Microsoft kills PC ragtrade

Microsoft kills PC ragtrade

Microsoft Australia's relentless pursuit of second-hand PC dealers threatens to destroy a once profitable IT niche.

At stake is the possibility that "PC ragtraders" will have to pay for an operating system licence for each second-hand PC that does not come with the original licence documentation.

Such an arrangement will potentially see Microsoft collect a second licensing fee for the operating system on PCs which had been "OEM'd" with Windows 3.11 or Windows 95, according to industry sources.

Microsoft is currently pursuing a number of high-profile second-hand PC retailers before the Federal Court in New South Wales, including Business Boost, Passions, and Wally's Computer World.

Microsoft is seeking damages and injunctions to restrain all three businesses from selling unlicensed Microsoft software. According to Microsoft, the action follows an unprecedented number of complaints to its anti-piracy hotline.

One well-informed channel source, who did not wish to be named, believes that Microsoft wants to end the trade in so-called re-marketed PCs by making the market financially unviable.

"There was a window of opportunity open for a while, but it's closed now," he told ARN.

One PC dealer explained that if any wholesaler pays around $100 for a used PC and then has to pay an extra $130 for an operating system licence, the sell price to the customer will not be sufficiently attractive.

The Pc dealer said this example particularly applies to the resale of ex-corporate and government multinational brand PCs such as Compaq, and which were licensed under a special arrangement, dubbed the Royalty OEM program.

Many of these PCs were subsequently sold to naive customers on the basis of having licensed software, and at least a licensed operating system on them, even though they may never have been supplied with the original media and/or documentation, a source claimed.

As a result, Microsoft wants anyone who buys such a PC to ensure they have all the original documentation and media or buy a new licence.

But Dave Wrathall, Microsoft's OEM sales manager, would not be drawn on the business viability of used PCs, saying: "Microsoft is not going to compare the value of an operating system with a second-hand personal computer."

Although he acknowledged the confusion caused by the resale of these "royalty licensed PCs", Wrathall restated the vendor's warning against using software without having the necessary proof of licensing. He said that the terms of use of the software are clearly spelt out in the End User Licence Agreement (EULA). "OEM product has always been shipped with a EULA," he said.

The terms and effectiveness of the EULA is what could be the most significant part of Microsoft's current legal actions. "The conditions have changed over time and the EULA is specific to the product," Wrathall conceded.

Another industry source believes that the pursuit of second-hand traders is about retrieving the lost revenues on the previously cheaply supplied OEM licences, even going as far as calling it double dipping by the software giant. This was strongly denied by Wrathall.

"We license the operating system for PCs and have arrangements with OEMs in order to provide a [satisfactory] standard of end-user experience," he insisted.

According to Wrathall, the OEM loads and tests the operating system, "and this is why we maintain close control over the licensing . . . At the end of the day we want to ensure that users get the package they want."

But Wrathall was particularly scathing in his comments on the re-marketed PC business. "The second-hand market encourages [software] piracy, with users making copies of our software and some dealers sourcing counterfeit product," Wrathall said.

And Alex Mercer, spokesperson for Microsoft's Law and Corporate Affairs department, backed up his comments. "Software is just as important as hardware, despite the fact that it is easier to duplicate. Intellectual property should be protected just as much as more tangible property," she said.

According to one observer, the future of the potentially massive re-marketed PC business could be determined by the outcome of the current litigation.

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