This article was published on The Register in March 1998.
Last year, Levi Strauss & Co refused to allow UK supermarket chain Tesco to stock its denims. The jeans manufacturer had spent years and millions of pounds persuading the Great British public to stump up £50 for a pair for the privilege of wearing the brand.
And it saw no reason for letting the supermarket chain disrupt this happy state of affairs.
Undeterred by this egregious example of selective distribution, Tesco collared 30,000 unauthorised pairs of Levis from a US distie, and promptly knocked them out to the British public at £30 a throw. This week, Tesco is in the news again, for grey importing Sony Playstations.
A small victory for common sense and the consumer, you may think. But no: Tesco could well have broken the law, judging from Microsoft's interpretation of its rights. Under the copyright designs and patents act 1988 and Trade Marks Act 1994, it is illegal to import/ distribute into the UK without the copyright or trade mark owner's consent. So long as the product originates from outside the EU parallel importing between EU countries is sanctioned by the Treaty of Rome articles promoting fair competition.
Which brings us back to Microsoft. Last year, the vendor acknowledged the rights of wholesalers to import and distribute 'legitimate' but unauthorised grey software. But the disties had to make clear to customers there would be no support from Microsoft for the product. It has now toughened its position.
In a recent flyer prepared for the trade, Microsoft says "Grey software is illegal. There is no such thing as grey software whether it's bought or sold, it contravenes the following laws.
"Copyright designs and patent act 1988; trade marks act 1994; European Union directive for the legal protection of computer programs of 1981; copyright (computer programs) regulations 1992. In practice this means, any Microsoft software imported from the US, and anything with academic edition stamped on it."
Microsoft will defend its "rights" through raid and seize tactics. Last year, the company made more than 50 raids through Operation Major Strike. And this year it plans many more, Microsoft anti-piracy head David Gregory reveals.
Anything between 40 and 90 per cent of grey software is counterfeit, according to whose estimates you believe. That means anything between 10 and 60 per cent is "legitimate".
According to Gregory, most leads on so-called piracy come from the public. These leads are referred to Trading Standards bodies. So raids and seizures are actually subsidised by local councils. We have seen cases where thousands of shrink-wrapped copies are taken, arrests are made, and then... silence for months, while Microsoft determines whether software is counterfeit or not.
If trading standards are wrong, then the public - and not Microsoft - pays for the error. Lucky Microsoft.
Microsoft is entitled of course to safeguard its intellectual property rights - and use what ever blunt instrument it has at its disposal. But the tactics it is deploying in its campaign against parallel importing look very dubious indeed. Leaving aside possible breaches of international trading law - confirmation of which would require the attentions of the EU or the WTO - actions against 'legitimate' grey imports act against consumer interests.
Grey markets exist where companies maintain differential pricing. And Microsoft operates a huge pricing spread for its products. If Microsoft worked off one global price list parallel imports would disappear overnight.. But global pricing is not in Microsoft's interests. By extracting top dollar from companies and individuals with limited negotiating power, Microsoft creams more profits. The grey market reflects Microsoft's own pricing strategy. No more, No less.
The market needs a test case to challenge Microsoft's "right" to stop parallel imports. Any chance of getting Tesco involved? ®