Overseas Invasion

Like Coke, Nike, and the tobacco industry before it, Microsoft now has to hook new consumers abroad. But the company has discovered a way to bully foreign companies into buying Microsoft — and only Microsoft.

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In 1995 Antel, the national telephone company of Uruguay, was caught pirating $100,000 worth of unlicensed software programs from Microsoft, Novell, and Symantec. Antel was nabbed by the Business Software Alliance, a trade association that partly acts as a global bounty hunter for the software industry. The BSA’s lawyers in Uruguay quickly filed suit.

But instead of waiting for a ruling on the case, the BSA abruptly dropped the suit in the fall of 1997. The BSA receives funding from most of the top software companies but appears to be most heavily funded by Microsoft. And, according to Antel’s information technology manager, Ricardo Tascenho, the company settled the matter by signing a “special agreement” with Microsoft to replace all of its software with Microsoft products.

The BSA’s lawyer in Uruguay, Eduardo DeFreitas, supports Tascenho’s story: “Microsoft told me to stop working on the case because they would write an agreement with Antel.” DeFreitas says Microsoft’s Uruguay manager, Tomas Blatt, instructed him to drop the suit so that Microsoft could “work out a deal for the future.” Blatt refused to answer questions about the settlement, claiming, “I don’t have any information about the Antel case…. You should call BSA in Uruguay—Eduardo DeFreitas.”

Antel’s situation suggests that when the BSA cracks down on piracy overseas, it’s Bill Gates who turns out to be the pirate. Representatives from rival firms complain that Microsoft is abusing its power within the BSA to speed its global dominance.

Microsoft denies that the BSA acts solely on its behalf. “I am not aware of any instance where that has happened,” says Microsoft attorney Brad Smith. And the BSA dismisses the charges; spokeswoman Diane Smiroldo calls them “hard to believe.” But officials at Novell and Lotus confirm that by January, both companies will have stopped actively participating in the BSA’s programs in Asia and Latin America. Novell says these allegations played a part in its decision; Lotus refuses to comment. Such concerns are also among the reasons Netscape is reluctant to join the BSA, says Netscape attorney Peter Harter.

The accusations aren’t just limited to Uruguay:

  • Felipe Yungman, Novell’s manager of security for Argentina, says he and another staffer at Novell discovered, while pursuing their own investigation for the company, that the BSA was setting up sweetheart deals for Microsoft. “Companies or government offices had to, as a condition [that the BSA] forgive them of piracy, replace Novell products with Microsoft products,” he says.

    Yungman would not divulge the names of the companies he believes were bullied by Microsoft, saying that he is trying to convince them to come forward. “Most of the companies don’t want to get involved,” he explains. “They think they need Microsoft. You cannot oblige them to testify.”

    Mario Tucci, Novell’s country manager for Latin America, supports Yungman’s allegations. “If you call BSA, you will reach Microsoft,” he says. “They shield Microsoft’s actions with the BSA name. It’s bad for us and [for] the software industry.”

  • In 1996, when the BSA sued the Australian shipping company Toll Holdings for piracy, BSA lawyer Charles Gonsalves, of the Sydney-based firm of Mallesons Stephen Jaques, oversaw the case.

    “I generally handle cases for both Microsoft and the BSA,” Gonsalves told Mother Jones.

    But while the suit alleged that Toll illegally used copies of programs made by Lotus, Novell, Symantec, and Microsoft, Martin Dunne, Toll’s chief information technology officer, says the company settled by paying fines to only Symantec and Microsoft. And, Dunne says, other than keeping Symantec’s anti-virus software, the company has made a significant change: Toll only buys Microsoft now.

    According to a Novell official, Toll “offered to legalize on all Microsoft products if [the BSA] dropped the suit.” Both the BSA and Toll deny any impropriety. While a written agreement between Toll and Gonsalves does exist, neither party would reveal the terms of the settlement. When Gonsalves was asked if Microsoft ever paid for his handling of BSA cases, he chuckled and said, “That’s a confidential matter.”

  • In Slovenia, where 96 percent of all software is pirated, the head of the BSA office, Aaron Marko, is also Microsoft’s country manager. Marko says that because enforcement is difficult in the country’s court system, he offers discounted Microsoft software to companies caught pirating by the BSA. Does Marko see this as a conflict of interest, since he also supposedly represents other software firms? “BSA is trying to find the pirate. Then it is a question of marketing and product awareness to see who will get the legal market share,” he says. When asked which BSA members have local subsidiaries that do local marketing, Marko says only Microsoft and Oracle, which is not a direct Microsoft competitor.

    These allegations “raise questions as to whether the BSA serves the interest of its members or whether it serves its dominant member,” says James Love, director of Ralph Nader’s Consumer Project on Technology. And for the foreign companies, he says, “these seem to be stories of blackmail.”

    The BSA employs a team of more than 100 lawyers and investigators to find cases of software piracy—a crime it says costs the industry $11 billion a year. The BSA says it catches “thousands of cases a year,” many through its 55 piracy hotlines, the most famous of which urges employees to “Nail Your Boss” by calling.

    While the BSA won’t release its funding details, it does say that money comes from membership dues, which are based on each company’s software revenues. This is one way in which Microsoft dominates the BSA: Microsoft’s annual revenues, for example, are eight times that of Novell, its largest rival.

    In the future, Novell and Lotus say they will use their own in-house resources for anti-piracy efforts in Asia and Latin America.

    But other BSA members, while concerned about Microsoft’s role in the organization, aren’t quite willing to go their own way. Greg Wrenn, senior corporate counsel for Adobe, says his company has stayed with the BSA despite having had some uneasy experiences with Microsoft. For example, Wrenn says, the Microsoft attorneys who worked for the BSA refrained from going after big Microsoft clients caught pirating Adobe products—until Adobe prodded them.

    Wrenn says Adobe will stay in the BSA, pressuring the organization to play fair. But he acknowledges Microsoft’s upper hand. “If an attorney does Microsoft work and BSA work and never hears from another company besides Microsoft, he’s going to do the work for the guy who’s in his office every week,” Wrenn says.


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