Microsoft said it "assumes responsibility for this situation" and would suspend "access to the Juku beta indefinitely."

Microsoft said the Chinese vendor of the software has "acknowledged that a portion of the code they provided was indeed copied. This was in clear violation of the vendor's contract with the MSN China joint venture, and equally inconsistent with Microsoft's policies respecting intellectual property."

Respect for Intellectual Property

The statement emphasized that Microsoft insists its vendors strictly respect intellectual-property rights. "Our practice is to include strong language in our contract that clearly states the company must provide work that does not infringe the intellectual-property rights of others. We are a company that respects intellectual property and it was never our intent to have a site that was not respectful of the work that others in the industry have done."

The company said it would "reach out" to Plurk "to explain what happened and the steps we have taken to resolve the situation." It also said Microsoft and MSN China would examine practices in acquiring application code from third-party vendors.

Plurk was less than content with the apology. Cofounder Alvin Woon said the company is likely to sue over the breach. "We are definitely looking at all possibilities on how to move forward in response to Microsoft's recent statement," Woon said. A "lawsuit is definitely one of the many options we have considered and will continue to look closely to."

Crisis Management

A lawsuit may be unavoidable, but Microsoft likely requires its vendors to grant immunity from lawsuits, said Matt Rosoff, a vice president at Directions on Microsoft. The software giant handled the situation well, Rosoff said, investigating quickly and issuing an apology.

"It doesn't change Microsoft's opinion or position on intellectual property, or affect how China reacts to intellectual-property issues," Rosoff said. "Microsoft has noticed that as economies grow their own homegrown industries, they enforce IP more aggressively."

As an example, Microsoft used to have serious piracy problems in South Korea, but as Korean companies developed their own intellectual property, the government brought its standards more in line with the West. "Microsoft is hoping the same thing will happen in China," Rosoff said.

Should Microsoft have done more due diligence on this company? Now that the damage has been done, the answer appears to be yes, but "you have to trust your vendors," Rosoff said.