Microsoft Corporation may have its own "breakaway republic" problem in the heart of the former Soviet Union.  Its Russian subsidiary, headed for less than two years by former telecom executive, Nikolay Pryanishnikov and reporting to HQ through Microsoft's Central and Eastern Europe group, has become embroiled in a global controversy over what role it may have played in helping the Russian government crack down on a variety non-governmental organizations and newspapers critical of the state.

As first reported in the New York Times last Saturday, for the past several years Russian security agents who claimed to be looking for pirated Microsoft software have raided the offices and homes of environmental and human rights activist and independent journalists, seizing their computers and holding the systems in some cases for more than a year to examine them for illegal copies of Office, Windows and SQL Server.  Microsoft's Russian lawyers, and perhaps also its executives, have reportedly given strong support to the government's prosecutions of these cases.  Even when one of the accused organizations attempted to exonerate itself by presenting receipts showing legal software purchases and calling on Microsoft's Moscow office for support, it was ignored and the prosecution proceeded.

Lawyers, Guns and EULAs
According to the Times, the group with the receipts was Baikal Environmental Wave, an activist organization that targets environmental threats to Siberia's Lake Baikal, the world's largest source of fresh water and home to numerous unique, rare, and endangered species of wildlife.  The group has long been a sharp thorn in the side of Vladimir Putin, Russia's former President and current Prime Minister.  When Putin was President, the group succeeded in forcing the relocation of an oil pipeline away from the sensitive lake shore, and they played a role in  shutting down of a Soviet-era paper mill responsible for large-scale toxic dumping in the lake.  Then, almost immediately upon his installation in the less Western-facing role of Prime Minister, Putin decreed that the mill be re-opened, the Baikal group resumed its protest, and the government, with the apparent active help of Microsoft's Russian lawyers and possibly the passive help of Microsoft executives, seized the group's computers, effectively shutting them down.  And, the Baikal incident is only one of dozens across the country that follow a virtually identical narrative.

A separate story in the same issue of the Times reported that an international anti-corruption organization, Transparency International, and a major Russian human rights group called Memorial had reported dozens of complaints from companies targeted by the piracy raids, accusing the Russian security officials and Microsoft lawyers of colluding to extort money from them.  According to the Times, "In these schemes, the two groups say, corrupt officials seize computers, claim that they have found pirated Microsoft software and, in alliance with lawyers for Microsoft, demand bribes."  The article stated that, when confronted with the accusations, Microsoft "said it believed that people who had no legal authority to represent Microsoft were fraudulently using the company’s name to extort money."

In response to the NYT reporting, Microsoft, admitting nothing, issued a strange and maddeningly parseproof statement that characterized the reported accusations as "concerns that have been raised" and said nothing directly about the raids and prosecutions.  It pivoted instead around a pair of confusing conflations, one melding the roles played by lawyers in the separately reported piracy prosecutions and extortion incidents, and the other a peculiar annealing of the topics of human rights and software piracy.

About the Russian lawyers in question, in the statement pointedly referred to as "outside counsel" retained "to aid in our antipiracy efforts", the company said, "They are accountable to us, and if their actions do not comport with professional ethics, anticorruption laws, or Microsoft policies, we terminate our relationship with them."  It  also  promised to increase their monitoring and training and to more clearly define their "responsibilities and accountabilities", and "To prevent individuals or organizations from fraudulently claiming to represent Microsoft, [we will] publish on our Russia Web site the names and certifications of authorized representatives."

If, as Microsoft previously stated, it was fraudulent lawyers who perpetrated the extortion, why is it calling out "anticorruption laws" in relation to the real ones in its statement?  Did the legitimate attorneys who participated in the selective prosecution of the dissidents act on their own and violate professional ethics or Microsoft policies?  If so, why did they do that, if not for bribes?  And, were any of them actually fired?  It's anybody's guess.

NGOs SOL
And, tacked on to the confusing statements about the lawyers is this sentence: "Moreover, as we did with Baikal Environmental Wave, we will act to ensure due process is followed in antipiracy cases that involve Microsoft products."  Say what?!  That statement seems to allow the inference that, in that particular case, the Microsoft lawyers were doing what they were supposed to do.

However, the Times reported, "The lawyers rebuffed pleas by accused journalists and advocacy groups, including Baikal Wave, to refrain from working with authorities.  Baikal Wave, in fact, said it had purchased and installed legal Microsoft software specifically to deny the authorities an excuse to raid them.  The group later asked Microsoft for help in fending off the police. 'Microsoft did not want to help us, which would have been the right thing to do,' said Marina Rikhvanova, a Baikal Environmental Wave co-chairwoman and one of Russia's best-known environmentalists.  'They said these issues had to be handled by the security services.'"

The Microsoft statement goes on to make a downright strange connection between human rights and software piracy by saying, "We have to protect our products from piracy, but we also have a commitment to respect fundamental human rights. Microsoft antipiracy efforts are designed to honor both objectives, but we are open to feedback on what we can do to improve in that regard.  We have been in discussions with human rights advocacy groups on steps we can take in Russia, and based on their suggestions we are adding the following to our efforts:", after which they list three things that they intend to do.  The first two are the aforementioned tighter controls on their lawyers and naming them on the web site.  The third is a promise to do a better job of educating the NGOs about, and recruiting them to Microsoft's Infodonor program which gives them software for free so they won't steal it and, and in the process supposedly removes the government's raiding incentive in a way that sales receipts could not.

