U.S., China Software Seizures: New Era of Cooperation?

This past July, a joint FBI/Chinese effort seized about US$500 million worth of counterfeit Microsoft and Symantec software.

The seizure and arrests came at a time when our government was pressuring China to do something about its traditional tolerance of software piracy.

This was no small seizure and not just a token by the Chinese in order to reduce U.S. pressure for their heretofore “blind eye” to software piracy. The scope of the seizure was massive. A Microsoft spokesman, David Finn, called it a “real milestone.” He also said: “This is the biggest software counterfeiting organization we have ever seen by far.”

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The Taipei Times called the joint investigation — codenamed “Summer Solstice” — “unprecedented.” The FBI statement said, “The counterfeit software has an estimated retail value of U.S. $500 million.” Over 70 percent of this fake software was supposedly targeted for the U.S. markets.

According to the U.S. Chamber of Commerce, this type of piracy costs our economy about $250 billion dollars on an annual basis. The Chamber also said that software counterfeiting has led to the loss of over 750,000 jobs, besides exposing us to defective products.

There is no doubt in my mind that this is a watershed event that has struck fear into the hearts of software pirates.

How Was the Piracy Ring Tackled?

This was no easy achievement. It required the assistance of, among others, Microsoft, which credited its Windows Genuine Advantage (WGA) intervention program in helping to target the pirates.

Microsoft defines its Windows Genuine Advantage program as follows:

“Microsoft Genuine Advantage programs help you to determine whether or not your software is genuine. Microsoft genuine software is published by Microsoft, properly licensed, and supported by Microsoft or an authorized partner, giving you full capabilities, access to all the latest updates, and confidence that you are getting the experience you expect. The program is part of Microsoft’s Genuine Software Initiative that focuses the company’s many activities and investments directed at combating software counterfeiting and other forms of software piracy into a single coordinated effort.”

So, a goodly amount of the kudos has to go to Microsoft. It gathered information from more than 1,000 phony copies that were produced by the counterfeiters and sold throughout the world. This was a great assistance to law enforcement agencies in targeting the culprits. By the time they were arrested, their fake software was found in about 27 countries.

Microsoft’s recent statements about this bust show that it now has reason to be optimistic. In fact, they were confident enough to say, “Countries around the world are expected to experience a significant decrease in the volume of counterfeit software as a direct result of this action.”

A New Era for Commercial Relations With China?

On Dec. 11, 2001, China became a member of the World Trade Organization (WTO). China’s accession to the WTO was not an easy process. What hindered this accession was the totalitarian nature of China’s government.

Wikipedia describes the word “totalitarian” as follows: “Totalitarianism is a term employed by some political scientists, especially those in the field of comparative politics, to describe modern regimes in which the state regulates nearly every aspect of public and private behavior.”

Simply put, China was too repressive and closed and did not make a good candidate for membership in the WTO. But its leaders were wise enough to realize that membership in the WTO was vital to its long-term economic growth and prosperity. Therefore, they were quite aggressive in pursuing membership in the organization.

In November of 2001, after the WTO voted to accept China, WTO Director-General Mike Moore commented, “China, one of the fastest growing economies in the world, has made tremendous progress in the last decade in reducing poverty thanks to an economic system increasingly open to trade and foreign investment. Now this economy will be subjected to the rules-based system of the WTO, something which is bound to enhance global economic cooperation.”

The operative words here are that China’s “economy will be subjected to the rules-based system of the WTO, something which is bound to enhance global cooperation.” Since the country’s acceptance into the WTO, progress has been made in making China a part of the international community.

The transition to a more open economic system was, of course, somewhat bumpy. Yet, China remains a member of the WTO, and my guess is that it will not do anything to jeopardize its membership.

The fact that China closely cooperated with the U.S. and the FBI shows me that the country is serious about maintaining its good standing in the WTO as well as working with the other 150 WTO members to ensure a fair world economic system. This doesn’t mean that there won’t be more bumps down the road — but I think that China’s cooperation with the United States in stopping software piracy is a very good omen.

Good luck!

Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at [email protected].

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