Slush Funds, Litigation for Linux Advocates

Posted by tadelste on Jan 7, 2006 8:34 AM EDT; By Tom Adelstein
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Opinion: Microsoft cannot afford to lose in their Office Productivity Suite and their influence in Government. Microsoft executives have always referred to Office as their cash cow. They cannot let the OpenDocument Format kill the goose laying the golden eggs.

Secondly, if any governments switch away from Microsoft products, Redmond would lose the lynch pin of its upgrade revenue. So, they just cannot allow someone else to become entrenched where they hold all the keys. They're playing an interesting game in these two areas which few understand.

Microsoft doesn't play to win, they play to dominate. Taken a little further, that means put the other guy out of business. That's the equivalent of playing "not to lose". If you understand the subtleties of corporate contexts, the Redmond software company could finally see the pillars falling.

In July 2004, Robert McMillan reported in ComputerWorld:

Microsoft's Brazilian subsidiary has initiated legal proceedings against the Brazilian government official credited with developing the country's open source strategy, saying he defamed the software giant in statements published in the magazine Carta Capital.

In a court filing dated June 7, lawyers for Microsoft Informatica LTDA accused the president of Brazil's National Institute of Information Technology (ITI), Sergio Amadeu, of defamation and argue that statements attributed to him in a March 17 article have damaged the reputation of the company.

As an American, I could not imagine such an action taking place, even by Microsoft. I remember at the time wanting to hide my head, leave the country, change my name and all sorts of actions to diminish the shame. Having watched some of Microsoft's antics in the political realm, I believed they have few boundaries. Unlike most of us who tend to restrain ourselves in public, it seems Microsoft doesn't mind embarrassing themselves and other Americans.

But that's just a start. Microsoft also operates under guise of the BSA. That allows Redmond to look less aggressive. As the BSA, they have gone after governments for some years. According to a report around the same time as the court filing in Brazil, the BSA estimated 36% of the software used globally was pirated. They claimed that in the European Union the number was 37%. They said the average rate across Latin American countries was 63 percent and the middle-east at 56 percent. That's a lot of hidden money Microsoft can go after.

According to a report on C/Net :

In 2000, the Business Software Alliance conducted a raid and subsequent audit at the San Luis Obispo, Calif.-based company that turned up a few dozen unlicensed copies of programs. Sterling Ball settled for $65,000, plus $35,000 in legal fees. The BSA put the company on the evening news and featured it in regional ads warning other businesses to monitor their software licenses...

Humiliated by the experience, Ball told his IT department he wanted Microsoft products out of his business within six months. "I said, 'I don't care if we have to buy 10,000 abacuses,'" recalled Ball, who recently addressed the LinuxWorld trade show. "We won't do business with someone who treats us poorly."

"I became an open-source guy because we're a privately owned company, a family business that's been around for 30 years, making products and being a good member of society. We've never been sued, never had any problems paying our bills. And one day I got a call that there were armed marshals at my door talking about software license compliance."

The BSA had a program back then called "Nail Your Boss," where they encouraged disgruntled employees to report on their company...and that's what happened to us.

They attacked my family's name and came into my community and made us look bad. There was never an instance of me wanting to give in. I would have loved to have fought it. But when (the BSA) went to Congress to get their powers, part of what they got is that I automatically have to pay their legal fees from day one. That's why nobody's ever challenged them--they can't afford it. My attorney said it was going to cost our side a quarter million dollars to fight them.

If that's how it happens in the US, imagine what happens in countries with less compliance with the rule of law and/or human rights. Ed Foster of InfoWorld helped tie Microsoft and the BSA together based on operating policies. Essentially, Microsoft and the BSA may be separate entities in a de jure manner. But in a defacto manner they act as a joint venture.

Foster describes the joint effort between Microsoft and the BSA in this article. He writes:

Between the BSA's regional "truce" campaigns and Microsoft's innumerable marketing efforts cloaked in anti-piracy garb, a small business in a targeted area can find itself inundated with mail, e-mail, faxes, phone calls, and even radio and TV broadcasts with dire warnings that the software police are about to knock on their door.

As I've said before, the BSA truce mailings by themselves would constitute a fairly reasonable attempt to put the fear of Bill Gates into the hearts of those who are guilty of using unlicensed software without unduly alarming the innocent.

