Well I didn't read the whole thing but it seams to me that Microsoft (M/S) in simple legal terms is trying to protect it self against people using their products without a legal contract. M/S also doesn't want anybody to use their products for illegal purposes. M/S also says it will disclose private information it has when asked through the proper legal channels.
To a home user to me it is simple. If you use your computer and Microsoft's products to do things that are not legal, they will help law enforcement if requested in the proper legal fashion. That would include stealing movies, music,programs and operating systems using u torrents and P2P or the like. If a home user allows someone else to use their computer with M/S programs to do such things you as the authorized owner and user of M/S programs are responsible for such actions.
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Put it simple for home user. Microsoft has the right to stop all illegal actions using their programs that they or other discover. That could include but not limited to removing the authorization code of all their programs too reporting to legal authorities with all need information private or otherwise. Kids this may put mom and dad in a very tough spot if your caught doing illegal things and its reported.
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To a business this idea can be tough. If said business has a authorized use of Windows Office and let say 100 computers stations. The business is accountable for the use of that M/S program in all 100 station. If one employee uses one station to set up a bank robbery M/S is not responsible the business is. Microsoft is not responsible if others use their product for illegal actions.
If my understanding is correct I have no problem with it.
I'm not a lawyer nor do I have any legal training.