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4 Charged With Counterfeiting Computer Programs - 2001-08-12

U.S. investigators have arrested four people in Los Angeles on charges of counterfeiting Microsoft computer programs. Authorities say the men are part of a multi-million-dollar software smuggling ring.

The four men, and a fifth alleged accomplice whom the authorities are still seeking, are natives of Taiwan. Investigators say they distributed counterfeit copies of Microsoft products, including Windows 98, Windows NT, Windows ME and Office 2000.

Authorities believe the software was mass-produced in Asia by an organization that authorities call "well-financed, well-organized,[and] sophisticated." The software was sold on the Internet and in computer stores.

Friday, agents of the U.S. Federal Bureau of Investigation and Microsoft officials announced seizure of some of the software. Richard La Magna is a senior piracy investigator for Microsoft. "Yesterday's seizure, he said, represented approximately $10.5 million retail value, and we know that this group has distributed well over this amount.

Investigators say the computer software had high-quality packaging and appeared authentic. The counterfeiters were partly successful in duplicating the so-called "edge-to-edge" technology developed by Microsoft to make its software disks distinctive.

But the software sold at prices well below market value. Microsoft's Office 2000 sells in retail stores for nearly $600 dollars. The counterfeit copies sold for $80 to $150 per copy.

Richard La Magna of Microsoft says that price is a clue to consumers, who he says face risks when using counterfeit programs in their computers. "If you're buying products that are well below market price," he said, "they're invariably of inferior quality. You risk getting viruses. You risk problems to your computer. You risk other performance problems. And more importantly, we cannot back those products. As we say in this business, if the deal sounds too good to be true, it probably is."

Microsoft officials say pirated programs account for 37 percent of the software used in computers worldwide. The high piracy rate results in annual losses to the computer industry of $12 billion.

North America has one of the world's lowest piracy rates. Still, 25 percent of North American software is pirated. The Microsoft official says that as the use of computers increases, so will the demand for pirated products.

Mr. La Magna says software companies and consumers are the losers. For software pirates, however, profits can be enormous. He said, "These people pay no taxes. They don't pay to develop the intellectual property. This is almost pure profit for them. It is simply the cost of the CD and the packaging, which is minimal."

An FBI official was asked about the irony that the U.S. Justice department is pursuing Microsoft through civil litigation, and has called the software giant an illegal monopoly. The FBI official, Richard Garcia, responded by saying, "Well, life goes on, as they say."

FBI agent Garcia says investigations of law breaking, such as software theft, are a matter separate from the government's civil lawsuit against Microsoft.

Microsoft's Richard La Magna added that the software giant "couldn't be more pleased" with the cooperation of U.S. Department of Justice on piracy issues.

The four men arrested Thursday face sentences of up to ten years in prison for every violation of federal copyright and trade law.

Photos by VOA's Mike O'Sullivan