listed companies using pirated software face legal risks

LISTED COMPANIES USING PIRATED SOFTWARE

FACE LEGAL RISKS

Intellectual Property Rights Protection for Software

Examples of Litigation

Appendix:Relevant Laws, Regulations and Government Documents

Civil Liability Reproducing or partially reproducing software, without permission or a license from the copyright holder, can result in civil liabilities such as forced cessation of infringement, rectifying any adverse effects, making a public apology and payment of damages. The infringer shall pay compensation for the actual losses suffered by the copyright holder; if the actual losses are difficult to calculate, then the damages may be assessed according to the infringer’s illegal income earned. The amount of damages shall also include any reasonable expenses paid by the copyright holder to halt the infringement.

Administrative Liability If public interest is harmed by the illegal reproduction of software, partially or entirely, without permission or a license from the copyright holder, the administrative authority in charge may order a stop to the infringement, expropriate the illegal income confiscate or destroy the illegal copies, and impose a fine of not more than three times the illegal income. If the illegal income is difficult to calculate, a fine of not more than RMB100,000 (~USD15K) may be imposed. If the damages are serious, the administrative authority may also confiscate the materials, tools, equipment and other assets that were used to make the infringing copies.

Moreover, The Implementation Plan for Promoting Use of Legal Soft-ware in Enterprises, issued by the National Copyright Administration (NCA), the Ministry of Information Industry (MII), the Ministry of Com-merce (MOC), the Ministry of Finance (MOF), the State-Owned As-sets Supervision and Administration Commission of the State Council (SASAC), the All-China Federation of Industry and Commerce (AFIC), the China Banking Regulatory Commission (CBRC) , the China Securi-ties Regulatory Commission (CSRC) and the China Insurance Regula-tory Commission (CIRC), requires the creation of a blacklist to expose enterprises with a history of serious violations. Opinions on Several Issues Concerning the Overall Intellectual Property Trial Serving the Overall Objective under the Current Economic Situation issued by the Supreme People’s Court specifically states that judicial protection of intellectual property rights must be strengthened and improved instead of being weakened or relaxed.

Intellectual Property Rights Protection for Software

1BUSINESS SOFTWARE ALLIANCE

1. Listed Domestic Companies

Pursuant to CSRC requirements, listed companies are obliged to make prompt disclosure of their involvement in any litigation and major violation of laws or regulations concerning software piracy. The listed company and the responsible personnel shall be investigated and penalized if the company failed to disclose in a timely manner.

2. Domestic Companies Going Public through IPO

Pursuant to CSRC requirements, the issuer can not be involved in any administrative punishment for violation of any laws or regulations in the past 36 months, and that the issuer can not have any major debt payment risk or be involved in any major contingent issue such as guaranty, litigation and arbitration that may negatively affect its business operations. In case any major event occurs to the issuer after an application for issuance is approved and before the issuance is closed, the issuer shall postpone or suspend issuance, report to CSRC in a timely manner and also perform its obligation of information disclosure. Where any issuance condition is affected, the approval procedures shall be gone through again.

3. Domestic Companies Going Public through IPOs on the Second Board

Pursuant to CSRC requirements, the issuer can not have any major debt payment risk or be involved in any major contingent issue such as litigation and arbitration that may negatively affect its business operations. Any information on such major issues as litigation that may have any major impact on the investors’ investment decisions shall be disclosed.

4. Companies Listed in Hong Kong

Pursuant to the requirements of the Hong Kong Stock Exchange, full disclosure must be made concerning major litigation involving any member of the group to whom a listed company belongs. Moreover, a listed company is also obliged to disclose any investigation conducted by government agencies.

5. Companies Listed in Taiwan

If the subsidiary of a listed company is involved in serious issues such as litigation, it must disclose the information in a timely manner.

6. Companies Listed in the US

As required by the US Sarbanes-Oxley Act, US listed companies and US domestic companies listed overseas (and overseas subsidiaries controlled by US companies) must provide relevant documents concerning their internal controls, including details of their software assets. If a listed company makes a false report, its chief executive officer and chief financial officer will receive relevant penalty.

7. Companies Listed in Japan

As required by Japan’s J-SOX Act, all companies listed in Japan must carry out management assessment and reporting of internal controls relating to financial statements at the consolidated statement level, and this includes details of software assets. (A company’s overseas branches, and jointly operated companies should also be included in this assessment and reporting.)

If Your Enterprise Falls into the Following Categories, Using Pirated Software Is Likely to Be Exposed to Further Legal Consequences.

2 BUSINESS SOFTWARE ALLIANCE

EXAMPLES OF

LITIGATION


EXAMPLES OF LITIGATION Case 1

A four-year software copyright dispute between Microsoft and a Shanghai in-formation company has finally reached a conclusion. On April 22, 2009, the Shanghai No. 2 Intermediate People’s Court rendered the first instance judg-ment in this case, ruling that the de-fendant should immediately halt its infringement of 9 types of Microsoft soft-ware, and pay Microsoft RMB400,000 (~~USD59K) compensation for eco-nomic losses and reasonable costs.

What is interesting about this case is that one of the defendant’s sharehold-ers is a listed science and technology company (with 49 percent of the equity). On February 13, 2009, this science and technology company disclosed the dispute with Microsoft in the three main-stream media designated by the CSRC. This was the first time in China that a listed company or a company hold-ing equity in a listed company made a disclosure concerning a case involving litigation over pirated software.

