BusinessWeek reported Friday that Sony BMG, a joint venture of Sony (NYSE: SNE) and Germany's Bertlesmann Media Group, is finalizing moves to offer music downloads free from Digital Rights Management. Sony's move follows recent comparable efforts by the other three major labels, Warner Music Group (NYSE: WMG), Vivendi (OTC: VIVEF)'s Universal and privately-held EMI.

DRM protections -- largely a downloading standard since the network-crippling heyday of peer-sharing site Napster -- do more than just thwart duplication and discourage piracy. Apple (NASDAQ: AAPL)'s iTunes site uses the protections to lock users into using purchased tracks that work only through its free namesake application and on Apple's iPods and iPhones.

There's an old saying about getting into a fight with a lady: "If you lose you lose, and if you win you lose."

Well, the Recording Industry Association of America (RIAA) has won a battle with a 30-year old single mother from Minnesota. A federal jury ordered the woman the woman to pay $222,000 in damages for sharing 24 songs on online file-sharing platform Kazaa -- That's $9,250 per song.

"She was in tears. She's devastated," the woman's attorney attorney, Brian Toder, told The Associated Press. "This is a girl that lives from paycheck to paycheck, and now all of a sudden she could get a quarter of her paycheck garnished for the rest of her life."

The actual judgment could come in closer to half a million dollars, because she will also have to pay the RIAA's attorney's fees.

While this is an important symbolic victory for the industry, you have to hope that they will let this poor woman off the hook. In addition to its financial struggles, the industry is also reeling from angry consumers and upset artists. Demonstrating some compassion toward a single mother could go a long way towards building some goodwill.

But if the industry does decide to play hardball with this woman, they may find out that, in the long run, this victory is actually a major loss.

Microsoft Corp. (NASDAQ: MSFT) is pretty consistent in one area these days: shipping consumer and business operating system software that is increasingly locked down for fear of rampant software piracy. Anyone who has owned a recent or current Microsoft operating system probably knows that to download updates, bug fixes and other goodies on a regular basis, your PC must "phone home" to Microsoft and report that it contains a legit operating system. What happens when the "home" portion of that sentence is malfunctioning?

Almost a month ago, Microsoft's servers that validate genuine installations of its newest Windows Vista operating system went down -- and many PCs around the globe could not get updates from the software giant due to its server problems, even though they in fact did have legitimate software installations. So this is it, huh? Our entire computing environment can melt down because Microsoft's servers can't say everything is OK? From a customer standpoint, this kind of piracy protection is rather appalling.

This one incident has exploded into the techno-blogging scene recently, and Microsoft's "Windows Genuine Advantage" (WGA) piracy protection strategy is currently blowing up in its face from the viewpoint of many industry pundits. Yes, every server has problems from time to time and mistakes happen -- but when that result starts telling Microsoft customers that they have a "fake" version of Windows Vista installed on their machines, that can the potential to turn into a huge black eye for the company. In this case, it did. One point of failure led to a huge problem for 19 hours, and any good designer will have multiple redundancies in place to prevent this sort of thing. What didn't the world's largest software maker have one?

(Disclosure: I own MSFT shares as of 9-14-07)

How does a company like Microsoft (NASDAQ: MSFT) keep huge numbers of people in countries like Indonesia and China from using pirated copies of its software? According to Craig Mundie, Microsoft chief research and strategy officer, for now, there is little the company can do. He told Reuters: "We are realistic in recognizing that we have to work diligently over periods, that are really a decade or two, to make real progress in a number of these environments."

That means that tens of million of copies of Windows could easily bring Redmond not a single dime. It also means that the company is relying on local officials to support anti-piracy laws. Policing such large populations really isn't possible.

But, Mundie may be acting a bit cute. In all likelihood, the answer for thwarting pirates has nothing to do with laws and police. Microsoft and other large software companies are almost certainly working diligently to make ripping and copying software much more difficult. They would at least have as a goal putting in a set of systems which would disable may of the software's features if copying were attempted.

If selling a version of Window in China yields $100 and there are, say 20 million copies of pirated versions distributed per year, it add up to real money, even for Microsoft. Odds are that the problem is solved through programming and local laws to prevent stealing be damned.

Douglas A. McIntyre is a partner at 24/7 Wall St.

The International Trade Commission (ITC) has banned imports of some cell phones containing chip technology from Qualcomm (NASDAQ: QCOM). The ITC has said that the ban covers cell phones that infringe on a patent held by Broadcom (NASDAQ: BRCM) and that were imported for sale after June 7. The majority of the cell phone import world is up in arms, claiming that the ban will do irreparable harm to the American consumer. Frankly, those that choose to infringe on patents shouldn't be importing technology they aren't ready to sit on when discovered.

James Gerace, spokesman for Verizon Wireless, claims that the ban "essentially attempts to freeze innovation in cell phones." A more accurate interpretation would be that the ban seeks to freeze piracy that circumvents innovation. A Red Herring article says that Sprint Nextel (NYSE: S) has openly declared that it expects to sell 5 million phones this year that contain the infringing technology. That's a pretty bold statement by Sprint, and in light of the current ban, I think it's a pretty stupid statement also. That would be similar to me stopping at the local police station to tell them I plan on driving over the speed limit for 500 miles this year.

AT&T (NYSE: T) doesn't seem to care much about the cell phone ban. It has plenty of handsets available that don't contain the infringing chips. AT&T thought ahead and based the majority of its offering on a different technology. Might we call that decision prudent?

Meanwhile, as the pirates cry and whine about appeals and a stay of execution, Broadcom has eloquently made clear that it will consider discussion about licensing of the patent.

