Galesburg firm on Microsoft's radar for alleged software piracy
By Mike Kroll
If you believe that living or working in the anonymity and obscurity of small-town rural America provides you with insulation from the oversight of corporate America think again. On Monday computer software behemoth Microsoft served papers on 26 businesses, including a small Galesburg firm among four targeted Illinois firms, they allege have sold or distributed pirated copies of the company's Windows XP and Office XP software,. Representatives of the Springfield law firm of Londrigan, Potter & Randle served papers on The Computer Shop at 419 East Main Street specifically naming the former owner Keith Straitiff as a defendant in a lawsuit, also filed Monday, in U.S. District Court – Central District, Peoria.
According to a Microsoft press release, this was “an unprecedented move by the company [to] illuminate [the] company's stronger enforcement efforts as part of its Genuine Software Initiative.” As the world's largest software manufacturer Microsoft has long been an active player in protecting its intellectual property rights by fighting software piracy and counterfeiting along side the industry's enforcement group, the Business Software Alliance. The BSA claims that one out of five software products now in use across the United States are illegally pirated.
While many of those pirated software titles are the result of individuals sharing copies of software with family and friends Microsoft and its industry has traditionally focused its enforcement efforts against businesses installing a single copy of a software title on multiple computers. Industry officials note that as the drop in computer system prices has resulted in severe pressure on profits, it has become increasingly common to find computer resellers who attempt to boost their margins by bundling pirated copies of software with the systems they sell to unwitting retail customers. The cost of a legitimate copy of Microsoft's Windows XP software can add anywhere from $80-160 dollars to the wholesale cost of a computer system that may retail for only $500-600, especially for a small computer business. All 26 of Monday's lawsuits targeted resellers doing just that with either of Microsoft's two cash cow software brands, Windows XP and Office XP, both of which are marketed under a variety of differing configurations.
The complaint against The Computer Shop and Straitiff alleges that Straitiff personally sold a computer to a Microsoft investigator bundled with an unauthorized or pirated copy of Microsoft Office XP Pro in May of this year. Microsoft also claims that Straitiff “distributed counterfeit and infringing Office XP Pro software” and that “this was not an isolated incident.” As an important adjunct to the piracy itself the lawsuit additionally alleges that The Computer Shop “committed and continues to commit acts of copyright and trademark infringement against Microsoft,” made “unauthorized use of Microsoft's trademark and copyrights” in its advertising and “misappropriated Microsoft's advertising ideas and style of doing business and infringed Microsoft's copyrights, titles and slogans.”
The importance of citing all the different alleged violations of Microsoft's trademarks and copyrights is based on a Federal law known as the Lanham Act (covering U.S. Tradmarks) that designates severe financial penalties for each instance of such violations following a 2005 revision. “Each copyright infraction can draw a penalty of up to $150,000 while each trademark infraction can cost as much as $1 million,” said Kevin Sangsland of Airfoil Public Relations, a Detroit-based firm specializing in public relations for high tech companies like eBay and Microsoft, on Tuesday.
Sangsland explained the process Microsoft uses to identify and target potential violators of its software copyrights and trademarks.
“There are a number of avenues that Microsoft uses to learn of potential violators. Most involve someone becoming suspicious of software they purchased or that came with a computer they bought. They may contact Microsoft through the company's anti-piracy hotline, 800-RU-LEGIT, or they may have become aware of the problem as a function of the Windows Genuine Advantage program. In any event, investigations are based on specific leads and are not conducted on a random basis. Microsoft gathered evidence for these cases through the use of a secret shopper type program. An investigator hired by Microsoft approaches a suspected reseller and makes a test purchase, typically of a computer system. The purchased system is then analyzed to determine if any or all of the included Microsoft software is genuine and appropriately licensed. When it is determined that unauthorized Microsoft products have been sold company lawyers send a cease and desist letter to the reseller providing information on how they can acquire and distribute genuine Microsoft products and demanding that they immediately stop selling pirated or unlicensed software. They are asked to agree in writing to honor all Microsoft licenses, copyrights and trademarks in the future. At some later point a second secret shopper will make another purchase from the reseller and it is determined whether or not they are honoring their agreement with Microsoft. If not, legal actions such as this are likely to result.”
The Genuine Advantage program is a controversial Microsoft anti-piracy program that requires users of newer Microsoft's software products to activate them with the company either by telephone or over the Internet after installation. That activation identifies the product by license key and ties it to a specific computer system through a form of system signature that captures characteristics of the computer's hardware configuration. Subsequent to such activation if the user attempts to update the software through Microsoft's Internet updating services, “Windows Update” or “Microsoft Update,” the current hardware characteristics of the system requesting the update are compared to the activation signature. It these characteristics vary in any “substantial” but unspecified way access to the update is forbidden and the product may even be deactivated by the Microsoft website. Once deactivated the user must contact Microsoft and explain just why the signature might not have matched and assured a Microsoft representative that this is a genuine Microsoft product and installed on one and only one machine.
