NSW Police has seized more than 5000 optical disks in a piracy raid in Ballina on the state's north coast.
Two brothers were allegedly producing counterfeit copies of Microsoft Windows and Office software, games and music, reselling them nationwide via the Internet.
Microsoft, Interactive Entertainment Association of Australia (IEAA) and Music Industry Piracy Investigations (MIPI) assisted police in uncovering the piracy ring.
Microsoft Australia's intellectual property director, Vanessa Hutley, said selling counterfeits via the Internet has significantly changed the rules.
"Operators in a regional town, such as Ballina can now impact honest resellers across Australia," she said.
The investigation involved the covert purchase of items from the targets' Web site, followed by analysis of the material to determine its authenticity.
Microsoft investigators, in collaboration with MIPI and the IEAA assisted police with forensic testing to confirm their suspicions that the items were not authentic.
"Honest software resellers and consumers are the biggest losers when it comes to this form of piracy," Hutley said.
"Also consumers often get faulty, poor quality products, cannot get support and often loose their money. Every one loses, including Microsoft."
She said counterfeiting and other forms of piracy negatively impact the Australian community, through lost jobs and stifling young entrepreneurs.
Hutley estimates that a reduction in piracy from 32 per cent to 22 per cent by 2009 would generate 9,770 jobs and $4.7 billion in contributions to gross domestic product.
Music Industry Piracy Investigations general manager, Sabiene Heindl, said there is no doubt Internet piracy damages the local music industry.
IEAA CEO, Chris Hanlon, qualified the losses claiming piracy robs the games industry of millions of dollars each year.
In December 2006 the federal government enacted legislation which provides for more extensive enforcement measures to combat copyright piracy.
These measures include on-the-spot fines, and a range of penalties which are designed to address the various forms of piracy which proliferate in Australia.
Over the last five years, Microsoft has undertaken regular anti-counterfeit training with Police and customs officials in Australia wide to combat piracy and raise awareness of the impact on the software industry.
In Australia alone, Microsoft's anti-piracy hotline receives hundreds of calls per month from consumers who have been ripped off by vendors.