Tampering with Open License Agreement Leads to Criminal Sanctions for Copyright Infringement

Issue 30 By Feng Xiang,[Copyright]

This is a case of first impression in China – criminal sanctions for copyright infringement by tampering with Microsoft’s Open License Agreement (OLA). The implication of the sentence defines the unauthorized addition of computer software in place of the genuine OLA with Microsoft, as “[an alteration of the copyrighted work] without permission of the copyright holder” per judicial interpretation. The defendant’s sale of the software after tampering with the open license agreement constitutes reproduction and distribution of computer software.

Case number

The People’s Court of Pudong New Area, Shanghai (2008) Pu Xing Chu No. 990 Criminal Verdict

Facts of the case

Public Prosecution: Prosecutorate of Pudong New Area, Shanghai

Defendant: Xu Chufeng

Defendant: Jiang Haiyu

In July 2006, upon learning that International Nutrition Co., Ltd. planned to purchase seven kinds of Microsoft software including “Windows XP,” defendants Xu Chufeng and Jiang Haiyu premeditated to make a purchase from Shanghai Tongwei Digital Technology Co., Ltd. of 67 sets of “Windows XP” in the amount of 78,591 Yuan, with an OLA from Microsoft for this purchase. Then, under disguise of a registered user of Microsoft, the defendants made use of their access to serial numbers for software installation, obtained the serial numbers of six other kinds of software and then added the information into the OLA without permission. The defendants then sold the software to International Nutrition Co., Ltd. via Shanghai Aifen Electronic Science and Technology Co., Ltd. and Shanghai Daoning Information Technology Co., Ltd. and gained 294,409 Yuan of illegal profits. Xu Chufeng obtained a share of 150,000 Yuan and Jiang Haiyu received the rest.

On December 3, 2007, Jiang Haiyu was arrested by the police. On December 5 that same year, Xu Chufeng turned himself in. On December 10, 2007, Xu Chufeng and Jiang Haiyu returned all of the illegal gains to the public security organ.

Judge’s opinion

After hearing the case, the People’s Court of the Pudong New Area held that without the permission of the copyright holder, the defendants Xu Chufeng and Jiang Haiyu reproduced and distributed the computer software for commercial purpose and gained a huge amount of illegal income, and that their acts constituted the crime of copyright misappropriation. The procurator’s charges must be sustained. Xu Chufeng turned himself in and his penalty was lessened as a consequence. His attorney’s request for mitigation was also accepted. The two defendants confessed their illegal deeds with a good attitude and surrendered all of their illegal income, so they were punished more leniently. Jiang Haityu’s attorney also requested a lighter sentence, which was adopted. During the trial of this case, the defendants, International Nutrition Co., Ltd. and Microsoft reached a “trilateral agreement” on properly handling the consequences of their actions, which in a certain sense has resolved the social harm. This agreement has also been taken into account during sentencing. In order to strengthen the national legal system, standardize the market economic order and protect intellectual property, and according to the circumstances of the defendant’s criminal acts, social harm and repentance attitudes, a verdict was made in line with the provisions of Clause 1 of Article 217, Article 25, Clause 1 of Article 67, Article 72, 73, 53 and 64 of the Criminal Law of the P.R.C, Clause 2 of Article 5 and Clause 1 of Article 14 of the Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues of Concrete Application of Laws in Handling Criminal Cases of Infringing Intellectual Property as well as Article 4 of the Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues of Concrete Application of Laws in Handling Criminal Cases of Infringing Intellectual Property II. Xu Chufeng was found guilty of copyright misappropriation and sentenced to two years and six months of probation with a fine of 150,000 Yuan. Jiang Haiyu was also found guilty of copyright misappropriation and sentenced to three-years of probation with a fine of 144,500 Yuan. Moreover, all of the illegal gains, totaling 294,409 Yuan, are to be returned to Microsoft.

After the trial, neither the prosecutor nor the defendants appealed, and the decision has become effective.

