On piracy, it's Microsoft vs. Everyone

May 7, 2012: 10:17 AM ET

Microsoft wants to require foreign manufacturers to certify they aren't using pirated software. In a twist, the effort has other tech giants up in arms.

By Tory Newmyer

Microsoft CEO Steve Ballmer

Microsoft CEO Steve Ballmer

FORTUNE -- Microsoft is pitching itself as the new best friend of American manufacturing in a campaign aimed at convincing state and federal authorities to crack down on software piracy. The company's argument: foreign manufacturers are slashing costs by ripping off software, giving them a competitive advantage over Americans playing by the rules.

But the push is engendering opposition from some of the very companies the software giant says stricter enforcement is meant to protect -- a roster that includes Apple, Cisco, Dell, HP, Google, IBM, Motorola, and Xerox.

The nascent battle of tech titans for now centers on a bill Microsoft (MSFT) is working to steer through the California state legislature, but it has also landed in Congress and lobbyists watching the issue expect it to intensify quickly.

Microsoft contends it is simply seeking to level a playing field whose tilt has accelerated the offshoring of manufacturing jobs over the last decade. It points to a study by the Business Software Alliance showing that reducing piracy by 10% over four years would generate nearly $38 billion in new economic activity and create 25,000 new tech-industry jobs.

"Pirated IT undermines innovation and puts law abiding businesses at a disadvantage when competing with companies that choose the shortcut of stealing intellectual property," Microsoft deputy general counsel Nancy Anderson said in a statement.

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Opponents counter the fix the company is pushing would require firms to certify, at immeasurable cost, every line of code in huge, far-flung supply chains. And in California, where Microsoft is backing legislation requiring state contractors to certify they've only used licensed software, home-state tech companies see more complications than benefits.

"These companies are very concerned about intellectual property in global markets," says Dorothy Rothrock, a lobbyist for the California Manufacturers and Technology Association, "but this bill increases the risks even for good actors."

It's not entirely clear why Microsoft would adopt a strategy that puts it at odds with other major software makers. Both Microsoft and Cisco, for example, aggressively police piracy violations across the globe -- and both rely on similarly disparate networks of suppliers.

Strategists close to Microsoft suggest the simple fact of the company's involvement is generating the tsuris. "It seems to me the opponents are trying to find bogeymen in the bill where none currently exists," says Roger Salazar, who's heading a Microsoft-backed coalition supporting the measure. "If it's paranoia, that's one thing; but if they're doing it because the proponent is one of their biggest competitors, that's another thing altogether."

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Lobbyists for the opposition call that nonsense. Instead, they argue Microsoft is taking an overly heavy-handed approach, a reflection on its misguided reliance on its own incumbency. "It's a sad state," says one, "almost like the Hollywood studios trying to hold on to that last nut as long as they can."

The Redmond, Wash.-based company already has scored a significant win in its own backyard. Washington state last year adopted a law banning manufacturers found to be using pirated software from selling their products in the state -- and it opened big retailers peddling those goods up to liability, as well. Louisiana approved a similar bill the year before.

And in Washington, DC -- where Microsoft spent $7.34 million lobbying last year, second only to Google in the tech sector -- the company is hoping to enlist regulators to act as its cops on the beat. Early last month, all but three members of the Senate Small Business Committee sent a letter to the Federal Trade Commission asking the agency to use "all the tools at [its] disposal to fight the theft and use of stolen American manufacturing information technology." The letter framed the request as an imperative to stop the decline of American manufacturing. It didn't mention Microsoft.

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