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

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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.

Jodie Kelley

Author:

Jodie L. Kelley leads BSA’s domestic and international compliance & enforcement programs including its copyright-enforcement activities, its compliance policy work, its efforts against Internet crime, and its educational programs to promote software license compliance and respect for intellectual property. Kelley serves as BSA’s general counsel for all corporate matters and manages BSAs’ compliance & enforcement programs and counsel in Asia, Europe, the Middle East, Africa, and the Americas. Representing the largest copyright-based industry, BSA operates in more than 60 countries worldwide.

Prior to joining BSA, Kelley served for six years as Vice President and Deputy General Counsel of Fannie Mae, a government-sponsored enterprise chartered by Congress to provide liquidity, stability and affordability to the US housing and mortgage markets. There, she was responsible for managing the company’s litigation portfolio and its responses to various governmental inquiries. She also was responsible for advising the company on issues including antitrust and anti-fraud. Previously, she was a partner at Jenner & Block in Washington, where she specialized in civil and regulatory litigation and handled cases before trial and appellate courts and regulatory agencies throughout the country.

Kelley is a native of New Orleans, and a member of the Board of Directors of Commonwealth Academy. She earned her JD from Harvard Law School and BSS from The Pennsylvania State University.

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