By REUTERS

Filed at 7:30 a.m. ET

CYEBERJAYA, Malaysia (Reuters) - Microsoft Corp. said on Wednesday software piracy was on the rise worldwide and China, Taiwan, Hong Kong, Malaysia and Indonesia were the ``hotspots'' in Asia where major counterfeiting activities thrived.

Katharine Bostick, Microsoft's senior corporate attorney, said penalties imposed by many governments were not tough enough, resulting in the growth of large-scale manufacturing and distribution of counterfeit products.

``It involves organized crime,'' Bostick told a technology conference in Cyberjaya, Malaysia's software hub.

``When you are dealing with high-end counterfeits, you are talking about organizations that have a full supply chain, a full distribution chain, full manufacturing tools all in place, and it is all based on profits.''

Bostick said data from watchdog body Business Software Alliance, in which Microsoft is a member, showed that the global piracy rate rose by one percent to 40 percent of software products sold in 2001.

She said software firms stood to lose $11 billion in sales a year.

``Two out of five business software applications were pirated in 2001, which is the second consecutive year that the piracy rate has increased.''

``And again the focus on Asia is that, in Asia alone, the loss (of sales) is $4.7 billion.''

Microsoft is the world's largest software maker, famous for its Windows program for personal computers, and rakes in sales of about $30 billion a year.

STIFFER PENALTIES

Bostick said Asia Pacific's piracy rate was 54 percent and rising in countries like India, Malaysia and Singapore.

Vietnam scored the worst on the piracy meter, with a rate of 94 percent, followed by Indonesia at 88 and Thailand at 77.

``There could be many reasons why that rate is increasing but it is something that the software industry does look at.''

Bostick said tougher enforcement and stiffer penalties were needed as counterfeiters were becoming more sophisticated, and software makers finding it increasingly difficult to stay ahead.

``Right now, the cost of violating intellectual property rights is not that high. There is really no penalty for that major person and they will be right back in business the next day or the next month,'' she said.

``At one time, they may have been doing drug trafficking which is highly profitable but there are huge penalties for that ... while you can do this stuff (counterfeiting) and make just as much money and the penalties are light or don't exist at all.''

Bostick said governments should also work closely with the industry to create respect for intellectual property rights.

``Consumer desire for stolen goods, everyone loves a bargain ... education and awareness is very important,'' she said.

``The problem will not go away by itself. In five to 10 years, the problem will be massive.''