China Law Blog

Not so dissimilar to the adage that any press is good press. I don't defend counterfeiting -it's illegal and harmful in numerous ways. But it certainly keeps brand awareness alive. For example, it seems that millions of ladies throughout China use "LV" bags everyday, from fashionable, elitest types to grannies and "a-yi" shopping for the day's meals. As women in China become wealthier, many of them are proud to buy the real thing, making clear to their peers that they could afford it. Conspicuous consumption in China, just as in other developing and developed countries, is worth countless sums to well-branded manufacturers. Do you see "LV" going out of business as a result? Would those who bought the counterfeits instead have bought the real thing? Is there a net financial loss to "LV" or other famous makers as a result? I don't think so. I welcome "LV" and those similarly situated to demonstrate otherwise.

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Just a short note to say thank you very much for linking to my website.

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The well-settled consensus in the technology industry that companies like Adobe and Microsoft, early in their development, tacitly permitted or even encouraged piracy of their products for this very reason - it builds consumer knowledge and, therefore "lock-in." I would be shocked if this were not their attitude in developing markets (where there can be no reasonable expectation that people will pay a month's or a year's wages for a piece of software).

I think the LV bag case differ from Microsoft software in two important ways.

Windows system is entwined in a complex web of hardware and software . Going or not going for Windows affects many other decisions. LV is not in that position.

The second crucial difference is that LV is a luxury brand yet Windows is not. LV is meant to be exclusive to the elite so as to add "face" to those who can actually afford it. Appearing around the shoulder of "undeserving" (I hate this word) ordinary people tarnishes the name and in some cases pushes its customers to less counterfeited brands.

Handan,
Quite right. However, on the consumer cost side, MS products at full retail price are far higher than buying counterfeits for a couple of dollars. In the case of the bags and the software, the counterfeits perform the same functions as the fully-branded models. And if someone will pay full price for a real LV bag, they may start paying full price for dresses, cosmetics, jewelry, etc., reflecting a change in mindset. So, in a way, the "total package" of purchasing is also affected.

Handan, point well taken.
However, luxury product notwithstanding, and network/system notwithstanding, the cost savings to consumers is tremendous, and buyers of counterfeit items take cost as their starting point. Concerning the LV bag as not enmeshed within a whole system, once a lady can afford the genuine article, she is likely apt to change her spending habits and collect name-brands of dresses, cosmetics, etc. It's a change in mindset. So the entire luxury supply side benefits. In any event, I'd like to see the studies by consulting companies and/or other research demonstrating net financial loss over a reasonable term.

I agree with the article's claim that piracy helps Microsoft cementing its position in the Chinese market, but I'm dubious about the implications for the first world. The US switching to Linux because China is using it? I don't see it happening.

In related news, Microsoft just slashed prices for Vista by more than 50% (http://www.itworld.com/Comp/2218/070803vistachina/)

Todd,
Thanks for the reponse.

My own experience seems to point to different consumer behaviors, though.

I've accompanied ladies to markets known for counterfeit stuff and see them pay for the latest (fake) LV bag with one note out of a thick deck of greenbacks out of authentic LV wallet out of authentic Gucci handbag.

These are the ladies that don't get suspected of wearing fake stuff. People look at their artificially tight skin and grand limousine and assume all their stuff is original. Well, why not mix up some fake stuff here and there, then?

On the other hand, there're people who know that even if they save for a real Chanel and parade off into streets showing it off, people would look on that bag as a fake. That girl just ain't got that classy look. Pooh, so why bother cutting off my dining and wining and traveling budget for that silly bag?

These nuances are non-existent in technology counterfeiting, I believe.

Todd Platek --

I generally concur.

Fatgadget --

I love your site. Here, everyone thinks of me as this really cool and hip guy, but in reality, I am a total geek at heart.

Listless --

Yes, but there has to come a time where that all shifts.

PS -- I really like your blog.

Handan --

Yet, isn't it true in both cases that the companies secure future buyers from the fakes?

Jean-Marie Schloemer --

That is interesting how MS just reduced its Vista prices in China by 50%. I think you misunderstand the article though as it does not say we in the West will switch to Linux if China does, but rather that if there were not this counterfeit MS software out there, most people in China would be using Linux. Or am I misunderstanding you?

Handan --

Good points. Very good points.

Yes, that's what the article is saying. And it goes on saying "And if that happened then it wouldn't be too long before they lost their dominance in the first world too."

That's the part I have doubts about (well, it might happen, but I don't see China as a reason for it).

"If there were not this counterfeit MS software out there, most people in China would be using Linux."

I think this is the biggest fallacy about Linux in general. The cost of running Linux is higher then Windows for most enterprises short of Fortune 5000. Most commercial Linux has annual support contract costs close to the Windows on server side and the desktop Linux is hard core computer geeks only (who by the way are moving to Apple in drone!)

The cost benefit of Linux comes from the bargain power for the companies with large installation of computers to negotiate discounts for their Windows site licenses. For countries, there are extra benefits in forcing Microsoft to invest in the countries.

The benefit of Microsoft piracy for a country is best summarized by the speech given by Romanian president in a joint press conference with Bill Gates: "Piracy helped the young generation discover computers. It set off the development of the IT industry in Romania."

http://www.washingtonpost.com/wp-dyn/content/article/2007/02/01/AR2007020100715.html

In China, it's particularly true that Linux is more expensive then authentic Windows for both enterprise and personal uses. Linux people are hard to find.

