In an attempt to reduce piracy Windows XP introduced product activation. Activation requires the computer or the user to activate with Microsoft (either online or over the phone) within a certain amount of time in order to continue using the operating system. If the user's computer system ever changes—for example, if two or more relevant components of the computer itself are upgraded—Windows will return to the unactivated state and will need to be activated again within a defined grace period. If a user tries to reactivate too frequently the system will refuse to activate online. The user must then contact Microsoft by telephone, to explain why this is happening, in order to obtain a new activation code.
However, activation only applies to retail and "system builder" (intended for use by small local PC builders) copies of Windows. "Royalty OEM" (used by large PC vendors) copies are instead locked to a special signature in the machines BIOS (and will demand activation if moved to a system whose motherboard does not have the signature) and volume license copies do not require activation at all. Predictably this led to pirates simply using volume license copies with volume license keys that were widely distributed on the internet.
In addition to activation, Windows XP service packs will refuse to install on Windows XP systems with product keys known to be widely used in unauthorized installations. These product keys are intended to be unique to each boxed (or bundled) copy of Windows XP and are included with the product documentation, but a number of product keys were posted on the Internet and were then used for a large number of unauthorized installations. The service packs contain a list of these keys and will not update copies of Windows XP that use them.
Microsoft developed a new key verification engine for Windows XP Service Pack 2 that could detect illicit keys, even those that had never been used before. After an outcry from security consultants who feared that denying security updates to illegal installations of Windows XP would have wide-ranging consequences even for legal owners, Microsoft elected to disable the new key verification engine. Service Pack 2 only checks for the same small list of commonly used keys as Service Pack 1. This means that while Service Pack 2 will not install on copies of Windows XP which use the older set of copied keys, those who use keys which have been posted more recently may be able to update their systems.