China, FBI Bust Piracy Syndicate

A flurry of raids and arrests in China over the last two weeks have ended what is estimated to be the world's largest piracy syndicate in operation for more than six years.

The group, in Guangdong province in southern China, produced fraudulent copies of software from Microsoft Corp. and Symantec Corp., according to the Federal Bureau of Investigation.

In China, some 290,000 discs were seized, worth US$500 million, as well as $7 million in other assets, the FBI said. In the U.S., the agency's Los Angeles office confiscated $2 million in counterfeit software, plus $700,000 in other assets.

In one of the raids, an alleged counterfeiter named Ma Ke Pei was arrested along with 10 other people in connection with fake Symantec software, the FBI said. In 2003 Ma was indicted in the U.S. for copyright and trademark violations related to Microsoft software but fled to China.

Other raids centered around Shenzhen, where some 70 percent of the counterfeit products are shipped to the U.S. to distributors and retail customers, the FBI said. Six manufacturing lines and retail facilities were dismantled, and 47,000 counterfeit Microsoft CDs were confiscated.

The typical maximum sentence for piracy in China is around seven years, said David Finn, Microsoft's associate general counsel for worldwide anti-piracy and anti-counterfeiting.

Finn said the piracy bust is the largest ever, based on the number of production lines, length of operation and scope of distribution.

"We've really never seen a case this big," he said. "We think this will have an appreciable and noticeable impact on the volume of pirated software on the marketplace."

Western countries and companies have put increasing pressure on China and other developing countries to crack down on piracy.

But the sophisticated operations produce discs that are nearly indistinguishable for experts to discern from the real products, making it hard for resellers and consumers to tell if they are buying a legitimate product.

The syndicate was responsible for producing fraudulent copies of 13 Microsoft products that have been found in some 27 countries, Finn said.

Forensic investigators traced some counterfeit samples dating from May 2001 to the syndicate, using some 175 different characteristics that can indicate where a disc originated, Finn said.

Microsoft said it estimates the piracy operation over the course of six years conservatively cost the company $2 billion in revenue.

Microsoft also said key information came from the Windows Genuine Advantage Notifications program, the anti-piracy tool that periodically checks with a Microsoft database if the copy of an OS is legitimate.

More than 1,000 of its customers who found out their OS was not legal later submitted physical copies of Windows XP to Microsoft for analysis. Those discs were later linked back to the syndicate, Microsoft said.