Thomas C. Rubin: 2007 International Copyright Forum (Beijing)

RUBIN: Da Jia Zao Shang Hao. (Good morning everybody).

Thank you very much for the opportunity to address this very distinguished gathering on a topic of considerable importance to China, to the international community, and specifically to my company, Microsoft Corporation. At the start, please allow me to again express Microsoft’s deep appreciation for the profound honor of hosting President Hu Jintao during his visit to the United States last year.

My goal in this short presentation is to affirm the ongoing importance of strong copyright protection for the healthy growth and development of the software industry, both here in China and around the world. Let me also applaud the tireless efforts of many in this room who work so hard to ensure that copyright is respected throughout this vast country. Finally, I will provide some observations on the challenges ahead of us all – online and offline – as this vital work continues.

I will begin by providing you with two important sets of statistics.

First, a recent study by IDC underscored the importance of the software industry to the growth of the Chinese economy. IDC reported that, in 2005, the IT industry accounted for 10 percent of the growth of China’s Gross Domestic Product (GDP), and it projected that the software sector in China would grow twice as fast as the hardware sector over the next five years. The study noted that software-related jobs are growing by almost 20 percent per year among local Chinese software suppliers. It also documented a “multiplier effect”: every yuan of revenue to international software suppliers, such as Microsoft, produces two and one-half yuan of revenue for local suppliers.

The second statistic, which comes from the Business Software Alliance, indicates that the piracy rate for business software products in China has declined steadily over the past several years and is 10 percent lower today than it was in 2003. I would like to take this opportunity to express great appreciation for China’s efforts in making this significant progress happen, particularly with respect to the decree and implementation on government legalization, enterprise legalization and legitimate operating system pre-installation for OEM PC manufacturers.

My thesis this morning is that these statistics are very closely related. The decline in piracy of business software in China has been a major contributor to the remarkable growth of your country’s software sector. And I predict that if we can make further progress in increasing respect for copyright in China, that progress will be reflected in further healthy growth of the Chinese IT sector.

Why is copyright protection so important for the development of the software industry? I would propose two answers.

First, the development of high quality software depends on investment – lots of it. In the case of Microsoft, approximately 15 percent of our annual revenue – around US$7 billion – is invested each year in research and development – some of it at our Microsoft Research Asia laboratory right here in Beijing. Billions of dollars more are required to test and market, and to provide training and technical support, all of which are essential to a successful software product.

That massive investment simply cannot be justified if the potential market for a product is compromised by widespread piracy. Without effective copyright protection, a counterfeiter, an unscrupulous hardware dealer, or even a potential customer can reap the full benefits of these huge investments simply by copying the final product without authorization. If that continues to happen, it will discourage the needed investment, and the engine of software development will be stifled.

Chinese software innovators are especially vulnerable to the harmful effects of a lack of effective copyright protection. In a speech last April at Tsinghua University, Microsoft’s chairman, Bill Gates, spelled out a key goal of our company’s support for software research in China, which is “to make sure there are literally hundreds of software start-ups that not only sell in the market here [in China], but sell to the entire world.” That goal is unlikely to be achieved if copyright piracy deprives those start-ups of the significant opportunities in the Chinese market.

This brings me to the second reason why effective copyright protection for software is critical. Our business software products are really productivity tools. When they are successful, they help businesses, governments, and individual end-users be more efficient and productive in their work. That in turn frees up business resources and manpower for expansion, for new business opportunities, and for diversification. The result: new jobs and accelerated economic growth. The economy and society as a whole reap the benefits. But without substantial investments to create new breakthroughs in software, these positive economic impacts would be greatly weakened or disappear altogether.

Let me stress that what is needed to achieve these positive impacts is effective copyright protection. Enacting good copyright laws and regulations is very important; that’s why China’s recent accession to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty is a significant step forward. But without strong, consistent and effective enforcement of those laws, their positive potential simply cannot be realized.

China has made great progress in enforcing its copyright laws. The decline in piracy rates for business software applications are a clear indication of this. But those statistics also tell us that there is still a long way to go. The PC software piracy rate is still very high, meaning a large percentage of business software programs in the Chinese market are unauthorized copies.

