Suit alleges pirates are using auction sites

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The Software and Information Industry Association (SIIA) blew the whistle Wednesday on what it says is a new and growing type of software piracy that has been made easier by the combination of inexpensive CD-RW (compact disc-rewritable) drives and data gathered at auction Web sites.

SIIA filed separate lawsuits against two men, alleging they sold illegal copies of software products to people who had bid for them at auction Web sites, said Peter Beruk, vice president of the antipiracy division at SIIA. Named in the suits are Michael Chu of Los Altos Hills, California, and Christopher Julian Kish of Chicago, both of whom are accused of violating the U.S. Copyright Act, Beruk said. If found guilty, each of the defendants faces a fine of up to US$150,000 for each title infringed upon.

SIIA, a Washington-based trade association with more than 1,000 member companies, said it gathered evidence about Chu and Kish's activities in a sting operation launched late last year in which SIIA officials posed as buyers at auctions sites.

The suit against Chu, filed in U.S. District Court for the Northern District of California, alleges that he sold software titles with a retail value of nearly $55,000 for $144. The suit against Kish, filed in U.S. District Court for the Northern District of Illinois, alleges that he sold software titles with a retail value of about $5,600 for $50.

"We sent just under $200 and got nearly $60, 000 worth of illegal products," Beruk said.

William M. Stevens, a partner with the Chicago law firm McBride Baker & Coles, confirmed that he filed the cases Wednesday on behalf of the SIIA. Stevens said the cases involve software published by Adobe Systems Inc., Silicon Graphics Inc.'s Alias-Wavefront division, and Web development toolmaker Macromedia Inc. Kish is charged with selling pirated copies of 11 software titles, while Chu is charged with selling illegal copies of 21 titles, Stevens said.

Kish has an unlisted phone number and could not be reached for comment. A phone message left for the only Michael Chu listed in Los Altos Hills, California, was not returned.

The association plans to file lawsuits against three other individuals who sold software to SIIA officials during the sting. In total, SIIA spent $900 for software with a retail price totalling nearly $175,000 in investigating the five cases. In addition, SIIA has information about other cases that it plans to turn over to the U.S. Federal Bureau of Investigation for possible criminal charges, Beruk said.

The lawsuits against Chu and Kish are the first civil cases filed by SIIA against suspected pirates who find customers by sending e-mail to people who bid on software at Web auction sites. SIIA decided to take civil action to draw attention to the problem, which the association says is mushrooming, especially with the falling price of CD-RW drives and the growing use of Web site auctions. SIIA also published a white paper on Internet auction piracy on Wednesday.

Beruk said the amount of money that software companies lose through this method of piracy easily reaches into the millions of dollars, and the sellers can make thousands in as little as a week. One seller, for example, bragged of having filled 114 orders for $39 each in one week for a total of more than $4,400, Beruk said.

"It's not a bad money-making operation, but we're not alleging at this juncture that the people we are (suing) were making that much money," he said.

SIIA decided to set up the sting after doing a survey in April to determine how much pirated software is sold directly to bidders who are contacted by sellers after they are outbid at an auction. It reviewed Web auction sales of Adobe, Macromedia, Corel Corp. and FileMaker Inc. products and found that 91 percent of such sales involved illegal copies. In its definition of illegal, SIIA officials counted backup copies of software as well as CD-RW software, regardless of whether the owner had a license or not.

During the sting SIIA officials scanned Web sites of eBay Inc., Yahoo Inc., Microsoft Corp.'s MSNBC.com and smaller auction sites for software sales. After the SIIA official was outbid, he would receive an e-mail from a seller offering software for less than his lowest bid. Beruk said this is a form of "e-mail stalking" that bidders are exposed to because their e-mail address becomes public when they participate in an auction.

The SIIA white paper says software sellers manipulate the rules of Internet auction sites to datamine e-mail addresses of bidders on software, creating a direct marketing channel. EBay has tried to counter this by making it impossible to search for certain words, such as backup and CD-RW, in the software category. Yahoo is considering doing the same, Beruk said.

The SIIA white paper also shows how suspected pirates are using Internet auctions to turn better than a 90 percent profit from sales of illegal software products, and how they are reaching thousands of new customers with little effort or cost. Pirates also enjoy virtual anonymity through multiple screen names, the paper says.

The white paper provides resources for consumers to help them recognize illegitimate software offered on auction sites, and includes real examples of "stalking" e-mails sent directly to bidders after their addresses were gleaned from auctions. It also explains the risks consumers face when purchasing pirated software.

The white paper can be viewed online at http://www.siia.net/sharedcontent/piracy/news/auction2001.pdf . SIIA, in Washington, can be reached at +1- 202-452-1600, or found on the Web at http://www.siia.net.

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