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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 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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By quiksilvr on 1/4/2012 1:12:43 PM , Rating: 0
They want them to upgrade to Windows 7, which they should for the following reasons:

1) It works with older systems really well, even those with Pentium M or Pentium 4 processors.
2) Its more secure and more stable.
3) In many cases, it actually performs better.
4) If you are going to pay for recovery discs, you might as well pay a little more and just get Windows 7.

Technically Comet isn't doing anything wrong (except maybe Vista discs, *shudders*) but it is clear that since the product is no longer being sold or supported, it shouldn't be brought back from the dead. Just spend the $100 and get Windows 7. If it can fix my old POS Dell to the point where it can play 720p YouTube without exploding, it's worth the investment.

By Breathless on 1/4/2012 1:46:38 PM , Rating: 3
You are missing the point.

The fact that they are not giving customers an option to get the necessary media to reinstall / repair the operating systems that they sell us forces customers to either:

A) "pirate" the iso images of the OS or ERD commander discs that they are not supplied with in the first place or happen to have misplaced

B) Contact a technician, which will more than likely need to resort to choice A.

C) Re-buy the operating system from a store, which is actually giving us the physical media... (or upgrade)

D) Contact the manufacturer assuming they are under warranty.

Hard drives go all the time... If a persons hard drive goes in the scenario that Microsoft has forced onto people, they are out of luck since their recovery partition will be gone. Don't get me wrong, since I am a tech myself I have no conscience issues about both doing choice A, and also taking a customers money to do the work for them since they are provided with no other avenue but to seek my help... but it doesn't mean its "fair" for the consumer to not have some easy option of re-installing their OS on their own under the above proposed scenarios. "Just upgrade" is not acceptable.

By Just Tom on 1/4/2012 2:12:56 PM , Rating: 2
Most manufacturers offers system restore discs for less than $20. The situation might be different in the UK but if it is not then the remedy for a hard drive failure is a lot less severe than what you describe.

By Breathless on 1/4/2012 4:01:57 PM , Rating: 2
Wow, some of the things you say in other posts make sense, but here you make yourself look like a real ignorant fool.

Having worked as an onsite Dell hardware replacement technician for several years, and replacing MANY hard drives, you are absolutely wrong that "customers are not twisting in the wind". The fact that you say that so confidently only proves how ignorant you are and your lack of onsite experience helping people with their PC's. Many customers have literally begged me to help them when I was just there to swap their hard drive (technically software installation wasn't allowed - just swap the drive and leave them). Do you know how difficult it can be to get through to a knowledgeable and helpful customer service representative from OEM's? It can literally take hours, even for a seemingly simple task, such as getting a recovery disc. I remember specifically when Dell told ME going through my "direct" technician support number that they didn't provide the discs anymore and that they could not be ordered either. They simply stopped making them and instead started putting images of the respective operating systems on replacement hard drives with recovery partitions already installed. This was in the days of XP Media Center Edition, etc. Perhaps that has changed...

The software that makes that PC anything usable by customers is microsofts software. I'm not bashing them as you suppose either, they have made me tens of thousands of dollars over the course of the last 15 years in repair work. However, they should absolutely provide a simple and convenient method to download the ISO's for the customers respective operating systems, even after the support period has ended, and even if it does have to cost a small fee. Otherwise, you have people like myself that will indeed go download the original unmodified and uncracked ISO's from pirate bay - not because I have stolen the software or will not end up using the license key attached to the case - but because it is out of shear necessity. Because I am forced to download said disc because I am given no other option does not make me a pirate either. Its the same unmodified disc that they would send me if I were to purchase a keyless disc direct from microsoft. Its the license that makes it legal or illegal - AT LEAST IN MY EYES.

The fact that it is often difficult / frustrating / sometimes nearly impossible to get a knowledgeable and helpful support rep from an OEM shouldn't mean "oh well you dumb customer, you're out of luck then" for buying said PC.