Attorney Letters not Taken Se-riously

Relevant personnel from Microsoft re-vealed that in the course of promoting and selling its products, Microsoft had discovered that enterprises were obvi-ously using Microsoft software without purchasing legal software. In these situations, Microsoft would support its suspicion that the enterprises were us-ing pirated software. The information company was discovered in this way.

Microsoft outside counsel Ma Yuanchao explained that between September and October 2004, Microsoft outside coun-

sel issued letters urging the company to halt the unauthorized reproduction and use of Microsoft software and to take active steps to rectify the situation, but received no positive response.

Shanghai Copyright Administra-tion Collected Evidence on Site

In 2005, Microsoft complained about the company to the Shanghai Copyright Administration. Thereafter, as arranged by the Shanghai Copyright Administra-tion, Microsoft authorized a law firm to contact and negotiate with the com-pany, which still did not take any steps to obtain legal software. In March 2006, the Shanghai Copyright Administra-tion carried out on-site investigation and questioning concerning the use of Microsoft software, and discovered a total of 130 sets of 9 types of Microsoft software that were used illegally in the company.

From April to October 2006, Microsoft held numerous negotiations with the company, requesting it to cease its in-fringement, pay civil damages and rec-tify its future use of Microsoft software, but the results of these negotiations were still not satisfactory.

The company’s outside counsel told reporters afterward that its executives had promised to rectify the situation but disagreed with the amount of the com-pensation.

In March and May, 2008, Microsoft respectively engaged a law firm to send an attorney’s letter requiring civil damages, but the company still made no response. After a series of fruitless

negotiations, Microsoft filed suit with the Shanghai No.2 Intermediate People’s Court in November 2008, requesting that the defendant be ordered to immedi-ately halt its illegal behavior, immediately delete unauthorized software and pay a total of RMB 486,405 (~~USD72K) as compensation for economic losses. Mi-crosoft’s outside counsel explained that this amount included Microsoft’s direct economic losses as well as the reason-able costs incurred in the case, includ-ing legal fees.

Opportunity Granted and Wasted

On January 6, 2009, the plaintiff and the defendant exchanged opinions in the court. The defendant stated that it had already converted to legal software and had ceased infringing on Microsoft’s copyrights, and presented proof of pur-chase of some Windows products. The court requested the plaintiff to carry out an inspection at the defendant’s site on January 12.

The plaintiff’s outside counsel Ma Yu-anchao told reporter that “this was in fact an opportunity given to the com-pany by the court to convert to legal software. If the inspection on that day proved that the company was telling the truth, it would have been an opportunity to resolve this case.”

However, the inspection on that day was not as smooth as expected. The plaintiff discovered a large quantity il-legally reproduced and used software at the defendant’s place of business, and also found that some software had been deleted in the morning of the inspection, not as claimed by the defendant. More-

First Disclosure of PiracyLitigation by a Listed Company


over, the plaintiff was obstructed when they tried to inspect the company’s re-search and development department on the 23rd floor.

Damages Awarded by the Court at the First Instance Judgment

On January 18, 2009, this case was formally tried in open court. At the hear-ing, the dispute focused on the follow-ing two areas: the defendant was of the opinion that it had already installed legal software on all of its computers and that there was no longer any infringement; in addition, the defendant was of the opin-ion that the amount of compensation claimed by the plaintiff lacked a basis in fact and in law.

On April 22, 2009, the Shanghai No. 2 Intermediate People’s Court rendered the first instance judgment stated that the defendant had not provided evi-dence that the nine types of computer software installed and used in the com-puters it used for its operations were li-censed from the plaintiff. With regard to the value-added tax receipt of Shanghai Municipality No.01536161 provided by the defendant, the purchaser was Dong-hai Corporation, not the defendant.

Regarding the defendant’s various ob-jections, as the defendant did not furnish sufficient evidence, and as they were contradictory to the statements made by the Shanghai Copyright Administration, the court did not accept them. The court held that the defendant had made 130 copies involving 9 types of computer software of the plaintiff for commercial use without licensing from the plaintiff, that the defendant had infringed the plaintiff’s lawful copyright in the nine types of computer software in this case, and that the defendant should bear the relevant civil liability for its infringement.

Disclosure of Information by a Listed Company

In fact, the defendant paid more than the economic compensation.

We understand that one of the defen-dant’s shareholders is a listed science and technology company and holds 49 percent of the defendant’s shares. In April 2006, nine authorities including the NCA and the CSRC jointly issued the Notice on Issuance of The Implementa-tion Plan for Promoting Use of Legal Software in Enterprises, which clearly specifies that the CSRC has the duty to force listed companies to disclose relevant information such as litigation or major violations of laws and regulations, etc., involving use of pirated software. On February 13, 2009, the said science and technology company disclosed the dispute with Microsoft in the three mainstream media designated by the CSRC. This was the first time in China that a listed company or a company holding equity in a listed company made a disclosure concerning a case involving

litigation over pirated software.

“From another point of view, this case has in fact played a positive role in terms of improving use and management of legal software by listed companies and their affiliates.” Liu Fengming, Micro-soft’s associate global general counsel and vice president for greater China said that through this case enterprises that continued to use pirated software should be warned that “use of pirated software not only brings legal risks and harsh sanctions, but also directly results in loss of integrity for the enterprise, and the negative effects of this will cause the enterprise to suffer incalculable losses.”

