MICROSOFT & DISCTRONICS ANNOUNCE AGREEMENT IN SOFTWARE COUNTERFEITING ACTION.

Microsoft Corp. (Nasdaq: MSFT) and Disctronics Texas Inc., an independent US CD manufacturer announce a settlement in connection with the replication of CD-ROMs containing counterfeit Microsoft software. The replication occurred at Disctronics' plant in Plano, Tex., in late 1996 and early 1997. Disctronics has taken a number of steps to improve order screening and copyrights compliance in its plants. Other terms of the agreement are confidential.

Disctronics received a number of orders from two companies to produce a large quantity of CD-ROMs containing Microsoft software, including the Microsoft Windows operating system and Microsoft Office Professional, later identified by Microsoft and the FBI as counterfeit. Disctronics had no knowledge of any criminal intent, but its internal procedures at the time did not identify the product as counterfeit. The two companies placing the orders subsequently were discovered to be operating with criminal enterprises that distributed the counterfeit product throughout the United States and internationally.

Microsoft began to learn of the counterfeit CD-ROMs as a result of numerous hotline calls from dissatisfied customers who had unwittingly purchased counterfeit CD-ROMs, as well as through street-level seizures by police and private investigators in many locations. Legitimate manufacturers, such as Disctronics, use IFPI numbers marked on their discs to identify the location where the discs were made. Using these numbers, Microsoft identified Disctronics as the manufacturer and contacted management at its Texas plant. Upon learning that they had been replicating unauthorized product, Disctronics promptly halted its production and provided valuable assistance to Microsoft, the US Attorney's Office, the FBI and state police in their ongoing investigations into a counterfeiting ring that was behind the illegal orders and distribution.

According to Microsoft associate general counsel Nancy Anderson, "Once Disctronics management recognized that it was not replicating genuine Microsoft software, the company took the necessary steps to rectify the situation and has since put in place new screening procedures to prevent similar incidents in the future. We greatly appreciate their cooperation in addressing this serious matter."

Software piracy, the theft of software through illegal copying of genuine programs or through counterfeiting and distribution of imitation software products, is a growing worldwide problem. Piracy undermines the value and integrity of software, threatening technology innovation and diminishing the economic opportunities created by the software industry, all while putting consumers at risk. The US piracy rate is approximately 25 percent, with nearly $1 billion in lost tax revenue and $4.5 billion in lost wages for American workers.