RAM | Reseller Advocate Magazine: Issue 44

by William Van Winkle

If i say the words "microsoft"
and "legal," the association that pops into your mind is likely "antitrust" or "monopoly." So it goes with headlines. In last month's RAMpage, we talked about how Microsoft might emerge as one of the best but least sung heroes of the PC channel should Apple's adoption of x86 take its worst possible (for the channel) course. And just to make the case that the idea of Microsoft as a champion for the channel wasn't unduly grandiose or far-fetched, I did a little digging and came up with a good example: Microsoft's legal department.

The most visible example of Redmond lawyers at work within the channel is undoubtedly the company's anti-piracy efforts. Perhaps you've seen Microsoft's occasional ads calling out offending resellers accused of counterfeiting or selling pirated Microsoft software. Now, I've previously recounted in this column my unfortunate and mercifully short-lived history selling illegal copies of Windows when I was a system builder salesman in the ‘90s. I remember very well how the owner brought in those copies month after month because the price was so much cheaper than buying legitimate copies. Our shop was "raided" by police, and I know hundreds or perhaps thousands of resellers have been similarly searched since then.

And yet the problem persists. According to the Business Software Alliance and IDC, global software piracy accounted for $33 billion in losses last year. One in three programs everywhere are installed without a legal license. I'm guessing at least a few of those come from resellers.

I spoke with Bonnie MacNaughton, senior attorney in the Microsoft legal affairs department and head of the company's anti-piracy enforcement team in the U.S., and I told her than I didn't think readers would be interested in hearing about a bunch of lawsuits aimed at shutting down counterfeit copies and benefitting Microsoft's bottom line. While not denying that the actions would benefit Microsoft, she corrected me by saying that Microsoft started receiving dozens of calls and emails a couple of years ago from resellers wanting help against those selling pirated software because there was no way to compete against them on price. Thus, according to MacNaughton, a lot of what we've seen from Microsoft's anti-piracy group in the last 24 months is in response to partner requests. This makes me wonder about all of the requests Microsoft received before mid-2003, such as, oh, the one that led to my old employer getting raided, but that's another story for another day.

So having been somewhat on the receiving end of Microsoft's anti-piracy efforts, I wondered what the protocol was for going after a reseller. After all, we've heard the stories about the recording industry going after 12-year-old girls for song swapping, and I would hope that Microsoft might research their targets a little more judiciously.

“Global software piracy accounted for $33 billion in losses last year. One in three programs everywhere are installed without a legal license. I’m guessing at least a few of those come from resellers.”

MacNaughton explained, "Two of the companies in particular that we most recently sued received dozens of what we call infringement reports. We go out and test purchase companies that we suspect are involved in piracy, and then when we confirm by test purchases in our mystery shopping program that the company is engaged in the sale of unlicensed or pirated software, we send a cease and desist letter through one of our outside law firms. It's a letter than essentially says, ‘Cut it out or you're going to get sued.' The letter then gives educational resources about where to get genuine product and find our authorized distributors. Then we go out and repurchase companies suspected of being in piracy, and we only sue folks when we find out they have not paid attention to our cease and desist letter and are continuing to sell pirated product. So we really do take great pains to make sure that people are educated about what they are doing before we file a lawsuit."

Here's another thing I never mentioned in that old Windows piracy story: I never had one customer complain. Sure, when customers called Microsoft for support and were told that all support had to come from us because the company doesn't provide technical help for OEM copies, we had to explain the whole OEM deal, but there was no other downside to owning a pirated copy of Windows. Microsoft has made sure that this is no longer the case.

"We provide critical patches to everyone, licensed or unlicensed," MacNaughton told me, "because Microsoft is very committed to protecting the online ecosystem, and we don't want to be in a position of not providing critical patches to anyone and then having viruses proliferate as a result. But you won't get any of the service packs that have new features or fix bugs. You won't get any of the other things we do for free for our customers, like Microsoft's new AntiSpyware application, and you won't get any support or services. I think customers expect to get those things."