There are many battlefields in the ongoing struggle against copyright piracy in China, including the need to crack down on street markets and regulate optical disc production facilities. But for Microsoft, no area is more important than China’s business and state-owned enterprises. That is where copyright piracy is inflicting the most serious losses today for both the international and Chinese software sectors.

All too often, enterprises in China are licensing access to business software applications for a small number of employees, and then making unauthorized copies available to tens or even hundreds more, either as stand-alone versions or on a network. Some enterprises don’t even license a single copy, using an unauthorized version of a program as the master. This is piracy – just as surely as it would be to obtain the unlicensed copies from unscrupulous replicators or illicit street merchants – and its impact is just as destructive.

NCAC has a critical role to play in meeting this challenge. We greatly appreciate that the leadership of NCAC is committed to strong enforcement of the copyright laws, including against end-user piracy within business enterprises. It has responded when instances of end-user piracy have been brought to its attention, and it has facilitated a number of settlements in which a business has converted its illegal copies to licensed ones. NCAC has even imposed administrative fines in a few cases of end-user piracy. But much more is needed for effective enforcement.

We urge NCAC to direct its local copyright administration bureaus to undertake vigorous and sustained enforcement against business end-user piracy in the cities, counties and provinces for which they have responsibility. The local bureaus – and NCAC at the national level – should also impose fines that are large enough to discourage end-user piracy; otherwise, businesses will simply treat the legalization process as a cost of doing business. NCAC and its local bureaus should also publicize the results of their cases to send a message to other enterprises and the public at large that end-user piracy is illegal and will be punished.

NCAC is facing a huge challenge here. It needs to have the manpower and the resources, both at the national and local levels, to get this job done. We hope the central government will recognize this, and will make the necessary resources available to NCAC.

We also urge China to recognize that the end-user piracy problem will not be solved until this practice is clearly identified as a violation of criminal laws. Our years of experience teach us that administrative enforcement, important as it is, will not be enough by itself; serious violators must face a realistic prospect of a criminal conviction, heavy fines, and imprisonment before true deterrence can be achieved. We’ve seen in the Asia-Pacific region, in jurisdictions ranging from Singapore to Hong Kong to South Korea, that criminal enforcement has been the key to reducing high levels of end-user piracy. We are confident the same will be true in China, so the necessary first step is to amend the criminal code to state explicitly that end-user piracy of business software is a crime.

In this field, as in so many others, cooperation and dialogue are the keys to success. That is why this forum is so important, and why I am so honored to have been invited to address it. Microsoft and other software companies stand ready to help combat end-user piracy. We were pleased to see that, in the government’s recent “Action Plan on IPR Protection,” an entire section was devoted to “Advancing IPR Protection in Business,” and that the Action Plan specifically refers to putting in place “the implementation scheme of promoting companies’ use of copyrighted software.” We would welcome the chance to work with NCAC and the other key agencies to make sure that this plan is thorough, comprehensive and implemented as speedily as possible.

I close with a few words specifically about the protection of copyright online. Everything about computer software is migrating rapidly to the Internet – its development, its legitimate use, and also copyright infringement. Microsoft sees this trend in every aspect of its business. More and more legitimate business customers are accessing software applications online, via remote servers; and more and more pirates are delivering their product in basically the same way. To an increasing extent, the unauthorized copies that I spoke about earlier take the form of temporary copies in the Random Access Memory of a business’s computers. The master copy may be kept on a distant server. But the harmful impacts of end-user piracy are just as damaging, whether the infringement is carried out online or offline, and a similarly effective response is required.

The Internet changes many things about the way we live, work, learn and play. It offers enormous potential benefits for us all, and especially for China. But the key elements of the strategy for realizing that full potential have not changed. Respect for copyright must play a fundamental role if we wish to reap the full benefits of the networks that today link us all.

Clearly, China recognizes this. The entry into force last year of the new “Regulations for Protection of Copyrights on Information Networks” was a major step forward. The challenge remains: not just to modernize the copyright law for the online environment, but to ensure that it is an effective law, and that it is effectively enforced.

In conclusion, continued progress against software piracy in China, online as well as offline, will be a “win-win” and lead to tremendous and sustained economic benefits in this great country. Thank you once again for inviting me to address this important issue before this distinguished audience.