Using Counterfeit Software to Manufacture Hardware May Constitute Copyright Infringement by the User


(By Luo Yanjie) Using another party’s copyrighted software,  and combining that technology with specific hardware product to produce a similar product may constitute copyright infringement. When determining whether such action constitute as a crime, the penalty may be calculated by the total value  of the hardware and software products,

When employees of high-tech companies leaves their employment, they may cause their former employer huge financial losses if they illegally uses the technology or software they obtained from their former employer. Therefore, companies generally take preventive measures with its employees by methods such as a duty not to compete or a non-disclosure agreement. For serious offenses, companies could consider filing criminal charges. In this post, you would see one such typical case.

Case Summary:

Ju Wenming, the defendant in the case, downloaded the supervision software “OP series” from his employer, THINGET, without the company’s authorization. Then in August, 2008, the defendant along with Xu Lulu and Hua Yi, jointly established Wuxi Yunchuan Industrial Control Co., Ltd. (“Company W”). The newly created Company W used the illegally obtained OP software to manufacture similar monitors to the defendant’s former employer and illegally gained profits. After it was reported to the authority, the prosecution office filed the criminal accusation against them.

The defendant argued that: to determine the amount of illegal business transactions that were involved as a result of the monitors in question, the production cost of the monitor must be deducted from the total sales amount. The defendant also  argued that their actions did not constitute as copyright infringement against the computer software.

After the hearing in court, the judge ruled that: the infringement of the software in question is essentially the monitor. What the three defendants have done was obtain illegal financial gains by illegally infringing on the copyright of the software. For this reason, the arguments that the defendants made with regards to having the hardware cost deducted from the total amount of the illegal profits they gained was not accepted by the court. Moreover, despite a difference between the defendant’s software and the one owned by the copyright holder, the essential part of both software is the same; even if the similar products were determined to only be a partial copy of each other, Article 24 of the Protection Rules of the Computer Software states that to copy or partially copy the software of the copyright holder is a violation of the law. According to the regulation on the copyright infringement law, the perpetrator must be pressed to the full extent of the law. On that basis, the court finds the defendant criminally liable for its action..

Lawyer Comment:

The Crime of Copyright Infringement in the Criminal Law is the most severe form of punishment for copyright infringement. This case is a typical computer software infringement case which  the perpetrators are criminally liable. The following is our interpretation of the case:

1. The scope of criminal punishment for copyright infringement

Although in China’s Copyright Law, the copyright holder can enjoy up to 17 rights as protected by the law, according to Article 217 of China’s Criminal Law, only four types of action could constitute as a crime against copyright infringement. The four actions are: 1. To copy and publish literary works, music, film, television, recording, computer software and other works without the authorization of the copyright holder; 2. To publish books whose exclusive publishing right is the sole property of another party; 3. To copy and publish video and audio recording without the consent of the recording right holder; 4. To use someone else’s identity to make or sell art works.

Looking at the regulation above, one can see that the Criminal Law mainly regulates against the “copy”, and “publication” of products whose exclusive right becomes violated. For other violation of copyright, such as the right of performance and the right of authorship, the aforementioned Criminal Law would not be applied. Therefore, the defendant in the case tries to make the argument that their action should not be considered as “copying.” However, considering that the core part of the defendant’s software is the same as that of the copyright holder, this futile argument was not accepted by the court.

2. Determination of the Infringement Amount: According to the actual sales price

According to the Interpretation on Several Issues concerning the Law Application in the Trial of Illegal Publication Crimes: Individuals who illegally gains more than RMB 50, 000 or organizations that illegally gains more than RMB 200, 000 are criminally liable for their crime. Furthermore, the total amount of the illegal gains would have a direct influence on the sentencing criterion. For this reason, the defendant argued that the illegal gains they made should exclude the costs of the hardware. But as regulated in Article 12 of the Interpretation on Several Issues concerning the Law Application in the Trial of IPR Crimes, the amount of the illegal operation amount refers to the value of the manufacturing, storage, transportation and selling of the infringing products. The sales value of the infringing product shall be calculated on the basis of its actual selling price. To take an even closer look at the case, according to the court, the value of the products involved in the case is mainly based on the function of the software in question, and not the hardware itself, Therefore, the court’s decision to use the sales price to determine the illegal gains by the defendants is in line with the law.

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