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Threat of counterfeit Windows 98

About $17 million in certificates of authenticity stolen from a Scotland plant could be used to give counterfeit copies a veneer of legality.

Microsoft today warned that a burglary which took place in Scotland on Friday may result in counterfeit copies of Windows 98 hitting the market.

On July 17 at the Thompson Litho plant in East Kilbride, Scotland, a burglar stole boxes containing the cover of Windows 98 product manuals, which bear the operating system software's certificate of authenticity, Microsoft said. The certificate is actually a hologram directly implanted on the paper cover.

"Some time between 4:30 p.m. and 11:10 p.m. Friday evening the perpetrator(s) obtained access to the [plant] by forcing open a fire exit door, and then gain]ed] entry to a secured area where the cover stock was being kept," according to the company. Pallets holding 115,000 units were lost.

The theft was discovered on Monday morning. A video camera recorded a van as it left the premises.

The certificates could be used to give counterfeit copies of Windows 98 the veneer of authenticity. Microsoft estimated the value of cover stock components, if turned into an official-looking manual and combined with a pirated CD-ROM, at more than $17 million.

At least one analyst was skeptical of that figure. "I would think [the perpetrators] would have a tough time making money off that," said Chris LeTocq, software analyst for Dataquest.

According to LeTocq, the thieves would have to make the manual itself, box it with the software, and get stores to buy the pirated copies (replete with illicit manuals but genuine hologram certificates). "All it needs is for one person to call in [questioning authenticity] and then somebody's backend is in the fire. And it's usually the guy that resold it," he noted.

Nonetheless, the theft highlights an area of continuing concern for Microsoft and other software makers. According to recent industry reports, software companies lose an estimated $11.3 billion in revenue each year to piracy. That loss includes activities such as unauthorized copying of legitimate software and the resale of specially discounted software intended for academic and PC vendor purchase to end users, as well as counterfeit software.

One computer reseller, who wished to remain anonymous, said piracy is somewhat encouraged by Microsoft's pricing practices. The company offers large discounts on mass purchases of software such as Office 97 to PC vendors, but does not make these discounts available to resellers. Resellers are third parties that sell products directly to the user through catalogs, retail stores, or the Internet.

The discounted software is supposed to be preloaded only onto new PCs, but sometimes PC vendors sell "authorized" copies to resellers, the source said. Resellers are tempted to buy these copies to install on PCs they sell to customers in order to better compete with the likes of Dell and Gateway, direct sales vendors which have access to discount prices.

Microsoft executives said that the theft did not involve CD-ROMs containing a new holographic image design the company recently implemented.

Microsoft said it has taken a number of measures to stem the tide of illegitimate software. The company has 100 full-time staffers working on the problem, and continually redesigns the packaging of products such as the Windows 98 manual and even the designs on CD-ROMs themselves.

"System builders and consumers alike should look for an iridescent image located near the center hole of Windows 98 CD-ROMs that alternates between reading "Genuine" and "Microsoft" when tilted under direct light. System builders or PC assemblers are further encouraged to obtain Microsoft OEM product only from authorized distributors," Microsoft said.