After the judgment was rendered, the attorneys of both parties accepted inter-views from reporters straight away. The plaintiff’s outside counsel Ma Yuanchao considered the judgment fair and rea-sonable. He said that the company had not provided reasonable and valid evidence of its legalization; moreover, after long negotiations, the company had only promised verbally to change to legal software but had not actively taken this step. Liu Tao, the defendant’s outside counsel, and legal counsel from the commercial department of the com-pany felt that the court judgment did not reflect their measures for legal software. As to whether the company would ap-peal or not, he said that this would be decided after internal discussions.

Source: http://www.xbfzw.com/news/fzaj/2009/424/09424105312E9DFF42820K4DB1K7GJ4_2.html (Legal daily website April 24, 2009. Reporter: Jiao Hongyan.)

Steel Structure Maker Settled Dispute with Three Software Vendorsby Paying RMB1.3 million for Royalties


Events” section of the annual report.

Using pirated software has posed con-siderable legal and integrity risks to listed companies. Mr. Zou Bian, vice executive director of China Software Al-liance and an expert at the Office of the National Inter-ministerial Joint Meeting on Promoting the Use of Legal Software, said that “respecting one’s own and oth-ers’ intellectual property rights is critical to the development of a company. The Steel Maker has advanced local shift to legal software by cooperating with the court in mediation and purchasing software licenses from the perspective of sustainable development. We hope to see more businesses, especially listed companies, accelerate their shift to legal software on their way to international markets. ”

Source: http://data.chinaxwcb.com/epaper/2011/2011-03-10/8738.html (China Press and Publishing Journal; author: Guan Tao)

A Guangzhou Steel Structure Co., Ltd (A Steel Maker) arrived at a settlement package on March 7 with software vendors including Adobe to close three disputes over computer software infringement. It represented another copyright protection move of the Busi-ness Software Alliance and its three members Adobe, Autodesk and Micro-soft in south China. According to the settlement agreement, the steel maker would pay the three software makers a total of RMB1.3 million for damages and licensing fees for Photoshop, AutoCAD, Windows and Office.

Business Software Alliance Director and Chief Representative of China, Yao Xin, said, “We are happy to see the Steel Maker close the dispute with copyright owners through amicable settlement procedures. Only by recognizing the commercial value of legal software can businesses build their respect for intellectual property rights in software and eventually protect themselves from legal risks.” He added that “the Nansha District People’s Court of Guangzhou City played a positive role in mediating the case, a strong sign of local authori-ties’ determination and efforts to protect software intellectual property.”

In May 2010, Nansha District People’s Court of Guangzhou accepted the lawsuit filed by Adobe, Autodesk and Microsoft and conducted evidence preservation over software installed on computers of the defendant. In August, as required by Chinese regulators, a listed steel space frame company dis-closed three software copyright lawsuits against one of its subsidiaries, A Steel Maker, in the “Significant Events” sec-tion of its semiannual report. A settle-

ment was reached between the two sides after the Steel Maker communicat-ed proactively and thoroughly with the Business Software Alliance promising to use legal software and tighten manage-ment of software assets.

The Steel Maker is a subsidiary of a l isted company named A Zhej iang Space Frame Co., Ltd (A Space Frame). Its parent stated that “it is necessary for a company to use legal software and establish a software asset management system, which helps improve productiv-ity and operate in compliance with laws and regulations of the country. We sup-port the shift to legal software, and are happy to establish longstanding coop-eration with software makers, and apply dynamic management to our and our af-filiates’ software assets in a comprehen-sive, systematic manner to meet internal control and compliance requirements imposed upon listed companies.”

China’s laws and regulations have pro-vided increasing clarity on the use of legal software by listed companies in re-cent years. China Securities Regulatory Commission stated in its Announcement No. 37 of 2010 that the board of direc-tors of listed companies shall, in addi-tion to ensuring the accuracy, authen-ticity and completeness of information disclosed in the annual report, use legal software during release of the annual re-port and make XBRL-based information disclosure authentic, accurate, com-plete and consistent with the information disclosed in public. Listed companies involved in any software piracy lawsuit shall perform the obligation of informa-tion disclosure as required by disclosing basic details, amounts involved and anticipated liabilities in the “Significant



Microsoft reached a sett lement on August 8 with a Hangzhou Industrial Co., Ltd. and Hangzhou Tools Co., Ltd. after the Intermediate people’s Court of Hangzhou City tried and mediated a case which attracted industry-wide at-tention. The two defendants were suited for infringing upon computer software copyright of Microsoft. The two defen-dants promised to use licensed soft-ware, take adequate measures to man-age software assets and compensate Microsoft for previous infringements.

Microsoft (China)’s intellectual property general manager Yu Weidong thanked the Intermediate People’s Court of Hangzhou for its valuable efforts in pro-tecting software intellectual property in this case, saying that “in recent years, in particular since October 2010 when the

State Council launched a fight against intellectual p roper ty in f r ingement and production and sale of counterfeit, all levels of Chinese governments have been taking effec-tive measures to promote the use of legal software, raise public awareness of intellectual property pro-tection and creak down on piracy. We are excited to find that more and more businesses and institu-tions have realized the importance of respecting and protecting intellectual property. Microsoft will, as it did and does, work closely with local govern-ments and industries to

advance intellectual property protection and create an environment conducive to the growth of information industry and innovative economy. We expect that more Chinese enterprises, especially listed companies, will play an exemplary and driving role in the shift to legal soft-ware use.”

