There has been a great deal of media coverage in China in the past weeks regarding the impact of Microsoft’s making available its Windows Genuine Advantage (hereafter, “WGA”) to users with Chinese language versions of Windows operating systems. For users going to Microsoft for many of its software updates (excluding some security updates), a validation is required where WGA would notify the user if unlicensed Microsoft Windows software was found on the user’s computer. Microsoft contends that WGA has been made available to warn users of the presence of unlicensed software and to give them the opportunity to purchase licensed software which would then allow them to have the benefits associated with said software, such as product support and ongoing software updates.
Shi Yusheng, Partner, IP Litigation
Mr. Shi Yusheng has also discussed this issue recently on CCTV – 9’s Dialogue
The warnings used by Microsoft in its WGA initiative, however, have caused concerns among Internet users in China. Users with unlicensed software will, after running the WGA validation procedure, have notifications on their desktop which inform them that their copy of Windows did not pass the validation check. A notification icon reminding the user of the validation failure will provide persistent notification on the user’s desktop. Additionally – and perhaps most concerning amongst users – the desktop is set to a plain black background once every 60 minutes or until the user’s Windows software passes validation. Though the black background can be disabled and the program only runs for 45 days, a WGA user who has unlicensed Windows software will have to put up with some small amount of inconvenience.
Microsoft initiated the WGA program for other Windows software versions previously in 2005 after a 10-month trial. There has been controversy over the WGA program in the United States, where a lawsuit was brought against Microsoft claiming that it had violated “anti-spyware” laws. Microsoft denied the allegations in this lawsuit. As a result of the release of WGA for Chinese language versions, a lawsuit has been brought against Microsoft by a user (surnamed Liu), in the Haidian District People’s Court in Beijing. Mr. Liu is not seeking damages, but rather hopes to have a fine imposed upon Microsoft for, as he terms it, “penaliz[ing] users by intruding on their computers”. The China Computer Federation has also condemned Microsoft’s WGA initiative, suggesting that it pursue action against infringers via the Chinese courts. Additionally, the Federation “suggested that the government order Microsoft to stop the screen black-outs and investigate foreign monopolies in China’s software market. It warned that national security was threatened if the country lacked its own computer operating system and office applications.”
Given this background, the question which must be answered is whether Microsoft is within its rights under Chinese law to conduct an initiative such as the Windows Genuine Advantage program, as the operation of said program has a clear impact on users of Microsoft software – licensed or unlicensed – within China. While this is a question for the Chinese courts to decide, it is valuable to look at factors pertinent to this issue, as follows:
– Microsoft has the right to protect its intellectual property rights in China, under the relevant laws. China has a well-developed intellectual property legal regime, which is designed to be in compliance with its obligations under TRIPS, pursuant to China’s joining the WTO in 2001. Should Microsoft choose to take action against infringers of its IP rights in China, there exists a robust infrastructure to pursue civil, administrative or criminal action.
– Infringement of software is rampant in China. The Business Software Alliance reported in 2007 that over 80% of business software in China is pirated. Such levels of piracy negatively impact the profitability of all software companies and make it especially difficult for domestic software companies to develop sustainable business models.
– Microsoft is the dominant provider of operating systems for computers in China, with over 90% of computers utilizing licensed or unlicensed Microsoft products.
– Users who go to the Microsoft website for updates and who are, subsequently, required to submit to the WGA validation procedure are required to agree to the terms under which Microsoft provides said downloads. Specifically, they are entering into a contractual agreement with Microsoft where they will receive the benefit of the updates/downloads, but must adhere to the terms of the agreement (i.e. the end-user license for the WGA program).
– Though a small percentage of WGA users have reported “false positives”, where they were notified that their Windows software was not a properly licensed version, the vast majority of users who fail validation were likely employing pirated software on their computers. The impact of failure of validation is clearly spelled out on the Microsoft website.
The Vice Director of the National Copyright Authority, Yan Xiaohong, in response to the concerns raised by Chinese computer users regarding the WGA initiative noted that the “NCA understands and supports parties involved in intellectual [property] rights, including Microsoft, as well as other institutions and organizations to safeguard their legal rights, but the means of the safeguarding should be carefully considered”. Additionally, Yan Xiaohong offered his advice to Microsoft regarding its pricing policy for its operating systems in China, saying that “national conditions should be taken into consideration when they make decisions on product pricing”. It must be noted, however, that in a recent online survey of Chinese computer users, while 79% believed that Microsoft should reduce its pricing, only 12% of respondents questioned the legality of Microsoft’s actions under the Windows Genuine Advantage Program.
