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AN intellectual property dispute between Microsoft and Chinese entrepreneurs has been resolved in the American giant’s favor, landing two men with heavy fines and jail time for spreading “the tomato edition” of Windows XP.
On August 20, 2009, the Huqiu District People’s Court of Suzhou City, Jiangsu Province in China’s coastal area made a court decision regarding infringements made by tomatolei.com on Microsoft’s Windows XP intellectual property rights. Hong Lei, maker of the pirated edition of the famous operating system, together with Sun Xianzhong, general manager of the Chengdu Gongruan Internet Technology Company, were each sentenced to three and half years in prison and personally fined RMB one million. Their company, Chengdu Gongruan Internet Technology, was fined an additional RMB 8.77 million, along with having earnings of RMB 2.92 million from sales of its pirated edition confiscated by the court.
Microsoft Corporation hailed the Chinese court’s decision as a “legal milestone.”
Any Publicity, They Say, Is Good Publicty
The court’s decision was met with a flurry of Internet activity, not only because this was the first anti-piracy case that Microsoft ever filed in a Chinese court, but also due to the large number of Internet users who had used, or were still using, the pirated edition from tomatolei.com. To them, this pirated edition, or “the tomato edition” as it is affectionately known, is thought to have improved user-friendliness over the original.
According to an on-line survey conducted by www.sina.com.cn immediately following the court decision, at least 50,000 of the 180,000 netizens polled claimed to be using the “tomato edition” of Windows XP.
Investigations conducted by the court showed that the “tomato edition” had been downloaded free from the Internet over 200,000 times. Some experts estimate that the installation figure for the edition quite possibly exceeds 10 million.
We spoke to Mr. Wang, a small business employee who admits to using the “tomato edition.”“The pirated edition was free of excessive and unnecessary functions that slowed down the original,” he explained, “and was packaged with other frequently used software – very convenient for computer novices. To some users in China, the word ‘free’ is magic and irresistible.” In addition to streamlining the software’s functions, Hong Lei’s “tomato edition” eliminated the verification and registration procedures imposed on Microsoft customers.
If, Mr. Wang continued, this “revised edition” had left options for the personalization of pop-up control and search engine tools, the number of users might have doubled. To Tomatolei, their business model was based on revenue from ad sales rather than sales to users. The evidence collected by the court contained a long list of advertisers, including Baidu, the largest Chinese-language search engine, and Alibaba, another Chinese web giant in B2B business services.
A large number of netizens expressed sympathy for Hong Lei. Many went so far as to call him a “national hero.” One “tomato edition” user called on other users “to help Hong Lei out by donating RMB 10 each to pay that daunting fine.”
“The fine for the ‘tomato edition’ is a large sum for a Chinese company,” Liu Fengming, vice president of Microsoft’s Greater China Region, commented to the press. “The problem is, people regard Hong Lei as a genius and national hero.”
Microsoft’s Reversal of
Fortune
After the court decision was made, Liu Fengming pronounced his gratitude toward China’s law enforcement and the Business Software Alliance (BSA).To him, the court decision represented the Chinese government’s new uncompromising attitude toward any infringements on intellectual property rights.
Microsoft owed a large part of its victory to a national movement against infringements on intellectual property rights on the Internet, a move that began in June 2008, when the BSA, on behalf of Microsoft, filed a complaint with China’s National Copyright Administration and the Ministry of Public Security against tomatolei.com, targeting the “tomato edition.”
In a reversal of fortune, Microsoft won the case but lost public sympathy on the Internet. Apart from numerous netizens who tapped away in disapproval, there were also many professionals who let it be known they viewed Microsoft’s behavior in China as monopolistic.
Back on August 1, 2008, when China’s anti-monopoly law took effect, there was wide speculation that Microsoft would become the first target.Instead, 14 days later on August 15, the police arrested Hong Lei, creator of the “tomato edition.” To some, this was really an “ingenious move on the part of Microsoft to deflect China’s anti-monopoly measures.”
The government’s inaction on Microsoft’s monopoly left many disappointed.Netizens complain that Microsoft is free to make its way in China despite being penalized for exercising a monopoly in other countries.
Ya-Qin Zhang, chairman of Microsoft China, made the following remarks after the court decision, “Most of the Microsoft products found in China are illegal copies. Therefore, a Microsoft monopoly doesn’t exist in China.” Yet Microsoft has never disclosed the actual percentage of its legal products on the Chinese market.
To some people in the software industry, Microsoft gained much more than itlost out of its pirated copies. Liu Chunquan, a lawyer from Shanghai Office of the Beijing Guangsheng Law Firm, put it this way: “This lawsuit exemplifies Microsoft’s successful execution of a very tactful strategy in China, a strategy that could be described as “feeding the fish before netting them.” “During the past decade or so,” he said, “China’s colleges, middle and primary schools and government departments have served as promoters of Microsoft products. Only when numerous Chinese computer users were in the habit of using Microsoft’s Windows Operating System, did the company begin to ‘safeguard its rights’.” To Liu and many others, this amounted to “dismantling the bridge after crossing the river.”