A Hangzhou Industr ial Co., Ltd., a company listed on Shenzhen Stock Ex-change, is one of the largest tool mak-ers in China and the parent of A Hang-zhou Tools Co., Ltd. Microsoft started to approach it in 2009, but no agreements were reached for various reasons. Micro-soft initiated civil proceedings in Novem-ber 2010 with the Intermediate People’s Court of Hangzhou City against it and its subsidiary, for illegal use of Microsoft software. With efforts from both sides

and court mediation, a settlement was finally reached on August 8 this year to provide for the legalization of software. An officer from the company said, “We are pleased to reach a settlement with Microsoft. We will establish a long-term partnership with Microsoft and establish a sustainable mechanism of software asset management. This mechanism will help us achieve dynamic management of software licenses, optimize allocation of software assets and enable them to serve us better.”

Commenting on the settlement between Microsoft and a Hangzhou Industrial Co., Ltd, Professor Li Yongming of Zhe-jiang University Guanghua Law School says that intellectual property is the cen-terpiece of businesses’ competitiveness, or even countries’ core competencies, in the knowledge era. Respecting and pro-tecting intellectual property are in fact to inspire innovation, stimulate business competitiveness and sharpen national core competencies. In recent years, for increased protection of intellectual prop-erty, China introduced national intellec-tual property strategies to improve the capability of creating, applying, protect-ing and managing intellectual property. In this context, Chinese enterprises, in particular listed companies and large-sized enterprises, should answer the country’s call to enhance self-discipline and respect, protect intellectual prop-erty.

Source: http://data.chinaxwcb.com/epaper/2011/2011-08-11/13265.html (China Press and Publishing Journal; author: Saidi Xiaoqian)

A Company Reached Settlement with Microsoft in Software Infringement Case



Microsoft initially claimed RMB1.68 mil-lion in damages; A Fuzhou Group Com-pany eventually paid Microsoft RMB900, 000 and promised to use genuine Mi-crosoft software.

BSA Asia-Pacific and Microsoft (China) filed a lawsuit against A Fuzhou Group Co., Ltd. claiming RMB1.6 million in damages after finding the company used pirated Microsoft software, includ-ing Windows. A settlement was reached between the two sides after mediation by the Fuzhou Intermediate People’s Court.

A Fuzhou Group Company Found to Use Pirated Software

Early this year, BSA Asia-Pacific and Microsoft (China) found that A Fuzhou Group Company used pirated software in its computers for office and operation purposes, including Windows, Office and Server (server software). Microsoft (China) brought an action against the Fuzhou Group Company in mid-Febru-ary and applied for evidence preserva-tion to Fuzhou Intermediate People’s Court. Judges of the court collected evi-dence from computers at the office and operation premises of the company and took pictures of pirated software use.

How did Microsoft discover the use of pirated software by A Fuzhou Group Company? Judges said Microsoft kept records of licensing for use of genuine Windows, Office and Server and other Microsoft business software. If a com-pany is found to use Microsoft software without any licensing record available at Microsoft, the company must use pi-rated software.

Microsoft (China) argued that the Fu-

zhou Group Company’s use of pirated software for profit making had seriously infringed upon its copyright in Windows, Office and Server. Thus the software giant initiated civil proceedings requir-ing the Fuzhou Group Company to pay RMB1.68 million (RMB560,000*3) in damages in addition to destroying pirated software installers and deleting installed infringing software. The Fu-zhou Group Company admitted its use of pirated software, but considered the Microsoft-requested damages as unrea-sonably high.

Microsoft Sued Two Listed Companies in Fuzhou

Judges at the Intellectual Property Divi-sion of the Fuzhou Intermediate Peo-ple’s Court, including presiding judge Mr. Ruan, attempted to mediate the case early in this April, but the great gap between the two sides in the amount of compensation led to a deadlock. Mr. Ruan later proposed a solution compris-ing compensation and legalization of software, which was accepted by both parties. Finally The Fuzhou Group Com-pany paid RMB900,000 to Microsoft and promised to use genuine Microsoft soft-ware from then on.

This settlement marks the second copy-right case of Microsoft in Fuzhou. The first copyright case in Fuzhou was also mediated by the Fuzhou Intermediate People’s Court last year, resulting in a compensation awarded against the infringing company, a state-owned key enterprise going public not long ago. To date, no individuals are found to be sued for use of pirated Microsoft software.

As a large group of companies in the Fujian Province engaged in real estate,

securities and finance, tourism, res-taurant and entertainment, the Fuzhou Group Company was listed on the Shanghai Stock Exchange in 1993. Chi-na Securities Regulatory Commission (CSRC) requires all listed companies to disclose any lawsuits involving pirated software, in the section “Significant Events” in their annual report. Included in the required disclosure would be basic information of the copyright in-fringement, the involved amount, and expected obligations. In two other cases initiated by the Business Software Al-liance (BSA) in Shanghai and Guang-zhou involving listed companies and their subsidiaries, the companies had also disclosed lawsuits that involved in-fringement of software copyright in their semi-annual or annual report. Their dis-closures had significantly affected their reputation and stock prices.

Sou rc e : h t tp : / /w w w. nha idu .com/news/52/n-308052.html (Straits City Daily; authorized by Tu Ming and Mao Chaoqing)

Microsoft Sued a Fuzhou Group Company for Pirated Software Use and Claimed RMB1.6 million in Damages



A Jiangsu International Group said it would, in its active response to the gov-ernment calls, try to play an exemplary role in promoting the use of genuine software in enterprises with a view of protecting intellectual property rights of software. And it would establish a long-term partnership with Microsoft with re-gard to the use of its software and build a persistently effective mechanism for software asset management.

