LARGEST ANTI-COUNTERFEITING RAID EVER TARGETS FAKE MICROSOFT PRODUCTS

After systematically working through sellers, two key suspects were identified and eventually arrested ­ Jack Che, the chief distributor who was also selling the goods himself, and Wong Wong Wha, a more discreet figure in charge of packaging and product finalization. The products blended into authorized distribution channels, and the software worked and looked authentic.

"It was basically a number of groups selling high-quality versions of various OEM windows software overseas," says Chris Bailey of Rouse & Co International, one of Microsoft's legal advisers on the matter. Investigators were employed to engage in controlled purchases for gathering evidence, and later discovered that two groups, one in Shanghai and another in Guangdong, were involved. The investigation lasted a year and half.

While it would have been easier in the short-run to catch each individual along the way, Microsoft devoted years of resources to get back to the source of the problem. "There's no shortcut or easy way to do that," says Bailey. Counterfeiting, he says, is becoming more professional, like organized crime, and requires well-coordinated operations in order to effectively target. "It's a good example to look at, and for China to point to and say they're serious about piracy," he says.

Bailey was also glad that the PSB recognized the efforts of private investigators, which he notes is good for their business. Internationally trained and qualified investigators are now deemed by the government to have an important role to play.

Raids and arrests made by the PSB were also aided by information provided by the FBI of Los Angeles and Microsoft, which targeted sources behind the illegal commercial production of Microsoft software, software components and certificates of authenticity. Law enforcement authorities and forensic specialists identified numerous replication plant lines that were involved in the CD production and were the source of counterfeit goods that had been supplied and sold to business customers and consumers around the world.

The counterfeit software, found in 27 countries and on five continents, contained fake versions of 13 of Microsoft's most popular products, including Windows Vista, the 2007 Microsoft Office release, Microsoft Office 2003, Windows XP and Windows Server. The counterfeits were produced in at least eight languages: Croatian, Dutch, English, German, Italian, Korean, Simplified Chinese and Spanish.

"This case represents a milestone in the fight against software piracy," said Brad Smith, senior vice president and general counsel at Microsoft. "This case should serve as a wake-up call to counterfeiters. Customers around the world are turning you in, governments and law enforcement have had enough, and private companies will act decisively to protect intellectual property."

During the course of the investigation, more than 55,000 sophisticated-quality copies of counterfeit software were traced back to the same southern China criminal syndicate. These counterfeit products came from seizures by law enforcement and customs authorities, through submissions made by Microsoft customers and partners, and from test purchases. The 55,000 examined discs are believed to constitute less than 1% of the millions of counterfeit copies that are estimated to have been produced and shipped to distributors around the world.

Luke Minford at Rouse & Co International, who also helped with the investigation, believes that the case represents a move against local protectionism, and is definitely a step in the right direction for China. "If you look at the progress it's just been astonishing. There are still many problems," he says, "but if you look at it in the whole context of
what's happened in the last 10-15 years, I think the Chinese should be commended".

Microsoft estimates that counterfeiting costs the software industry of an estimated US$40 billion a year worldwide. According to a May 2007 BSA and IDC global software piracy study, estimated worldwide piracy rates were at 35% in 2006. The study also found that reducing this rate by 10% over four years could potentially generate 2.4 million new jobs, US$400 billion in economic growth and US$67 billion in additional tax revenue for the world economy.

While the raids will certainly send the right message to counterfeiters, IP professionals note that there is still a long way to go. "The work is by far not done - it isn't the end of the problem," says Williams.