This was not the first time Microsoft lost the public’s respect in China. Its famous “black screen move” was also aimed at the enforcement of legal ownership: regular software updates transmitted threats that any computer with a pirated version of Windows XP installed would suffer a “blackout” of its screen.
That time Microsoft went too far, further weakening any public support it enjoyed.As ascertained in a survey conducted by Sina, only 4.4 percent of 180,000 respondents supported Microsoft’s legal products.
Victims of the Pirated Edition
In fact, the crackdown on the “tomato edition” was only Microsoft’s first move.
Alongside the “tomato edition,” there were a dozen or more other pirated editions of Windows XP in China. All of these versions similarly removed the prompt for the buyer’s verification and bundled them in packages with other frequently-used software.
According to the Sina survey, 68 percent of the respondents (about 125,000) said they were using the “tomato edition” or similar editions; 23 percent (about 43,500) said they had once used one of these “revised editions,” and over 80 percent declared their support for the “tomato edition.”
“Why did Microsoft single out the ‘tomato edition’?” posed one of Microsoft’s business partners rhetorically. “Simply because the ‘tomato’ had become influential through its efficient distribution chain.Microsoft’s legal products are too expensive for the average computer user. To many, pirating Microsoft products is a justifiable act of ‘Robin Hoodum,’ squeezing the rich to help the poor.”
This coincided with the laurels that Hong Lei received from some members of the public.
The outrageous prices that Microsoft charges for its products only encouraged illegal copying in China, which in turn, ironically, helped them gain an increased market share.
“If a computer had only legal software installed,” Mr. Wang explained, “the cost to the user would be in the tens of thousand of yuan – the hardware representing generally only a few thousand of that. No small businesses could afford the software cost, let alone individual users.” Microsoft charges RMB 2,000 for a copy of its Chinese language Windows XP, while a pirated edition is sold for only RMB 10, and downloading it from the Internet is free.
The annual disposable income for urbanites was only RMB 15,781 per capita in 2008, so few could resist the temptation of an illegal copy. The most common compliment paid to tomatolei.com on Internet forums is that they offer a more reasonably priced product, in line with Chinese consumers’ purchasing abilities. True, the large disparity between price and affordability explains, to some extent, the snail’s pace at which construction of an effective shield for intellectual property rights is proceeding in China.
People in the software industry have a different take on the situation.“The biggest victim of the pirated editions,” one software engineer said, “is the Chinese software industry itself, which is still in its infancy. Technologically speaking, the Chinese software industry is no match for Microsoft or other international giants.The only advantage that Chinese software products have is low price, butdirt cheap illegal copies of local products destroyed that edge. As a result, facing formidable foreign competitors like Microsoft, promising Chinese software developers are left with no alternative but to withdraw from the market.”
“As soon as a new Chinese-made software appears on the market, ” Mr. Wang continued, “it is plagued by pirated editions.”Several friends of his, who established their own software companies after leaving Microsoft, were unable to earn a living from software development.
After the Judgment
Just a couple of days after the court decision, Tomatolei’s site had a quiet facelift, transforming into a search engine service.The management’s new strategy is “to earn lawful profits through advertising.”
Other software pirates soon followed suit.Most of them halted their illegal software download activity.To legal analysts, the court ruling against the Tomatolei developers was the obvious cause.
For Microsoft, courtroom champion, the pain was far from over.No sooner did Microsoft announce a Windows 7 release scheduled for late October, than a pirated edition appeared on the Internet, priced between RMB 5 and 50, compared to RMB 399 for the legitimate version.
Apart from revising its business orientation, Tomatolei also revamped its Internet forum, or BBS as many Chinese know them. Starting September 15, its forum was renamed “Seeyoon technology.”The old .com address had changed too and a posting stated, “All changes were made for just one purpose: to carry forward the spirit of Tomatolei and provide better software service for more people, improving their lives.”
Diversified as the responses are, they all center on the question: “Would consumers still buy pirated editions if the legal one was reasonably priced?” In fact, Microsoft is adjusting its pricing strategy in China. Consumers can enjoy the Microsoft Office Home Edition for just RMB 199, and Windows XP Home Edition, for 399.Though the prices are lower than the American market, it still requires an investment Chinese consumers are unwilling to make in software.
You Yunting, a lawyer specializing in intellectual property rights at the Shanghai-based Zhonghui Law Firm, believes that piracy has something to do with a Chinese cultural tradition, which advocates sharing instead of selling intellectual achievements. But he also said that as China continues its process of modernization, this concept too will undergo some change.
