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While Microsoft cracks down on software pirates the world over, the software giant itself was quietly convicted of piracy charges in France last fall--and the case, while supposedly under appeal, may cost the company some business.

The French division of Microsoft is facing a fine of about $422,000 for illegal use of another company's source code in an animation program called Softimage 3D. The program has been used to create such films as The Matrix, Men in Black, and Star Wars. But the dispute itself was cited by a governmental buyer who contends Microsoft should not complain about pirates when it is guilty of the same transgression. Microsoft did not respond to requests for comment.

Borrowed Code

The issue started in 1995 when Microsoft France purchased Softimage, a Canadian company that developed the 3D CGI animation program Softimage 3D. The acquired company was accused of illegally lifting source code from a proprietary program called Character, developed by the owners of Syn'x Relief, a company near Paris.

In 1994, Softimage had negotiated with Syn'x about integrating parts of the Character program into Softimage 3D. But the deal fell through when Softimage demanded all rights to the code, according to a report in PC World Malta. In 1995, when Syn'x severed its relationship with Microsoft-Softimage, the company assured Syn'x that it had removed "some or all" of Character from its software. But Syn'x charges that Microsoft-Softimage removed only one part of the code, and retained eight other functions that Character's developers had registered with the French National Intellectual Property Institute.

After Syn'x sent two letters to Softimage and Microsoft demanding the functions be removed, the company filed suit. In 1998, Microsoft sold Softimage to Avid Technologies but remained responsible for the legal infringements of its former wholly owned subsidiary.

Although Syn'x eventually fell into bankruptcy as a result of the case, the program's authors continued their fight. Last September the Commercial Court of Nanterre, France, awarded Syn'x the judgment for damages and interest. Microsoft has vowed to appeal the decision.

Sales Pitch Rebuffed

Microsoft's brush with piracy in France came to light only this week. The case was overshadowed at the time by the focus on the September 11 terrorist attacks. But recently a Peruvian congressman raised the issue in regard to a Microsoft contract.

Dr. Edgar David Villanueva Nuñez corresponded in April with Microsoft's general manager in Peru over proposed legislation there that would require any software used by the Peruvian government to be open source (or "free software," as it's referred to in Peru). Microsoft representatives protested the plan, writing the congressman that producing open-source software makes a software company vulnerable to piracy of its intellectual property by competitors. If Peru mandates the use of open-source software by government agencies, it "would establish discriminatory and noncompetitive practices in the contracting and purchasing" of software by public bodies, Microsoft stated.

Nuñez was apparently not persuaded. He replied to Microsoft: "The inclusion of the intellectual property of others in works claimed as one's own is not a practice that has been noted in the [open-source] software community; whereas, unfortunately, it has been in the area of proprietary software." He cited specifically Microsoft's conviction by the Commercial Court of France, "for violation of intellectual property (piracy, to use the unfortunate term that your firm commonly uses in its publicity)."

Meanwhile, Microsoft remains one of the most outspoken critics of piracy, aggressively pursuing violators and urging authorities to crack down on anyone who illegally copies its software. The company even went so far as to include an Activation Wizard in Windows XP, which prevents customers from loading a single copy of XP onto more than one PC. The company amended the policy after user outcry.

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