Well, Linux is more expensive then pirated Windows. Most versions of Linux takes more then 1 CD (Redhat 4, Novell 8?) while Windows XP fits nicely on one.

Note that the PLA is pretty much exclusively Linux, and a its own flavor to boot.

The major brands and luxury brands around the world get "free" marketing by the pirates; that really must amount to hundreds of millions of dollars of free advertising. And what better proof of creed, than to be knocked off - its a sine quo non of the industry. The majority of Chinese were first introduced to new luxery brands through the knock off markets of China.

And, isn't this one of the real unspoken reasons that the Chinese govt gets away with not cracking down on the knock offs? I mean we all look at the blatant selling and think that it cant be that difficult to clamp down if the govt really wanted (ever see the olympic mascots on sale?). Lots of real efforts on transnational shipment, but only lip service for cracking down in the local market. The brand owners are not that concerned about the knock offs at this point, it's all good free marketing, which translates to less "real" pressure to bear on govt to do something. To borrow Oscar Wilde, "the worst thing about having your brand knocked off, is having no one knock off your brand".

As a supporter of Linux, I feel that if MS comes down hard on piracy, it is beneficial to open source products in general, as now there is an incentive to using free software.

In Singapore where BSA is recently more active, there is now more demand for laptops and PCs installed with Linux. (Whereas previously asking for a laptop or PC WITHOUT windows was virtually impossible since the sales personnel had no idea what I wanted - windows is THAT ingrained) With the coming of Vista and the loss or reduction in availability of XP, again people are more open to Linux.

So yes counterfeit goods do to a certain extent help MS, at least in curbing the adoption or at least reducing the attractiveness of open source software.

At the very least it gives people new to computers awareness of Windows. And if they become accustomed to Windows, then MS has won. Uptake of open source software is often not hampered by quality, but often by whether the user is too used to the look and feel of windows.

The reason most versions of Linux have more than 1 CD is a problem of marketing.

Linux distros have often pride themselves on giving flexibility and variety well as full language support. Good for the tech guys who want the power to configure. Overkill for the average new user.

If you go for a full installation with everything under the sun, then it would take that number of discs.

But if all you want is a desktop. Then Linux can easily fit on one disc. A quick example would be edubuntu and ubuntu distros. These distributions have removed many features and applications available in order distros solely for the sake of presenting a cleaner, fiendlier look.

Edmund,

I'd disagree with the statement: "if MS comes down hard on piracy, it is beneficial to open source products in general, as now there is an incentive to using free software." I think this mindset has stopped open source from mainstream adoption because it makes open source projects trying to compete on price rather then quality and service.

It's kind of interesting to discuss this along side with luxury goods. People don't stop buying $1,000 LV bags because Wal-Mart is selling the $10 Made-in-China bags with same functionality.

Even Microsoft could archive the mean of enforcing the copyright law, people will simply pay for it rather then moving to Desktop Linux which for mere mortals is still too much trouble.

I am not FUDing for Microsoft. I am strong supporter for open source and work exclusive with open source based projects. Among open source community, it's hard to ignore the disproportion amount of silver laptops with a big Apple logo carried by the attendants.

NH,

PLA exclusively on Linux? PLA has developed some OSs for big machine but majority of their desktops and general servers are Windows. If PLA could go exclusively on Linux, Red Flag would probably become the biggest Linux distributor in the world.

"if MS comes down hard on piracy, it is beneficial to open source products in general, as now there is an incentive to using free software."

I stand by this statement, mostly because I have seen it happened already. Granted it is not a big plus for open source, still a plus nevertheless. (The funny thing is that piracy is actually bad for open source, because people rather pay 5 bucks for "windows" than a free Linux, cutting off piracy removes that option)

Also price is a concern, but I agree that the biggest problem with open source is not price (it is already mostly free), but the usability. And again usability is largely perception, the earlier open office applications were described as clunky and difficult to use, but only because of GUI differences. But open source applications have been adapting; give open office, firefox a whirl, they are much friendlier. And its not just Linux. BSD has also gotten on the "make it friendlier/more usable" wagon. (See PCBSD)

I do not think applications have the same luxury status as LV products.

I agree that even if MS enforces copyright and jacks up the price, people will still pay. They are too used to windows to let go now. But seeing the new Office Suite 2007, and with Vista having mixed reviews. I am surprised that MS made the changes they did to their GUI. That familiarity was the very reason people rejected equivalent open source products.

I believe the key would be the youth/"new users". Whomever shapes the youth/"new users" perception of what a particular application should "look" like (be it spreadsheets, presentations, text editors), would achieve lock in.

Salmon's statement that piracy is good for Microsoft reminds of a quote from Bill Gates during a speech.

"Although about three million computers get sold every year in China, people don't pay for the software," Gates reportedly said. "Someday they will, though. And as long as they're going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade."
""http://archives.cnn.com/2000/TECH/computing/02/23/microsoft.china.idg/

It's from 1998. I guess the next decade is rapidly coming to an end.

Dan,

he actually said that... wow ... =)

"PLA exclusively on Linux? PLA has developed some OSs for big machine but majority of their desktops and general servers are Windows."

I would say that only applies to non-secure computers, cyber-warfare, C4SI and sensitive networks are home built Linux.