The controversy over this program stems from the very common practice of system upgrades that many computer owners engage in. Over the life of a given computer it is not uncommon for a user to add additional memory or a larger hard disk or different video or audio card or a CD or DVD burner. Any of these changes will alter the hardware signature of your computer and it is somewhat unclear just how much change is accepted by Microsoft before triggering an activation problem. It is also common for computer systems that suffer major software damage or infection from viruses or spyware to have Windows XP reinstalled from scratch to restore proper operation of the computer. Many, if not most, times when this is done an owner or computer repair shop will encounter software activation problems with Microsoft's Genuine Advantage program despite the reinstallation of totally legitimate Microsoft software.
Complicating the case against Straitiff and The Computer Shop here in Galesburg is the fact that the store changed hands last summer. Straitiff had formerly operated The Computer Shop and its predecessor business, On-Trak Systems, Inc., until he sold the business to Jerry Wade. Wade previously operated another downtown Galesburg computer business, Computers Etc. until he bought The Computer Shop from Straitiff and consolidated operations at 419 East Main Street. Wade contends that Straitiff has had no further involvement with the operations of The Computer Shop since he acquired the business last summer and that none of the alleged violations have occurred during his ownership.
“I first learned of this lawsuit when I was served with papers on Monday at the shop. All I know is that this is about Keith's business dealings, not mine. I don't pirate computer software and never have. They served me even after I tried to explain that I wasn't Keith and merely purchased the business from him last year. All the software we sell are authentic licensed copies purchased and sold legally. I know that Keith must have used a corporate copy of Windows XP Pro on many and maybe even all of the computer systems he sold. A number of his former customers have come back into the shop complaining of problems with their operating system and I have to point out that they don't have any Microsoft Product ID code that would permit me to reinstall a copy of Windows on their machine. Keith did the same thing with a single corporate copy of Office XP. He seems to have installed that on most of the computers he sold. That's what is behind the Microsoft lawsuit.”
While Wade resolutely asserts his innocence and non-involvement in the alleged violations the circumstances are muddied by the date of violation cited in the lawsuit. It remains unclear at what exact point during 2005 that Straitiff ceased doing business as The Computer Shop and Wade assumed responsibility for the business. However, there is no disputing that Wade was the sole responsible person as of May 2006, the date cited in the Microsoft lawsuit. Wade believes that date is in error. Perhaps it should have read May 2005 or 2004 but the lawsuit is also unclear whether this date was for the initial secret shopper purchase or the subsequent follow-up purchase. Even if the date should have read May 2005 that wouldn't clear Wade completely as he told me Tuesday that he purchased the business from Straitiff in April 2005.
Mary Jo Schrade, senior attorney at Microsoft confirmed Wednesday morning that the company's investigator did in fact purchase a computer system from The Computer Shop in May 2006. That computer system was analyzed and found to contain a counterfeit copy of Microsoft's Office XP Pro software although the operating system software was genuine. Schrade explained that the company determined ownership of The Computer Shop through public records at the Knox County Courthouse and corporate registrations through the Illinois Secretary of State's office in Springfield. Although Schrade couldn't definitively say Wednesday whether this was the initial or subsequent investigator purchase she presumed by the timing that the May 2006 purchase represented a second purchase of a computer system at The Computer Shop containing unauthorized Microsoft software.
“We've really ramped up our enforcement efforts nationwide and made a special effort to include violations in smaller communities as well as large cities to emphasize Microsoft's commitment to legitimate dealers as well as end users,” noted Schrade. “Most of these investigations are prompted by reports to our hotline. The victims of software piracy include not only Microsoft and our end users but also the legitimate resellers of our products whose livelihood is threatened by competitors who compete unfairly using pirated software. The message we are sending through these lawsuits should be made very clear. To our honest partners, and to consumers who expect and should receive genuine Microsoft software wherever they go to buy it, we are listening and we are investing a tremendous amount of resources to help you. We are committed to finding the unscrupulous dealers of pirated software and making piracy a business model that doesn't work."
Sangsland said Tuesday that many of these lawsuits are settled outside of court and couldn't provide any estimated court date at this time and Schrade concurred. “Our experience is that the offending resellers are much more responsive to us following the filing of a lawsuit and often times eager to remedy their actions and seek to resolve the issues outside of a courtroom. We prefer to work this out directly with the defendants and that is why we send either the cease and desist letters or a warning letter prior to filing lawsuits. Our goal is to correct the problem not face off in a courtroom.”
The other Illinois cases involve a Buffalo Grove firm, Software Plus Inc. and two Chicago firms, Apollo Computer Corporation and the Chicago Computer Club Corporation. Additionally, firms in Colorado, Georgia, New Jersey, New York, Ohio and South Carolina were among the 26 lawsuits filed by Microsoft Monday. It should also be clear that doing businesses in the anonymity and obscurity of small-town America is no shield against being held accountable for your business practices. Whether you" do business in Austell, Georgia (a small town of 5,359 located between Atlanta and Marietta), Iselin, New Jersey (a city of 16,698 known as “Jersey's Little India” following a substantial immigration begun in the 1990s) or Galesburg, Illinois corporations such as Microsoft are forever vigilant.