Software Patent/Copyright Issues in the PRC (People’s Republic of China)

Software Patent/Copyright Issues in the PRC (People’s Republic of China)

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Software Patent/Copyright Issues in the People's Republic of China

This paper is an analytical essay on global ethical issues on software intellectual property in China. It will focus on the software patent and copyright issues that are prevalent in the PRC (People’s Republic of China, including Taiwan (R.O.C. – Republic of China), and Hong Kong). The paper will include personal experiences encountered in this region of the world. In addition, it will include an in-depth analysis on the topic with industry and academic references to defend a particular moral/ethical position, in which software piracy may seem a part of the Chinese culture but is clearly ethically unacceptable.

Information technology is a key driver in the globalization and growth of the world economy. The total worldwide package software market has been estimated at over $135 billion [1]. Piracy causes significant loss internationally. According to the Software Publishers Association (SPA), the worldwide revenues of business-based PC applications were over $17.2 billion. The piracy rate in China ranked amongst the highest at 96 percent. Software has the distinctive characteristics of digital goods – it is expensive to produce for the first copy (high-fixed costs) and inexpensive to reproduce and distribute for subsequent copies (very low, approaching zero, variable costs). These characteristics make it similar to a public good in that sharing it with others does not reduce the consumption utility of the product.

One of the main causes for software entertainment copyright issues in China is that there is a huge imbalance between the people’s demand for filmed entertainment and its constrained “legitimate” supply. The government quotas severely limit import and distribution of films and television shows, cable television offers a sparse selection of entertainment programming options, and modern cinema screens are in short supply. Hence, the black market has emerged to meet this need that would otherwise go largely unfilled. [9] In addition, software piracy is big business with a lot of money at stake. Selling pirated goods at huge volumes make piracy highly profitable. And in a job-hungry economy, piracy creates hundreds of thousands of jobs that the government may be reluctant to threaten with more rigorous anti-piracy measures. [9]

Personal Experience
In the last five years, I have had the opportunity to travel to China, Hong Kong, and Taiwan, three times. Sure enough, a common theme in all three of these geographies is being able to buy pirated goods for cheap.

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It was blatantly obvious that China does fall into the category of countries with one the highest piracy rates. These pirated goods included high-end fashion clothing, to jewelry, to electronics, to software, almost anything that one can imagine. In this paper we will focus on the pirated software goods. These pirated software goods ranged from PC/Mac software (Microsoft*, Adobe*, etc.), to video games (Play Station*, Nintendo*, computer, etc.), to CDs (music), to VCD/DVD (movies).

The movies were easy to come by, not only were they sold in stores, but they were also being sold on the street and night markets by street vendors. Although they seemed to be very legit copies, one knew that they could not be due to the cost. VCDs and DVDs were costing a mere $1USD (U.S. Dollar) for brand new movies, some that were still even in the theaters. The people pirating these items did a very good job at presenting these as real by using the same covers, inserts, and printing on the disc as the legitimate copies had. However, many of these pirated products did not have the same quality as the original, but some did. Those that were of bad quality were due to that fact that the piraters were not able to get hold of an original copy and instead made a recording of a public airing, for example, video taping a movie in the theater then selling it as a DVD/VCD since the movie was too new. The music CDs were similar to the DVD/VCD movies, however, almost all of the CDs were of high quality. In addition, many of the albums would come with two album releases from a particular artist. Because of this, the piraters used custom album covers that they created to make it seem that it was a special released album. These, in fact, looked very legitimate and sounded like the original as well. These double CD albums would also sell for a mere $1USD.

Unlike the music and movies, the video games and computer software were clearly counterfeit. First of all these weren’t as readily available on the street or in any store, one would have to go to a particular area or vendor to get these. But, once one is in the area where video games and computer software were sold, they were abundant and the choices were vast. The video games and computer software were clearly counterfeit because, unlike with the music and movie discs where piraters printed them to look original, the games and software just had plain labels on their discs just stating what was on it. In addition, the discs would just be put in simple sleeves for distribution, almost like what one would find in an OEM distribution except for the inaccurate disc label. The games and software were clearly not sold to convince anyone that they were real. In fact, there were stores where they had a list for customers to look at and choose what software they wanted, similar to ordering sushi at a Japanese restaurant where you get a list of the sushi that is available and you check the boxes of the ones you want. After a customer picks out what they want, the seller will go in their back room and burn a CD full of the programs selected and come out and show the customer that, in fact, all that they requested was on the CD. I visited a store where I asked them how much would Adobe Acrobat, Photoshop, Illustrator, and FrameMaker* would cost and I was quoted a mere $20USD for almost $700+USD in software. Granted the pirated copies would not come with instruction manuals, but it was still dirt cheap considering. However, this was not the only method to purchase software, there were some vendors that sold pre-burned copies of Microsoft* programs for about $5USD. These were more hit-or-miss, in terms of working copies, since the customer was not allowed to see the CD before buying it.

