Software: Microsoft's Suing Spree

Magazine News Story/July 31

After years of turning a blind eye to piracy, Microsoft is finally cracking down on software thieves. In its biggest legal action ever, the company filed 26 lawsuits in seven states on July 18. The suits accuse companies of selling unlicensed versions of its two main products—the Windows operating system and Office desktop software.

Microsoft says it is working to protect its partners, through whom it sells most of its software. Pirated software causes honest partners to lose out on business, says Mary Jo Schrade, senior attorney at Microsoft. “Honest resellers and distributors are telling us we need to do more to support them,” she says.

But there may be more to Microsoft’s actions, says Carmi Levy, analyst with the Info-tech Research Group. Microsoft is at a critical point in its business as it attempts to shift from producing shrink-wrapped boxes to delivery of software as a service. In November, Microsoft Chairman Bill Gates sent a memo to employees urging them to better leverage web-based software and services. The coming “services wave” will be highly disruptive to the software industry, he said.

With the future of boxed software being called into question, Microsoft needs to work harder than ever to protect its existing revenue stream. “I don’t think Microsoft has a choice,” says Mr. Levy. “They need to do this because they are trying to shift their revenues, but until then they have to do everything they can to protect their existing products.”

Some 21 percent of all software in the United States is unlicensed, causing $6.6 billion in losses last year, according to trade group Business Software Alliance. The No. 1 software maker is among the worst hit. Now, with improved broadband access, creating and distributing pirated software is easier than ever, says Mr. Levy.

Until recently, Microsoft’s attitude toward pirates was far less aggressive since acquiring more users, licensed or otherwise, could only help its hegemony. But now that the market is reaching saturation, the company is spending millions of dollars on legal action. In September, it filed suits against eight software resellers for piracy. The company has also started secret shopper programs to purchase hardware and software from computer dealers across the country and then run tests to determine their authenticity, says Ms. Schrade.