“As more and more state-owned enter-prises have begun becoming concerned with the IPR protection of software, the practice of the Jiangsu International Group shows an increased awareness among these enterprises of using genu-ine software and Microsoft’s determina-tion to cooperate with them in promoting the use of genuine software. And as an international group engaging in sub-stantial export, its move in this respect

w i l l a lso great ly improve its inter-national competi-tiveness,” said Yu Weidong, General Manager of Intel-lec tua l Proper ty Rights at Microsoft (China) Co., Ltd.

Before this, both parties had once turned to the Inter-mediate People’s Court of Nanjing over the breaching use of Microsoft’s software by a com-pany under the Ji-angsu International Group. Through both parties’ con-

certed efforts and the court’s mediation, both parties at last reached agreement about compensation for the tort and about the use of genuine software. This company said that “Because of the ne-gotiation on intimate terms between the Jiangsu International Group and Micro-soft in the course of case hearing, we eventually became reconciled with Mi-crosoft over the case”, and it promised to expedite the company-wide use of genuine software and take measures as appropriate for software management.

In recent years, especially as driven by the State Council’s special actions against IPR infringement and against the manufacturing and distribution of sham and shoddy commodities, governments at various levels have continuously tak-en effective measures to increase IPR protection awareness and strengthen management over IPR infringement, and

more and more enterprises and other organizations have become aware of the importance of the respect for and protection of IPR. Yu Weidong extended his heartfelt thanks to the Intermediate People’s Court of Nanjing, saying “The Court’s positive effort in this case for the IPR protection of software, which has greatly inspired us, also represents an effective move in creating a sound investment and operational environment in Jiangsu. Microsoft will continue as always to work together with govern-ments and enterprises in promoting IPR protection and in creating an environ-ment conducive to the growth of the information industry and innovation-oriented economy. And we hope that more Chinese enterprises, especially state-owned ones as well as other large enterprises, can play an exemplary and boosting role in the use of genuine soft-ware.”

The IPR protection of software plays a positive part in encouraging innovation, in driving the building of an innovation-oriented country, and in achieving sus-tainable development. What’s more, with economic globalization further developing, widespread attention will be continuously drawn to the harm that the illegal operation due to the use of pirate software causes to fair competition and to the whole of the economic environ-ment. To assure their persistent and healthy development, it is an inevitable course for enterprises to strength their respect for and protection of software IPR and to achieve scientific manage-ment of software assets.

Source: http://zyzfcg.ggj.gov.cn/article/show/67512, 2011-11-28

Jiangsu Company Embarked on Promoting Software Legalization of Microsoft



Appendix:

Relevant Laws, Regulations and

Government Documents


Copyright Law of the People’s Republic of China(Revised in 2010) (Extracts)

Article 10 “Copyright” shall include the following personal rights and property rights:

(5) the right of reproduction, that is, the right to produce one or more copies of the work by means of printing, Xeroxing, rubbing, sound recording, video recording, duplicating, or re-shooting, etc.;

(6) the right of distribution, that is, the right to provide the public with original copies or reproduced copies of works by means of selling or donating;

(7) the right of lease, that is, the right to nongratuitously permit others to temporarily exploit a cine-matographic work, a work created in a way similar to cinematography or computer software, unless the computer software is not the main object under the lease;

A copyright owner may permit others to exercise the rights provided in Items (5) through (17) of the preceding paragraph, and may receive remuneration as agreed upon in the contract or in accordance with the relevant provisions in this Law.

A copyright owner may wholly or partially transfer the rights provided in Items (5) through (17) of Para-graph 1 of this Article, and may receive remuneration as agreed upon in the contract or in accordance with the relevant provisions in this Law.

Article 47 He who commits any of the following acts of infringement shall bear the civil liability for such remedies as ceasing the infringing act, eliminating the effects of the act, making a public apology or pay-ing compensation for damages, depending on the circumstances:

(7) exploiting a work of another without paying the remuneration;

(8) without the permission from the copyright owner or obligee related to the copyright of a cinemato-graphic work or a work created in a way similar to cinematography, computer software, sound recordings or video recordings, leasing his work or sound recordings or video recordings, except where otherwise provided in this Law;

(11) committing other acts of infringement upon copyright and upon other rights related to copyright.

Article 48 He who commits any of the following acts of infringement shall bear the civil liability for such remedies as ceasing the infringements, eliminating the effects of the act, making a public apology or paying compensation for damages, depending on the circumstances; where he damages public inter-ests at the same time, the copyright administration department may order him to cease the act of tort, may confiscate his illegal gains, confiscate and destroy the reproductions of infringement, and impose a fine on him; if the case is serious, the copyright administration department may also confiscate the ma-terials, instruments and equipment, etc.mainly used to make the reproductions of infringement; where his act has constituted a crime, he shall be investigated for criminal liabilities in accordance with the law:

(1) without the permission from the copyright owner, reproducing, distributing, performing, projecting, broadcasting, compiling, disseminating to the public through information network his works, except where otherwise provided in this Law;


Regulations for the Implementation of the Copyright Law of the People’s Republic of China (2002 version)

(Extracts)

Regulations on Computers Software Protection (Extracts)

Article 36 Where any act of infringement is committed as enumerated in Article 48 of the Copyright Law, which also prejudices the social or public interests, the administrative department for copyright may impose a fine of not more than three times the volume of the illegal business;where the volume of illegal business is difficult to calculate, a fine of not more than 100,000 yuan may be imposed.

