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8/96 Analysis: Dialog Box

Drugs, Guns And Counterfeit Software

Organized crime has entered the counterfeit software business.

By Robert kruger

ON MAY 5, 1994, a 911 call came in to the Monterey Park, Calif., emergency response system. The caller hung up. Police were dispatched to the site to determine if the call represented an emergency. When an officer arrived at the home, one of the occupants announced in Mandarin Chinese that the police were there and ordered the other occupants to "hide the stuff." The officer, who spoke Mandarin, entered the house and discovered the "stuff" was neither drugs nor guns, but computer equipment and components used to manufacture counterfeit software.

When police served warrants at a house in the Los Angeles suburbs, they seized not only software packaging, CD-ROM duplicating equipment and counterfeit holograms, but plastic explosives and TNT. They also discovered firearms-many of them loaded-under every sofa and chair cushion in the living and family rooms.

Traditionally viewed as a white-collar crime, software counterfeiting is attracting a dangerous new element-an element that has added counterfeit software to its mix of illicit activities such as robbery, kidnapping, narcotics, prostitution and extortion. The Asian organized crime section of the L.A. Sheriff's Office is already pursuing a number of counterfeit software cases in Southern California, a hotbed of software counterfeiting activity. That office and the L.A. District Attorney's Office have made more than 10 arrests and eight convictions to date.

The money is real

The arrest and conviction of a Chinese national in San Francisco last April illustrates the crime's profit potential. The criminal was arrested for attempting to smuggle approximately 29,000 counterfeit Microsoft holograms, which could be used to legitimize bogus Microsoft MS-DOS 6.2 software.

In Alhambra, Calif., last February, sheriff's deputies raided an illicit software manufacturing plant in an investigation of a counterfeit ring that cost Microsoft $3.3 million in lost sales. The deputies seized approximately 20,000 software packages, software copying and shrink-wrapping equipment, packaging envelopes, manuals and fake certificates of authenticity.

For years, software counterfeiting was limited to developing countries with weak intellectual property laws. Only within the past seven years have both the manufacture and distribution of highly sophisticated counterfeit software products been detected within the U.S. Advancements in technology have produced authentic-looking counterfeit software using little more than a CD-ROM or disk duplicator and a shrink-wrapping machine.

Counterfeit software copies have turned up all over the country. And they're no longer sold only through black markets and suspicious newspaper ads; reputable sources are selling illegal copies. Some resellers aren't even aware they're selling counterfeit goods, according to the early results of a cease and desist program recently enacted by a member of the Business Software Alliance. Within the first few months of the program, nearly 20 resellers were targeted for distributing counterfeit software so sophisticated that the resellers were convinced they were genuine. Even a counterfeiter was fooled recently. The L.A. District Attorney's Office reported that the counterfeiter bought software for illicit copying from a retail store, only to discover two of the packages were counterfeit.

Counterfeiting is not a victimless crime. Purchasers don't receive quality guarantees, or access to upgrades or technical support. Counterfeit software is also a leading carrier of viruses. And, illegal copies often contain flaws or errors, such as missing code or files.

The crime also threatens the viability of the software industry. Combined with other forms of software piracy-such as end-user copying and illegal hard disk loading-counterfeiting costs the industry more than $15.2 billion a year worldwide and more than $2.8 billion in the U.S.

To ensure you're not a victim, look for these clues when buying software:

Robert Kruger is director of enforcement for the Business Software Alliance. Contact Bob in the "Dialog Box" topic of WINDOWS Magazine's areas on America Online and CompuServe. Have an opinion about Windows computing you'd like to share? Send it to Nancy A. Lang. To find her E-Mail ID Click Here

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