Apart from numerous netizens who tapped away in disapproval, there were also many professionals who let it be known they viewed Microsoft’s behavior in China as monopolistic.
On August 20, 2009, the Huqiu District People’s Court of Suzhou City, Jiangsu Province in China’s coastal area made a court decision regarding infringements made by tomatolei.com on Microsoft’s Windows XP intellectual property rights. Hong Lei, maker of the pirated edition of the famous operating system, together with Sun Xianzhong, general manager of the Chengdu Gongruan Internet Technology Company, were each sentenced to three and half years in prison and personally fined RMB one million. Their company, Chengdu Gongruan Internet Technology, was fined an additional RMB 8.77 million, along with having earnings of RMB 2.92 million from sales of its pirated edition confiscated by the court.
Microsoft Corporation hailed the Chinese court’s decision as a “legal milestone.”
Any Publicity, They Say, Is Good Publicty
The court’s decision was met with a flurry of Internet activity, not only because this was the first anti-piracy case that Microsoft ever filed in a Chinese court, but also due to the large number of Internet users who had used, or were still using, the pirated edition from tomatolei.com. To them, this pirated edition, or “the tomato edition” as it is affectionately known, is thought to have improved user-friendliness over the original.
According to an on-line survey conducted by www.sina.com.cn immediately following the court decision, at least 50,000 of the 180,000 netizens polled claimed to be using the “tomato edition” of Windows XP.
Investigations conducted by the court showed that the “tomato edition” had been downloaded free from the Internet over 200,000 times. Some experts estimate that the installation figure for the edition quite possibly exceeds 10 million.
We spoke to Mr. Wang, a small business employee who admits to using the “tomato edition.”“The pirated edition was free of excessive and unnecessary functions that slowed down the original,” he explained, “and was packaged with other frequently used software – very convenient for computer novices. To some users in China, the word ‘free’ is magic and irresistible.” In addition to streamlining the software’s functions, Hong Lei’s “tomato edition” eliminated the verification and registration procedures imposed on Microsoft customers.
If, Mr. Wang continued, this “revised edition” had left options for the personalization of pop-up control and search engine tools, the number of users might have doubled. To Tomatolei, their business model was based on revenue from ad sales rather than sales to users. The evidence collected by the court contained a long list of advertisers, including Baidu, the largest Chinese-language search engine, and Alibaba, another Chinese web giant in B2B business services.
A large number of netizens expressed sympathy for Hong Lei. Many went so far as to call him a “national hero.” One “tomato edition” user called on other users “to help Hong Lei out by donating RMB 10 each to pay that daunting fine.”
“The fine for the ‘tomato edition’ is a large sum for a Chinese company,” Liu Fengming, vice president of Microsoft’s Greater China Region, commented to the press. “The problem is, people regard Hong Lei as a genius and national hero.”
Microsoft’s Reversal of
Fortune
After the court decision was made, Liu Fengming pronounced his gratitude toward China’s law enforcement and the Business Software Alliance (BSA).To him, the court decision represented the Chinese government’s new uncompromising attitude toward any infringements on intellectual property rights.
Microsoft owed a large part of its victory to a national movement against infringements on intellectual property rights on the Internet, a move that began in June 2008, when the BSA, on behalf of Microsoft, filed a complaint with China’s National Copyright Administration and the Ministry of Public Security against tomatolei.com, targeting the “tomato edition.”
In a reversal of fortune, Microsoft won the case but lost public sympathy on the Internet. Apart from numerous netizens who tapped away in disapproval, there were also many professionals who let it be known they viewed Microsoft’s behavior in China as monopolistic.
Back on August 1, 2008, when China’s anti-monopoly law took effect, there was wide speculation that Microsoft would become the first target.Instead, 14 days later on August 15, the police arrested Hong Lei, creator of the “tomato edition.” To some, this was really an “ingenious move on the part of Microsoft to deflect China’s anti-monopoly measures.”
The government’s inaction on Microsoft’s monopoly left many disappointed.Netizens complain that Microsoft is free to make its way in China despite being penalized for exercising a monopoly in other countries.
Ya-Qin Zhang, chairman of Microsoft China, made the following remarks after the court decision, “Most of the Microsoft products found in China are illegal copies. Therefore, a Microsoft monopoly doesn’t exist in China.” Yet Microsoft has never disclosed the actual percentage of its legal products on the Chinese market.
To some people in the software industry, Microsoft gained much more than itlost out of its pirated copies. Liu Chunquan, a lawyer from Shanghai Office of the Beijing Guangsheng Law Firm, put it this way: “This lawsuit exemplifies Microsoft’s successful execution of a very tactful strategy in China, a strategy that could be described as “feeding the fish before netting them.” “During the past decade or so,” he said, “China’s colleges, middle and primary schools and government departments have served as promoters of Microsoft products. Only when numerous Chinese computer users were in the habit of using Microsoft’s Windows Operating System, did the company begin to ‘safeguard its rights’.” To Liu and many others, this amounted to “dismantling the bridge after crossing the river.”