Article 24 Except where otherwise provided in the Copyright Law of the People’s Republic of China, these Regulations, or other laws or administrative regulations, anyone who, without the authorization of the software copyright owner, commits any of the following acts of infringement shall, in light of the circumstances, bear civil liability by means of ceasing infringements, eliminating ill effects, making an apology, or compensating for losses; where such act also prejudices the public interest, the copy-right administration department may order to cease infringements, confiscate illegal income, confis-cate or destroy the infringing copies, and may impose a fine concurrently; where the circumstances are serious, the copyright administration department may confiscate the material, tools and equip-ment mainly used to produce infringing copies; and where the act violates the Criminal Law, criminal

Article 49 The infringer shall, when having infringed upon the copyright or the rights related to copy-right, make a compensation on the basis of the obligee’s actual losses; where the actual losses are difficult to be calculated, the compensation may be made on the basis of the infringer’s illegal gains. The amount of compensation shall also include the reasonable expenses paid by the obligee for stopping the act of tort.

Where the obligee’s actual losses or the infringer’s illegal gains cannot be determined, the people’s court shall, on the basis of the seriousness of the act of tort, adjudicate a compensation of 500,000 Yuan or less.


The Interpretation of the Supreme People’s Court Concerning Several Issues on Application of Law

in Hearing Correctly the Civil Copyright(Extracts)

Article 21 In case the users of computer software make commercial use of the computer software without permission or beyond the scope of permission, civil responsibilities should be undertaken according to the provisions of Article 48 (1) of the Copyright Law and Article 24 (1) of the Regulation on Protection of Computer Software.

Article 26 The reasonable expenses paid for stopping the infringing acts as specified by Article 49 (1) of the Copyright Law include reasonable fees occurred from investigating on the infringing acts and obtaining evidences.

The People’s Court may calculate in the compensations the attorney’s fees according to the provi-sions of the relevant state departments in consideration of the proceeding claims and specific cir-cumstance of cases of the parties concerned.

Article 29 In case of the infringing acts specified by Article 48 of the Copyright Law, the People’s Court may in addition to prosecuting infringing party with civil responsibilities as per the request by the parties concerned accord civil punishment according to the provision of Article 134 of the Gen-eral Principles of Civil Law, with the amount of fine to be determined by reference with the relevant provisions of the Regulations on the Implementation of the Copyright Law of the People’s Republic of China.In case the administrative department of copyrights has accorded the same infringing acts with administrative punishment, the People’s Court shall not accord civil punishment.

liability shall be investigated for the crime of infringing upon copyright or selling infringing copies in accordance with the provisions of the Criminal Law:

(1) to reproduce, wholly or in part, a piece of software of the copyright owner;

(2) to distribute, rent or communicate to the public through information network a piece of software of the copyright owner;

(3) to transfer, or authorize another person to exploit, the software copyright of the owner.

Article 25 The compensation paid for infringing upon software copyright shall be determined in ac-cordance with Article 49 of the Copyright Law of the People’s Republic of China.


Circular of the Supreme People’s Court on the Issuance of Opinions on Several Issues Concerning the Overall Intellec-tual Property Trial Serving the Overall Objective under the

Current Economic Situation

IV. Improving the intellectual property litigation system, focusing on improving the trade and investment environment, and actively promoting the rise of the level of opening up

16. We shall increase the indemnity, punishment and deterrent effects of compensation for damages, reduce the cost of rights protection and raise the price paid for infringement. We shall, when deter-mining the compensation for damages, make good use of the evidence rules, comprehensively and objectively examine the evidence for calculating the amount of compensation, make full use of logical reasoning and daily experience to comprehensively examine and judge the authenticity, legitimacy and probative force of the relevant evidence, and determine the facts for damage compensation under the standard of preponderant evidence. We shall actively direct the parties concerned to calcu-late the compensation amount by adopting the method of losses incurred from infringement or profits derived from infringement, and avoid as much as possible the simple application of statutory com-pensation. Where the specific amount of losses incurred from the infringement or profits derived from infringement is difficult to prove but there is evidence that the aforesaid amount is obviously greater than the upper limit of statutory compensation, the court shall reasonably determine the amount of compensation over the statutory upper limit by considering all the evidence in the case. Unless other-wise provided for by law, in the application of statutory compensation, the reasonable cost for rights protection shall be calculated for compensation separately. In the application of statutory compensa-tion, we shall, as much as possible, expound the various discretionary factors which are actually con-sidered to make the final compensation results reasonable and credible. When estimating the amount of profits gained from infringement in accordance with the claim of the right holder and the unjustified refusal of the defendant to provide evidence held, there must be reasonable basis or reasons, and the amount determined shall be fair and reasonable and fully convincing. We shall note the compa-rability when calculating compensation for damages by referring to licensing fees, fully consider the distinctions between normal licensing and infringement in terms of manner, time and scale of imple-mentation, and reflect the tenet that the amount of compensation for infringement shall be appropri-ately higher than the normal licensing fees. We shall pay attention to giving play to the auxiliary role of auditing, accounting and other professionals in determining the compensation for damages, and direct the parties to obtain professional assistance in calculation, explanation and cross-examination. We shall actively explore the issue of professional assessment of compensation for damages to intel-lectual property, and when conditions are ripe, properly introduce a mechanism of determination of compensation for damages through special assessment conducted by professional institutions.


