Licence to Bill: Should you fear Windows XP?

Microsoft has been waging war against software pirates for some time now, and the latest crackdown is hardcore.

Take a look at the statistics and it's easy to see why. Within a year of launching a 1999 anti-piracy campaign, Microsoft had seized five million units of pirated software worth an estimated $1.7bn. A single haul in the US netted $60m worth of bootleg ware.

So now Microsoft is playing hardball. Since February 2000 it has been scouring the web with a scanning tool, 24 hours a day, searching auction sites for illegal sales of Windows software.

But the company still isn't happy, and is taking further precautions with its upcoming software.

The latest crack down goes beyond the web and seemingly places all home users under suspicion. When Windows XP hits store shelves in October the retail version will come equipped with an anti-piracy safeguard tighter than a Fort Knox cashbox.

Users of the retail version will be required to activate their XP operating system before using it, either online or by calling a Microsoft helpdesk. This activation will generate a unique code that identifies components in their hardware.

It's not the first time Microsoft has included an activation process in its software. Windows 98 and more recent releases of Excel incorporate a similar procedure.

And it shouldn't be a huge inconvenience - until you add some new hardware to your computer, buy a new PC, or reinstall your system after inevitable problems.

This is where Microsoft starts to lay down the law. Unlike Excel or Windows 98, the company will restrict the number of times a user can reinstall a copy of XP on different hardware. Try it too many times and Microsoft's central server - the one that holds details of the activation code - locks a user out.

How many times is too many? Microsoft is not saying for fear devious hackers might be listening. But Duncan Reid, product services group manager with Microsoft, explains that law abiding customers need not worry.

"We will never penalise a legitimate customer. If you're a customer who does not frequently change hardware there is no problem. If you do frequently change hardware what you may want to do is retain proof of purchase of any new equipment. But we envisage that being a relatively small number of customers," he told silicon.com.

The nuisance of waiting on Microsoft to verify proof of purchase before reactivating an operating system is one issue. The world's largest software company not being straight with its customers is another.

Microsoft is confident it can legally go down this route. And it is right. No laws are being broken. The Trading Standards Institute says that omitting information on a purchasing contract is not illegal.

But the law is not always black and white, according to John Armstrong, partner with CMS Cameron Mckenna. It states that terms and conditions of use have to be fair and reasonable, but the interpretation of fair and reasonable is open to legal debate, says Armstrong.

It seems it is fair and reasonable to inform a customer they will be restricted in the number of times they can reinstall a copy of Windows XP. But could a customer argue Microsoft's refusal to be more specific with numbers infringes on their consumer rights?

Armstrong added: "Terms and conditions of use have to be clear when you buy the software. If it's not brought to a customer's attention at the point of sale a court could possibly side with the consumer."

However, most software is sold in shrink-wrapped packages with the terms of use printed on the inside where they are not clearly visible to the customer. To overcome the complex and often unclear legalities of this many companies, including Microsoft, offer a send back period for customers not satisfied with the terms.

Ben Goodger, partner at Willoughby Partners, warns Microsoft could be walking straight into a round of lawsuits as disgruntled customers claim unclear terms of sale.

"There are strings attached which will not have been made clear at the time of entering into the contract. I am dubious about the legality of that," he said.

He warns Microsoft needs to be 100 per cent confident about its legal position. A badly executed strategy could seriously damage customer relations.

And Microsoft is confident. There will be no problems, said Reid.

Corporate customers are exempt from the activation process and Reid has faith in most of his retail customers. Only an unscrupulous minority should be affected, he says, and the safeguard is as much to protect Microsoft's honest customers as it is to protect company coffers.

Yet some retail customers have already complained about Big Brother tactics, posting dozens of comments on silicon.com, for example.

With this initiative coming as Microsoft moves more towards hosted software services - and still in the shadow of last year's anti-trust fiasco - more cynical observers will continue to question the motives of Redmond's finest. The jury is out on Windows XP, and we haven't even started talking about performance.