The AntiSpyware part was news to me. Considering that AntiSpyware is still officially betaware, it does a bang up job every bit as good as the other big-name spyware scanner on my main system. But the point is that I don't think most resellers educate their buyers on the several benefits of owning legitimate Windows, either because they don't know the benefits themselves or because it's not seen as an important part of the sales process. Even if every other shop bidding against you is also selling legitimate software, you can have the benefit of taking the high road and promoting the fact first.

For more info on selling legitimate Microsoft software, check out the Genuine Advantage program at www.microsoft.com/genuine and the How To Tell page at www.microsoft.com/howtotell.

Of course, if anti-piracy suits were all there was to this story, I would have passed on it. But there are more examples where that came from. For example, as of May 4, 2005, Microsoft had filed 102 lawsuits in the U.S. alone against spammers. In general, Microsoft works with major ISPs and government agencies both here and abroad to target spammers and phishers.

Why should resellers care about spam? Well, apart from the fact that spam impacts your efficiency at your desk just like every other wired business in the world, it also affects the clients to whom you're selling computers. As Brad Smith, senior vice president, general counsel for Microsoft recently noted in a collaboration with the Massachusetts attorney general against a Boston-area spam ring, "Spam is not just annoying, in this case, it's illegal. Spam can be devious, intentionally deceptive, and is sometimes loaded with either viruses that crash computers or trickery designed to get you to give up your personal information."

I'm confident that spyware will soon be lumped in with spam as a potentially illegal offense, if it's not already. So by supporting Microsoft's legal efforts, you're helping to improve your clients' computing experience as well as helping to reduce the number of tech calls your staff fields as a result of spam- and spyware-related infections.

Another example is Microsoft's use of indemnification for its partners. Microsoft issued a release on this, but a lot of it went over my head, so I asked a Microsoft spokesperson for clarification.

"Indemnification is like insurance," I was told. "Microsoft is saying that they are providing a type of intellectual property insurance to system builders, OEMs, ISVs—that whole group. So if you have any of the four general types of intellectual property—patents, copyrights, trade secrets, or trademarks—anybody who is using it, selling it, distributing it, etc., if that IP violates someone else's trademark or patent rights, they have the right to go after anybody in the chain. So if somebody thinks that Windows infringes on one of their patents, they can sue Microsoft or the partner, the distributor, anyone down the line all the way to the end-user sitting in his home office. So Microsoft is saying if you get sued over one of our products, we'll step in and handle the litigation and the claims. If you're a small guy and you get targeted, you could be devastated just by the legal fees."

In combing through Microsoft's releases on this point, it quickly becomes apparent that the leading beneficiaries of this indemnification are the tier-one partners. This makes sense because the tier-ones have the most money to go after in court. But what I learned is that some of the smaller client cases never make it to court (and thus remain anonymous) because Microsoft has the resources to step in with its legal department and their hordes of IP specialists and start combing through the plaintiff's own supposed intellectual property. In a not-too-surprising number of cases, Microsoft is able to find points within the plaintiff's holdings that might well be taken as infringement on Microsoft's IP. Thus a cross-licensing deal is struck, little to no cash changes hands, and the problem goes away. Obviously, smaller organizations lack the ability to do such research on their own.

Senior attorney Bonnie McNaughton works to combat software piracy in the channel, but this is only one of several ways in which Microsoft’s legal team is working to help reseller partners.

Warning given, though: Microsoft's indemnification may not apply to VARs since VARs often sell Microsoft software in conjunction with other technologies, muddying the waters and making it hard to establish exactly where within the solution the disputed intellectual property lies.

"Part of the purpose of this," said the spokesperson, "is to tell people, ‘Hey, if you have a problem with Microsoft intellectual property, come see us. Don't attack the partners, because if you try that, you're just going to end up with Microsoft to wrangle with.' But this should help dissuade people from weak or frivolous cases that attempt to shake down the little guys."

All of these legal items and the many more I haven't touched on all serve to help Microsoft. But the company understands that it can't help itself without helping others. Microsoft takes the channel partnership concept seriously, and the above are only a few of the ways in which the company is proving the point. We all might do well to remember this going forward.