Halifax police make arrest in global counterfeit software crackdown

A global sweep of legal action against counterfeiters selling fake Microsoft software through online auction sites included a raid by police in Dartmouth, Nova Scotia.

The Halifax Regional Police Integrated Financial Crime Section and the Royal Canadian Mounted Police were involved in an investigation that led to an arrest and seizure of high-quality counterfeit copies of Windows XP and Office 2003 from a Darthmouth home Oct. 28. The arrested person is accused of peddling counterfeit wares over eBay after importing them from overseas.

“We have a team that regularly monitors auction sites,” says Christopher Tortorice, corporate counsel of anti-piracy for Microsoft Canada. “It’s a growing channel, a place where we’re seeing more and more counterfeit products appear.”

The Dartmouth raid was just one of 63 legal actions in 12 countries taking places over the last month that Microsoft announced last Thursday. All took place against fraudsters hawking Microsoft counterfeit software through online auctions. Many – not the Dartmouth case – were selling a fictional version of Office 2007 dubbed “Blue Edition”. Though advertised as an exclusive edition that was previously only available to Microsoft employees, it is actually just low-quality counterfeit software burned to a blue CD.

The accused Dartmouth fraudster had done a more convincing job of fooling consumers, according to Microsoft sources.

“It was rather high quality counterfeit,” Tortorice says. “I believe the disks were made with a replication machine and put into packaging that resembled Microsoft packaging.”

But it can take surprisingly little effort to dupe a consumer into buying a counterfeit product. Many fraudsters are so brash they put an origin of manufacturer label onto their product – even if they are based in a country where the company doesn’t operate. Many of these labels indicate Asian origin and often counterfeit product sales have links to organized crime, says Corp. Angela Hawryluk, head of the enforcement section of the Halifax RCMP.

“That’s how bold some of these counterfeiters are,” she says. “If you’re buying their products, you’re often supporting a criminal organization.”

The investigation into the Dartmouth suspect began a year ago after a Microsoft agent purchased several units of software from the seller on EBay, which all proved to be fraudulent.

The accused was allegedly purchasing counterfeit copies of Window’s XP Professional and Office 2003 from overseas, re-selling them over the online auction site, EBay, and making a hefty per product profit.

Counterfeit software is one channel for pirated software that flows across the Internet and even into retail stores. Despite being the 20 countries with the lowest rates of software piracy, still about one third of all software installed is pirated software, according to the Business Software Alliance report. The report from analyst firm IDC was released in May. All that piracy equates to as much as $1 billion in lost revenue for the legitimate Canadian economy.

Not only does fraud cost the economy in terms of cash, but also in terms of innovation, says Douglas Simpson, president and CEO of the Canadian Council of Better Business Bureaus.

“The people that are legitimately trying to develop software put a lot of work into it,” he says. “If they can’t be ensured that effort will result in some sort of return will stop doing it over time.”

Not to mention the cost of law enforcement to put a stop to the fraud – court proceedings, law enforcement and more.

Microsoft runs a hotline at 1-800-RU-LEGIT to take reports of suspected counterfeit software. It also has an online Windows Genuine Advantage program that allows customers to submit software they suspect is counterfeit. If it is, Microsoft will replace it with a real copy. Another Web site, www.howtotell.com, offers consumers tips on how to recognize counterfeit software before they buy it.

“If the price looks too good to be true, it probably is,” Tortorice says. “Look for the seller’s rating and the comments from other customers, and ask whether you get all the markets of authenticity like a hologram CD.”

Businesses can do their part to ensure counterfeit software doesn’t enter the organization by putting in place a centralized purchasing policy, Simpson says. Having one point where all decision-making flows through ensures that proper due diligence can be done on the software used by employees. It also helps an organization keep on top of tracking licenses and educate employees about identifying counterfeit software.

“The policy should also take the necessary steps to register the software with the manufacturer,” he advises.

This isn’t the first run in with counterfeiters Microsoft has had in Canada. The software giant won one of the highest statutory damage awards for copyright infringement in Canadian history in December 2006. Quebec native Carmelo Cerrelli was fined a total of $700,000 at the time and banned from selling counterfeit copies.

Cerrelli ignored that advice and was hauled to court by Microsoft again for dealing counterfeit software. In a ruling delivered Dec. 1, a court fined him an additional $100,000 for contempt or up to 60 days of jail time if he fails to pay.

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