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  (Source: Universal Studios)
Massive electronics retailer Comet devoted a factory to unauthorized Windows XP and Vista Recovery discs

Microsoft Corp. (MSFT) on Wednesday struck a top UK electronics retailer with a stunning accusation.  In a press release it accuses the consumer electronics chain, Comet Group PLC, of being a "Tony Montana" of the software piracy world -- devoting an entire factory to and profiting handsomely off of its sale of illicit goods.

I. Is the UK's Second Biggest Electronics Retailer a Pirate Mastermind?

David Finn, associate general counsel, Worldwide Anti-Piracy and Anti-Counterfeiting at Microsoft comments, "As detailed in the complaint filed today, Comet produced and sold thousands of counterfeit Windows CDs to unsuspecting customers in the United Kingdom.  Comet’s actions were unfair to customers. We expect better from retailers of Microsoft products — and our customers deserve better, too."

The world's top operating system maker alleges that Comet actively sold personal computers bundled with unlicensed Windows XP and Windows Vista Recovery discs, which it printed at a factory in Hampshire, making them appear like the real deal.  Reportedly over 94,000 pirated copies were sold to consumers.

In its press releases Microsoft concludes by encouraging customers to "snitch" on suspicious retailer activity:

With an emphasis on education, engineering and enforcement, Microsoft seeks to protect its customers from counterfeiting and piracy — and ensure people get what they pay for. If customers ever question the legitimacy of their software, be it a shrink-wrapped product or recovery media, they are advised to visit http://www.howtotell.com to learn more and, if they have any doubt, report the suspicious software to Microsoft.

Microsoft Reading, Berkshire
Microsoft is based out of Reading, Berkshire in the UK [Image Source: Ghacks]

Microsoft currently employs approximately 2,000 people at its offices in Reading, London, Manchester, Endinburgh, and Cambridge.  The Reading location is home to Microsoft's UK base of accusations.

II. Comet Accuses Microsoft of Abusing Customers

While Microsoft paints comet as an "evil pirate", Comet sees things quite differently.

It boldly accuses Microsoft of abusing its customers and possibly breaking consumer laws.  In a short statement it writes:

Comet has sought and received legal advice from leading counsel to support its view that the production of recovery discs did not infringe Microsoft’s intellectual property.

Comet firmly believes that it acted in the very best interests of its customers.  It believes its customers had  been adversely affected by the decision to stop supplying recovery discs with each new Microsoft Operating System based computer.

The firm says it will "vigorously defend" itself before the UK's High Court -- a court somewhat akin to the lower U.S. federal circuit courts.

Supporters of Comet complain that Microsoft used to provide recovery discs for most of its laptops and desktops, but today pressures retailers to install recovery partitions instead and ship without a recovery disc.  In fact, Microsoft has cut off the supply of recovery discs for older operating systems.

Critics of this move point to the hard drive space wasted by the recovery partition and complain that the user could be forced to repurchase the operating system in the case of a full blown hard drive failure.

Windows XP
Comet is openly defying Microsoft claiming that it has the right to produce recovery discs that resemble those produced by Microsoft in the past, as Microsoft no longer supplies them to its customers. [Microsoft]

Microsoft, however, has argued that recovery discs are redundant and often lost.  Its perspective basically appears to be that that it doesn't want to have the discs and that as no law currently forces it to have them in the UK, that retailers should not be allowed to distribute illicit pirated copies of the discs.

While Microsoft may be technically correct from a legal perspective -- Comet has no right to reproduce its product without permission and masqerade it as a Microsoft distributed product -- its stance against recovery discs and decision to liken the printing to piracy is somewhat questionable.

After all, any user can and should make recovery discs to prevent having to repurchase their OS in the event of a catastrophic system failure.  But do so takes time, effort, and a bit of knowledge, so often users don't make recovery discs.

Microsoft isn't arguing that it's illegal for customers to make recovery discs.  It actually promotes that.  But it's fight against OEMs or brick and mortar retailers like comet going out and mass producing recovery discs as a consumer courtesy.

