Software IP Protection During the Financial Crisis

Issue 30 By Harry Yang, China IP,[Comprehensive Reports]

The spread of the financial crisis in 2009 has affected all walks of life in China, including the software industry. In order to save costs and reduce expenditures, some enterprises ceased buying legitimate software, some cut their budgets for legitimate software, and some even started to use pirated software instead.

These enterprises believed that the process of promoting genuine software should be slowed during the financial crisis, and even that law enforcement agencies should permit the use of pirated software so that companies can ride out the crisis. Since the end of last year, there were indeed some local law enforcement agencies that issued regulations not to publish slight violations.

Deputy Director of the National Copyright Administration (NCA) Yan Xiaohong has said no to such beliefs in an interview. He said that the software industry is an infrastructure, pioneering industry in the national economy. No one, including machinery manufacturing, mining, oil exploration and even office workers and educators, can survive without software. In addition, the software industry is of great strategic importance for changing the growth mode in China and promoting economic development with intellectual achievements.

He said, “Software demands a huge investment in R&D. If you go to a software company, you will see hundreds of people busily developing software. However, once the software is developed, the price of a pirated CD is only 8 Yuan, which dampens the enthusiasm for innovation. We have learned lessons in the past. For example, people used to install Kingsoft’s software without paying. The company was once on the brink of bankruptcy. There are a lot of software companies in the same situation. Over the past few years, China has intensified efforts in IPR protection. These software companies now see hope for development, finding a way out, and gaining healthy development in recent years.”

With regard to the necessity of software protection during the financial crisis, Yan said: “In the financial crisis, do we still need social order? Do we still want everyone to abide by the rules? If we need order, I think it is also necessary to maintain order in the field of intellectual property. We should pay for commodities in stores, so we should also pay for intellectual property. IP should not be treated as an exception.”

On April 17, People’s Daily Online held the third IP Salon to discuss IP protection for software in the context of the financial crisis. Deputy Director of the NCA Copyright Department, Xu Chao; the Executive Vice President of China Software Alliance, Zou Bian; the Director and Chief Representative of Business Software Alliance (BSA) China, Zhang Quansheng; the Deputy Director of the IPR Center under the Chinese Academy of Social Sciences, Li Shunde; together with representatives from Microsoft, Adobe, Symantec and other software companies attended the Salon.

Impact of the financial crisis on software IPR protection

Xu Chao (Deputy Director of the NCA Copyright Department):

“Although the financial crisis has had some impact on China, the principles and policies for IP protection from both the central government and the competent authorities remain unchanged. During last year’s State Council institutional reshuffle, quite a few departments were downsized and some committees shut down. However, the inter-ministerial joint conference on promoting genuine software in enterprises -- which was led by the General Administration of Press and Publication (GAPP) and included the Ministry of Industry and Information, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the China Banking Regulatory Commission, the China Insurance Regulatory Commission, the China Security Regulatory Commission, and the Federation of Industry and Commerce -- was still in business. At the beginning of this year, it held its second working meeting. In accordance with the meeting, there was no substantive change in protecting software IPR and promoting the installation of legitimate software compared with the previous two years.

Moreover, the world is now readjusting its economic patterns, which is a very good opportunity for China to develop its own high-tech industries and industries with technical content. If China weakens its IPR protection at this moment, the high-tech industry will not be well developed. Judging from a variety of indications and instructions from superiors, as well as the strategic policy made by the central government, I think that the current economic crisis will not affect IPR protection work in China.

In the case of the financial crisis, we should maintain stability, pursue development, and do a good job in line with China’s current situation. For the future of genuine software promotion, we will adjust the focus of our work a little bit. In order to promote legitimate software in new enterprises, we also organized trainings on software asset management in a number of enterprises, and we hope that they can establish a software asset management system and treat such intangible property as they would other corporate assets like computer hardware, plants, machines, etc.”
Zou Bian (Executive Vice President of the China Software Alliance):

“Chinese enterprises, especially in the export sectors, have suffered a lot during the financial crisis. Under such circumstances, we should consider how to maintain IP protection for software and how to advance the installation of genuine software. In the second half of 2008, we conducted some surveys and solicited opinions from all sides. Influenced by the financial crisis, corporate funding for the procurement of legitimate software was quite limited, which made it more difficult and pressing to promote genuine software. Still, we could also tell that it is precisely during this period that various industries are making transitions, and this process brings with it new opportunities.

During the survey, I always asked entrepreneurs to express their feelings regarding the financial crisis and their actual situation. I received two quite contradictory answers.  The first answer was given by processing companies, which owned few IPR and did not do well in promoting genuine software. The other one was given by companies that were relatively strong in patent, trademark and copyright, and the financial crisis has had little impact on them. These strong IPR companies are precisely the type of companies that use most of the legitimate software. The use of legitimate software has also brought benefits to them.