Putting aside any potential anti-monopoly/anti-trust claims against Microsoft, the core issue is whether the means which Microsoft has chosen to protect its intellectual property rights is proper under Chinese law. It is clear that Articles 23 and 24 of the Regulations on Computer Software Protection of the Copyright Law of the People’s Republic of China (the “Software Copyright Regulations”) protects rights owners (such as Microsoft) against infringers of computer software. In regards to users who unknowingly have purchased pirated software, Article 30 of the Software Copyright Regulations clearly states that the user is not liable for damages, but must destroy the infringing software upon obtaining “reasonable grounds” to establish that said software is pirated or, alternatively pay an “appropriate” fee to the rights owner, in this case, Microsoft. A notification to the user under the WGA of the invalidity of his or her Windows software would likely qualify as the “reasonable grounds” necessary to require the user to either destroy the software or obtain an “appropriate” license for software from Microsoft. Those users which purchased computers with Windows software believing it to be properly-licensed, have the opportunity to report violating computer resellers to Microsoft. In the past, Microsoft has used voluntary user feedback regarding infringing computer resellers as evidence in lawsuits brought in various U.S. states.
Additionally, Article 8 of the Contract Law of the People’s Republic of China notes that the terms of a valid contract, such as those included in the Microsoft Genuine Advantage end-user license agreement are legally binding upon the contracting parties. Users who take advantage of the free software “downloads” available via the WGA program must, as contracting parties, adhere to the terms of the licensing agreement.
In regards to any claims of WGA acting as “spyware” and infringing upon the privacy of Chinese computer users, Article 40 of the Constitution of the People’s Republic of China protects the privacy of individuals in regards to their correspondences. Additionally, Section 7 of the Regulations of the Administrative and Protection of Computer Information and Network Security, (US Embassy Translation), protects those communications made over the Internet. There are, however, no clear laws in China which correspond to the anti-spyware laws enacted in some U.S. states, such as California, so a court would have to apply the existing laws in a narrower context.
As the claims to date against Microsoft in this controversy have not revolved around the validity of its infringement claims, but rather the means which it is choosing to enforce the associated intellectual property rights, a court will likely focus its analysis on the validity of the contractual agreement between Microsoft and WGA users and, furthermore, whether programs such as WGA illegally intrude upon the privacy of computer users. In essence, did the users agree to the terms of WGA in order to get updates to their computers and, if so, should they be held to this contractual agreement, including notifications that their computers have unlicensed software or periodic screen blackouts? Though the media has chosen to highlight what some users have perceived to be a negative impact resulting from the WGA initiative in China, it still remains that the vast majority of those users who failed the WGA validation were likely using unlicensed Microsoft software. Lawrence Lessig, noted copyright law scholar and Stanford Law School Professor, notes that Microsoft may, however, benefit
“[w]hen the Chinese “steal” Windows, that makes the Chinese dependent on Microsoft. Microsoft loses the value of the software that was taken. But it gains users who are used to life in the Microsoft world. Over time, the nation grows more wealthy, more and more people will buy software rather than steal it. And hence over time, because that buying will benefit Microsoft, Microsoft benefits from the piracy. If instead of pirating Microsoft Windows, the Chinese used the free GNU/Linux operating system, then these Chinese users would not eventually be buying Microsoft. Without piracy, then Microsoft would lose.”
While the means which Microsoft has chosen to enforce its intellectual property rights under WGA will likely come under the scrutiny of the Chinese courts in the near future, what should not be lost in this controversy is that the health and well-being of the nascent Chinese software industry is largely dependent upon the protection of intellectual property rights. If there is to be a domestic Chinese company which will challenge Microsoft for dominance of the software market in China, it will only be through requiring that users pay for properly-licensed software and that users move away from piracy of software as an accepted practice. As Lessig notes, “[a] property right means giving the property owner the right to say who gets access to what – at least ordinarily. And if the law properly balances the right of the copyright owner with the rights of access, then violating the law is still wrong.”The laws of China clearly provide protection for intellectual property rights, but only time will tell if piracy of software in China will become the exception to accepted practice. Until that time, companies, such as Microsoft, will look to alternative ways to monetize and protect their intellectual property and the courts will have to decide if the means employed are legitimate.