Microsoft sends the boys round

Clayton Hirst reports on the legal war being waged by software giants on firms they suspect of licence infringements

In its grand offices opposite the Royal Courts of Justice in London's Strand, law firm Covington & Burling has a dossier on hundreds of British companies. It is compiled from tip-offs, often anonymous, from company employees and members of the public, and it is being used as evidence in a wide- scale investigation into some of the country's biggest firms.

But this is no Enron-style probe. The UK arm of the high- powered US law firm is targeting companies that it suspects of infringing software licence rules - or worse, piracy.

Covington & Burling is acting for the Washington-based Business Software Alliance (BSA), the powerful organisation founded by Microsoft and which today counts companies such as Apple, Adobe, HP and IBM as its members. Over the past few months, the law firm has sent out unsolicited letters to UK companies setting a deadline for them to compile a detailed audit of their computer systems. Failure to comply could lead to legal proceedings.

But the behaviour of the BSA and its lawyers has prompted an outcry in the business community. The Corporate IT Forum (CIF), which represents IT experts working for more than half the companies in the FTSE 250, believes the BSA has overstepped the mark. In its latest newsletter to members, the CIF accuses the BSA of "harassment" and says its business practices "are becoming a menace to corporate IT departments". It is now urging software firms to withdraw their backing for the BSA.

Certainly, the letters sent by Covington & Burling are strong in their tone. One, seen by The Independent on Sunday, says: "We have been provided with information by BSA which suggests that you may be using software in a manner which exceeds the number of legal copies you are authorised to use .... In addition to civil damages, copyright infringement can also constitute a criminal offence."

The letter asks for a "full audit" of the target's computers, servers and software and gives it a month in which to respond.

David Roberts, the chief executive of the CIF, says: "Vendor organisations often have inefficient systems for tracking licences and they are looking to move the costs of tracking to customers."

Covington & Burling has sent out more than 200 letters this year to companies it suspects of software licence infringement. If a letter is ignored, the law firm will consider action. "If we have sufficient information ... we will apply for a court order," says Graham Arthur, the lawyer acting for the BSA.

However, he adds: "This is not harassment. We understand that no one likes getting these letters. But a company can always write back and say 'thank you for the interest, but we are compliant'."

The BSA isn't just targeting business. Mr Arthur says many public organisations, including schools, have fallen foul of software licensing requirements.

The BSA and its members say one of the reasons for their legal drive is to protect companies from the "security threats" of using illegal or pirated software. But the main reason is financial. A BSA report published by market research company IDC in July revealed that software piracy costs UK-based IT firms £890m a year. It claimed that 29 per cent of all business software in the UK is unlicensed, though this is lower than the European average of 37 per cent.

Microsoft is one of the biggest drivers in the clampdown on unlicensed software. In the past, it has been accused of taking a heavy-handed approach. The software giant is now relying on the BSA to conduct much of its enforcement work.

Alex Hilton, the head of licence compliance at Microsoft UK, says that many companies are unwittingly breaking the law. "Some have a policy of always buying the cheapest software available. Two months after they have bought the packages, we might be in touch and find that every single piece of software is counterfeit."

It is also believed that some corporate customers deliberately break the law. Najeeb Khan, the compliance manager at Adobe, says: "It is seen as a victimless crime. Companies take the view that nobody will find out."

Some software firms, including Adobe and Microsoft, would like the Government to introduce stricter rules on the use of software. One idea is that, as well as a financial audit, a company would be required to complete an IT audit. "Part of the problem is that in most companies no one takes responsibility for software licences," says Mr Khan. "You have human resources dealing with health and safety, the finance department looking after tax, but software, well, it seems to get lost between finance and IT."

Unfortunately for the software firms, companies are in no mood to co-operate as lawyers' letters land on their desks . "The BSA's heavy-handed approach is going to backfire," says one senior IT industry source. "Any scrap of goodwill towards the organisation has vanished."