The recently released Restructure and Revitalization Plan for Electronic and Information Industry mentioned that information technology would stimulate industrialization and it is essential to follow the path of new industrialization and promote information and industry integration. The financial crisis has also brought us opportunities. Software and information technology will play an important role in speeding up industrial adjustments and enhancing industrial competitiveness in the global market. Many enterprises need high-level informationization in this process, and genuine software is bound to be used. The promotion of genuine software is not only in order to support the software industry, but also to integrate informationization for all sectors with the healthy development of the software industry and to advance the national informationization process.”
Zhang Quansheng (Director and Chief Representative of the Business Software Alliance (BSA) China):
“We are now in an information society. The development of information technology, especially technological progress with software as the core, has greatly changed our world. From this aspect, software is very powerful indeed. But on the other side, software is just what its name suggests: very fragile. Its vulnerability is embodied in its intangible nature. Now we are faced with the financial tsunami. When a tsunami comes, people are very anxious to rescue their tangible assets such as houses, cars and so on. By contrast, software is always ignored because it is invisible.

As a software industrial association, BSA has also suffered from the financial tsunami like all other enterprises. At the same time, since doubts and problems concerning software’s IPR protection have existed for so long, we are now faced with more challenges. Therefore, when talking about the impact of the financial crisis on all industrial economies and sectors, we should not ignore the problems faced by software enterprises. In fact, the key issue here is whether people can fully understand the value of software, i.e. the value of software for corporate development and increased competitiveness.

Of course, companies, and software companies included, should abide by law and take responsibility when society is faced with disaster or going through hard times. In such an environment, companies should fully consider the challenges everyone is facings and work together with all users to tide things over until the crisis has passed. The software and IT industry will help enterprises enhance efficiency, improve innovation and overcome the current crisis.”
Li Shunde (Deputy Director of the IPR Center under the Chinese Academy of Social Sciences)

“Traditional intellectual property is divided into industrial property and copyright. Software combines the features of both. Hence, some scholars once proposed to call this type of intellectual property an industrial copyright, which seemed to be better protected.

In the face of the current financial crisis, enterprises and industry sectors reach a consensus that China’s traditional manufacturing industry is relatively developed, and is known as ‘the world’s factory’. However, the financial crisis prompted the industrial sector to reflect on itself. During this reflection, it has found that enterprises engaged in the processing trade and license processing have suffered a great deal in the financial crisis, but those with core technologies, especially intellectual property, have handled the financial crisis smoothly and the crisis has even become their opportunity for development. This phenomenon has provided a very good lesson to many enterprises. Innovation will bring with it intellectual achievement, which is the very basis for creating more intellectual property.”

Promotion of genuine software should not be slowed down. Software still constitutes a small proportion of production costs.
Presider: “The plan for promoting genuine software in Chinese enterprises has been going on for many years. During the financial crisis, some think that the plan should be slowed down, and that the funds should be put into more effective use.”
Xu Chao: “I have also heard of this viewpoint, but it’s not the mainstream. The financial crisis certainly has put some pressure on business. However, we have all along stressed that the plan must be carried out in line with the company’s actual situation. If it is running well or fully capable of purchasing genuine software, the company should not continue to use illegal products.

With regard to the cost of software, we found that the expenditures for genuine software, either in productive or service enterprises, constitute a very low proportion of production costs. We have never heard of an enterprise that went bankrupt or ceased operations because of the expense of legitimate software. Of course, we should also avoid the tendency to use mandatory measures during the implementation of legitimate software, or to adopt one and only standard for different enterprises. We don’t advocate these extreme tendencies. Though progress should be made every year in promoting the installation of genuine software, we have to put an end to barbaric practices and stop forcing companies to implement the plan regardless of their actual situation.

In short, I think that by promoting the use of legitimate software, companies’ expenditures on legitimate software will not put too much of a burden on their development.”
Genuine software must be promoted regardless of the company’s size. Different enterprises may have different paces, but should each progress steadily.

Presider: In the process of installing genuine software, should large, medium and small enterprises be treated differently?
Xu Chao: The promotion of legitimate software should not be differentiated according to company size, but different companies may progress at different speeds. We started our work with large enterprises with good operations and then promoted them step by step. We have a road map, but no timetable. Still, small and medium-sized enterprises must also carry out this plan steadily. SMEs are not necessarily poor in operation capital, so they should implement the plan when large enterprises start to make progress. We have to educate small and medium enterprises who keep using pirated software. If they don’t cease their improper deeds, it will be necessary to adopt law enforcement procedures.