This is a curious move, given that the discs can't install Windows without an existing installation to repair and even if you could somehow trick the installer into running the process, you would still need a serial key, make the prospect of piracy unlikely.

It's more curious in that U.S. retailers have sold Windows XP/Vista recovery disks without reprimand, although its possible these large players ahd some sort of financial understanding with Microsoft.

III. Former Parent Says Comet Has "No Value" Anymore

Regardless of how badly Microsoft manages to mangle it in the UK federal court; the accusations are a stinging blow to Comet.  The UK retailer has a proud history, founded in 1933 as a battery retailer.

The company went through a period of dynamic growth in the 1990s, reaching a peak in 2005.  Since then, it has seen its profits slide.  

Part of the problem is that the company -- which has 250 stores in the UK -- has struggled to differentiate itself from rival retailer Currys who has 368 stores in the UK.  Comet attempted a rebranding in 2005, which cost it £20M (~$31M USD).

Things did not turn around and the situation is looking increasingly dire for Comet.  Profits are down to a mere fifth of what they were in 2004 and the corporation -- which always looked out for its employees -- has accrued a crippling amount of pension obligations.  Its pension plan is currently £39M (~$31M USD) -- or about four years of profits -- in the hole. 

French electronics giant Kesa Electricals plc. (LON:KESA) -- Comet's current parent company -- is rushing to try to dispose of the unit.  Reportedly it accepted a bid of £2 ($3.12 USD) (you didn't misread that) by OpCapita LLP, a private equity firm.

Comet store
Comet's struggles were highlight by its sale for £2. [Image Source: TJ Roadmarking]

Kesa agreed to retain responsibility of the pension fund and pay an additional £50M as an investment to settle the debt obligation and complete the sale.  It's clear that Kesa isn't thrilled about this money pit -- company chairman David Newlands states to The Guardian, "The £50m is categorised as an investment. We had to pay £50m to get the business away. We will write it off as having no value." 

OpCapita has agreed to spend £30M (~$47M USD) of its reserves and raise another £40M (~$62M USD) in financing to revitalize the laggard brand.

It is unclear who Microsoft expects to get money out of -- Kesa or OpCapita.  But what is clear is that new litigation could threaten the fragile deal and the long term survival prospects of Comet as a retailer.

IV. Microsoft Cracks Down on Piracy as it Faces Threat of "Free" Rival OSs

Microsoft has long shown mixed sentiments about software piracy.  Back at a 2007 Morgan Stanley Technology conference in San Francisco, Microsoft business group president Jeff Raikes infamously remarked, "If they're going to pirate somebody, we want it to be us rather than somebody else."

On the other hand Microsoft has also used a variety of tactics to try to combat piracy from discounts, to digital rights management, to lawsuits against illegitimate resellers Microsoft has tried to hack away at theft of its products at all parts of the piracy "food chain".

The operating system maker, who claims over a billion personal computers are using its software has been forced to soften its stance in nations like Romania and China where piracy is the government condoned status quo.  The Chinese government has been particularly vocal in its criticism of Microsoft's international anti-piracy efforts, complaining its software is "too expensive".

Microsoft takes a harder line stance in countries like the U.S. and UK, where intellectual property laws are firmer.

The OS maker, who also is a top player in the console gaming industry, the world's top browser maker, and the world's top productivity suite maker, is at somewhat of a crossroads in terms of the operating system market's general direction.

While PCs are still the primary computing device of choice for most people, Microsoft is seeing PC usage time cannibalized by smartphone usage -- a market where it has struggled.  As smartphones and tablets replace mobile devices it faces rivals with new business models -- like Apple, Inc. (AAPL) and Google Inc. (GOOG) who offer operating system upgrades free of charge to consumers.

