It was a scare tactic, and it only really worked because there were a large percentage of illicit installs going around.

Business would have an "IT guy" who "saved money" - and they'd get a letter saying "let us audit you or we're taking you to court for copyright violations" and they'd scramble and agree to the audit.

Of course, the proper response was the legal version of "bite me" but since many of them were in violation, they acquiesced.

I never had it happen to anyone I was involved with or knew, but the stories were certainly flying around Slashdot (it was going to be the proximate trigger of the Year of Linux on the Desktop, don't you know).