Unfortunately, however, the truce campaigns have become a Microsoft co-production, so recipients rarely get just the BSA flyer. They are likely to get one or more missives from Microsoft inviting them to participate in its own truce, and may also get a follow-up phone call from someone asking pointed questions about their computer installations. With the accompanying blitz of radio and TV ads plus stories in the local press about previous raids on a local business, it is no wonder that people feel as if they are under attack.
In another installment, Ed Foster writes:
Last week's revelation that the BSA's "truce" campaigns are tied to Microsoft's anti-piracy mailings raises questions about the software industry's compliance-enforcement tactics...

BSA truce campaigns offer letter recipients 30 days to "get legal" and avoid any penalties for past infringement...But when you add in the fact that Microsoft is double-teaming many of the truce recipients with one or more letters of its own, the truce campaign takes on a slightly different flavor.

Microsoft officials just confirmed that they also are conducting follow-up phone calls to some recipients of its mailings. Readers had complained about getting calls from Microsoft to "update our database" in which they were asked a lot of nosy questions about how many workstations and servers they have.

That's what happened to me. It occurred, coincidentally, when I began working on a senate bill for inclusion of free and open source software in my state's procurement process. The letters from the BSA and Microsoft looked identical. I just kept getting a letter or two a day for weeks.

I also discovered Microsoft's Web Safe team operating at eBay. My account was frozen and I couldn't sell software acquired to develop an Exchange Client Extension to let Outlook clients talk to Linux mail and groupware services. According to eBay, Microsoft had filed sworn affidavits saying I was selling pirated software. I cleared it up, but not without considerable cost.

The BSA and Microsoft Abroad

Andrew McLindon of Electronic News Ireland reported:

The Business Software Alliance has carried out a "significant" number of raids of Irish businesses since the start of 2002 in order to tackle software piracy.

A spokesperson for the BSA said it could not comment for legal reasons on whether prosecutions would follow as a result of these raids. The penalty for company directors whose company has been found to have engaged in software piracy is a fine of up to EUR127,000 or five years in jail.
AME Info reported that during an annual meeting in Dubai:
BSA has drawn up a strategic action plan targeting usage of illegal software in small- and medium-sized companies...The meeting was attended by BSA member organisations from across the Middle East, to discuss the highlights and achievements of BSA's anti-piracy campaign...[and] also discussed the efforts of government organisations like the Ministry of Information and Culture, Dubai Police, Abu Dhabi Police, as well as police departments in the other Emirates, for taking stringent measures in protecting IPR in the UAE.
Edu H. Lopez reported in Manilla Bulletin Online Philippines that:
The Philippines is the first league of BSA's aggressive campaign dubbed as "Right Click" that would bring the anti-Internet piracy educational campaign throughout Asia...BSA has a system or a web crawler that would help them detect if a certain subscriber of an ISP is illegally downloading software...

BSA director for anti-piracy in Asia Tarun Sawney has noted the growing problem of Internet piracy that affects BSA members.
Cordelia Lee of ZDNet Asia reported in June 2005 that the BSA was active in Malaysia:
According to a recent global software piracy study released by Business Software Alliance (BSA), piracy rates in the Asia-Pacific last year currently range from a high 92 percent in Vietnam and China, to a low 23 percent in New Zealand.

"We are pleased that the piracy rate (in Malaysia) has declined," said Ajay Advani, BSA Malaysia's committee chairman. "However, a piracy rate of 61 percent is still very high. There is a lot more work to be done."

On Microsoft's web site in Europe they show successful raids in Bulgaria, Croatia, Czech Republic, Egypt, Greece, Hungary, Israel, Ivory Coast, Jordan, Kuwait, Lebanon, Lithuania, Morocco, Netherlands, Nigeria, Oman, Poland, Romania, Russia, Slovenia, United Arab Emirates and others. Now, that's just in the Europe, Middle East and Africa(EMA)region.

One has to believe Microsoft and the BSA use tactics abroad that they would not dare use in the US. Unfortunately we have little information about their tactics with the exception of reports from individuals. But we do know more about Microsoft's Linux attack money.

Microsoft: Stop Linux at All Costs

Andrew Orlowski reported in The Register that Microsoft sharpshooter Joachim Kempin turned his guns on Microsoft's own OEM customers:
The States' remedy hearing opened in DC yesterday, and States attorney Steven Kuney produced a devastating memo from Kempin, then in charge of Microsoft's OEM business, written after Judge Jackson had ordered his break-up of the company. Kempin raises the possibility of threatening Dell and other PC builders which promote Linux.

"I'm thinking of hitting the OEMs harder than in the past with anti-Linux. ... they should do a delicate dance," Kempin wrote to Ballmer, in what is sure to be a memorable addition to the phrases ("knife the baby", "cut off the air supply") with which Microsoft enriched the English language in the first trial. Unlike those two, this is not contested.

