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Vol. 24 No. 7 — Jul/Aug 2007

For several years, SIIA, the trade organization that represents more than 800 software and digital content companies, has been working to address the growing problem of illegal software sales on online auction sites such as eBay. These sales not only impact software publishers, but they also hurt businesses and consumers, and they threaten the credibility and viability of online auctions. SIIA has been monitoring auction sites and using its best efforts to remove offending auctions, either through the Digital Millennium Copyright Act’s (DMCA) notice-and-takedown process or eBay’s VeRO (Verified Rights Owner) program.

Despite our vigilance, auction piracy remains an enormous problem—SIIA’s research conservatively estimates that more than 90 percent of software sold on eBay is being sold illegally. Of course, this problem is not unique to software. The Federal Bureau of Investigation (FBI) reported in 2006 that more than 60 percent of all complaints referred to its Internet Crime Complaint Center involved Internet auction fraud.

As a result, SIIA recently launched a new program to combat the sale of illegal software on auction sites such as eBay. Under SIIA’s Auction Litigation Program (ALP), SIIA monitors popular online auction sites, identifies individuals or groups selling illegal software, and—for the first time—sues those pirates on behalf of the association’s member companies.

Through this aggressive new program, SIIA intends to increase effective deterrence on auction sites by demonstrating serious legal risk in selling illegal software. SIIA also aims to increase awareness among auction site software buyers of the dangers of piracy and how to identify pirated software.

SIIA already filed five lawsuits in the U.S. District Court for the Central District of California, three of which have settled. To date, all of the lawsuits involve instances of software pirated from Symantec and McAfee sold through eBay auctions. SIIA plans to file more lawsuits on behalf of its other members, companies such as Adobe, FileMaker, and Quark.

Taking a Hard-Line Stance

SIIA’s program takes a hard line against the eBay sellers who are most actively ripping off software makers and defrauding consumers. SIIA’s team of investigators targets flagrant auction-site pirates, as determined by long-term repeat activity or by short-term high volume. They work to identify offenders and then conduct investigations by making test purchases to verify the product is pirated, handling the evidence in a proper chain-of-custody procedure, and providing a complete investigative report on the pirate. SIIA works closely with its members to distinguish illegal software from legal software, and members are able to provide additional intelligence or handle piracy verification themselves.

After approval is granted by the affected member(s), SIIA authorizes its outside legal counsel to file a complaint against the person conducting the illegal auction. Often, no notice and takedown letter or other correspondence is sent to the seller prior to filing the complaint.

In its most recent action, SIIA settled claims for infringement of Symantec’s copyrighted software in the case of Symantec, et al. v. Chan et al. On behalf of member company Symantec, SIIA accused the defendant of infringing Symantec’s copyrights and trademarks in Norton PartitionMagic, Norton AntiVirus, pcAnywhere, Norton SystemWorks, and other software by reselling OEM (original equipment manufacturer), unbundled, counterfeit, and other copies of that software not authorized for resale.

At the time of the suit, SIIA had information that Chan, who was doing business under the eBay user ID “Gracedirect,” had completed more than 3,000 auctions on eBay, including sales of other allegedly pirated Symantec and McAfee software. As the case progressed, SIIA was able to confirm the volume and illegal nature of the software. Eventually, the case was settled when the defendant agreed to pay $205,000 and to provide other considerations.

Prior to the Chan case, SIIA had settled a case against Kevin Liu and G. T. Tian when the defendants agreed to pay a total of $100,000 in damages as well as to stop selling illegal software. They also provided SIIA with records identifying their customers and suppliers of the pirated software. In the suit, SIIA accused defendants Liu and Tian of infringing the copyrights and trademarks owned by Symantec in pcAnywhere, Norton SystemWorks 2005 Premier, and Norton Ghost.

Liu and Tian used various eBay seller IDs and completed 8,000-plus auctions on eBay over the past 2 years. The defendants sold the software, which had a retail price of more than $750,000, for about $123,000. Like many other sellers of illegal software, Liu and Tian were highly organized and operated dozens of different eBay identities, easily circumventing eBay’s user registration fraud prevention. They acquired their products from other seemingly legal sources, those that also now find themselves being pursued by SIIA.