By Breathless on 1/4/2012 4:19:13 PM , Rating: 2
In other words, I'm saying that this is unacceptable:

"Dell no longer provides the operating system or resource disks in the box for Windows 7 Systems. It is important for you to create recovery disks in case of a hard drive failure. If you do not create the recovery disks, there may be a charge from Dell for the operating system recovery media."

Customers do not know this and it is not right for them to only find out after they have to reinstall their operating system. It should not be illegal to download OR BE PROVIDED WITH THE DISC from a company (such as the one in this article) with the same exact data so that it can be used to reinstall or repair an OS using your already purchased activation code.

By Cheesew1z69 on 1/4/2012 4:29:20 PM , Rating: 1
If you do not create the recovery disks
Keywords here. You are PROMPTED to create the recovery disk when the PC is first setup. If you don't, tough shit IMO. That's not on MS or the PC company.

By Cheesew1z69 on 1/4/2012 4:23:06 PM , Rating: 2
The PC companies OFFER you a WAY TO MAKE THE RECOVERY DISK. You are PROMPTED when the PC is first SETUP TO CREATE THEM. If you don't that's on YOU and NOT MS or the PC maker. Get a clue would you.

By messele on 1/4/2012 5:40:54 PM , Rating: 2
Do they provide the blank discs to make the recovery discs with the machine? I've been asked to help a friend's relation to set up a machine about 3 years ago, was prompted to create the install discs only to discover that the piece of crap didn't even have a disc burner. Awesome way to look after your customers.

The average Joe will buy their machine, bring it home, skip the recovery creation stage as they will not want to go straight back out and buy blank discs and will forget to go back and make the discs (if that is even a possiblity).

Not everybody is as smart as you Cheesew1z69, or as illiterate.

By Cheesew1z69 on 1/4/2012 5:58:44 PM , Rating: 2
It's not their place to give you blank disks. And illiterate? Um, right. Not sure where that is coming from, but hey, whatever floats your boat.

By messele on 1/4/2012 6:07:56 PM , Rating: 2
No absolutely, it's no PC vendors business to make sure their customers are satisfied with their purchase but to fleece them for future technical support that could have been averted by a few pennies worth of included disc.

Don't get me wrong though, it's not like I am that bothered as I jumped ship long ago to a PC vendor who include a means of reinstalling the OS at zero cost and without losing a huge chunk of HD space to a seperate partition, I don't have to reinstall every couple of months like I used to have to with MS's wares so it's all rosy over here.

If you are happy to carry on like that and defend these cheapskate practices then all power to you. Kinda makes you wonder what all that pre-installed Windows crapware is helping subsidise...

By messele on 1/5/2012 5:24:41 AM , Rating: 2
Try 3.11 WFWG, 95, 98, ME (I was suckered there), 2000 wasn't too bad, XP wasn't great and I abandoned ship before Vista but I've rolled my sleeves up a few times for colleagues and friends - amazing how many don't have any kind of working system recovery, even a partition recovery one one HP was mullered.

I have an Acer laptop sat nearby waiting for a Vista reinstall as the registry has mashed itself and it will be quicker to wipe the thing. Actually it would be quicker to toss the PoS out the window and pretend we got burgled but I'm thinking that will be a hard sell.

So yeah, MS are the villain if you want to put it in those terms. I've given up on software that falls apart like a Clown's car.

By Cheesew1z69 on 1/4/2012 6:22:26 PM , Rating: 2
I haven't had to reinstall Win7 forever.

By priusone on 1/5/2012 10:01:07 AM , Rating: 2

Luckily, I heard my buddies hard drive clicking and was able to copy over the recovery partition to a new drive. Okay, perhaps you never had to reinstall Win7, but there are around 7 Billion humans on Earth, so chances are, one or two people have had to.

By Reclaimer77 on 1/5/2012 10:29:59 AM , Rating: 1
He wasn't saying that, hello? He was claiming Windows is so shitty, he was "having" to reinstall it every few months.

In other words, he was lying.

By Aloonatic on 1/5/2012 8:20:55 AM , Rating: 2
The thing is...

