China’s Software Audits: Green Eyeshades or Rose-Colored Glasses?

posted by in Compliance and Enforcement January 27, 2011
Jan 27

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Now that the dust has settled from Chinese President Hu Jintao’s recent visit to Washington, it is worth pausing to take stock of the latest round of developments on the thorny issue of software legalization, long a source of frustration in US-China economic relations.

Recall that the issue topped the agenda in December’s ministerial sessions of the Joint Commission on Commerce and Trade (JCCT). China made several noteworthy announcements at that time: It promised to allocate current and future budgets to purchase and upgrade software. It promised to establish software asset management systems for government agencies. And it said government would promote the use of legal software in enterprises.

During President Hu’s state visit to Washington, the two governments issued a joint statement that reiterated those commitments. But it added something new to the mix, too, saying: “China will continue to strengthen its efforts to protect IPR, including by conducting audits to ensure that government agencies at all levels use legitimate software and by publishing the auditing results as required by China’s law.” [Emphasis added.]

On its face, this was a promising development: It appeared to provide transparency in the Chinese government’s efforts to ensure its own agencies are using only legal software. But we will have to watch carefully to see if it turns out that way in practice. BSA’s concern is that it may not. In fact, it seems likely that China will audit its budget allocations, but not its software licenses. That distinction is critically important — for the software industry and for the Chinese government itself.

The point of software asset management (SAM), as the name implies, is to manage software as a mission-critical asset. The process begins with an inventory: An organization determines what software is installed on each of its users’ computers. It then documents how many software licenses it has legally acquired and compares the totals. The goal is to be neither under-licensed nor over-licensed. Proven, internationally recognized SAM practices can help an organization increase its efficiency and productivity, ensure its software tools are up-to-date and technically supported, reduce exposure to viruses, and prevent legal liability on the one hand and overspending on the other.

But China appears to be doing something quite different — merely account for the total value of its agencies’ software purchases — much as an organization would track spending and depreciate the value of, say, its vehicles, machinery or office furniture. Publically reporting this information might show China’s government agencies to be good financial managers, but it won’t show whether they are pirating software by overusing their licenses.

So, while it first seemed China was dutifully putting on a green eyeshade to track its software purchases, it may instead be donning rose-colored glasses. Time will tell. But the right result would clearly be to the mutual benefit of software makers and China’s government agencies themselves.

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