News

Taking on the IP Thieves

• By Anne Stuart
• 05/19/2006

Microsoft officials have said that while China is the world's second-largest PC market, it's only the 25th largest for legal software purchases. The Business Software Alliance, an international trade group, estimates that 90 percent of the software used in China is pirated.

Microsoft recently stepped up its anti-piracy campaign through a combination of high-profile diplomatic meetings with Chinese officials and cooperative agreements with Chinese technology companies.

In April, Microsoft Chairman Bill Gates met briefly with Chinese President Hu Jintao on the Microsoft campus in Redmond. Although part of their discussion was off the record, Hu publicly praised Gates as "a friend of China" and added: "I'm a friend of Microsoft." Gates, in turn, told the visiting head of state that "we are encouraged by the efforts of the Chinese government to strengthen intellectual property protection."

Speaking with reporters later, Hu -- an engineer by profession -- reiterated his support for combating software piracy.

Around the same time, two leading Chinese PC manufacturers formally pledged to work with Microsoft in promoting IP protection in their homeland. TCL Group and Tsinghua Tongfang Co. Ltd. signed agreements promising to install only "genuine," or valid, licensed copies of Microsoft software on PC products sold in China. Tsinghua Tongfang expects to purchase $120 million in Microsoft Windows licenses over the next three years; TCL Group plans to spend about $60 million on Microsoft licenses over the same period.

There are other signs of progress.

Also in April, the Chinese government decreed that newly manufactured computers must be equipped with licensed software (previously, some PC-makers sold "naked" machines that buyers could run with their own, presumably pirated, operating systems and other software). But it wasn't clear how that mandate would be enforced.

In addition, the Chinese government is offering rewards for tips about large-scale counterfeiting operations and has opened regional centers for handling complaints about IP rights violations.

Gates has cited such measures as evidence that China, like South Korea and Taiwan before it, is making incremental progress toward adopting Western IP protection standards and licensing practices. But he adds that China won't change overnight: "It will be a decade before we get to that level," he said earlier this year.

Still, some experts question whether such change will come at all. An October 2005 PricewaterhouseCoopers report, "Redefining Intellectual Property Value: The Case of China," suggests that IP abuses may even increase as China's power and influence grow in the next few years. "China is defining its own approach to IP management, consistent with some traditional and widely accepted tenets in China, but starkly different from what has been accepted practice in mature economies," says Mark Haller, a PwC lead partner and report co-author. As a result, Western companies like Microsoft and its many partners need to keep close tabs on the China story.