I've had 3 laptops that have been shipped this way.

a) I don't want to be nagged to do something that I shouldn't have to.

b) I don't want yet another program running in the background every time I start up just so that MS can make more £$€ from people by selling them the same product twice, without MS having to do anything. The thinking behind this strategy is pretty obvious.

C) THE ABOVE (only using CAPS as you seem so fond of them) WOULD NOT BE SUCH AN ISSUE IF RECOVERY DISK PROGRAMS ACTUALLY WORKED! Of the 3 laptops that I have used (Dell, Acer and another one, I forget) that have prompted me to make recovery disks, which I always try to make, the program to create them has failed.

The only one that has worked, eventually, was the DELL but only after I installed an update from somewhere in the depths of their support page.

It's just pretty lame and a clear money grasping strategy that is only really possible in a market where one player has such a dominant position. It's no wonder that so many people are starting to move away. With this sort of attitude and clear disdain for their customers it seems that MS just don't give a damn.

By mechBgon on 1/5/2012 2:43:54 AM , Rating: 2
Worth noting: Microsoft has the full Win7 DVD ISOs available for download from Digital River. No license required, just download any version you want. It's just installation files to them, the licenses are what they're most protective of.

If you have an HP, Dell, etc, you're going to want your special OEM-specific, never-needs-activation SLP-locked version anyway, so just order it... last time I did that from Dell, they were $8.

By NellyFromMA on 1/5/2012 10:35:12 AM , Rating: 2
I've never seen a reputable OEM not provide media to reinstall your system, and I just purchased a system from Dell for my little sister. The media is right here. It CLEARLY says dell on it, therefor NOT in any way counterfeit. THATS the right way to do it.

Making a counterfeit disc is not. Period!

By JediJeb on 1/4/2012 1:54:25 PM , Rating: 2
My sister has and Athlon 64 X2 system that I finally added RAM to over the holiday to bring it up from 1gb to 3gb. This thing was horrendously slow until the upgrade running Vista. I can only imagine what it would be like to put Vista or W7 on my system which uses an AthlonXP processor and has 1gb ram. XP works ok on it but I can imagine W7 would be even more painfully slow than what her computer was. So there are reasons for the older software to still be around. And as was stated above, MS is worried more about making people upgrade their system so they can sell more software than they are about people being able to use something that still works well for what they do.

I am planning on upgrading my system with a new mobo, processor and memory but I will probably still reload my XP on it because by the time I am done I will not have $100 left over to buy a new copy of W7. Honestly I would still be using W2K if I hadn't lost the disc before my harddrive died the last time.

By Master Kenobi on 1/4/2012 6:54:13 PM , Rating: 1
If you have the money for those sorts of hardware upgrades, stop bullshitting yourself and buy the damn disc. You will drop 300-500 on a new mobo, processor and ram but cry over the price of the OS. Oh lookie, Windows 7 Home Premium System Builders Pack $99.99

Ya know what? I'm even gonna go the extra mile and throw you a bone here. For you poor students. $64.95 for Windows 7 Professional Upgrade

Here, if you are a college student you might be able to get even better pricing or perhaps free if your university isn't a bunch of cheapskates.

'Nuff said.

By nocturne_81 on 1/9/2012 5:10:15 PM , Rating: 2
I just love the continued existence of Vista complaints.. xD

Did you actually ever use Vista? Or did you just trust all the trolls online?

I used it throughout the entire developer preview and release candidate process (on a rather out-of-date AXP barton core), as well as two C1Duo laptops bought right after the retail release, and I never had any real performance issues. The entirety of the anti-Vista campaign came down to ignorance (in the form of trying to run a new OS on old hardware) and abhorrence of change (XP was around for just too long -- we all got too used to it).

Any 'real' performance issues I ever encountered on client machines running Vista were the result of idiots tweaking things that should be well enough left alone -- such as disabling executive/kernel caching, enabling large file cache, disabling the indexing service, disabling win accelerators.. all the same 'tweaks' ignoramuses still echo across the blogosphere with ill-informed performance guides to this day.

"And boy have we patented it!" -- Steve Jobs, Macworld 2007

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