Risk prevention relating to OEM and on-demand software
(Cheng Zhen, Lenovo China)
Updated: 2013-11-13

It is worth noting that special care should be exercised, i f commercial users are not software rights owners that only provide the hardware manufacturer with a mirror file or master disk. As a precautionary measure, the hardware manufacturer should verify whether the authorization provided by software rights owners has expressly permitted commercial users or the hardware manufacturer to make reproductions from the mirror file or the master disk (including restrictions on the number of copies).

Despite the firewall, the hardware manufacturers still need to note that as soon as they get to know that the software copies are infringing, they must fulfill the legal obligations to cease copying and destroy the copies.

2. Pre-installation and on-demand installation of software by hardware vendors

In fact, in order to increase sales and meet customers’ demands, the circumstance of hardware vendors pre-installing unauthorized software has become the most chronic headache for software rights owners and has been the target of fight against infringement. Take Microsoft for example, in 1999 Microsoft sued Beijing Yadu Science and Technology Co., Ltd., which marked its beginning to launch anti-piracy operations in China; in 2008 Microsoft sued two companies of Hisap High Technology Corporation, demanding cease of illegal pre-installation and sales of Microsoft software, and was ultimately awarded 700,000 yuan in compensation; in June 2009 Microsoft sued Beijing Strong Well Future Technology Development Co., Ltd. for sales of pirated pre-installed Microsoft software and was awarded 460,000 yuan; in 2010 Microsoft sued 10 domestic computer distributors that had pre-installed pirated software; in July 2012 Microsoft announced initiation of lawsuits against 9 computer distributors in 7 cities across China, etc. Fang Xingdong, an domestic Internet expert, once commented, “80% of Microsoft’s revenue in China comes from fighting against piracy. For Microsoft, fighting against piracy is more profitable than selling genuine copies in China.”

In face of increasingly mature market environment and stronger IP protection policies and measures, sellers should consider not only the cost of piracy and legal risks that may follow, but also self-protection at request of end users, such as: (a) exercise reasonable duty of care and ask end users to provide rights certification; and (b) ask end users to confirm on the relevant service files that the software installed is supplied by end users themselves and have obtained legal authorization.

3. Service providers provide or help install software

1) Service providers offer software directly to endusers

In 2008 Microsoft filed a lawsuit against the Tomato Garden, which can be seen as the milestone antipiracy lawsuit in its history. Tomato Garden website mainly provided download services of Windows XP and other pirated software. In August 2009, Suzhou Huqiu District Court rendered a first-instance judgment that the author of the Tomato Garden version of Windows XP, and also person in charge of Tomato Garden website, was sentenced to three and a half years in prison and fined 1 million yuan; the accused Chengdu Share Software Net Science and Technology Co., Ltd. was fined 8.77 million yuan and confiscated illegal earnings of 2.92 million yuan.

In November 2012, Shanghai’s Ruichuang Network Technology Co., Ltd. repeated the same mistake and was brought to task by Microsoft demanding US$100 million in infringement claims on the ground of unauthorized illegal online dissemination of Microsoft software. The two parties finally reached a settlement through mediation by the court, and Shanghai Ruichuang made a formal apology and paid 36 million yuan in compensation.

Therefore, if service providers, for business purposes, directly offer software services to end users, they should be software rights owners or obtain permission from software rights owners, otherwise they will face significant legal risks.

2) Service Providers Install Software at End users’ Request

In practice, service providers (including business entities that provide maintenance and value added services for hardware products, or technical services for users via Internet) will also encounter a variety of requests to install software. If service providers install software for commercial users, then they will have exactly the same applicable laws and responsibilities as the aforesaid hardware manufacturers, and may take the same precautionary measures as discussed before. The following measures are listed briefly to avoid risks according to circumstances in this regard.

(1) Service providers help install software provided by customers via network or at home

Service providers should require their technicians to have the ability to identify obvious acts of infringement, for example, if consumers request installation of Windows 8, but fail to provide purchase proof and there is no way to ascertain genuine logos. Moreover, if the software is about to be installed, customers should be asked to endorse the language to the effect that the software to be installed is provided by customers who must guarantee the legitimate source of the software.

(2) Service providers help consumers install free software at home

In terms of such services, we must distinguish between the following two circumstances carefully:

A. Helping consumers install free software for a fee

If service providers download free software into the storage device, visit consumers, let consumers make a selection and install software for a fee, it will be an obvious commercial activity. In general, popular social networking software such as Tencent QQ is only available to consumers for free, but not to commercial users. Therefore, implementation of such fee-based services without authorization from software rights owners would be easily declared infringing. Can service providers store the software into the device in advance and install it free of charge for consumers for the sake of consumers’ convenience? The author thinks that it all depends on the license scope and conditions of the free software. For example, QQ Software License and Services Agreement provides that “Tencent grants you a person a l , non - transferable and non-exclusive license to use this software. You can, for non-commercial purposes, install, use, display or run this software in a single terminal device; and that without written consent from Tencent, you may not, for any commercial or non-commercial purposes, implement, use or transfer such IP rights or license any third party to do so.”

B. Installing free software for consumers at home

If service providers, at the request of consumers, visit consumers and help them complete free download services based on consumers’ hardware and conditions, which, in essence, still falls into the reasonable scope of fair use by consumers, and service providers only serve as mere service providers; however, as previously mentioned, service providers still need reasonable common sense. For the sake of prudence, service providers may preferably ask consumers to confirm in writing possible consequences as a result of downloading and use of the free software.

With the continuous development of the service industry, types of services relating to software products are becoming more complex. Companies, in addressing these issues, need to fully assess IP risks, and take effective preventive measures to ensure safe operations.

(Translated by Wang Hongjun)

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