This was not the first time Microsoft lost the public’s respect in China. Its famous “black screen move” was also aimed at the enforcement of legal ownership: regular software updates transmitted threats that any computer with a pirated version of Windows XP installed would suffer a “blackout” of its screen.
That time Microsoft went too far, further weakening any public support it enjoyed.As ascertained in a survey conducted by Sina, only 4.4 percent of 180,000 respondents supported Microsoft’s legal products.
Victims of the Pirated Edition
In fact, the crackdown on the “tomato edition” was only Microsoft’s first move.
Alongside the “tomato edition,” there were a dozen or more other pirated editions of Windows XP in China. All of these versions similarly removed the prompt for the buyer’s verification and bundled them in packages with other frequently-used software.
According to the Sina survey, 68 percent of the respondents (about 125,000) said they were using the “tomato edition” or similar editions; 23 percent (about 43,500) said they had once used one of these “revised editions,” and over 80 percent declared their support for the “tomato edition.”
“Why did Microsoft single out the ‘tomato edition’?” posed one of Microsoft’s business partners rhetorically. “Simply because the ‘tomato’ had become influential through its efficient distribution chain.Microsoft’s legal products are too expensive for the average computer user. To many, pirating Microsoft products is a justifiable act of ‘Robin Hoodum,’ squeezing the rich to help the poor.”
This coincided with the laurels that Hong Lei received from some members of the public.
The outrageous prices that Microsoft charges for its products only encouraged illegal copying in China, which in turn, ironically, helped them gain an increased market share.
“If a computer had only legal software installed,” Mr. Wang explained, “the cost to the user would be in the tens of thousand of yuan – the hardware representing generally only a few thousand of that. No small businesses could afford the software cost, let alone individual users.” Microsoft charges RMB 2,000 for a copy of its Chinese language Windows XP, while a pirated edition is sold for only RMB 10, and downloading it from the Internet is free.
The annual disposable income for urbanites was only RMB 15,781 per capita in 2008, so few could resist the temptation of an illegal copy. The most common compliment paid to tomatolei.com on Internet forums is that they offer a more reasonably priced product, in line with Chinese consumers’ purchasing abilities. True, the large disparity between price and affordability explains, to some extent, the snail’s pace at which construction of an effective shield for intellectual property rights is proceeding in China.
People in the software industry have a different take on the situation.“The biggest victim of the pirated editions,” one software engineer said, “is the Chinese software industry itself, which is still in its infancy. Technologically speaking, the Chinese software industry is no match for Microsoft or other international giants.The only advantage that Chinese software products have is low price, butdirt cheap illegal copies of local products destroyed that edge. As a result, facing formidable foreign competitors like Microsoft, promising Chinese software developers are left with no alternative but to withdraw from the market.”
“As soon as a new Chinese-made software appears on the market, ” Mr. Wang continued, “it is plagued by pirated editions.”Several friends of his, who established their own software companies after leaving Microsoft, were unable to earn a living from software development.
After the Judgment
Just a couple of days after the court decision, Tomatolei’s site had a quiet facelift, transforming into a search engine service.The management’s new strategy is “to earn lawful profits through advertising.”
Other software pirates soon followed suit.Most of them halted their illegal software download activity.To legal analysts, the court ruling against the Tomatolei developers was the obvious cause.
For Microsoft, courtroom champion, the pain was far from over.No sooner did Microsoft announce a Windows 7 release scheduled for late October, than a pirated edition appeared on the Internet, priced between RMB 5 and 50, compared to RMB 399 for the legitimate version.
Apart from revising its business orientation, Tomatolei also revamped its Internet forum, or BBS as many Chinese know them. Starting September 15, its forum was renamed “Seeyoon technology.”The old .com address had changed too and a posting stated, “All changes were made for just one purpose: to carry forward the spirit of Tomatolei and provide better software service for more people, improving their lives.”
Diversified as the responses are, they all center on the question: “Would consumers still buy pirated editions if the legal one was reasonably priced?” In fact, Microsoft is adjusting its pricing strategy in China. Consumers can enjoy the Microsoft Office Home Edition for just RMB 199, and Windows XP Home Edition, for 399.Though the prices are lower than the American market, it still requires an investment Chinese consumers are unwilling to make in software.
You Yunting, a lawyer specializing in intellectual property rights at the Shanghai-based Zhonghui Law Firm, believes that piracy has something to do with a Chinese cultural tradition, which advocates sharing instead of selling intellectual achievements. But he also said that as China continues its process of modernization, this concept too will undergo some change.
Apart from numerous netizens who tapped away in disapproval, there were also many professionals who let it be known they viewed Microsoft’s behavior in China as monopolistic.