The bullets aimed Spaghetti Western-style at the feet of the dancing OEMs translate to Microsoft withholding source code, according to the memo.

Many us of will never doubt that something happened after Michael Dell in his LinuxWorld 2000 West keynote affirmed Dell's commitment to Linux. In Orlowski's report he further explains:

Earlier memos described that it was "untenable" that a key Microsoft partner was promoting Linux. Kuney revealed that Dell disbanded its Linux business unit in early 2001. Dell quietly pulled Linux from its desktop PCs in the summer of 2001, IDG's Ashlee Vance discovered subsequently, six months after we heard Michael Dell declare his love of Linux on the desktop the previous winter.

Compaq was also mentioned in other memos, with Microsoft taking the line that OEMs should "meet demand but not help create demand" for Linux.

You might find an even more perplexing memo than Kempin's when you read about Microsoft's slush fund. Gregg Keizer writing for TechWeb tells us:

Just days after [another] Microsoft's snafu, comes news that the company will go to virtually any length to battle Linux in the lucrative operating system market.

According to reports published in the Thursday edition of the "International Herald Tribune," Microsoft is prepared to draw on an internal slush fund to sell its products at deep discounts, or at last resort, give them away, when it runs up against Linux in contests for big government and institutional contracts.

In internal memos written last summer and obtained by the paper, then top Microsoft sales executive Orlando Ayala [wrote]..."Under NO circumstances lose against Linux"

I doubt that any of us would doubt Microsoft's will to never lose to Linux. But what may seem disturbing to our readers appears to be the extent to which Microsoft can maneuver. Keizer writes further:

According to the report, Microsoft's strategy is to offer deep discounts, or more, when it looks like the company will lose contracts to Linux providers. "It is important that we have a way to address large PC purchases that involve low-cost/no-cost competitors in the education (and government) sectors, especially in emerging markets," Ayala said in one memo. The 'Education and Government Incentive Program,' the name tagged to the discount fund, was to be used "only in deals we would lose otherwise."

In response, Microsoft spokesman Jim Desler said that the incentive program mentioned in Ayala's memos was "developed to respond to a competitor dropping prices in those [geographic] areas." IBM, said Desler, was the competitor Microsoft was reacting to. "As a technology leader, we develop programs that allow us to compete."

If true, the discounting tactics sketched out by Ayala could raise eyebrows -- and more -- in regulatory agencies both here and in the European Union that have been scrutinizing Microsoft's headlock on the operating system market. Steep discounts such as those detailed in the leaked memos could run Microsoft afoul of regulations in Europe, the Herald Tribune report mused. Under European law, companies that have a dominant position in a market are prohibited from offering discounts designed to hinder competition.

So, how much is this slush fund? According to Michael Sinneck, Microsoft's executive for services, the fund had $180 million earmarked for discounting in 2003. We don't know much more about it as the usual fog descended on the episode. And while using such a slush fund may be legal for a monopolist in the US, supposedly European regulations would classify such a fund as anti-competitive.

When Will This Stop?

As a student of monopolies, the behavior of Microsoft seems congruent with those of the past. Granted, they may not have para-military organizations patrolling their oil properties like Standard Oil. They don't have the King's army behind them like the East India Tea Company (unless armed US Marshall's count). They do have this in common with IBM of the 1950s:"Paper Machines and Phantom Computers".

That's what Control Data Corporation called one of IBM's practices in its famous anti-trust case filed in 1968. Similarly, Judge Sporkin, the Federal Judge who refused to consent to a Microsoft-Justice Department settlement wrote:

"This Court cannot ignore the obvious. Here is the dominant firm in the software industry admitting it `preannounces' products to freeze the current software market and thereby defeat the marketing plans of competitors that have products ready for market. Microsoft admits that the preannouncement is solely for the purpose of having an adverse impact on a competitor's product. Its counsel states it has advised its client that the practice is perfectly legal and it may continue the practice. This practice of an alleged monopolist would seem to contribute to the acquisition, maintenance, or exercise of market share. . . .

Many of us wonder when the tactics of Microsoft might get them into a situation in which they can't buy their way out. As of the first day of 2006, that hasn't seemed to happen. I simply wonder if the FOSS community needs to keep their eye on the ball, take some action or we might otherwise lose GNU/Linux. Perhaps that's beyond some people's reality. I just don't know if Linux is in the "can't fail" situation so many people seem to believe. Maybe it is. I'm just not willing to ignore the risk.

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Linux Attack. bigpicture 5 2,817 Jan 4, 2006 11:57 AM

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