Making Anti-Counterfeiting Laws

and Enforcement Work:

A Case Study from China

David FinnAssociate General Counsel

World-wide Anti-Piracy and Anti-Counterfeiting

Microsoft Corporation

The software industry’s counterfeiting The software industry’s counterfeiting problemproblem

Overall world-wide piracy problemOverall world-wide piracy problem

35%35%average world-wide piracy rate for business average world-wide piracy rate for business software. More than 1 out of 3 copies of software. More than 1 out of 3 copies of business software in use world-wide is business software in use world-wide is counterfeited or otherwise infringing. Lost counterfeited or otherwise infringing. Lost revenues: $39.6bn.revenues: $39.6bn.

IDC, The Risks of Obtaining and Using Pirated Software, Oct. 2006Tier 1 - Piracy Rate Below 50%Tier 1 - Piracy Rate Below 50% Tier 2 - Piracy Rate 50% to 80%Tier 2 - Piracy Rate 50% to 80% Tier 1 - Piracy Rate Above 80%Tier 1 - Piracy Rate Above 80%

Guangdong: Guangdong: Center of China Center of China Counterfeiting Counterfeiting IndustryIndustry

Source: BSA, IDC

The software industry’s counterfeiting The software industry’s counterfeiting problemproblem

High-quality counterfeits are a growing High-quality counterfeits are a growing problemproblemHigh-quality printing and packagingHigh-quality printing and packaging

Replication of Microsoft product security featuresReplication of Microsoft product security features

Disc holograms (“edge to edge”)Disc holograms (“edge to edge”)

Certificate-of-Authenticity (COA) labels Certificate-of-Authenticity (COA) labels

Security threads for COAsSecurity threads for COAs

Unique security keys – required for activation and validationUnique security keys – required for activation and validation

Consumer fraud as well as other economic and societal harmConsumer fraud as well as other economic and societal harm

COUNTERFEIT

COUNTERFEIT

genuinegenuine

The Chinese counterfeiting syndicate

19 products in 11 languages found in 36 countries

Forensics showed at least 30 unique production lines

$2 billion+ estimated value of counterfeits produced

UNITS FOUND IN UNITS FOUND IN TEST PURCHASES TEST PURCHASES AND SEIZURESAND SEIZURESCOUNTRY UNITSChina 384,732 Taiwan 56,827 United States 56,638 Germany 54,288 United Kingdom 6,876 Austria 4,803 Spain 4,585 Switzerland 3,134 Ireland 2,040 Qatar 1,500 Canada 1,384 UAE 1,025 India 583 Israel 426 Australia 402 Korea 375 Italy 317 Pakistan 200 Indonesia 125 Malaysia 108 Thailand 96 Singapore 71 Netherlands 23 Poland 22 Egypt 16 New Zealand 14 South Africa 14 Nigeria 11 Philippines 7 Paraguay 2 Cyprus 2 France 1 Ethiopia 1 Czech Republic 1 Trinidad & Tobago 1 Croatia 1 WORLD-WIDEWORLD-WIDE

580,38580,3811

# of Countries# of Countries 36 36 # of Languages 11 # of Products# of Products 19 19

Units by CountryUnits by Country

100,000 to 400,000100,000 to 400,000

10,000 to 99,99910,000 to 99,999

1,000 to 9,9991,000 to 9,999

100 to 999100 to 999

0 to 990 to 99

July 2007 arrests and seizures in China

FBI and Ministry of Public Security meeting in June

Raids and arrests July 6-16, 200724 raids and 25 arrests in three cities

$500 million

Value of counterfeit software and components seized, including 22 master replication discs, 70,000 units of counterfeit Vista, Windows XP and Office 2007; 250,000 counterfeit COA labels; 60,000 user guides, product cases, and security labels; and asset seizures totaling $7.7 million including equipment and raw materials

Seized productSeized product

CounterfeitCounterfeit COAsCOAs

Security threadSecurity thread

Fake “holograms”Fake “holograms”

Fake activation keysFake activation keys

Lessons learned

1. Substantial investigative work is needed.• Six-year investigation – begun in May 2001• Test purchases and raids - 580,000 counterfeits from 36

countries• Test purchases from 2,033 on-line auctions in 17 countries• Identification of major targets and distribution channels• Wide expertise needed: traditional investigation, product ID,

distribution channel expertise, business intelligence, lawyers• All this on top of security features built into the products

2. Cooperation between the public and private sector, as well as between different public enforcement officials across borders, is vital.

• Michel Danet, WCO: “Customs around the world, from Cairo to London, Vancouver to Hamburg, and New York to Beijing, seized dozens of shipments numbering thousands of counterfeit Microsoft software products produced by these criminals.”

Documentary evidenceDocumentary evidence

Alleged “Mr. Big”Alleged “Mr. Big”

Lessons learned

3. Cooperation with the supply chain and even consumers can provide invaluable evidence.

• More than 100 resellers helped to trace counterfeits, provide physical evidence including invoices, payment slips, e-mails

• More than 1,000 consumers sent physical copies of Windows XP for forensic analysis

• Tens of thousands of consumers used the Genuine Advantage security feature to identify their software as fake

4. Successes against counterfeiting can be achieved in China.

• The involvement and cooperation of the FBI with the Chinese Ministry of Public Security was key

Range of products Range of products & components & components seizedseized

5. Public awareness of these cases is an indispensable part of the fight against counterfeiting.

Lessons learned

Making Anti-Counterfeiting Laws

and Enforcement Work:

A Case Study from China

David FinnAssociate General Counsel

World-wide Anti-Piracy and Anti-Counterfeiting

Microsoft Corporation