On my most recent trip to China, I visited a relative (who recently moved there). I asked them about the piracy and they said that it was just part of the culture. Many of the locals, in addition to the tourists, feel that “why should one pay so much for the real thing if the fake looks/feels/works like the original at a fraction of the cost?” Another thing I noticed during my visit to the region was that there were no Blockbuster* or Hollywood Video* type stores there. Then I thought, of course not, why would people rent movies when they can just buy them for as much as they would rent them? The locals there probably thought it was ridiculous that Americans pay so much for their music and movie entertainment. I realized that it was more of a cultural issue than an ethical issue. This will be analyzed more in greater detail later on in this paper.

Software Patent/Copyright Laws in China
The pirated goods seemed so prevalent that there must not be software patent/copyright laws in China, right? Wrong, China does have a law protecting intellectual property rights similar to the United States as stated in [6, 7, 8]. In fact, China’s accession to the World Trade Organization (WTO) in December 2001 seems to have helped, by requiring China to revise its copyright, trademark and patent laws to bring them into line with international standards. China is eager to be viewed as a legitimate equal with the world’s great economic powers, and so has recently become more responsive to lobbying pressure from other nations, making periodic crackdowns on pirate manufacturing operations, seizing duplication equipment and recorded disks. [9] China has invested heavily in developing regulatory codes and legal systems to enforce software privacy, or intellectual property right (IPR) protection in general. However, problems such as computer software infringements and computer crimes will not be completely solved unless all the computer professionals are aware of, knowledgeable about, and fully agreed upon these policies. [10]

Ethical Analysis
From an ethical perspective, the Chinese, from the citizens’ point of view, do not see it as morally or ethical wrong to buy/sell pirated goods since they’ve always done it and has been a part of their culture. The Chinese are typically frugal by cultural. Because of this many feel that they cannot afford to buy the original software product or that why should they pay full price for a legitimate copy when they can get a pirated copy for a fraction of the price? Another common argument is “everyone does it, why shouldn’t I?” leads the people to feel that it is just part of the culture to perform such an act. There may also be a feeling of “the company is a large, wealthy corporation” makes the consumer justify taking from it. [4] Due to the less abundant amount of wealth in the country, the previously stated arguments against the ethical issues with software piracy are mitigated by their frugality.

Looking from a national point of view, as mentioned above, China is eager to be viewed as a legitimate equal with the world’s great economic powers and in doing so must be in line with international standards that are deemed ethical. IPR protection is a complex ethical issue since cultural, economic, political, and other factors differ from nation to nation. Different nations such as China and the United States may have distinct cultural perspectives and philosophical approaches, as well as governance, legal and economic structures. [10] Therefore, it is intuitive to link the cultural factors of each nation to the education of IPR and enforcement of government, as described in further detail later in this paper. However, an ethical judgment towards an act, such as software piracy, may not be based simply on the legality or otherwise of the act, but on the context in which the act takes place. For example, the unauthorized copying of an expensive system may be seen as unacceptable in the context of stealing from one’s own company, but may be seen as acceptable if it is justified in the context of a genuine need. [12]

It’s up to the government, schools and parents to teach that it is ethically wrong to trade such goods. There needs to be a level of deterrent controls that includes government-to-government negotiations, educational campaigns, and legal activity related to expanding domestic copyright laws and seeking to enforce those laws. [1] The first step to enhance the public’s awareness on computer software IPR should be to educate computer science (CS) students, who ultimately will become software developers, software users, and other computer professionals.

