Dueling Software Data in the Spring and A Changing Tech Environment

夜来风雨声, 花落知多少? (At night the sound of wind and rain; Who knows how many flowers have fallen?; Poet Meng Haoran, 689-740, “Spring Dawn”)


It is almost April, which means it is not only time for cherry blossoms in Washington, but, as we approaching IP Week in China (April 26),  — dueling software data.

Here’s a digest of how China’s recently released data compares to BSA data.

According an article published in SIPO’s newspaper, which reported on a press conference on March 20,  New Progress in China’s  Promotion of Software Legalization, in 2014,  83% of Central and State organs promote their institutions have completed software legalization;   826,700 were procured, operating systems, Office, antivirus software, with a purchase amount of 461 million RMB. A total of 4,112 firms included in the annual software legalization work; 3,715 enterprises completed software legalization through inspection and acceptance.   The most critical datapoint: at the end of December 2014, new computer pre-installed genuine operating system software pre-installed rates continue to move up for 8 consecutive years, to a rate in 2013 at 98.42%.

The data from the Busines Software Alliance, released in the June 2014 BSA Global Software Survey, tells a different story. According to BSA, China has an unlinced PC software rate of 74%, with an unlicensed value of $8.767 billion. This reflected a decline from 82 percent in 2007.  The commercial value of unlicensed software dropped from 8.702 to 8.767 billion from 2011 to 2013.

The good news is that both sides appear to degree that software piracy is declining. The bad news is that the Chinese view the glass as nearly full.  BSA views the glass as more than 2/3 empty.

There may be any number of reasons for the differences in data, including sampling and analytical differences, but also including the type of software under consideration (package/embedded/cloud-based, commercial/non-commercial, etc.), and the impact of technological changes on these differences.   The migration to smart phone, tablet and cloud platforms and increasing competition may also be affecting package software sales.

In an apparently unrelated development, Microsoft announced March 18, 2015, that it is offering Windows 10 upgrades to both licensed and unlicensed users in China.   Microsoft said that its plan is to  “re-engage” with the hundreds of millions of users of Windows in China.  Microsoft is also working with Lenovo Group, to help roll out Windows 10 in China to current Windows users, and it also is offering Windows 10 through security company Qihoo 360 Technology Co and Tencent Holdings Ltd, China’s biggest social networking company.

Based on the press release one additional positive outcome of the plan may be that this free upgrade (or, indeed, legalization) is intended to help with adoption of Microsoft’s Windows Mobile platform,  which reportedly will provide a universal app platform across a range of devices including Microsoft’s mobile platform.

Top 10 Internet “Sword Action” Piracy Cases For 2014


Let’s fight with gentle words Till time lend friends, and friends their helpful swords. (Shakespeare, King Richard the Second)

On January 14, 2015, the National Copyright Administration of PRC (NCAC), together with the National Internet Information Office (NIIO), the Ministry of Industry and Information Technology (MIIT), and the Ministry of Public Security (MPS), held a briefing in Beijing on the achievements of their campaign “Sword Action” (Jian Wang Xing Dong, 剑网行动) (or “Sword Network Campaign”).  This campaign is intended to address internet copyright piracy.

China has now carried out the “Sword Action” for 10 consecutive years.  According to information released at “Second China Seminar on the New Internet Copyright Issues”, this campaign has resulted in investigation of  4241 cases related to Internet piracy, including 1926 websites which were referred to MIIT for shut-down, the confiscating of 1178 servers and related equipment sets, and fines of 7.83 million RMB.  Perhaps most critically, 322 cases were transferred to judicial departments, presumably for criminal prosecution, or about a 7.6% “referral rate.”

Last year’s Sword Action covered a range of content types, including films and television programs, literature, and online games, with a particular focus on selling pirated products through Internet.  Here is a summary of these important cases, with our comments:

1.  Shanghai “Shooter net” (射手网)Infringing Audiovideo Works and Subtitle Translations


In September 2014, Shanghai Cultural Market Administrative Law Enforcement Team investigated the “Shooter Network” (www.shooter.cn) for alleged copyright infringement.  The investigation revealed that Shanghai Shooter Information Technology Co.  set up the ”shooter net” in shopping malls, for commercial purposes.  Shooter sold copies of their “2TB HD integrated video collection of resources” hard disk storage devices, “3TB HD super audio collection and other products”, with a total of about 100 units sold since May 2013.  In a separate investigation, Shooter subtitled “How to Train Your Dragon” and other television work without permission of the rightsholders and permitted users to browse, download and view these programs.  The site’s daily IP traffic was about 200,000, and daily visits were 400,000 page views.  The Motion Pictures Association of America certified that various titles were unauthorized and that films were subtitled without authorization of the copyright owner.   Shanghai Information Technology Co., Ltd. agreed to stop the infringement, and the site was shot down in November 23, 2014. A 100,000 RMB administrative punishment was imposed. This case alerted subtitle translation sharing groups that their previous sharing activities may constitute a form of copyright infringement.

