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Source: E-Commerce Times

Posted on May 27, 2001

      Because software piracy and online fraud can cost companies millions in profits and lost goodwill -- and because government agencies do not have the resources to keep pace with cybercriminals -- many high-tech companies have formed their own investigative units to catch Internet con artists.

      For conventional law enforcement, business crimes are simply "lower on the totem pole" than murder and personal injury, according to Sean Walsh, deputy counsel for the New York City Inspector General's Office.

      Walsh told the E-Commerce Times that some large law enforcement agencies are reaching out to the private sector because of the tremendous amount of manpower required to investigate high-tech crimes.

      "I think there is a symbiotic relationship," said Walsh, who is also president of the High Technology Crime Investigative Association (HTCIA).

Netting Pirates

      One company that has been aggressive in tracking down pirates who use the Web to sell counterfeit software is Microsoft (Nasdaq: MSFT). The Redmond, Washington-based corporate giant began strengthening its Internet anti-piracy efforts about three years ago, according to Microsoft corporate attorney Tim Cranton.

      "The anonymity and broad access of the Internet makes online fraud a serious issue worldwide that causes both consumer and economic harm," Cranton told the E-Commerce Times.

      According to Cranton, test purchases made by Microsoft indicate that over 90 percent of the Microsoft software sold online is counterfeit or infringes upon the company's intellectual property rights.

      Over the past two years, Microsoft has worked with Internet service providers (ISPs) and major online auction houses to take down more than 88,000 online auctions and Internet sites offering illegal and/or counterfeit Microsoft software worldwide, Cranton said.

Crooks in Net Crannies

      "Sophisticated counterfeit product is the work of savvy and well-funded criminals who understand that software counterfeiting represents a low legal risk and very high profits -- relative to other more nefarious criminal endeavors like drug running," Cranton said.

      To combat online piracy, Microsoft uses software that scans the Internet 24 hours a day looking for Internet sites or auctions offering illicit copies of its products. The scanning software has helped Microsoft investigators identify more than 500 illegal sites in a single day, the company said.

      Once Microsoft targets a potential pirate, the company will make a test buy to determine whether the software being offered is in fact counterfeit. Next, Microsoft sends a cease-and-desist letter requesting that the alleged pirate stop selling counterfeit software. At that time, Microsoft also notifies the hosting ISP or Internet auction of the proposed sale of counterfeit software.

      "Microsoft has found that the notices sent to ISPs and auctions sites regarding illegal activity on Web sites have been effective and sites are promptly shut down," Cranton said. "Legal actions are a last resort, but sometimes necessary in cases where the distribution of illegitimate software on the Internet persists."

Auction Watch

      Online auction houses have also stepped up their efforts to catch scam artists. According to the U.S. Federal Bureau of Investigation (FBI) and the Federal Trade Commission (FTC), Internet auction fraud is the No. 1 con game on the Net.

      About three years ago, eBay (Nasdaq: EBAY) started up its own investigative unit to review complaints against users of its site, eBay spokesperson Kevin Pursglove told the E-Commerce Times.

      The unit was created, according to Pursglove, to "address issues being raised by our users and to be proactive and reach out to law enforcement."

      How eBay proceeds with a consumer complaint of fraud depends on the case, Pursglove said. In deciding how to go forward, the company considers factors such as the number of complaints received about a particular user and the dollar amounts involved.

Different Strokes

      If the company receives a single complaint about a transaction, and both the buyer and the seller have had positive feedback posted by other eBay users, chances are the company will encourage the parties to work the dispute out. However, if a large number of eBay users complain about one person failing to deliver as promised, then eBay is likely to bring in law enforcement.

      In addition to auction fraud cases that involve non-delivery, eBay also investigates cases of shill bidding, or cases in which an individual or a group of individuals artificially inflate online auction bids.

      Although Pursglove declined to comment on cases currently investigated by eBay, it was reported in April that the auction giant was investigating an alleged fraud involving the sale of over $400,000 in gold and silver coins and bullion, which were allegedly never delivered to winning bidders after payment was received.

      Pursglove said that only one out of every 40,000 auctions on eBay is fraudulent.

Calling the Cops

      Once a company has gathered evidence to substantiate a misdeed, it's time to call the cops.

      "We have no power to arrest," Pursglove said. "All we can do is cooperate with law enforcement."

      Walsh said that most large-scale law enforcement agencies, including the FBI, review the data gathered by companies in piracy cases and then make their own test buys to confirm the reported piracy.

      In some instances, according to Walsh, the agencies will request financial assistance from the company involved to make a buy because the law enforcement agency has no money in its budget to purchase counterfeit software.

Getting Civilized

      Companies might choose to bring civil suits against suspected pirates, instead of pursuing criminal action, because the civil penalties are "far more effective," according to Walsh.

      Microsoft corporate attorney Mary Jo Schrade told the E-Commerce Times recently that a single, intentional copyright violation could cost a violator a $150,000 fine and that the willful violation of one trademark could carry a $1 million penalty. However, intellectual property attorneys agree that penalties in those ranges are rarely awarded for intellectual property infringements.

Not Talking

      Although some organizations are eager to talk about their investigative efforts, others are more reticent.

      "We don't talk about those kinds of things," spokesperson Bill Curry of Amazon.com (Nasdaq: AMZN) told the E-Commerce Times when asked about the Internet behemoth's online investigative efforts.

      Amazon's loose-lips-sink-ships policy underscores how, even as more is revealed about private investigations on the Web, a great deal of online policing remains secret.

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