Administrative Measures for the Disclosure of Information of Listed Companies (Extracts)

Article 30 In the case of a major event that may considerably affect the trading price of a listed com-pany’s shares and that is not yet known to the investors, the listed company shall disclose it to them, stating the cause, the present situation, and the possible legal consequence of the event.

The term “major event” as mentioned in the preceding paragraph includes the following circumstances:

(10) Any major litigation, arbitration in which the company is involved, or where the resolution of the general meeting of shareholders or the board of directors has been cancelled or invalidated;

(11) The company is investigated, given any criminal punishment or major administrative punishment by the competent organ due to any violation of law or regulation, or any director, supervisor or senior manager of the company is investigated or subject to mandatory measures by the competent organ due to any violation of law or discipline;

Article 33 Where any major event as mentioned in Article 30 of these Measures occurs in a subsid-iary controlled by a listed company, if it is likely to considerably affect the transaction prices of the listed company’s securities and the derivatives thereof, the listed company shall perform the informa-tion disclosure obligation. For the possible occurrence of any event that may considerably affect the transaction prices of a listed company’s securities and the derivatives thereof, the listed company shall perform the information disclosure obligation.

Article 60 Where a listed company fails to work out rules on the management of information disclo-sure affairs of the listed company in accordance with these Measures, the CSRC shall order it to make a correction. If it refuses to do so, the CSRC shall give it a warning and a pecuniary punishment.

Article 61 Where an information obligor fails to perform the information disclosure obligation within the prescribed time limit, or where there is any false record, misleading statement or serious omission in the information disclosed by it, the CSRC shall punish it in pursuance of Article 193 of the Securities Law.

Article 62 Where an information obligor fails to submit the relevant reports within the prescribed time limit, or there is any false record, misleading statement or serious omission in any report submitted, the CSRC shall punish it in pursuance of Article 193 of the Securities Law.

Article 64 Where any shareholder or actual controller of a listed company fails to assist the listed company to perform the information disclosure obligation, or unlawfully require the listed company to provide inside information, the CSRC shall order it to make a correction, and give it (him) a warning and a pecuniary fine.

Article 65 Where a recommender or securities service institution, which issues special documents for an information obligor to perform the information disclosure obligation, or any of its personnel violates the Securities Law, any administrative regulation, or any of the provisions of the CSRC, the CSRC shall take supervisory measures, such as ordering it or him to make a correction, holing super-visory talks, issuing a letter of warning, recording the violation in its or his credit archives. If it is nec-essary give it or him an administrative punishment, the CSRC shall do so in accordance with the law.


Listed Companies, In order to support the State Council’s efforts to promote use of legal software in large enterprises and pursuant to instructions by China Securities Regulatory Commission, enterprises that engage in litigation and/or major violation of laws or regulations concerning software piracy should timely per-form its obligation of information disclosure. The Department will conduct investigation and penalty upon the listed company that failed to perform its obligation of information disclosure and the respon-sible persons thereof. Department for Listed Companies Shenzhen Stock Exchange May 31, 2006

Article 4 The information as disclosed by an issuer according to law shall be authentic, accurate and integrate, and shall not carry any false record, misleading statement or major omission.

Article 11 The business operation of an issuer shall comply with the relevant provisions of the laws, ad-ministrative regulations and company constitution, and meet the relevant industrial policies of the state.

Having been given an administrative punishment for its violation of any provision on industry and com-merce, taxation, land, environmental protection or customs, or any other law or administrative regulation, with serious circumstances;

Article 35 An issuer shall not have any major debt-paying risk or be involved with any major contingent issue such as guaranty, litigation and arbitration that may negatively affect its business operations.

Article 37 An issuer shall not be under any of the following circumstances where its capability of making profits continuously is negatively affected:

Where it takes risks of negative change in obtaining or utilizing such important assets and technolo-gies as trademark, patent, exclusive technologies and franchise;

Article 51 After an application for issuance is approved and before the stock issuance is concluded, in case any major event occurs to the relevant issuer, it shall suspend the stock issuance, report the situa-tion to the CSRC in a timely manner and also perform its obligation of information disclosure. Where any requirement for issuance is thus affected, the procedures for verification shall be gone through again.

Notice on Disclosure of Information on Litigation and Major Violation of Laws or Regulations Concerning Software Piracy

Measures for the Administration of Initial Public Offering and Listing of Stocks (Excerpt)


Article 54 The Rules on the Contents and Format of Prospectuses shall be the minimum require-ments for information disclosure. Whether there is any explicit provision in the said Rules, any infor-mation that may have any major impact on the investors’ decisions on investment shall be disclosed.

Article 64 Where any document of application as sent by an issuer to the CSRC carries any false re-cord, misleading statement or major omission, where an issuer fails to meet the relevant requirements and thus obtains an approval by any fraudulent means, where an issuer disturbs the examination as conducted by the CSRC or the Issuance and Verification Committee thereof by any unjustifiable means, or where any seal or signature as affixed by an issuer or any of its directors, supervisors or senior man-agers is fabricated or altered, the CSRC shall, in addition to giving a punishment according to the rel-evant provisions of the Securities Law, adopt the supervisory measures for terminating the relevant ex-amination and refusing to accept the application of the said issuer for stock issuance within 36 months.

Administrative Measures for Initial Public Offerings and Listing on the Second Board (Excerpt)

Article 4 Information to be disclosed by an issuer as required by law must be authentic, accurate and complete, and may not include any false record, misleading statement or gross omission.