2.  “Yi Dian Wang Ju” Company (一点网聚公司) Disseminating Literary Works

On December 2014, NCAC investigated on Yi Dian Wang Ju Company for allegedly disseminating literary works on-line.  The company, without the permission from Beijing weekly magazine, Beijing Finance World Culture Media Co., Ltd, and Beijing Figures World Culture Media Co., Ltd, disseminated 246 written works to public.  NCAC imposed a 100,000 RMB administrative punishment on the company.

3.  “Jian Gong Family” (建工之家) Website Software  

The copyright administrative law enforcement department of Yangzhou City (Jiangsu), together with Heze City (Shandong), investigated the “Jian Gong Family” website.  The website charged a membership fee and offered a number of cracked versions of software online and for downloading.  As of September 15, 2014, it had 1,430,332 website members, and on-line members of 6268.  The copyright administrative law enforcement department of Yangzhou imposed a 100,000 RMB administrative fine.

4.  Mr. Liu On-line Games Copyright


The Ministry of Public Security (MPS) of Heilongjiang Province together with NCAC investigated a Mr. Liu for allegedly infringing the copyright of an on-line game named “Zhu Lu Zhong Yuan”.  The infringed online games were operated through VPN proxy services, with rental servers inside and outside in China.  The companies used third-party payment platforms for cash flow.  There were hundreds of thousands of players and the scale of the website was close to that of genuine games. On July and August of 2014, Liu as well as other parties were arrested.  The court sentenced Liu and the technical directors of the computer service with maximum penalties of 3 years and 6 months imprisonment, and fines ranging from 400,000 RMB to 60,000 RMB.

5.  “HD Movies Download Website”(高清影视下载网)


MPS of Yangzhou City (Jiangsu) investigated the “HD Movies Download Website” for  infringing copyright.  Mr. Hu set up ”高清影视下载网”(www.gaoqing.tv), which he maintained and operated.  His wife was responsible for finances and procurement.  The service provided HD movies to copy and sell through their website and a Taobao store(淘宝)(affiliated with Alibaba) of a Mr. Ding.  Mr. Hu sold the membership invitation code of the website on the Taobao store, generating illegal revenue of 900,000 RMB in 2013.  The court sentenced Mr. Hu to a prison term of 1 year and 6 months and fined him 160,000 RMB.  Mr. Ding was sentenced to 6 months with a fine of 60,000 RMB.

6.  “999 Treasure Net” (999宝藏网) Software


MPS (Anhui) investigated the “999 Treasure Net”, for offering pirated Windows operating system software to download.  The website also offered advertising, bundled plug-ins and collected membership fees.  The infringers made an illegal profit of more than 2.5 million RMB.  The court sentenced 6 individuals to imprisonment ranging from 1 year to 3 years with fines ranging from 50,000 to 150,000 RMB.  NCAC gave the informer a 10,000 RMB reward.

7.  Mr. Liu Selling On-line Audiovisual Products


MPS of Zibo City (Shandong) and NCAC investigated three Taobao shops for selling pirated audiovisual products. Liu X, Song X, and Yang X, profited from downloading videos of calligraphy and education from the Internet, and employed Sun X to copy about 41,200 disks.  The illegal business profit was more than 4 million RMB.  In August of 2014, 11 related individuals were arrested, and 3,400 pirated CD’s were seized.  The case has been transferred for criminal prosecution.

8.  Hubei – A Number of Sites Suspected of Infringing “Comic Guests” 《知音漫客》Magazine


Hubei Province MPS investigated a number of sites of unauthorized dissemination of a network magazine “Comic Guests”.  Twelve key sites and organizations were identified, and three allegedly infringing website have been investigated, leading to the arrest of five suspects. The case has a value of about 13 million RMB and is being further investigated.

9.  Tan X Selling Pirated Software On-Line


In May 2014, Yongzhou Lingling District Public Security Bureau (Hubei) investigated Tan X and others for online sales of pirated software programs.  The investigation determined that Tan X had been pirating Microsoft software CD’s, printing blank software key labels with passwords, make pirated software discs, and selling on Taobao through a number of stores – “DELL HP IBM服务器”、“电脑软件批发”、“金英团队”、“迷彩指望”、“鑫城软件”、and “樱花肆虐的季节” (translations: “Dell HP IBM Server”, “Computer Software Wholesale”, “Kim / Gold Brave English team”, “Camouflage Expect”, “ Xincheng Software”, “Cherry Ravaged Season.”)  MPS has since arrested 5 suspects and the case has been transferred to prosecution.