These cases, like others in the SIIA ALP, demonstrate the ease of circumventing eBay’s current fraud prevention protocols and the many traps for unwary consumers. Those selling illegal software on eBay rarely provide their true identities or contact information to eBay or PayPal. They often set up multiple accounts and multiple “storefronts” to continue their activities for long periods of time, even after eBay may have terminated these accounts.

Ways to Protect Yourself

Despite the complex tactics used by illegal software sellers, consumers can take steps to protect themselves. One of the most important is to simply use common sense about the price: If it seems to be too good to be true, it probably is. Consumers should also carefully review the seller’s reputation and activity; simply because he or she is a “power seller” doesn’t imply legitimacy. Look at the comments from other users, and look at the seller’s other auctions. If the seller has placed 10, 20, or more auctions for the exact same software at an unbelievable price, there’s a good chance it is illegal. SIIA is continually working to educate consumers on auction-site fraud (more information is available at www.siia.net).

At first glance, the harm to the software industry from these types of auction-site fraud may not be apparent. But in fact, auction-site piracy is a huge problem for the software industry. Although the value of each individual software program sold in the cases brought by SIIA—if bought from an authorized reseller—is often $100 or less, these auction sellers are often responsible for hundreds or thousands of auctions with one or more software products per auction, putting the total value of the software in the tens of thousands—perhaps even the hundreds of thousands
—of dollars.

As additional targets are identified and approved by SIIA software and content company members, SIIA will be filing suits against these illegal eBay sellers on a regular basis. Unfortunately, this type of continuous, vigilant effort is necessary to protect software publishers and consumers.

Microsoft Joins in the Battle Against Piracy

SIIA isn’t the only one getting tough with people selling illegal software on auction sites. Since last summer, Microsoft has been suing individuals and companies for selling pirated software on eBay or other online auctions around the world. Suits were brought in the U.S., Germany, the Netherlands, France, and Britain, as well as Argentina, Australia, Belgium, Korea, Mexico, and Poland.

Other software publishers are also taking action. Most recently, in the FileMaker v. Simpson case on May 30, a jury in U.S. Federal District Court in Santa Ana, Calif., concluded that the defendant had been selling pirated FileMaker software and awarded FileMaker $380,000 in damages. The other defendants in the case were smart: They settled with FileMaker prior to the trial and, as a result, paid more than $200,000 in total damages. Bryan Simpson, however, decided to try his luck with a jury trial despite his profits and a large volume of sales (he conducted 14,000-plus eBay transactions over the past few years). The jury found Simpson liable on two counts of willful trademark infringement, two counts of willful copyright infringement, and one count of trafficking in counterfeit labels.

The Department of Justice is also getting into the act; eBay sellers are now finding themselves having to pay huge civil damages as well as facing potential time in jail. On April 26, Eric Barber, Phillip Buchanan, Wendell Davis, and Craig Svetska pled guilty in U.S. District Court in Milwaukee for selling counterfeit Rockwell Automation computer software on eBay in violation of criminal copyright laws. A look at their actions helps to make clear just how dramatic this problem is:

• Barber admitted that in 2003 and 2004 he conducted at least 217 auctions in which he sold the software with a retail value of $1.4 million for a personal profit of about $32,500.
• Buchanan admitted that in 2004 he initiated at least 67 auctions on eBay in which he sold more than $2 million of the software for a personal profit of about $13,100.
• Davis admitted that he conducted at least 53 auctions on eBay in which he sold $8 million worth of the software for a personal profit of about $17,000.
• Finally, Svetska admitted he conducted at least 376 auctions on eBay in which he sold $7.6 million of the software for a personal profit of about $59,700.

Prior to these pleas, there were two other auction-site convictions in the Eastern District of Michigan and another in the Southern District of Indiana.

James Thomas, one of the men convicted in Michigan, was sentenced to 5 months in custody and 5 months in home confinement. Thomas admitted that he purchased the counterfeit software through eBay; he duplicated the software and then resold it to other eBay users. In 49 separate eBay auctions, he received more than $14,625 for selling software with a retail value in excess of $1 million. Thomas said that he knew it was illegal for him to sell the software, but he did so because “it was easy money.”