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Silicon Valley Shakedown 

A con man feeds on fear and paranoia in the software business

Wednesday, Jan 12 2000

Page 2 of 4

That's not to say that there aren't some pretty big clues when software is illegal. The allure of a good deal is usually an indicator that the products are not legit. Manufacturers control the price of their software by selling to a handful of authorized distributors, who sell to authorized retailers. If the price is lower, sadly, it generally means something is wrong.

Further, there are specific checks to ensure authenticity -- Microsoft holograms on its licenses, for instance -- and whether or not the seller is authorized by the manufacturer.

"In the case of distributors, they ought to know," says Richard Power of the Computer Security Institute in San Francisco. "They have very little reason not to know at this point."

But even those who don't knowingly peddle illegal software can easily find themselves caught up in the climate of suspicion and paranoia that pervades the industry.

Before concentrating on selling cooling fans, Jou's company sold, among other things, Microsoft software. Jou was in the distribution chain between Microsoft and resellers, including those who sell the software packaged with hardware (the so-called "secondary market").

According to Jou's attorney, Shawn Leuthold, Jou has never been in trouble for selling pirated or counterfeit software. But while he has never knowingly sold illegal goods, Jou could not be sure that he hadn't inadvertently done something wrong, Leuthold says. Plus, Jou had been burned in the past.

Some time ago, another business associate of Jou's, who was on the hot seat in a lawsuit brought by Microsoft, alleged that Jou had sold him illegal software. The lawsuit was dropped, but Jou certainly didn't forget the event, which is part of why he stopped selling software altogether.

"There are shady characters who are constantly running, dodging, hiding, and behaving illegally," says Leuthold. "And then there are legitimate people who have real structures, doing real business, and get stuck. They've done everything they're supposed to do and are still not sure that they didn't buy counterfeit goods."

Given that Microsoft is the big dog in an industry fraught with theft, it's not surprising that the company is aggressive about chasing lawbreakers. By late 1998, the company was threatening lawsuits against six Bay Area "white box" resellers for allegedly distributing counterfeit versions of Microsoft software. (Depending on which side of the fence you sit, the company was either trying to recover its losses, or intimidating people out of the secondary market). In any event, Bill Gates' army of lawyers was out in force.

At the same time, Silicon Valley is ground zero for the FBI's high-tech crime division, which operates out of the bureau's San Jose office. Jou knew, or at least knew of, people who'd been questioned by FBI agents about various business activities.

The fear of a costly investigation, or lawsuit, was well established in the Silicon Valley landscape.

A few weeks after he first heard about Alan, Jou met the mysterious fixer.

In late October, Degar Yen, posing as Alan, came to Lawrence Jou's office, a distribution warehouse tucked inside a maze of high-tech office parks surrounding Sun Microsystems in Fremont. Alan told Jou that Jou's company was on a list of companies that Microsoft wanted the government to investigate.

Alan said he could have Jou's name removed from the list. But it would cost $40,000.

Jou didn't know what to think, according to his lawyer. He began to worry that he might have inadvertently done something wrong, maybe buying or selling illegal software. Maybe someone had fingered him, like before. Or, maybe this was just the price of staying out of trouble.

In phone calls that followed Yen's visit, Jou told Yen that he could not afford the full $40,000, and tried to negotiate a smaller fee. Finally, Yen told Jou that it would cost at least $25,000 to keep the FBI from taking some kind of action against the company. Yen told Jou to bring the money to the bathroom at the Raley's Superstore in Fremont.

Through his lawyer, Jou declined to be interviewed for this story. However, federal court records chronicle the events that followed Jou's first payment.

About a week later, Yen called Jou and told him that the "FBI boss" wanted another $30,000, or the agency would take action against him. Again, Jou told Yen that he could not afford such a high price. Yen said he would accept a payment of $15,000.

On Nov. 6, in the same men's bath- room at the same Raley's, Jou gave Yen another $15,000. But the nightmare had only begun.

While handing over large sums of cash in a public bathroom would likely arouse suspicion in the average citizen, it was less than odd to Jou, a middle-aged man from Taiwan, who doesn't speak fluent English and is unfamiliar with the particulars of, say, the Constitution.

"Lawrence comes from a culture where police do cooperate with companies and where the best way to resolve things is to cooperate with being shaken down for money," says Leuthold. "It is not alien to his mind that there are people who are taking advantage of their authority to shake down companies."

Besides, Jou had been told, and believed, that other people were paying too.

Within weeks, Yen called again, this time telling Jou that his file would be sent to the IRS unless Jou coughed up another $40,000. If he did not pay, Yen said, the IRS would audit Jou's business and personal accounts, and make his life miserable. At this point, Jou was already miserable, frankly, but he felt he had no other choice.

On Dec. 2, Jou walked out of his office to the parking lot, where Yen was waiting in a red Honda Civic, and handed over another $30,000.

About The Author

Lisa Davis


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