A WORLD software group has hit out against what it sees as derisory penalties handed out to counterfeiters by Chinese authorities, and has called upon the United States to unleash its Special 301 sanctions to stop similar acts of piracy. US software company Microsoft has been forced into the civil courts to obtain damages against what it believes to have been one of the largest counterfeiting operations in history, but which resulted in a fine of just HK$2,000 being imposed in the mainland. Meanwhile, the Business Software Alliance (BSA) yesterday released details of recommendations it had filed last week with the US Trade Representative in Washington, naming China as one of the top offenders against intellectual property rights, and calling for Special 301 sanctions to be implemented. The BSA is the software industry's anti-piracy watchdog, and its findings coincide with similar recommendations from an industry group representing producers of video-game products. The BSA's filing, made through the International Intellectual Property Alliance (IIPA), recommends that China be placed on the Priority Foreign Country list as a result of estimated losses to US software publishers of more than US$322 million, and for failing to introduce criminal penalties for copyright infringers. The IIPA is made up of industry groups representing film makers, book publishers and the music industry, as well as computer software manufacturers. But the Microsoft case played a significant part in the submission regarding China. The case involved Microsoft and Shenzhen University's Reflective Materials Institute. Following raids by the authorities in March 1992, the Institute was found to be illegally manufacturing holograms for use in pirated copies of MS-DOS 5.0 operating systems. According to business records seized during the raid, over 650,000 holograms had already been produced and shipped, and to date, Microsoft and the BSA have only been able to recover a handful of these holograms. As a result, Microsoft estimates its losses to be over $20 million. Ron Eckstrom, the company's corporate lawyer in Asia, said: ''We are led to one conclusion: that these missing holograms wound up on 650,000 boxes of counterfeit copies of the MS-DOS 5.0, which we have been unable to recover. ''Therefore, we estimate our total losses to be in the region of $20 million to $30 million''. Meanwhile, the Shenzhen authorities took responsibility for investigating the case and had to decide whether or not there was any liability on the part of Shenzhen University, and on the level of damages to be paid to Microsoft. In October last year, Microsoft heard through its counsel that the authorities had decided the institute had infringed on the company's trademark and was liable for damages of HK$2,000. Mr Eckstrom said: ''$2,000 for one of the largest counterfeit cases in history is very unsatisfactory.'' As a result, Microsoft has decided to file a civil case with the Shenzhen People's Court in an effort to extract what Mr Eckstrom describes as ''an amount sufficiently high to send a message to the counterfeiting community in China, that the Chinese Government and judiciary will not stand for this level of infringement of foreign trademarks''. He added: ''What kind of message does a $2,000 fine give to other counterfeiters? All it says is the operating costs of a counterfeiter in China are $2,000. ''This is going to make it very difficult for foreign companies looking to invest in China.'' With regard to the lack of criminal penalities in China's copyright laws, Mr Eckstrom has had assurances from top-level members of the Chinese Government that criminal penalties for trademark abuses will be introduced in the near future. But he said: ''We have heard similar comments before.'' The filing also mentioned South Korea and Japan, who are between them responsible for losses exceeding US$1.2 billion in 1993 to US publishers alone. Japan has also been singled out because the Government is currently considering revisions to its copyright law to legalise reverse engineering - a process whereby software companies can adapt elements of software programs while sidestepping initial development costs. Alix Parlour, BSA vice-president for Asia, said: ''Past filings have proved successful in convincing countries to adopt more stringent copyright laws and we strongly encourage the US Trade Representative to once again use Special 301 to enhance protection for intellectual property industries.''