Windows Phone v. Android
Windows Phone has struggled versus as Android, even as Android races to match Microsoft's OS deployment numbers, once thought to be untouchable. [Image Source: ZDNet]

If Microsoft cannot conquer this new market, it hopes to at least profit off the good fortune of its rivals, via intellectual property threats.  

Microsoft reportedly is currently pulling in more money courtesy of Android than it's making off of its own mobile offerings.  Microsoft has a long-standing licensing agreement with Apple, but their royalty structure has not been revealed.  Microsoft's approach of threats-and-fees seems to be thus far working better than Apple's attempts to ban Android outright.  Most Android manufacturers have bowed to Microsoft's licensing demands. [1][2][3]

V. Microsoft Looks to Repair UK Public Image After Sexual Harassment Scandal

One thing that may work against Microsoft should the case go before a jury is the company's languishing reputation in the UK.

The UK unit is working to rebuild its public image in the wake of a highly public lawsuit alleging abuse by a senior manager.  The suit claims that at a 2009 Microsoft global party held in Atlanta, Georgia engaged the UK's number two Microsoft executive -- Simon Negus -- kissed an unwilling female employee and making sexual advances on other female partygoers.

Microsoft terminated Mr. Negus after a £10M (~$16M USD) sexual harassment lawsuit broke, and sued him, attempting to recollect his hiring bonus.  With little to lose, Mr. Negus has taken to the courts painting a sordid tale of what he claims was sweeping impropriety at the party.  He comments "drunkenness and outrageous misbehaviour were rife", and adds that Microsoft fueled the chaos with booze, stating, "The alcohol made freely available in unlimited quantities included neat vodka which could be drunk from an ice fountain, and a very strong German liquor called Jagermeister."

Mr. Negus has reportedly implicated high ranking Microsoft executives in the U.S. of sexual harassment and misconduct.  While the identities of these executives are unknown due to the court proceedings being closed, sources hint that most of them are still working at Microsoft's Redmond, Wash. global headquarters.

While Mr. Negus's claims certain warrant a bit of skepticism given his disgraceful exit, numerous witness statements have corroborated his claims to some extent.  Testimony in the case reveals another senior level manager -- Steve Dunn -- also was actively sexually harassing female employees, even entering the women's bathroom "ridiculously drunk" midway through the party.  Mr. Dunn was a top Microsoft UK executive between 2006 and 2008.

At least some of the UK employees at the party, though, behaved chivalrously.  Two employees reportedly confronted Mr. Dunn over his persistent harassment of Emma Cloney, 42, Microsoft’s 'global alliance manager'.  The pair -- Jonathan Barrett, the financial services business chief at Microsoft UK, and Mark Dodds, director of the UK headquarter's 'special team unit' -- testify that they protected Ms. Cloney as she left the party, making sure the Mr. Dunn didn't lay his hands on her.

Microsoft scandal
Simon Negus (left), formerly second in command of Microsoft's UK operations is being sued by his former employer for sexual misconduct at a 2009 party against Zobia Chughtai (middle, left) and Martina Redmond (middle, right).  Mr. Negus has implicated high ranking Microsoft managers in the scandal.  Reported one manager --Steven Dunn sexually harassed Microsoft's head of global alliances, Emma Cloney (right).
[Image Source: BusinessWire, left; DailyMail, others]

The court that will be hearing the Comet case is the same civil High Court that's been hearing the sexual harassment proceedings, Microsoft's lawsuit against Mr. Negus, and Mr. Negus's countersuit against his former employer.

Sources: Microsoft, Comet, Guardian [sale of Comet], DailyMail [sexual harassment lawsuit]



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Hope things go Comet's way
By Indianapolis on 1/4/2012 12:58:41 PM , Rating: 5
I'm sure the legal arguments can go both ways, but I sure hope Comet prevails in this case.

Microsoft's push to stop including restore discs certainly appears to be an underhanded attempt to force people to purchase an OS in the event of a catastrophe. They know that most people will never bother making restore discs, and by the time they realize they need them, it may be too late. If somebody has paid for the OS, they should have the discs. Comet is providing a valuable customer service here.