The incentive for governments to enact and enforce copyright laws is related to the size of the domestic software industry, in the PRC’s case, it is small, but growing rapidly. As mentioned above, China has recently cranked up raids against CD factories that manufacture bootlegged copies of software and confiscated the CD presses (each worth as much as $1 million). The suspicion, however, is these presses are put back into service in government-owned factories to manufacture CDs containing pirated software. [5] Regardless, the government should continue to take action now, sooner than later because China is a rapidly emerging market in high technology and as technology develops in China, software will be increasingly used. The United States Customs have recently enforced stricter searches on travelers coming from Asia who may have pirated goods. Other countries should follow similar suit in efforts to discourage purchasing illegal software.

Preventive controls also need to be taken. This includes software and hardware schemes to prevent the actual coping of the software. Companies like Microsoft have already implemented in their software a key that is required to be sent to their database before the software can be activated. Another solution that has been tried with DVDs is creating hardware and coding contents to work with specific regions. However, this fails when countries, like China, create hardware that is region free.

Regional price adjustments may be a way to help encourage purchasing legitimate copies of software, such that the product is at a price point where the consumers can afford it relative to their income. Governments across the world would then be more willing participants in the enforcement of intellectual property rights. Once the legal price of the software is within the affordability range of its citizens, the government’s incentives for enactment and enforcement of intellectual property rights increase substantially. The governments would pay more attention to the protection of intellectual property rights in order to accelerate the growth of the domestic software industry, and to increase the tax revenues from legal software sales. [1] This would help to drive individuals around the world to cultivate the habit of purchasing legal software as it becomes more affordable, and the climate of respecting intellectual property rights gains a foothold.

Although different cultures have different beliefs, morals and ethics, there’s nothing that can justify software piracy as ethical. Even though software patent/copyright is an issue in China, the government does have laws against it; the laws are just not enforced as strictly as other nations. Some argue that lower levels of personal income justifies software piracy, but that is misleading because if individuals and organizations that can afford to buy computer hardware have no excuse for pirating software. Each software company and each government needs to take actions from each their ends as a collaborative effort to prevent patent and copyright infringement. In the end, no country wants to look like the “bad guy” and be perceived as a country and people with no ethics or morals. But even beyond ethics, in the Chinese culture, money seems to take precedence. The international community has long felt the reality of the biting losses created by theft of intellectual property in China. Today, Chinese firms with intellectual property interests are also feeling the bit of such losses. These domestic interests are converging with international pressures to promote and greater respect for copyright in the country and a greater demand from firms for protection of their rights through the legal system. [11] So while the firms are feeling the pain today, Chinese IP pirates will soon be facing legal challenges in the near future. With the Chinese government enforcing new patent law reforms, increase in patent applications, speedy patent litigations [13], international support and education of ethical issues related to IPR, the PRC is on the right track to solving their software patent/copyright issues.


[1] R. D. Gopal and G. L. Sanders: Global Software Piracy: You Can’t Get Blood Out of Turnip. September 2000 in the Communications of the ACM, Volume 43 Issue 9.

[2] A. Marcus: Fast Forward: User-interface Design and China: A Great Leap Forward. January 2003 in Interactions, Volume 10 Issue 1.

[3] T. T. Moores: Virtual Extension: The Effect of National Culture and Economic Wealth on Global Piracy Rates. September 2003 in Communications of the ACM, Volume 46 Issue 9.

[4] S. Baase: A Gift of Fire. Second Edition.

[5] The politics of piracy. The Economist. February 20, 1999.

[6] Judicial Protection of IPR in China. Copyright Law of People’s Republic of China. .

[7] Judicial Protection of IPR in China. Copyright Law of the People’s Republic of China. .

[8] Laws and Regulations of the Republic of China on Taiwan. .

[9] R. Cain: Content Piracy in China: A massive problem. Is there any solution?. February 7, 2004 on .

[10] L. Yang, Z. Ding: Promoting Computer Software Intellectual Property Right in Computer Science Education. 1999 in proceedings of the 4th annual SIGCSE/SIGCUE ITiCSE conference on Innovation and technology in computer science education.

[11] G. J. Chynoweth: Reality Bites: How the Biting Reality of Piracy in China is Working to Strengthen its Copyright Laws. February 2003 from Duke Law & Technology Review.

[12] T. Moores and G. Dhillon: Software Piracy: A View from Hong Kong. December 2000 in Communications of the ACM. Volume 43 Issue 12.

[13] S. J. Frank and Y. P. Zhang: Year of the Patent. January 2003 in IEEE Spectrum, pp. 86-89.
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