10.  Guangdong “3 • 24″ Network Wholesaling Pirated Books


In March 2014, MPS together with the Cultural Market Comprehensive Administrative Enforcement team of Guangzhou, on the complaint of the China Construction Industry Publishing House, undertook a joint investigation on “3 • 24” network, which was thought to be pirating books on a wholesale scale.  The investigation revealed that Xiang X rented a room to store 28,000 copies of 53 editions of pirated books in order to wholesale these books for sale to stores at low-cost.  Based on the sales inventory, purchase receipts and other clues, the enforcement team arrested several vendors, destroyed eight “black” warehouses, four logistics companies, and a point of sale network.  Law enforcement also seized more than 500 pirated editions with 150,000 copies and more than 7 million Mayang (码洋) (book discount notices).  Enforcement authorities filed 35 cases and nine suspects were detained, of whom two were approved for arrest.


Comparing to the prior Sword Action of 2013, the “Sword Action” of 2014 entailed more interdepartmental cooperation.  It also struck at several important commercial networks, including physical and on-line stores.  These campaigns also show an impressive national scope, close coordination with MPS, a high referral rate and an interest of officials in addressing complex and emerging copyright issues.  Music piracy cases are noticeably absent from this list.

While these efforts are laudable, good cases may not be enough to drive social reform.  What remains to be seen is a comprehensive report on overall extent of copyright administrative enforcement efforts.   NCAC has not issued such a report in years.  For example, we do not know how many cases NCAC overall brings on behalf of foreigners, how many cases transferred to criminal prosecution, average fines, types of content being enforced, role of on-line and physical markets, etc.  Such data would enable meaningful identification of areas where enforcement is more likely to be aggressively pursued, as well as provide useful comparisons to other forms of enforcement in China.

We welcome any corrections or further detail on the above (prepared by Mark Cohen and Yao Yao).



Microsoft under Chinese Antitrust Scrutiny?

Yesterday, July 28, the Western press, including the Washington Post and South China Morning Post, as well as Chinese online media reported that the State Administration for Industry and Commerce (SAIC), one of China’s three antitrust regulators, was investigating Microsoft for possible antitrust violations by visiting Microsoft’s offices at Beijing, Shanghai, Guangzhou and Chengdu.

Chinese IT analysts suggested that if there were an antitrust investigation, it would involve Microsoft’s operating system, which controls 95% of the market.   However, analysts also noted that while PC OS has not been a principal focus of attention of China’s antitrust regulators, China has potentially eight domestic competitors to Microsoft in the OS sphere, and that there market share has been growing in part through government procurement efforts. While OS is a basic platform for building computer systems and services, these analysts noted Microsoft’s technological depth in this area has brought it many competitive advantages.

One hopes that Chinese regulators note that the 95% “market” dominance figure that is being discussed necessarily refers to the legitimate, non-pirated market only since Microsoft’s chief competitor in China is likely the stolen pirated versions of its own software.

The limited news that is available makes it difficult to infer much. SAIC handles non-pricing related investigations involving monopolistic agreements, and abuse of dominance. In recent months, however, NDRC has undertaken several price-related antitrust investigations. SAIC is a vast agency which also has broad authority in a range of IP and market regulation areas, including “abuse of IP” pursuant to article 55 of China’s Antimonopoly Law as well as supervisory authority under China’s contract law.

History also offers little guidance, in part because of Microsoft’s extensive involvement in a range of tech sectors. A Hong Kong based company reportedly accused Microsoft of discriminatory and excessive pricing for its software products in 2012 in a case in Guangdong. .” On a positive note, however, Microsoft’s merger with Nokia was also recently approved by China’s antitrust regulators

China does appear to be more clearly expanding its efforts to regulate technology markets.   These efforts began even when there was an unclear legislative basis. The press had reported that Microsoft had been reported to be the subject of an antitrust investigation by SIPO in 1998, which thereafter led nowhere except to a flurry of denials. In fact, as I noted in the 2011 book I coauthored on Antimonpoly Law and Practice in China, MofCOM Vice Minister Yi Xiaozhun complained even before implementation of the antimonopoly law (2007) of high licensing fees “running counter to fair competition”. More recently,the Huawei/Interdigital case appears to have been a harbinger of a more active role by the government, particularly NDRC, in regulation of foreign players in China’s technology markets.

We noted in the 2011 book that there are likely be “increasing concerns regarding policies that appear oriented towards enhancing national competitiveness rather than competition per se. These concerns over an emerging Chinese “techno-nationalism” have been escalating with increasing frequency.” At the same time, I also expressed hope that “China’s emergence as a major center of innovative intellectual property activity may alter policies that appear to diminish the value of foreign IP rights and may also temper rhetoric that is occasionally heard of using competition law and other policies as ‘counter strategies’ to Western ‘IP oppression.’”  More recently, these themes were echoed at the recently concluded Strategic and Economic Dialogue where China “recognized that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and that enforcement of its competition law should be fair, objective, transparent, and non-discriminatory. ”

These days at conferences no one seems to doubt that China is interested in IP protection. The “goods news” remains that China is interested in IP. Unfortunately, the bad news is also that China is interested in IP  —  as a tool of development for its “socialist market economy.” Striking the right balance will be a critical issue for both China and its trading partners in the years ahead.

The opinions expressed above are the author’s own.