I repair computers on the side, so I know from experience that a lot of people never make these discs. In some cases, they've had to buy a new OS.




RE: Hope things go Comet's way
By Theoz on 1/4/2012 1:48:46 PM , Rating: 2
If Comet is mass producing cds containing copyrighted microsoft code, than this can only really go one way - in favor of microsoft.

I agree with the rest of your points.


RE: Hope things go Comet's way
By kleinma on 1/4/2012 2:12:23 PM , Rating: 1
You can get recovery discs from the PC makers. They are the ones you bought the computer from if you are in a "need a recovery disc" situation. You are not a customer of MS, you are a customer of the OEM who happens to use an operating system by MS to power what they are selling you. MS does not supply recovery media to OEM users because they have no reason to. Blame the PC makers, not Microsoft. They license Windows, modify it to their OEM needs, and distribute it under an OEM license to the end user. They are the ones who should supply recovery means. They certainly can, they just don't to save money. The fact that comet was getting 100% profit from selling pirated discs, keys or no keys, means they are in the wrong.


RE: Hope things go Comet's way
By JasonMick (blog) on 1/4/2012 3:01:26 PM , Rating: 3
quote:
You can get recovery discs from the PC makers. They are the ones you bought the computer from if you are in a "need a recovery disc" situation. You are not a customer of MS, you are a customer of the OEM who happens to use an operating system by MS to power what they are selling you. MS does not supply recovery media to OEM users because they have no reason to. Blame the PC makers, not Microsoft. They license Windows, modify it to their OEM needs, and distribute it under an OEM license to the end user. They are the ones who should supply recovery means. They certainly can, they just don't to save money. The fact that comet was getting 100% profit from selling pirated discs, keys or no keys, means they are in the wrong.

I don't think this is entirely accurate. The situation is a bit confusing, given that most of the people reporting on it -- myself included -- don't live in Britain; and even the British publications are scant on details.

It sounds like they did NOT individually sell these discs, but merely handed them out with computers they built or computers they purchased from OEMs, that lacked recovery discs; or alternatively with valid licensed OS's that consumers purchased. The customer still needed the valid key that came with their system/OS purchase.

I think Microsoft is arguing that this became a selling point of their PCs/OS software and since it was bundled with them, accounts for some of the "millions" they made in PC/OS sales....

That's how I understand the situation.

I think the point here is, yes doing what Comet did without permission appears to be blatantly illegal, but the fact that Microsoft is essentially denying them the same privileges it's granting OEMs and customers is a bit odd, in that Comet appears to only have been trying to give a convenience, albeit a poorly legally thought out convenience.

I have yet to read a report that stated that Comet engaged in stand alone sales of recovery discs (say selling the recovery disc by itself for $10). If it did that, it was pretty stupid... but if it merely bundled them, it's still sort of stupid, but Microsoft would also be somewhat unreasonable in the latter case.

Now granted I'm a fan of the free market... I don't think the UK federal government/big brother should play nanny and force Microsoft to allow Comet to print recovery discs for bundled distribution. It's Microsoft's right to refuse.

But if that's indeed the scenario that's playing out, customers should take note and remember that kind of garbage when they're presented with a choice in the near future between say a tablet/laptop-minded Android variant (free) and a Windows operating system (paid). Of course convenience factors may trump such annoyance at Microsoft's policies, but if Microsoft accrues enough strikes with consumers, it could impact its sales, assuming valid alternatives eventually come along in the market (which would require a large app base -- like what Android and iOS currently have).

Current popular Linux distributions like Ubuntu and CentOS are great for scientific computing (which heavily uses distributed source code) or for basic net-top sort of use. But any sort of power use is simply not practical, given the lack of solid support for the best tools -- paid commercial apps like Photoshop (yes you can get CS5 to run on Ubuntu if you try really hard and use Knoppix but most customers don't want that much pain and annoyance; and yes there is GIMP, I've used GIMP, but GIMP is no Photoshop)... That's merely one example, but it's illustrative of why Microsoft for now is able to do whatever it wants and customers essentially have to put up with its poor decisions, should it make poor decisions.