Analysis

Microsoft’s OLA is generally understood as giving its clients bulk access to its software products and the main target is small and medium-sized businesses and organizational users. The OLA applies to enterprises that use application software in large amounts and can help enterprises cut costs, and save spaces taken up by the manuals and disks for full packages, and lighten the workload for software asset management. Meanwhile, enterprises can get a better bargain when purchasing in large quantities. Microsoft’s batch licensing is an appropriate choice for enterprises that demand a number of different software. 

Three legal issues are involved to determine whether the defendants in this case committed the crime of copyright infringement:

1. Whether tampering with an OLA by falsifying the agreement contents by adding extra software constitutes “[acts] without permission from the copyright holder” under the Criminal Code.

Article 217 of Criminal Law of the P.R.C provides, “Whoever, for the purpose of reaping profits, has committed one of the following acts of copyright infringement and gains a fairly large amount of illicit income, or when there are other aggravating circumstances, is to be sentenced to not more than three years of fixed-term imprisonment, servitude, and/or a fine; when the amount of the illicit income is huge or when there are other particularly serious circumstances, he is to be sentenced to not less than three years and not more than seven years of fixed-term imprisonment and a fine:

(1) Reproducing and disseminating, without permission therefrom, works of literary writing, music, cinematography, television, video recording, computer software, or other works of a copyright holder;
(2) Publishing books under exclusive rights by others;
(3) Reproducing and disseminating, without permission therefrom, audio/visual works of a copyright holder;
(4) Manufacturing and passing off works of art in false names.
Thus, “without permission (from the copyright holder)” is the actus reus for the criminal offense against copyright.

The elements of actus reus in criminal law, depending on a value judgment, may be divided into de jure (prescriptive) or de facto (descriptive) types. De jure elements can be ascertained on the basis of facts without a value judgment from the adjudicator; whereas de facto element requires that the adjudicator make a valued judgment based on certain normative standards and evaluation. “Without permission (from a copyright holder)” is one such de facto element. For accurate and timely application of the criminal law, in 2004 the Supreme People’s Court promulgated the Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues of Concrete Application of Laws in Handling Criminal Cases of Infringing Intellectual Property (the Interpretation), which provides in Article 11 that “[acts] without permission,” as stipulated in Article 217 of the Criminal Law, refers to  circumstances where no authorization from the copyright owner has been obtained, or authorization documents are forged or falsified, or the authorization is exceeded.

Defendants in this case obtained Microsoft’s OLA by purchasing the “Windows XP” software and then added six other unauthorized copies of software including Office 2003 and Win32 ChnSimp OLP NL, into the license agreement to reap illegal profits. Their acts fell within the meaning of the Interpretation for forging or falsifying authorization documents to the detriment of the legitimate rights and interests of the right holder, which satisfies the condition of “without permission from the copyright holder” under Article 217 of Criminal Code.

2. Whether defendants’ acts constitute reproduction and dissemination

The actus reus in the present case for a criminal offense against copyright is that the defendants were found to have committed the acts of reproducing and disseminating computer software, without permission from the copyright holder, as stipulated under Article 217 of the Criminal Code. Article 2 of the Interpretation (II), which came into effect on April 5, 2007, defines “reproduction and dissemination” used in Article 217 of the Criminal Code as acts of reproduction, or dissemination, or both. Therefore, the second key point in this case is to determine whether the defendants committed the acts of reproduction and dissemination.

Computer software, as an intellectual achievement protected by Copyright Law, must be fixed in such tangible media as CDs, hard disks, etc., so as to be discerned and utilized. It is not so much of a purpose of copyright protection to acknowledge the right or to demonstrate static ownership to a work of authorship.  Rather, it is to reasonably adjust the interests of the developer, disseminator and user in the creation and use of the software. Law empowers the right holder to duplicate and distribute the software and to permit others to duplicate and distribute his own software rights, so as to encourage innovation and promote the dynamic use of software. Therefore, the rights of duplication and distribution are important property rights for software copyright holders. Without the permission of the copyright holder, duplicating and distributing others’ software would seriously infringe the legitimate rights and interests of the right holders and disrupt the economic order of the socialist market.