Again, the Times tells a different story in its reporting on the feedback Microsoft got from Russian human rights organizations.  For instance, according to the paper, "the Moscow Helsinki Group sent a letter to Microsoft this year saying that the company was complicit in 'the persecution of civil society activists.'"  It was further reported that many of the raid victims had begged Microsoft to issue a public statement disavowing the government's tactics and to eschew the company's further participation in the raids.

Can't, or Won't?
So, Microsoft's dissembling declarations aside, it is not clear whether the company is unable or is unwilling to do anything about its Russian subsidiary's ongoing collaboration with Putin's pogrom of critics and activists.  It is a vote for "unable" when the the company says that it is just complying with Russian law or that it is just protecting its property in a country where piracy is rampant.  But it is a louder vote for "unwilling" when one considers the the Russian government is its biggest single customer in the country, accounting for 10% of the reported billion dollars Microsoft makes every year there.  Telling Putin "nyet" could cost them at least $100M and as much as $1B per year in lost revenue - high stakes either way.

But wait, there's more.  In July, Microsoft agreed to extend an existing agreement covering older Microsoft product and share the source code for Windows 7, Windows Server 2008 R2, SQL Server, and Office 2010 with the Russian government agency that used to be called the KGB, so that the agency could implement its own form of encryption in the Russian versions of those products.  This will allow Microsoft to sell more product into secure government and commercial applications, of course, but it will also give the Russian government the ability to decrypt the data of any Microsoft user in the country, including that found on the confiscated systems of critics and activists.  Tidy, huh?

And does this sound like a man with a Makarov semi-automatic at his temple?  "The signing of this expansion of the agreement means to us that we are entering a qualitatively new level of cooperation with the Russian Federation's government authorities," said [Microsoft Russia President] Pryanishnikov in a statement. "We expect that the adopted changes will not only lead to higher trust to Microsoft's software products, but will also become an additional catalyst for the development of high-end technologies in the country."

Ghandi Meets Quisling
The only negative statement coming from any part of Microsoft about the Russian government and the raids appeared Monday on the blog of Brad Smith, Microsoft's General Counsel.  In it he announced that, in response to the revelations made by the New York Times, the company would immediately issue a temporary a blanket license to all independent journalists and NGOs that covers all pirated software on their systems to protect them from “nefarious actions taken in the guise of anti-piracy enforcement,” until they can get current through Infodonor program.  Smith also said, "we unequivocally abhor any attempt to leverage intellectual property rights to stifle political advocacy or pursue improper personal gain."

Oh, SNAP!  Dude, you really schooled them!  Not.
Prickly principled rhetoric notwithstanding, this has the look of corporate self-interest passing for some kind of valor.  All Smith is really saying to Putin is, "Go find yourself another patsy," and to us, "The next time the Russian security thugs kick in a newspaper's door, don't look at us."  Adobe's red phone could be ringing right this minute - "Shantanu?  Vladdy here.  I have proposition for you."  If something like that happens, we can only hope that Narayen has more balls than Ballmer has had for the last two or three years.

What Is Really Going On Here?
Something not widely reported outside of Russia this week that seems like a pretty important detail is that on Monday, the very same day Smith was talking smack about the oligarchs, it was announced in the Russian press, where Microsoft Russia executives would surely see it, that Russian President Dmitry Medvedev was being briefed on the development of a "national operating system", which could be launched in 2012.

Based on a Russian cut of Linux and dubbed Linuksovskaya, with an annual budget of $325 million and the enthusiastic support of the government, the indigenous OS promises to save the government what it estimates to be "hundreds of millions" of dollars spent annually on Windows and Windows-based applications, and, equally importantly, it will give them complete control over how computer security is implemented and enforced in the country's infrastructure.  For businesses and consumers, it promises to free them from the pirate's life in which they have been enslaved by Microsoft's unreasonably high prices.

This is not the first time Russia has attempted such a feat.  In 2007 a Linux-based national operating system project was started, only to collapse two years later.  But, that was a bottom-up open source project with many participants that lacked strong ongoing government support and was ultimately shredded by conflicting ideologies and agendas.  This time, the government is stylin' like Stalin, directly funding and driving the project, and staffing it with hand-picked cooperative, nationalistic personnel.

None of that is likely to be lost on Microsoft's Russian crew, who it so happens is alleged to have started helping with the suppression of dissidents shortly after the previous national operating system project got under way.  But now, outed by the New York Times, neutered by Microsoft HQ, and put on notice by their true masters that their days may be numbered, lower prices and greater graft may be Microsoft Russia's only tools for making the end come more slowly and less painfully.  For its part in all this, Redmond seems to have been either helpless or hapless in how it handled the Russian sub and now it is trying to extinguish the firestorm it has caused with hot air.  We can't help but wonder, WWBD?