Global Economics

Software Industry Loses Patience with China


The Business Software Alliance complains to Washington about Beijing's policies

China, notorious as a hub of software piracy, has been steadily cleaning up its act. In 2004, 90% of the software used in China was pirated, according to the Business Software Alliance, an industry group that represents 100 members, including Microsoft (MSFT), Autodesk (ADSK), and Symantec (SYMC). By 2008, according to the most recent statistics available, that piracy rate had dropped to 80%. That's not good enough, says Robert Holleyman, president and CEO of the BSA. The Chinese, he contends, are not maintaining their momentum on getting PC users off of illegitimate software. "We've really stalled on this process," he says in an interview from Washington. Although the BSA won't have data on the 2009 Chinese piracy rate until May, Holleyman says, anecdotal evidence suggests "we are not making further progress." In the past, Beijing has pledged that state enterprises would use proper software, he adds. "There is nothing that I have seen or heard that suggests that commitment has been met." Holleyman went to Capitol Hill on Mar. 10 to spread the word about the software industry's impatience with China. He was a featured speaker at a hearing on Beijing's censorship of the Internet. The House Foreign Affairs Committee, chaired by California Democrat Howard Berman, called witnesses to the hearing, "The Google Predicament: Transforming U.S. Cyberspace Policy to Advance Democracy, Security, and Trade." The list of speakers included Nicole Wong, a lawyer for Google (GOOG), which has said it will stop censorship on its Chinese search engine of critics of Beijing's policy, and Rebecca MacKinnon, an expert on the Chinese Internet who is now a visiting scholar at Princeton. Intellectual-Property Transfer?

The software industry is especially irritated with China because of new policies that Holleyman says hurt American companies. The problem, he said in a statement at the House hearing, stems from "China's increasing efforts to implement policies to promote 'indigenous innovation' that discriminate against foreign firms and seek to compel them to transfer IP rights to Chinese ownership." According to Holleyman, Beijing imposed a Dec. 10, 2009, deadline for companies in software, telecom, energy-efficient products, and three other sectors to apply for placement on a government procurement list of preferred products. To get on the list, companies need products with intellectual property developed, owned, and trademarked in China. "We believe that few, if any, U.S. companies will qualify unless they turn over their IP to a Chinese entity," Holleyman said in his prepared comments. "This could amount to a potentially massive transfer of IP, jobs, and economic power," he added. Of his group's 100-plus members, Holleyman says in an interview that he doesn't know how many met the December application deadline. "I suspect some have applied, some have not," he says. "I am hopeful individual companies may find ways to qualify." Even if the rules turn out not to be so onerous, Holleyman says, the industry is worried about China's policy setting a precedent that other nations might follow. "We have never seen anything like this," he says. "Individual companies may be successful in getting products on that [Chinese] list, but the fact of the matter is these are regulations that don't have any precedent anywhere else in the world."

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau.

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