How does Microsoft Settle its Problems of Software Copyright Infringement in China?

 microsoft(By You Yunting) With the serious intellectual property rights infringement in China, many foreign enterprises find it difficult to protect their rights. In today’s post, we will introduce a case detailing how Microsoft settles its problems of software copyright infringement in China.

Introduction to the Case:

Plaintiff: Microsoft

Defendant: Sailun Co., Ltd (SHA: 601058)

Court of first instance: Qingdao Intermediate People’s Court

No.: (2013)青知民初字第80号, (2013)青知民初字第81号, (2013)青知民初字第82号

Microsoft alleged to the court that, Microsoft owns software copyright for Microsoft Windows, Microsoft Office and Microsoft Windows Server, but defendant Sailun Co., Ltd illegally duplicated, installed and made commercial use of the aforementioned software, without authorization, on its computers in its principal place of business. Microsoft claimed the court in support of the following aspects: First, the court should order the defendant to cease the infringement; Second, the defendant should compensate the loss of 0.5 million yuan per software license, totaling 1.5 million yuan. Third, the defendant should be ordered liablefor a total of 0.3 million yuan for attorney fees, investigation fees and other reasonable fees. Finally, the defendant should extend a formal apology to Microsoft.

For the above allegation and claims, Microsoft provided the following evidence:

First, software copyright certificate;

Second, notarization certificates of defendant’s employment advertisements from various employment websites,demonstrating that the defendant required the employees to be proficient in both Microsoft Office and Microsoft SQL Server.

Third, Microsoft’s software sales contract with other customers, demonstrating the price of the software involved in the litigation;

Fourth,an invoice of the paid attorney fees.

Sailun Co., Ltd argued that it should not compensate for Microsoft’s losses on the grounds that their software in its company involves an authorized edition of the software, China-made software, and some software that was configured by employers themselves.

In supporting its allegation, defendant Sailun Co., Ltd submitted the following evidence:

Firstly, Microsoft’s franchises and open licenses, showing the defendant had once purchased the software from Microsoft;

Additionally, the defendant’s purchases of some of its desktop computers and its servers, demonstrating that the defendant is authorized to use the disputedsoftware.

In the proceeding of the case, Microsoft applied for a preservation order to investigate and collect evidence. The court investigated the defendant’s use of the software and then seized two of defendant’s desktop computers under legal process. Then, the defendant affirmed that 26 desktop computers had used the Microsoft Windows without authorization and at the same that there are about 100 computers, including desktop computers and laptops, with as-yet-unfulfilled the applications of authorized software.

Upon hearing the case, the court held that:

  1. Microsoft’s software copyright shall be protected by laws and regulations.
  2. The defendant that made commercial use of the software without authorization or exceeding authorization shall assume civil liability pursuant to the laws and regulations.
  3. Upon liability of compensation, considering the fact that the court cannot consider the price by virtue of an unacknowledged edition of the infringed software, the court decided the case shall conform to compensation strictly defined by law.
  4. For the claim of apology, as the accused behavior had just infringed property rights rather than personal rights, extending a formal apology is not appropriate in this case.

In conclusion, the court determined that the defendant shall cease the infringement of the copyright of Microsoft Windows, Microsoft Office and Microsoft Windows Server and shall delete, or destroy, all the copies of the infringing software controlled or owned software by the defendant and the other carriers of said software. At the same time, the court ordered the defendant to compensate Microsoft forlosses and reasonable fees, totaling 0.5 million yuan.

Lawyers’ Comment:

1.  The most difficult problem is collecting evidence for Microsoft.

Our previous post Analysis on the Data of Microsoft’s Combat against IPR Infringement once concluded that Microsoft has historically preferred to initiate lawsuits againstlarge-scale companies and PC sellers, rather than an individual. In today’s post, the defendant is a listed company. However, Microsoft could not directly obtain evidences of the pirated software installed on the defendant’s computers, so Microsoft must draw support from the court in preserving evidence. When judging whether to preserve evidence, the people’s court has the power to make decision. Our previous posts How to Apply for Evidence Preservation for IPR Trials in China and Introduction to China’s Courts’ Evidence Preservation System in Software Litigation have introduced the conditions of evidence preservation in China for intellectual property rights trials, including the preliminary evidence of the infringement, evidence preserved that must be related to the case and evidence that is unavailable to the right owner.

In this case, fortunately, the court approved the application for evidence preservation. If the court did not approve the application, Microsoft could not have obtained the infringed evidence. Actually, there are many courts in China that dislike rights protectors who initiate large-scale lawsuit against piracy as Microsoft. In the case of encountering such courts, it is unlikely that Microsoft will be successful in protecting its rights.

2. Another problem is the low compensation in software infringement.

In this case, Microsoft claimed compensation in actual losses, accounting for the sales price, but this was rejected by the court. The court decided to apply statutory compensation, accounting for merely 0.5 million yuan. In this figure, the reasonable fees awarded of 0.3 million yuan for rights protection are included.

When referring to this case, there is no basis for the court to dismiss Microsoft’s claim. Even using the lowest price of Microsoft’s software involved in this case, the compensation for the accused infringements should be higher than that of the court’s judgment. Such judgment of the court indicates that judicial policy towards intellectual property rights infringement in China is that the infringed party should not be harshly punished.

Nonetheless, there is no need for intellectual property right holders in China to have heavy hearts. Chinese standards for intellectual property rights compensation are improving. Pursuant to our revised Trademark Law, the maximum amount of compensation is up to 3 million yuan starting from 0.5 million yuan. This is a sign that Chinese governments are attempting to improve the compensation for intellectual property rights infringement.

3.  Extending a formal apology does not apply into a case of infringement.

For many companies, the biggest problem in intellectual property rights infringement is not the compensation, but the loss of commercial reputation. As such, the claim fora formal apology would be very destructive. Pursuant to the Copyright Law, any person who copies software without authorization shall undertake an apology to the ownership whose rights have been infringed.

We note that Qingdao Intermediate People’s Court did not support the claim to offer an apology. In fact, this also evinces the judicial policy of the courts towards intellectual property rights infringement. In China, the accused party did not carry out a serious infringementby virtue of its incomplete purchase. Taking this reason into account, the court decided not to order the defendant to offer an apology.

Finally, if I were an attorney for Microsoft, I would tell them that the judgment is acceptable, on the grounds that the court supported the application for evidence preservation and determined n adequate level of compensation. Under the conditions of our current intellectual property rights protection environment, it is inevitable to that some aspects of a judgement are unsatisfactory..

 Lawyer Contacts

You Yunting86-21-52134918

Disclaimer of Bridge IP Law Commentary

Leave a Reply

Your email address will not be published. Required fields are marked *