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Software Companies Sound Alert As Counterfeiters Fool More Buyers

Investigators estimate that piracy costs industry billions in lost sales

The underworld has a new kind of crook: the software counterfeiter.

In the past year, counterfeit copies of dozens of popular computer programs have been popping up on store shelves. The fakes are good enough to fool retailers.

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''This is not the back streets of Hong Kong,'' says Anne Murphy, a Microsoft attorney investigating software counterfeiting. ''We have an indigenous counterfeiting industry in the United States.''

''Everyone believes there's no problem in the United States,'' adds Ron Barker, a former piracy investigator and now spokesman for Novell Inc., the Provo, Utah, manufacturer of the leading networking software for desktop computers. In fact, so much software is sold in the US that overall losses dwarf other countries.

Or at least they appear to.

Counterfeiting losses are hard to estimate. Overall software piracy - which includes illegal copying of software for friends and colleagues as well as outright counterfeiting - cost the software industry nearly $2.9 billion in US sales last year, according to estimates by the Business Software Alliance (BSA), a Washington, D.C., trade group. That's $800 million more than the No. 2 country for piracy: Japan.

So far, much of the activity is in California. For example:

* This month, investigators for the Los Angeles district attorney arrested a computer-software dealer and seized some $1 million of illegally copied software. The district attorney alleges that the dealer, Thomas Nick Alefantes, is ''Captain Blood,'' a counterfeiter who has operated for at least five years.

* This summer a federal court issued preliminary injunctions that barred five California companies from selling any more counterfeit copies of software named in the suit. The suit, initiated by the Software Publishers Association (SPA), marks the first time the association has taken legal action against alleged counterfeiters. ''It's a growing problem,'' says Peter Beruk, litigation manager for the SPA, the principal trade group representing the software industry.

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For several years, software counterfeiters have churned out fake copies of operating systems and graphical interfaces, especially the DOS and Windows programs from Microsoft. Now counterfeiters are replicating other software programs. Mr. Beruk says he has seen counterfeits of some 20 titles. ''It's not a lot, but a year ago we weren't seeing this. My suspicion is that it's going to go up,'' he says.

The counterfeit operations are not only branching out, they're getting more sophisticated. Instead of making one-by-one copies of software on easy-to-spot recordable disks, illegal shops stamp out the optical disks just as legitimate software companies do. Fake packaging has become virtually identical with the real thing.

At the recent COMDEX computer show here in Las Vegas, for example, the BSA displayed several counterfeit programs next to originals. The fakes were hard to pick out. Counterfeiters now copy even the manufacturers' certificates of authenticity, the hologram, and special imprinted tape called the ''confirm label.''

''This is rough,'' complains Ms. Murphy of Microsoft, holding up a fake white certificate of authenticity for Microsoft DOS next to an authentic green one. Seeing them side by side, a user might distinguish that the fake hologram is not as clear and the confirm label not as expertly printed as the original. But in a store, no user - not even a dealer - would likely tell the difference.

In the past year alone, a couple of police raids have netted counterfeit software that Microsoft values at $20 million. Among the items recovered were several thousand fake Microsoft holograms. Microsoft says it has information that two hologram companies were approached by counterfeiters who wanted 2 million fake holograms for Microsoft DOS and Windows software.

Once the software gets sold into retail channels, it can fall into anybody's hands. Two of the three presidential campaigns in 1992 found that they were using counterfeit software, says Harrison Colter, an attorney for Novell who is responsible for intellectual-property litigation. Mr. Colter declined to say which two campaigns were involved.

''It's becoming a bit of a global industry,'' adds Robin Burton, director of European public affairs for BSA. Especially in Eastern Europe and in the Far East, the counterfeiters of music CDs are turning to software piracy because the profit margins are higher, he adds.

''There's a good profit in it and low risk,'' says Pat McPherson, a senior investigator for the Los Angeles district attorney's office. It's ''difficult to get manpower to work these cases.'' Drugs and violent crime have a higher priority, he adds.

To try to prevent counterfeiting, the software alliance is launching an approved-software-dealer program that aims to get legitimate dealers to sign a code of ethics and pledge to sell only legal software. Already in its initial phase in Europe and planned for Asia by the end of the year, the program should roll out in the US in early 1996.

The program will also include brochures for consumers to help them spot counterfeit software. One tip from counterfeit experts is to flip through the software manual. If the printing looks cheap, especially if the graphics are cloudy or indistinct, it's possible the software might be fake.

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