RE: Hope things go Comet's way
By Trisped on 1/4/2012 3:45:46 PM , Rating: 2
While things do not seem clear from the American perspective, Comet must have been doing more then just giving away recovery disks with the computers they sold. After all, you can get a recovery disk made from your new computer at Office Depot, Best Buy, Staples, and every other computer store in the US, though you might have to pay $10-$40 for the disk.

From your article it seems Comet was copying disks and distributing them rather then using the software installed on the computer (either built into windows 7 or added by the OEM) which is what is suppose to be done.

Having worked in PC sales I can say there are a lot of things which can go wrong with making copies of on recovery disk rather then using the built in utilities (disk does not have the correct license, software, drivers, etc.).


RE: Hope things go Comet's way
By Samus on 1/4/2012 5:34:07 PM , Rating: 2
HP charges $40 for a recovery kit for any of their PC's.

It's cheaper to make the discs yourself, but more expensive to opt to buy a whole new license from Microsoft.


RE: Hope things go Comet's way
By JasonMick (blog) on 1/4/2012 6:05:26 PM , Rating: 1
quote:
HP charges $40 for a recovery kit for any of their PC's.

It's cheaper to make the discs yourself, but more expensive to opt to buy a whole new license from Microsoft.

The issue, it would seem, is possibly that Microsoft gets a cut of that HP recovery kit's$40, but wasn't getting any similar cash kickbacks from Comet's bundled packages or perhaps individual sales.

That may be why Microsoft sued in this case... Just a hypotheses at this point, though.


RE: Hope things go Comet's way
By sigmatau on 1/4/2012 8:57:10 PM , Rating: 3
I love the recovery partitions but,

A disc in hand is better than two recovery partitions in the bush.


RE: Hope things go Comet's way
By Reclaimer77 on 1/5/12, Rating: -1
RE: Hope things go Comet's way
By kleinma on 1/4/2012 9:05:52 PM , Rating: 2
Samus, that is an interesting price figure. How far did you reach into your ass to pull it out?

I can get a set of recovery discs for a Win7x64 brand new DV7 series laptop from HP, shipped, for $16.00. That is IF I don't create a set of recovery discs when the machine is new and gives me the chance to, and need to actually order them. If your drive goes on you in warranty, and you didn't make recovery discs, they ship you a set for free with the replacement drive and overnight shipping. So you people can put your pitch forks and torches down, Comet did something illegal and against the license. They probably knew it wasn't legal too. They had to at least question the legality of it. They sure didn't bother to check with MS if it would be ok first, did they?


RE: Hope things go Comet's way
By Aloonatic on 1/5/2012 8:08:34 AM , Rating: 2
It's great that you're happy to possibly have to pay twice for something.

Companies like MS really must love suckers like you :o)


RE: Hope things go Comet's way
By kleinma on 1/5/2012 9:51:30 AM , Rating: 1
You are clearly another uneducated person who loves to rag on MS while typing on your overpriced macbook pro feeling good about yourself.

As stated several times already in the comments here, Microsoft does not make money on this. Microsoft does not dictate to HP, Dell, or anyone else how they should distribute recovery media, or at what price. Recovery media is not only a Windows install disc, it is a system image for a specific machine.

I did not say I am happy to pay for something twice, (nor would I ever have to). I was stating that someone saying "HP charges 40 dollars for recovery discs" is a total outright lie that they fabricated to try to make the situation look worse to people who read internet blog comments and accept them as fact.


RE: Hope things go Comet's way
By kleinma on 1/4/2012 8:56:56 PM , Rating: 2
Not for nothing Jason, but the quote from your own article does make it sound like they were in fact selling them.

"As detailed in the complaint filed today, Comet produced and sold thousands of counterfeit Windows CDs to unsuspecting customers in the United Kingdom."


