Is UK retail giant Comet really a Windows pirate?

Microsoft has filed suit against a major UK-based retailer, accusing Comet of “creating and selling” more than 94,000 counterfeit Windows recovery CDs in 2008 and 2009.

It's not unusual for Microsoft to file lawsuits against PC makers who pirate its software or against resellers who offer copies of Windows that are clearly marked "not for resale" or have been diverted from the proper channel.

This case, however, is different. Comet is not accused of selling phony or unauthorized Windows licenses. Rather, Microsoft has accused the company of making illegal copies of Windows discs and selling those discs to Comet customers who bought PCs.

The actual civil complaint is not yet available for inspection, but I've been able to piece together the details of the story from statements issued by Microsoft and Comet. It gets into an arcane thicket of licensing and copyright agreements between Microsoft and its PC-making partners, and the issues can be confusing.

Comet is a retailer that currently sells a selection of desktop PCs, all-in-one PCs, and laptops. It offers the usual assortment of consumer PCs with brand names like Acer, HP, Compaq, ASUS, Sony, and Packard Bell. (Wait, the Packard Bell brand is still around? Who knew?)

Those brands are from top global manufacturers, who are known collectively as royalty OEMs. I first wrote about the different channels through which Microsoft sells Windows way back in 2005. Some minor details have changed since then, but the broad outlines have not.

Royalty OEM agreements are available only to the largest manufacturers of Windows-based computers in the world. Here's how the official Microsoft documentation described the process

Royalty OEMs receive a ‘golden master’ copy of Windows from Microsoft. The royalty OEM may customize Windows as described in the OPK, their license agreement, or a signed addendum… These OEMs obtain all customized media, end-user manuals, and bulk quantities of COA stickers from MS authorized replicators.

Royalty OEMs may provide recovery media for each computer, and that media must be protected so that it can be used only on that particular computer. Both printed books and any recovery media display the OEM name and branding.

System-locked preinstallation (SLP) is an anti-piracy technology that helps prevent the copying of legitimately licensed operating system software onto non-licensed systems. SLP is available only to royalty OEMs.

Microsoft requires a royalty OEM to provide a recovery solution to its customers. That recovery option can be a hard disk partition that includes an option for the end user to create his or her own recovery media using blank discs and a DVD burner, or it can include actual media on CDs or DVDs. The customized media contains an assortment of antipiracy features, such as holograms, designed to make them distinguishable from unauthorized copies.

Based on Microsoft's allegations and Comet's response, it is apparent that Comet didn't go to an authorized replicator and buy copies of recovery discs—in fact, it could not have legally done so. Instead, it made its own copies of recovery discs. Here's Microsoft's description:

This action focuses on Comet’s unauthorized production of recovery discs, which are one type of recovery solution.  Recovery solutions allow customers to repair an operating system, or to reinstall it in the rare event of a system failure.

In 2008 and 2009, Comet approached tens of thousands of customers who had bought PCs with the necessary recovery software already on the hard drive, and offered to sell them unnecessary recovery discs for £14.99.  Not only was the recovery software already provided on the hard drive by the computer manufacturer but, if the customer so desired, a recovery disc could also have been obtained by the customer from the PC manufacturer for free or a minimal amount. 

Comet's defense says it was only acting in the best interests of its customers, supplying them with recovery media that wasn't supplied with the PCs they sold. Even if you believe that flimsy defense, they had plenty of other, legal options. They could have supplied written instructions on how to create recovery media from the hard disk partition, and sold the customer a package of blank discs. Or they could have provided contact information for the system makers, with instructions on how to order recovery media.

Instead, they apparently made unauthorized copies of copyrighted disks and then sold them for £15 a set. Given that the cost of goods on those disks was probably well under £1, that's a very profitable business. Microsoft alleges that Comet sold 94,000 disc sets at £15 each, for a total revenue of £1.4 million (nearly $2.2 million at current exchange rates). Had Comet given the discs away, or sold them for actual costs, their moral argument might have been stronger, but the legal case would still have been impossible to defend. Without the permission of the copyright owner, making and distributing copies simply isn't permitted.

There is indeed a separate consumer issue here: are consumers being served by PC makers who cut costs by not providing reinstallation media? It's a good question, but the answer isn't for retailers to arbitrarily insert themselves in the process by creating and distributing unauthorized versions of copyrighted material.

For those who still contend that this is perfectly harmless, let me offer one additional example. Comet also sells Apple MacBooks (Pro and Air) and iMacs. What if they had made their own backup copies of Apple's OS X and iLife installation media and offered them to Mac purchasers? How long do you think that practice would last before Apple's lawyers showed up with a sheaf of legal papers?

Meanwhile, I'm still looking for a copy of the civil complaint. I'm also eager to hear from Comet customers who might have purchased one of these unauthorized recovery CDs. If you've got your hands on one of those original disc sets, please contact me.

Related:

• How to get sued by Microsoft
• Microsoft sues UK retailer for 'counterfeiting Windows'
• A brief history of anti-piracy at Microsoft
• Confessions of a Windows 7 pirate
• Windows Activation Technologies: an unauthorized inside look