminals and, Microsoft says, exposing them to increased risk of malicious viruses and spyware.

The case began to turn in 2001 when U.S. Customs officers seized a shipping container in Los Angeles filled with $100 million in fake software, including 31,000 copies of the Windows operating system.

From there, Microsoft pushed the investigation through 22 countries. Local law enforcement officials seized software, equipment and records, and made arrests. A court in Taiwan handed down the last of the major sentences in December. Microsoft estimates the retail value of the software the operation generated at $900 million.

"That is a tremendous accomplishment," said James Spertus, a former federal prosecutor in Los Angeles who later led anti-piracy efforts for the Motion Picture Association of America. "There are only going to be a few cases like this a decade."

Now Microsoft is eager to talk about the experience because taking down that operation — responsible for about 90 percent of the fake software the company found between 1999 and 2004, more than 470,000 disks — didn't actually stop piracy. It just left room for more counterfeiters to rise. Microsoft hopes would-be pirates will think twice if they know how far it will go to protect the computer code worth billions in revenue each quarter.

The pirates mimicked complex holograms stamped directly onto disks and packaging materials embedded with the kind of tiny safety threads used in making money. In some cases, it took experts with microscopes to notice that disks printed with codes used by legitimate software factories lacked certain minuscule, unique smudges.

"The copies were so good, we went to tremendous forensic and scientific lengths to establish that the counterfeits were, in fact, counterfeits," said David Finn, an associate general counsel at Microsoft.

Without a solid lead on the source, Microsoft continued to gather string. Members of its 80-person worldwide anti-piracy team made test buys to see if retailers were selling fake disks, knowingly or unwittingly, and worked leads back up the black-market supply chain.

The seizure of the container in Los Angeles led to Taiwan, where the Ministry of Justice raided Chungtek Hightech, recovering an estimated $100 million more in software and equipment. Months later, Taipei city police and the criminal investigations branch of the national police hit Cinway Technology, a related manufacturer in the same industrial complex, seizing another $126 million in phony software. Records found there led to a packing, storage and shipping center in China's Guangdong province, and back to distributor Maximus Technology in Taiwan.

Finally, in 2007, the owner and operator of Chungtek and Cinway, Chen Bi-ching, was sentenced in Taiwan to four years in prison, while her two co-defendants received jail terms of three years and one year. And the distribution outfit's owner, Huang Jer-sheng, was sentenced to four years in prison. In China, the Public Security Bureau raided the packing and shipping company, Zhang Sheng Electronics, and Li Jian, the manager, was sentenced to three years in 2004.

Matching the Taiwanese counterfeits to copies found around the world, Microsoft gave law enforcement agencies ammunition for raids and criminal cases in the U.S., the U.K., Italy, Canada, Germany, Singapore, Australia, Paraguay and Poland. Dozens of big distributors, middlemen and retailers were convicted, including 35 people in the U.S.

One was Lisa Chen, who according to a Customs press release arrived at the scene of the 2001 shipping container bust with additional counterfeit software in her vehicle. Chen was prosecuted by the Los Angeles district attorney's office as a major U.S. distributor of the Taiwan fakes and received a nine-year prison term in November 2002. She has since been released, according to her lawyer at the time.

Microsoft would not say how much it spent on the investigation or how many counterfeit copies of Windows, Office and other programs were found in use on consumer or business PCs.

Spertus, the former federal prosecutor, said the burden is often on the company holding the brand to travel the world collecting evidence, doing undercover work and coordinating with law enforcement agencies.

Few companies are willing to devote serious resources to anti-piracy enforcement, especially because the return is hard to prove. People who buy counterfeit software aren't likely to have paid retail prices anyway, Spertus said. But a big bust adds significant weight to lobbying efforts for stricter international intellectual property laws.

After the Taiwan raids, the number of high-end Microsoft counterfeits dropped — but only for a while. A Chinese operation that stepped in to meet the worldwide demand for cut-rate software cranked out an estimated $2 billion in copies before it was brought down in July after a six-year investigation by the FBI and China's Public Security Bureau.

Today, sophisticated copies of Windows Vista and other programs continue to appear.

"I don't for a minute think that the final chapters have been written," Finn said.

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