By Indianapolis on 1/4/2012 6:20:28 PM , Rating: 4
quote:
You can get recovery discs from the PC makers. They are the ones you bought the computer from if you are in a "need a recovery disc" situation.


While this may be true in many situations, it usually not free, and is never convenient. It can be a great inconvenience waiting a week or so for the discs to be mailed to you. Comet was trying to save their customer the trouble of jumping through pointless hoops, and I applaud them for that.


RE: Hope things go Comet's way
By BZDTemp on 1/5/2012 6:10:45 AM , Rating: 2
I disagree since that making CD's should be no different copyright wise than making hard discs with copyrighted Microsoft code on them.

Regardless of the outcome it won't change that Microsoft is evil and will try every trick to get things their way.


RE: Hope things go Comet's way
By drycrust3 on 1/4/2012 2:21:12 PM , Rating: 2
quote:
They know that most people will never bother making restore discs, and by the time they realize they need them, it may be too late.

My recollection of Windows (I've now used Ubuntu for several years) is that even if you wanted to make a backup disk you couldn't, or that you couldn't without use of some third party software of doubtful origin.
When one considers things like estimates that 90% of the software sold in China is pirated, the situation in the UK is really quite trivial, especially as both XP and Vista are more "end of life" products as far as Microsoft are concerned, and there could easily be difficulty in obtaining genuine disks from Microsoft.
Another problem is Microsoft's own policy of only supporting the official language version of Windows in a country, which discriminates against native speakers of other languages in that country. This forces native speakers of other languages to more of less use pirated versions of Windows.


RE: Hope things go Comet's way
By kleinma on 1/4/2012 2:26:11 PM , Rating: 2
Windows 7 has full image backup built right in. If you have an external hard drive, you can make a full image backup of windows and all your settings/files, and restore the entire image in the event you need to replace a drive or things get screwed up.


RE: Hope things go Comet's way
By Cheesew1z69 on 1/4/2012 4:04:16 PM , Rating: 2
And most companies put on a software to assist in the creation of the recovery disk, and are PROMPTED when they first setup the computer. If they aren't willing to spend 30 min to an hour to make the recovery disk, that's on the customer. Not the PC maker nor MS.


RE: Hope things go Comet's way
By priusone on 1/5/2012 9:39:57 AM , Rating: 2
Lets turn our IQ's down to freezing level, and consider this for a minute. A customer finally decides to get a laptop. Then get a mouse, an mp3 player, probably a laptop cooler, and get suckered into buying Norton. Note how I didn't sat a pack of blank CD's or blank DVD's. These same people do, however, keep most of the boxes their hardware comes in.

I'd be willing to bet that Comet sold genuine Windows software for those wanting to upgrade or build a custom machine, and they sold the copied discs.

What do I do when a friends hard drive dies and they don't have recovery discs? I fire up a utorrent and get a copy of Windows. Why in gods name is the Internet full of countless pirated movies, but I can't download a few ISO's to help my friend out? While HP, Dell, Toshiba, etc benefit from saving bandwidth, it still is annoying. And chances are, Microsoft would prevent OEM's from allowing free downloads, even if you were required to punch in the Product ID first, for verification.


By NellyFromMA on 1/5/2012 10:31:02 AM , Rating: 1
Consumers DO need a way to restore their PC... They also DO have the key right on their machine and in essence and OEM license specific to that machine so they LEGALLY can restore the system.

With that said, under NO cuircumstance should any company be allowed to generate counterfeit items to be sold from any other company and that is clearly wrong. Directly or indirectly, comet profits from this. The discs are printed with an anti-counterfeit logo on them.... circumventing this is a clear violation, no?

Seems obvious to me...

Dell (in the states at least) to this day still provides recovery discs... I assume OEMs are able to, whether by subscribing to a Microsoft sponsered program or some other means.

Piracy is a real problem for MS, they are VALID to pursue this. Anyone who denies that is choosing to ignore the facts.


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads














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