Article 8 of the Computer Software Protection Regulations provides: the right of reproduction refers to the right to produce one or more copies of the software; the right of distribution refers to the right to provide the original copy or reproductions of the software to the public by selling or donating. In this case, the defendants added six kinds of software, including “Office 2003 Win32 ChnSimp OLP NL”, into the OLA and provided the serial numbers for installation illegally. However, they did not reproduce the software or give the duplications to International Nutrition Co., Ltd by themselves. Therefore, there are two different views on whether or not the defendants duplicated the software without permission. The first view was that the defendants in this case only provided the serial numbers for the software. They did not provide installation carriers or services to International Nutrition Co., Ltd. The company completed the duplication of related software by itself. Thus, the defendants in this case did not constitute the unauthorized reproduction of the software.

The second view was that the duplicating act of the above-mentioned computer software was conducted by the International Nutrition Co., Ltd on the surface. Essentially, the company only had the capability to install the software, while all of the product ID and serial numbers were provided by the defendants. Due to the nature of software installation, it is not necessary for the accused to provide the duplicated software to the company. Therefore, the above-mentioned act of duplication should be regarded as being completed by the defendants. The second view was ultimately adopted in this case.

Moreover, the defendants in this case not only reproduced the software, but also disseminated the software. The “sale” of software is actually a licensing act of the right holder to permit others to use his software, which can take the form of reproduction and distribution. As a digital product, software is rather easy to reproduce. Therefore, whether software is genuine or pirated (i.e., whether there is lawful authorization), mainly depends on whether the serial number for installation (also known as the “installation code”) is legally licensed by the copyright holder. Thus, the legitimate serial number has become a common mark for legal duplication and distribution. Furthermore, the amount of duplication is of little significance for a digital product. In practice, although the software seller provides both an installation disk and serial number, it is common for the software user to install the duplicated software with the serial number on their own. Therefore, it should be considered as “duplicating and distributing without the permission from copyright holder” to illegally provide others with the serial number so that they can copy and use the software. In this case, the defendants were able to add unauthorized software into the license agreement only because they could also provide the corresponding serial numbers for the company to install and use. With the OLA purchased from the defendants, together with the legitimate duplicates of the software purchased before, the company asked its technical staff to install the software listed in the agreements with the serial numbers illegally provided by the defendants and put it to normal use.

3. Why are such acts not alleged to be fraudulent?

At trial, it was argued that defendants’ acts, though constituting a crime against copyright, also constitute the crime of fraud as the intent was to take possession illegally by fabricating facts, withholding the truth, and because the amount misappropriated was exceedingly large. Thus, it should be properly charged as fraud, a felony, and punished accordingly. In practice, the crime against copyright normally takes the form of falsifying facts, hiding the truth, and the victim voluntarily relinquishes their property under false pretenses. For this reason, the doctrine of merger may apply.

The doctrine of merger originates from the standardization of different approaches to the same legal facts in criminal law. Primarily because of statutory provisions, crimes have to be defined in abstract terms. It has never been a principle of application that a felony takes priority over a misdemeanor. The doctrine is a merger of crimes, not of punishments. The determination of a crime does not turn on the statutory punishment; it turns, rather, on whether the crime measures up to the offending act. In order to satisfy legislative intent, the doctrine should be applied by using the principle that special law take priority over general law. In legislation and judicial practice, it is found sometimes that penal measures for certain crimes are insufficient. But it is a legislative problem, and not a problem in the administration of criminal justice.

Based on the above analysis, it can be concluded that the most comprehensive and appropriate special law that can judge the defendants’ criminal acts and criminal objects is the crime against copyright.

About the author:

Feng Xiang is a Judge of the IPR Tribunal under the People’s Court of the Pudong New Area in Shanghai

(Translated by Li Yu)

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