Software asset management

Zhang Quansheng: Software asset management is a project promoted globally. To put it in a simple way, it means to manage software as an asset. Why do we feel that this is a relatively new concept? Because of the intangible nature of software, we can not see or realize that software should be used as an asset. Moreover, how can we manage software as an asset? There might be some difficulties in managing this asset because it is invisible. Therefore, we need to find an appropriate approach. There used to be a lot of training for business users on how to properly manage assets to enhance the effectiveness of software. In brief, software asset management is a system covering the entire cycle of software procurement, deployment, updates, management, as well as discarding and deleting software. This system requires both staffing and equipment procurement. A day-to-day work mechanism must also be established for IT staff. Therefore, software asset management is just like any other asset management by enterprises. For example, after purchasing equipment, an enterprise must establish a list. It should also set up rules and regulations to discard or update certain equipment. As a matter of fact, software management is much the same.

BSA has been promoting our software asset management project over the years. We pushed the concept in many places to enable more business users to understand the value of software. Software should be treated as an important corporate asset and managed scientifically to bring out its greatest benefits while avoiding unnecessary risks.
Software prices should be determined by the market.

Presider: “At present, more and more companies recognize the value of genuine software. But the price of software has always been controversial.”

Wu Haitao (IPR Protection Director of Microsoft’s Legal Affairs Department): “The price is mainly determined by the market. Why do we always feel that software is expensive? I think that the most important reason is people’s recognition of intangible property. The nature of software demands a huge investment in R&D. For example, the R&D investment for Microsoft’s core products is about USD 7 to 8 billion per year. The software is then embodied in CDs, which are produced on a production line and at a cost of about 70 to 80 cents each. The contrast is obvious: a 70-80 cent CD reflects billions of dollars of investment in software development. Therefore, we should fully recognize the content of intangible asset when considering the price of genuine software.

In addition, software is quite a special kind of asset. I can’t agree more with the view that work or products under software protection should be called industrial copyright. Software is not a consumer product, but a tool. It can help enterprises enhance their competitiveness and greatly improve the efficiency of production, so that the value of software is enormous. I think we need to fully understand its value. From the perspective of price, Microsoft has also cut prices in recent years, especially for individual and family users who were adjusted in accordance with market changes. However, due to the huge investment in our products, it is necessary to recover the investment so as to maintain our good service and a certain level of profits.”

Xu Chao: “I am very pleased to discuss software protection with the guests and netizens here. National policy has decided to strengthen copyright protection, and we will definitely carry out that policy and resolutely intensify protection efforts, as always. Software is not air or sunlight, and we should pay for it. Enterprises should protect legitimate software just as they would protect hardware. We may compare genuine and pirated software as two teams in a football game. One team is in full compliance with international rules, while the other uses fists and kicks and even plays with weapons, which makes it impossible to arrive at a fair ending. Finally, I hope that every user, either an individual or company, could save money by not paying for a banquet or a box of cigarettes in order to purchase genuine software, and become a proud user of legitimate software.”
Zou Bian: “The China Software Alliance will unswervingly promote software protection and propel the use of legitimate software this year. According to the 2009 work plan made by the inter-ministerial joint conference on promoting legitimate software in enterprises, we will adhere to the principles of giving positive guidance, strengthening service awareness, and intensifying law enforcement. Commissioned by the joint conference, the China Software Alliance convened an expert meeting and set up an expert advisory group. We will coordinate our efforts with the government departments and play a positive role in providing solutions for the use of genuine software. We have explored a number of methods, such as purchasing, leasing, etc. We are also exploring approaches using online billing services. These methods will enable us to advance the work of genuine software with support from various interested parties.”

Zhang Quansheng: “As a software organization and trade association, BSA has been very supportive and in line with the government’s initiatives in software IP protection, including the promotion of legitimate software in enterprises. In the future, we will, as always, continue our efforts in this work. In our current society, almost everyone is dependent on software, no matter whether he develops software or uses software. From this perspective, software protection is an issue of common concern. Everyone should make contributions to this cause, because it is related to each person, to the building of an innovation culture, and to the construction of a civilized, law-administered, and harmonious innovation society.”
Li Shunde: “With regard to software protection, I hope that enterprises can fully understand the saying: ‘A workman must first sharpen his tools if he is to do his work well.’ Software is an essential tool for product development, management, and manufacturing in enterprises. I think from an enterprise’s perspective, it is not only a legal IP protection issue to protect software or use legitimate software. Moreover, it is closely related to corporate image and credibility. The use of legitimate software is in fact an important part of the good faith and credibility of enterprises.”

(Translated by Li Yu)

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