Microsoft may backtrack on an earlier pledge not to use its Xbox Live online gaming service to crack down on "mod chips" -- chips that modify the Xbox console so it can run copied game discs and unlicensed software. The 14-page user agreement and privacy notice included with the first Xbox Live kits sent to beta testers specifies that Microsoft reserves the right to revoke Xbox Live privileges for anyone with a hacked Xbox and to scan consoles on the network to enforce its rights. A handful of grey-market Xbox mod chips have gone on sale in the past few months. Once soldered onto the Xbox's main circuit board, the chips disable various copy-protection measures, allowing the machines to run legally or illegally copied discs, imported games and unlicensed software. Numerous hacking projects have emerged to use the chips to adapt Xbox units for use as media players and Linux boxes. Although Microsoft has said it will take legal action against any modifications that infringe on its intellectual property, a representative for the software giant said last month that Xbox Live, the upcoming online service for the console, would not be used to detect modified consoles. Yet language in the initial Xbox Live user agreement appears to allow Microsoft to do exactly that. It states: "Xbox Live may only be accessed with an unmodified, except for Microsoft authorized repairs and upgrades, Xbox video game console. Any attempt to disassemble, decompile, create derivative works of, reverse engineer, modify, further sublicense, distribute or use for other purposes either the hardware or software of this system is strictly prohibited." The agreement further states: "Microsoft may...retrieve information from the Xbox used to log on to Xbox Live as necessary to operate and protect the security of Xbox Live, and to enforce this Agreement." The privacy statement accompanying the agreement says information collected about specific consoles connected to Xbox Live will be used to update the console's software, protect the network's security and "protect and defend the rights or property of Microsoft." A Microsoft representative did not provide details on how the licence provisions might be applied. "The language in the Xbox Live user agreement leaves the door open in order for us to protect the security of our platform," the representative said in a statement. "Our goal is to provide our users with secure, consistent and fair online game play...Microsoft reserves the right to take legal action against anyone who tries to modify the Xbox for the purpose violating the intellectual property of our partners or of Microsoft." Xbox hackers seemed unconcerned with the potential for online snooping, saying current and upcoming mod chips offer a number of safeguards, including on/off switches and built-in software (firmware) that can be easily modified to bypass any new security measures. "The newer mod chips...can already defeat any attempts by Microsoft to detect them, as they are firmware upgradeable via a PC parallel port," wrote British mod chip enthusiast Tony Dalton-Richards. "I don't think this will affect modding very much," added Dan "SiliconIce" Johnson, founder of the XboxHacker Web site. "Mod chips can simply be switched off when the user wants to play on Xbox Live. That's if Microsoft even checks, which we are still not certain of." Mod chips have turned into a sticky area of copyright law. Sony, whose PlayStation 2 console is the target of close to a dozen mod chip makers, claims the devices infringe on its rights to enforce copyrights. Yet recent legal decisions have cast doubt on such arguments. Issues surrounding the Xbox have centered on the machine's BIOS, the basic software instructions that govern the operation of the console. Some mod chips appear to use a modified version of Microsoft's BIOS, while more recent attempts have been based on original BIOS constructions. See Gamespot UK's Xbox channelfor the latest news.