Article 14 The issuer shall have a sustained profitability and do not fall under any of the following circumstances:

3. there exist risks that great adverse changes would occur in its acquirement or use of such impor-tant assets or technologies as trademark, patent, proprietary technology and franchise rights, etc.;

Article 16 The issuer does not have great debt redemption risks, and has no big contingent issues such as guarantee, litigation and arbitration that would affect its sustained operation.

Article 39 The standards of the CSRC for the content and format of prospectus bear the minimum requirements on information disclosure. All information that has great influence upon investors’ in-vestment decision-making, whether expressly specified in the standards or not, shall be disclosed.

Article 53 If there is any false record, misleading statement or significant omission in the application document filed by the issuer with the CSRC, or the issuer gets approval for its issuance by deception when it fails to satisfy the conditions for issuance, or the issuer interrupts the examination and ap-proval work of the CSRC or the issuance review committee by illegitimate means, or the signature or seal of the issuer or any of its directors, supervisors and senior managers, controlling shareholder or actual controller is forged or altered, or the issuer or any party related to the issuance gives public-ity to the public offering of stocks in violation of these Measures, the CSRC will take the supervisory measure of terminating examining the issuer’s application and not accepting its application for issu-ance of stocks within 36 months and punish it according to the Securities Law.


Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (Extracts)

Regulations Governing Establishment of Internal Control Systems by Public Companies (Extract)

13.51 An issuer shall inform the Exchange immediately of any decision made and publish an an-nouncement in accordance with rule 2.07C as soon as practicable in regard to:—

(2) any changes in its directorate or supervisory committee, and shall procure that each new director or supervisor or member of its governing body shall sign and lodge with the Exchange as soon as practicable after their appointment a declaration and undertaking in the form set out in Form B, H or I, where applicable in Appendix 5.

Where a new director or supervisor is appointed or the resignation or re-designation of a director or supervisor takes effect, the Exchange must be informed immediately thereafter. The issuer must si-multaneously make arrangements to ensure that an announcement of the appointment, resignation or re-designation of the director or supervisor is published in accordance with rule 2.07C as soon as practicable. The issuer shall include the following details of any newly appointed or re-designated di-rector or supervisor in the announcement of his appointment or re-designation:—

(o) where he has, in connection with the formation or management of any enterprise, company, part-nership or unincorporated business enterprise or institution, been adjudged by a Court or arbitral body civilly liable for any fraud, breach of duty or other misconduct by him towards such enterprise, company, partnership or unincorporated business enterprise or institution or towards any of its mem-bers or partners, full particulars of such judgement;

(r) except where such disclosure is prohibited by law, full particulars of any investigation by any judi-cial, regulatory or governmental authority to which he is subject, including the investigating body, the nature of the investigation and the matters under investigation;

Article 9 A public company that uses a computerized information processing system shall, inaddition to clearly differentiating the functions and duties of information and user departments,include at least the following control procedures: [omitted]


Securities And Exchange Act Enforcement Rules of Taiwan (Extracts)

Article 7 The term “any matter which has had a significant impact on shareholders rights or the price for the securities” used in item 2 of paragraph 2, Article 36 of hereof shall mean one of the following matters:

(2) litigation, non-litigious proceeding, administrative disposition, administrative dispute, security proce-dure, or compulsory execution, which would have a significant impact on the financial status or business of the company;

(9) other important events that have had significant impact on the continuation of company operation.

Public Company Accounting Reform and Investor Protection Act of the United States of America

(aka The Sarbanes–Oxley Act of 2002, Extracts)

SEC. 302. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

(5) the signing officers have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)—

(A) all significant deficiencies in the design or operation of internal controls which could adversely af-fect the issuer’s ability to record, process, summarize, and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls;

SEC. 304. FORFEITURE OF CERTAIN BONUSES AND PROFITS.

(a) ADDITIONAL COMPENSATION PRIOR TO NONCOMPLIANCE WITH COMMISSION FINANCIAL REPORTING REQUIREMENTS.—If an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting re-quirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall reimburse the issuer for—

(1) any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and (2) any profits realized from the sale of securities of the issuer during that 12-month period.

(b) COMMISSION EXEMPTION AUTHORITY.—The Commission may exempt any person from the ap-plication of subsection (a), as it deems necessary and appropriate.

About the Business Software AllianceThe Business Software Alliance (www.bsa.org) is the world’s fore-

most advocate for the software industry, working in 80 countries

to expand software markets and create conditions for innovation

and growth. Governments and industry partners look to BSA for

thoughtful approaches to key policy and legal issues, recognizing

that software plays a critical role in driving economic and social

progress in all nations. BSA’s member companies invest billions of

dollars a year in local economies, good jobs, and next-generation

solutions that will help people around the world be more produc-

tive, connected, and secure. BSA members include Adobe, Agilent

Technologies, Apple, Aquafold, ARM, Arphic Technology, Autodesk,

AVEVA, AVG, Baseplan, Bentley Systems, CA Technologies, Ca-

dence, Cisco, CNC/Mastercam, Compuware, Corel, Dassault

Systèmes SolidWorks Corporation, Dell, Intel, Intuit, Kaspersky

Lab, McAfee, Mentor Graphics Corporation, Microsoft, Minitab,

NedGraphics, Orbotech, PTC, Progress Software, Quark, Quest

Software, Rosetta Stone, Siemens, Sybase, Symantec, and The

MathWorks.


Reporting Piracy—

www.bsa.org/china