Microsoft Sues Retailer For Massive Piracy -- But Someone's Peddling Snake Oil
"As detailed in the complaint filed today, Comet produced and sold thousands of counterfeit Windows CDs to unsuspecting customers in the United Kingdom,” said David Finn, associate general counsel, Worldwide Anti-Piracy and Anti-Counterfeiting at Microsoft. “Comet’s actions were unfair to customers. We expect better from retailers of Microsoft products — and our customers deserve better, too.”
Industrial counterfeits are often quite sophisticated. The disc on the left is the genuine version.
The suit charges Comet with producing the counterfeits in a factory in Hampshire and then selling the media to customers from its retail outlets across the U.K.
This sort of wide scale piracy can leave customers up the proverbial creek if they have a problem and appeal to Microsoft, only to find their original copy of the OS isn't genuine, but the story isn't so simple. Comet has since responded, stating:
We note that proceedings have been issued by Microsoft Corporation against Comet relating to the creation of recovery discs by Comet on behalf of its customers. Comet has sought and received legal advice from leading counsel to support its view that the production of recovery discs did not infringe Microsoft's intellectual property.Not Exactly Piracy
Comet firmly believes that it acted in the very best interests of its customers. It believes its customers had been adversely affected by the decision to stop supplying recovery discs with each new Microsoft Operating System based computer.
Microsoft's statement implies Comet was running a nifty enrichment business on the side by burning discs, packaging them for resale, and presenting them as legitimate copies of the operating system. Comet's response claims the company was providing <i>restore</i> discs. This raises two questions: 1) Why did Comet have to start manufacturing its own custom restore discs in the first place? and 2) Given that manufacturers like Dell and HP provide restore discs / partitions, why would this be illegal?
Materials seized after a raid on counterfeit production facilities.
The answer to both questions is buried in Microsoft's licensing FAQ's. The company has two different OEM licenses. When you buy an OEM copy of Windows from NewEgg, you acquire an OEM System Builder License. This is distinct and different from a Direct OEM License; good luck trying to find a copy of the latter online. There's no formal list of the companies that qualify as 'Direct OEMs', but Comet was most likely doing business as a smaller-scale system builder (Dell and HP are quoted as Direct OEM examples).
From the FAQ:
Can I create my own recovery disks and sell these with the computer systems that I build?Microsoft states that Comet sold "counterfeit Windows Vista and Windows XP recovery CDs." Such wording strongly implies that Comet stole the XP/Vista licenses and thereby deprived Microsoft of revenue. If Comet is telling the truth, the company broke Redmond's license terms, but didn't cost Redmond a penny. MS may not want this particular issue to go to court, given that the company's reason for disallowing ghost discs and recovery partitions is so nebulous.
A. No. System builders may not offer a recovery solution with removable media (e.g., a recovery CD) because it is prohibited by the terms of the Microsoft OEM System Builder License. A full version of the Windows operating system is provided on a hologram CD in the Microsoft System Builder pack for each end user, and the CD must be transferred to the end user at the time of distribution. The hologram CD acts as the recovery media.
However, system builders can offer a hard disk recovery solution in addition to, but not as a replacement for, the hologram CD... The right to create recovery media is limited to the OEMs with direct agreements; however, these OEMs are also bound by other contractual obligations.
Are system builders allowed to create a "ghost image" CD and ship it along with the system for OEM customers?
A. No. System builders may not offer a recovery solution with removable media (a recovery CD, for example)—it is prohibited by the terms of the Microsoft OEM System Builder License. A full version of the Windows operating system is provided on a CD in the Microsoft System Builder Pack for each end user, and the CD must be transferred to the end user at the time of sale. The hologram CD acts as the system builder recovery media.
Based on what we know at present, it does appear that Comet broke the terms of its OEM license, but the company may have an argument it can make in court. The situation could depend on what happened to the original Windows discs--Microsoft's terms state that the OS disc "acts as the recovery media," which raises the question of whether Comet sent its customers home with both the copy of the OS they were legally entitled to and a secondary restore disc.