Courts Deliberate Software Piracy Cases
09-22 15:30 Caijing Magazine
Shanghai and Shenzhen courts are trying suspects arrested last year following a China-U.S. police investigation into software piracy.
By staff reporters Chenzhong Xiaolu and Ming Shuliang
After Chinese and U.S. law enforcement officials jointly launched Operation Spring Action in July 2004, a leading suspect in a trafficking ring for pirated DVDs – Randolph Hobson Guthrie – was arrested. This first cooperative, joint investigation by police from the two countries targeting the piracy of intellectual property was a clear success.
Last year, an operation code-named Summer Solstice included FBI and Chinese authorities and led to crackdowns against two, large criminal organizations responsible for manufacturing and distributing counterfeit software from centers in Shanghai and Shenzhen. The estimated retail value of the pirated software was more than US$ 500 million.
To the astonishment of investigators, the criminal organizations had formed international production and sales chains, distributing counterfeit products worldwide. The scale of the illegal trafficking raised new challenges for investigators.
In early September, the cases against these organizations reached courts in Shanghai and Shenzhen. Suspects were charged with violating copyright laws. They are now awaiting verdicts and stiff penalties. But did authorities make a dent in intellectual property rights piracy?
International Rings
The alleged head of the Shanghai gang was Ma Kepei, who graduated from the City University of New York with a master's degree in the 1990s. He worked as an engineer for the American company UPTECH before quitting to establish PC Friend, a company that assembled computer hardware. Ma allegedly started selling pirated products in 2001.
According to prosecutors, Ma's criminal activity was soon discovered by U.S. police. According to an estimate by New York authorities, Ma's illegal gains topped US$ 15 million between 2001 and '03. He managed to avoid arrest by returning to China in February 2003.
Back in Shanghai, Ma changed his name to Ma Jingyi. But apparently what did not change was his criminal behavior. Starting in 2003, he set up Shanghai Anyi Investment and Management Co., Shanghai Sili Electronic Commercial Co., and Shanghai Sili Investment Co., while allegedly continuing his counterfeit operations.
Ma's business model, according to prosecutors, involved renting network space from companies such as the Web search firm Yellow Pages, the Chinese e-commerce site Alibaba, and U.S. online sales giant eBay. He also set up Web sites and email addresses, specifically for communicating with U.S. computer companies about selling of pirated Norton software at low prices.
Since returning to China, Ma tried to expand his business in Shenzhen. He allegedly colluded with Zhang Xiaoqing from the Guangdong Weiya Optical Disc Co. to produce pirated products in Shenzhen.
In 2006, Shanghai police began working with the FBI on the joint investigation, developing an initial plan in July. By October, FBI agents reported uncovering in Shenzhen another organization that produced and distributed counterfeit software products, prompting Shenzhen police to join the investigation.
Investigators found that 29-year-old Che Tingfeng headed the Shenzhen ring. He colluded with Wang Wenhua and created an international organization in 2004 to manufacture and distribute counterfeit software products to sell worldwide, in much the same way as Ma.
Pirated products from Che's organization were mainly software such as Windows XP and Office 2003, illegally produced by Shenzhen M3 Technology Corp. Although Ma's organization focused on counterfeit antivirus and utility software products such as Symantec, both organizations targeted overseas markets.
Ma admitted he hoped to exploit the advantages for transnational businesses and stay away from the Chinese police, without damaging the benefits to China, and keep beyond the reach of U.S. police. He failed.
Clamping Down
In July 2007, under the umbrella of the central government's Ministry of Public Security, authorities in Shanghai and Shenzhen jointly launched Summer Solstice. This unprecedented cooperative effort led to the arrests of 25 people, including four wanted by the FBI, searches at many businesses and residential locations, asset seizures by the Chinese government worth over 60 million yuan, and the seizures of 22 counterfeit master CD replication disks and more than 360,000 counterfeit Microsoft XP software CDs and certificates of authenticity (COAs) in China. The counterfeit software had an estimated retail value of US$ 500 million.
In addition, agents with the FBI's Los Angeles Field Office executed 24 searches and asset seizure warrants, yielding about US$ 2 million in counterfeit software products, in addition to assets seized by the U.S. government worth more than US$ 700,000.
Members of the Ma organization went on trial in the Shanghai No. 1 Intermediate People's Court on September 4. A Shenzhen court heard the case of the Wang and Che organization on the same day. So far, neither court has announced a verdict.
All suspects were charged with violating China's copyright law, which is unlike the charges against Guthrie four years ago. In that case, Guthrie was convicted of operating an illegal business and faced up to 15 years in jail. However, eventually he was charged with selling pirated DVDs, which carries a maximum sentence of three years. The Shanghai No. 2 Intermediate People's Court finally sentenced him to 2 1/2 years in jail.
One source close to the case said the lighter charge may have been because Guthrie is an American. Zhang Peihong, the defense attorney for Guthrie as well as Ma, told Caijing there was no difference between the two crimes.
In April 2007, the Supreme People's Court and the Supreme People's Procuratorate jointly issued a statutory interpretation about the law on intellectual property rights. According to the interpretation, Guthrie and Ma could be charged with infringing copyrights and receive up to seven years in jail.
Evidence in each case also drew concern. In previous domestic piracy cases, only seized pirated discs were treated as important evidence in court, allowing convicts to receive punishments that were lighter than they would have gotten if more CDs were entered as evidence.
For Guthrie, a court said there was evidence he had sold US$ 159,000 worth of products. But none could be identified as pirated, and thus were excluded as evidence. The court made its decision based on just 119,000 pirated discs seized at Guthrie's warehouse.
Zhang said when there is sufficient evidence linked to a case, such as a case of drug trafficking, a suspect can be convicted even without material evidence. But there have been few precedents for this use of evidence in copyright cases.
For Operation Summer Solstice, although the counterfeit software has an estimated retail value of US$ 500 million, only a dozen discs were found in Ma's home.
Source Untouched
Also noteworthy about the latest cases is that only those involved in intermediate sales operations were indicted while key players – pirated products producers – were not touched.
Manufacturers of Ma's products included Guangdong Weiya, where defendant Zhang Xiaoqing worked, and Shenzhen Ka Cheung Yuen Industrial Co. However, according to the court, Zhang was charged with "aiding production," while the company was not even mentioned. In the Shenzhen case, pirated disc maker Shenzhen M3 Technology also was not charged.
The Web site of Guangdong Weiya claims the company oversees the Guangdong Provincial Publishing Group, a state-owned, high-tech enterprise with an annual production capacity of 80 million CDs, 6 million DVDs and 15,000 master discs. Zhang Xiaoqing said in court that the company is one of the country's largest domestic disc manufacturers.
Shenzhen Ka Cheung is a subsidiary of Hong Kong's Koda Group, which is registered by the Shenzhen Administration Bureau for Industry and Commerce.
Why were these companies involved in the piracy ring? According to Zhang Xiaoqing's court statement, the suspects forged manufacturer certificates and documents, such as letters of authorization. However, were these companies totally in the dark about the illegal activity?
Some insiders say most of the pirated product lines in Guangdong Province, where Shenzhen is located, were cracked long ago, leaving only legal companies. In Ma's case, it was found than an original production line at Shenzhen Ka Cheung was used for pirated products.
And according to insiders, the crackdowns and ongoing trials are not likely to root out this type of intellectual property rights piracy until the sales arms are attacked. Meanwhile, market demand and high profits for pirated products will fuel the business.
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[ICP License: 090027] IDC License:[B2-20040250] Advertising Business License:[京海工商广字第0407号] 京公网安备110105005607号
Copyright by Caijing. All Rights Reserved