RealNetworks (NASDAQ: RNWK) has released a news multimedia player that could give the likes of Viacom (NYSE: VIA), CBS (NYSE: CBS) and other large media companies fits.

Real has been producing software players for PCs and cell phones for over a decade. But, the new player will allow consumers to take video from all major formats including Flash, Apple (NASDAQ: AAPL) Quicktime, and Microsoft (NASDAQ: MSFT) Windows Media and store them on the PC hard-drive. The player will also allow users to rip video from sites like YouTube, Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO).

Acccording to TechCrunch: "Every content creator will now be challenged by the real possibility that if their product is DRM free, it's likely to be ripped from the original source site and even burned to CD." And Barron's writes: "Once you capture the video, the software provides an easy way to send links to the content to other people."

So video pirates and video sharing buffs have YouTube in a bottle. Video can be captured on a PC hard-drive and sent to as many other computers as the user would like. Hard to trace. It is not as if a copy of Saturday Night Live is on the front page of YouTube. Instead, its is being hidden and sent out from a PC hidden somewhere among the other tens of millions of PCs around the world.

Douglas A. McIntyre is a partner at 24/7 Wall St.

The International Intellectual Property Alliance has filed its findings on piracy with the Office of the United States Trade Representative covering intellectual property issues in 60 countries. The letter quotes information from the Motion Picture Association which alleges that at $512 billion, criminal revenue from IP theft was greater than drug trafficking income of $322 billion during the full year 2004.

The findings also indicate that the mark-up on DVDs is significantly higher than the mark-up on drugs like heroin and cocaine.

Some of the companies on the organization's watch list are probably not a surprise, including China and Russia. But, there are a few surprises. Israel and Canada make the list as well.

The study from the IIPA estimates that trade losses from piracy in the 60 countries being monitored was over $15.2 billion in 2006, with business software being the largest piece.

Microsoft Corp. (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) have both been particularly active recently in calling for greater protection of their property overseas.

It is a great surprise that the U.S. government is not willing to do more.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Rock River Communications recently became among the first companies to sign contracts with record labels licensing songs for podcasts. These deals mark an important first step in the beginning of the industry's recognition of the opportunities for growth that may exist within podcasting.

According to a piece in today's Wall Street Journal, Rock River will be producing a series of podcasts promoting products manufactured by Ford and DaimlerChrysler, among others. These companies will then pay Sony a flat fee for the use of the songs.

Outside of this sort of arrangement, it is difficult to see how labels would collect money for podcasts. Since most people who create podcasts do it for free and then distribute them on the internet, it's unclear where the money would come from. It's a little bit like trying to collect royalties from a guy on the street who blasts his Discman a little too loud so that other people who did not pay are able to hear it. There's no one profiting and therefore no one to seek royalties from.

However, this is a good first step by the record labels in trying to work with advancing technology rather than fighting what is likely to be a fruitless battle in the long-run. If this partnership works well, we could start to see a lot more promotional podcasts in the near future.

There's many a slip twixt the cup and the lip. YouTube's antipiracy software is not ready. As time passes, the purchase of the video-sharing site begins to look more and more like the eBay (NASDAQ:EBAY) purchase of Skype. They are expensive toys with lots of users and little revenue.

There has been concern for some time that content owners might go after Google's large bank account because YouTube is used as a platform for distribution of expensive content from studios and TV networks. The content companies do not get a dime.

With antipiracy software in place, Google (NASDAQ:GOOG) had hoped to sign licensing deals that would bring it revenue for distribution, which would be shared, in turn, with the content owners.

So far, no such luck. As the Financial Times writes: "Failure to build adequate systems to protect copyright owners could also add to the risk of legal action against the site."

If the piracy matter persists into the new year, Google will have to get itself a legion of attorney's to go along with investor questions of why it paid $1.6 billion for YouTube.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Microsoft Corp. (NASDAQ:MSFT) filed more than 50 suits alleging software piracy against individuals and companies located in the U.S., Europe, South America, and Asia, including some who sell on online auction sites, such as eBay, Inc (NASDAQ:EBAY). The suits target companies that sell illegal copies of Windows, Office, Excel and Publisher.

Microsoft says the suits are not only to protect their business interests. The company also want to protect consumers from identity theft. At the same time it announced the lawsuits, Microsoft warned consumers that it uncovered code embedded in counterfeit copies of its programs that can track a user's visits and key strokes. That means counterfeit copies with this embedded code could potentially reveal your key strokes when entering sensitive financial data or passwords. This information could then be used for identify theft.

Microsoft said Vista will be armed with even stronger protections than XP or earlier version of its operating systems. Windows Vista is programmed to impair functions if a customer doesn't activate the software with a genuine product key.

Microsoft will be one of the first stops for Chinese President Hu Jintao tomorrow, who visits the U.S. for the first time since he became president three years ago. Microsoft hopes to persuade China to buy rather than steal its software, according to the Wall Street Journal on Monday.

President Hu will stop by Microsoft headquarters and then dine with Microsoft's founder Bill Gates. He will also stop at Boeing, which has had much greater success profiting from its billions of dollars of plane sales to China.

Microsoft isn't the only software company facing difficulty protecting its copyrights and other intellectual property rights in China. These problems with China are also faced by other software producers, movie studios, apparel brands, and other type of business that have fought China's propensity to pirate these products.

As part of President Hu's four day tour he will also meet with President Bush in Washington and speak at Yale University.

Let's hope Bill Gates can open the doors to legitimate software sales to China and work to close China's open door policy to pirates.