Shanghai Court Awards Record IP Damages to Microsoft

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Apr. 24 – Microsoft has been awarded the largest ever amount in intellectual property damages in China after a local court in Shanghai ruled that Dazhong Insurance, a state-backed insurer, was guilty of using pirated copies of Microsoft software.

The court awarded Microsoft RMB2.17 million (US$318,000). This marks the first successful case that Microsoft has taken in China over copyright infringement of its software.

The company has become increasingly aggressive in China in recent years in both contacting and visiting companies to assess the numbers of required user licenses. Microsoft told the court that they wanted to promote the use of genuine software for large companies. Evidence used in court showed that Dazhong Insurance had used at least 450 copies of pirated software and violated software piracy laws in nine categories.

China has been awash with pirated copies of Microsoft software for years and has had problems with even mainstream computer suppliers giving pirated software, including Windows, to the end user. While taking steps to ensure that pirated copies have been removed from the corporate supply chain, Microsoft have been visiting companies who have upgraded to original software, assessing the numbers of computers used and the numbers of licenses purchased. In doing so they have gradually been able to convert most corporate businesses to full original licensed copies.

“In the early days in China it was difficult to purchase computers without pirated software. Microsoft has pursued a long term strategy of accepting the pirated base they had to work from and then gradually educate and persuade companies, especially the larger ones whose systems should not really be running pirated software, to upgrade to original licenses,” said Chris Devonshire-Ellis of Dezan Shira & Associates, the foreign direct investment firm.

“This case will become a landmark in China IP development as the defendant was a large Chinese corporation backed by the state,” he said. “It shows that the Chinese leadership themselves want Chinese companies to cease using defective and pirated products and to protect the integrity of their administration, while at the same time acknowledging Microsoft’s right to charge for that quality of service and software.”

5 thoughts on “Shanghai Court Awards Record IP Damages to Microsoft

    The_Observer says:

    This is a good win for both Microsoft and China as the former is helping the latter to develop software & IT products and trains a lot of local staff. After all, Chinese companies today are no longer poorly capitalized compared to the early 1970’s. To show compliance with international norms can only be good for their image.
    Convenient timing as well because China is trying to encourage innovation. They still require overseas investment for it and for overseas scientists/engineers to come to China to do local research.
    This also show that the Chinese civil courts are finally becoming more independent of the CCP when it comes to making legal decisions. This bodes well for the developing IP market in China as it shows that the courts will protect foreign investments in China.

    The_Observer says:

    Addendum:
    I noticed that you have a link to a WSJ article saying the Chinese company will appeal based on Microsoft acting in a monopolistic manner. I’m not a lawyer by training but I can understand if the Chinese Appeals Court declines to hear it because of an irrelevant reason (this was about piracy and not monopolistic behaviour). If on the other hand they do hear it, I hope that Microsoft would win as this would help judicial decision making for future piracy and IP cases as this is a higher court with more legal standing. There are after all Chinese software houses and movie makers both in China proper and Hong Kong that could do with IP protection. The Chinese legal system is developing and maybe quicker than people and businesses realize. Whether Microsoft gets paid on any favourable decision is an enforcement and collection matter.

    Chris Devonshire-Ellis says:

    Thanks Observer. The appeal should fail as it is a seperate issue altogether. On another note – its shocking that a state backed insurance company should be running pirated software at all. Its unreliable and prone to breakdowns. One wonders how many other large Chinese companies are being run on dodgy software. I suspect it is this aspect of business administration inherent in Chinese companies that the CPC want to eliminate as much as any upholding of IP rights. – Thanks – Chris

    Alice says:

    It should be understood, however, that there is logic (if not legally analytical rigour) behind the appeal. IP rights are monopoly rights. Copyright is a monopoly granted by the State. Many countries thus have compulsory licensing laws (expressly allowed under the WTO’s TRIPs agreement) to ensure that IP rights owners do not unfairly refuse to grant licenses or do not demand unfair conditions/ prices for such licenses.
    What is the Chinese legal position on the grant of compulsory licenses?

    Faller says:

    Alice_
    Art. 11 and 48(2) of the new patent law shall give you a gist of the stand [at least for patents]. And you can find principles also in the general provisions of civil chinese law. i agree with Chris when he said it’s not about monopoly but about piracy, totally different ballgame.

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