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Can Apple Break Through China's Great Wall of Counterfeits?

By Renay San Miguel MacNewsWorld ECT News Network
Jul 28, 2008 4:00 AM PT

Apple may be making a lot of noise lately with its new iPhone 3G, but when it comes to fighting software pirates, Steve Jobs' company prefers to speak softly and carry a big stick -- the stick, of course, being legal action like its recent lawsuit against computer maker Psystar for producing machines that can run Apple software.

Can Apple Break Through China's Great Wall of Counterfeits?

Unlike other software companies that stage press conferences whenever they take on intellectual property theft, Apple prefers to swing that stick in a media vacuum. A good example is the official company statement regarding the Psystar suit, which is all of 14 words. "We take it very seriously when we believe people have stolen our intellectual property," Apple spokesperson Susan Lundgren told MacNewsWorld.

To say that Apple takes intellectual property theft seriously is a little like saying iPods are somewhat popular; the company is willing to take young bloggers to court for leaking news about future products. "It gets a reputation not though PR, but through people reporting on the activity of its legal departments," freelance writer/blogger Mike Elgan told MacNewsWorld.

However, the economic behemoth that is China could force Steve Jobs to crank up the volume because of the country's lax stance on software piracy.

'A Huge Problem'

Psystar is a Miami-based company selling cheap "Hackentoshes" -- open computers that run Mac OS X. That violates end-user licensing agreements stating Mac software can only run on Apple computers, Apple says.

Apple's lawyers know where to send the Psystar subpoenas. But on the streets of Beijing -- soon to host the world for the Summer Olympics -- counterfeit iPhones complete with Apple logo can be found, and it's much harder there to target a company for legal retribution.

"The generally accepted yardstick when you go into China for any software or consumer device is that for every one copy -- one legal copy -- there will be three more pirated ones," Laura DiDio, analyst and research fellow for the Yankee Group, told MacNewsWorld. "These are very, very sophisticated [piracy] rings. ... They consider piracy an art form. This is a huge, looming problem for Apple."

John Gantz, a chief research officer who heads all piracy research for IDC, disagrees. "I think Apple has a much easier row to hoe than Microsoft. Apple is out there selling hardware like HP is selling computers. ... They're not solely a software company. The fact that the hardware and OS are so tied together with a Mac. ... I think that makes it harder to counterfeit."

Apple's lower market share may not make it much of a piracy target, Gantz told MacNewsWorld; however, DiDio thinks counterfeit software may hurt Apple's bottom line as much as it does Microsoft. "When your market share is smaller, you can ill afford to have any of that siphoned off by piracy," she commented.

Sensitive East-West Negotiations

Apple faces myriad obstacles in China, according to Elgan. The first Apple Store is soon to open in Beijing, and Elgan says 1 million unauthorized iPhones are operating on the network of China Mobile, the country's major carrier. There are countless counterfeit iPhones sold on a vast black market.

"They're so blatant in their IP theft," Elgan said, "They're flat-out stealing everything down to the exact design of the icon. ... It's the same wallpaper as the original (first generation) iPhone, down to the last pixel. I'd be surprised if Apple isn't bringing this up at every opportunity."

But bringing it up to whom? Elgan suspects Apple would -- gently -- raise the problem of piracy with everybody from the Chinese government to China Mobile.

A much-discussed iPhone clone, the Meizu M8, could be at the heart of those negotiations. "It's the highest-visibility iPhone clone," Elgan said. "Phones get developed and put onto the market in China really fast -- it's a ridiculously fast process. This company has been demonstrating it for more than a year, but they seem to be struggling to release it. I wouldn't be surprised if there isn't something going on behind the scenes with Apple."

Fighting Pirates Under the Radar

Behind the scenes is where Apple prefers to be when it comes to antipiracy initiatives. "They are aggressive, but they're quiet about it," DiDio said. "They find it very expeditious to fly under the radar. It's the same thing with security -- security by obscurity. The less you talk about it, the better off you are."

Apple also lets the Business Software Alliance do the fighting for it, DiDio added. The BSA, however, doesn't comment on specific companies' antipiracy efforts, spokesperson Rodger Correa told MacNewsWorld.

Microsoft, the biggest target for software theft, introduced its Genuine Advantage online validation tool, which alerts consumers and the company to potentially fraudulent copies of Windows through periodic checks over the Internet. Use of the tool has led to Microsoft lawsuits and publicity, along with criticism from some who claim it is spyware. Yet Apple has basically engaged in the same tactics, DiDio said.

"Apple's stance is, we'll make these checks frequent enough to be useful but not enough to be a pain in the butt to the users," she said. "Microsoft has done the same thing with Windows Genuine Advantage, but you hear about that. I'll bet you didn't hear about Apple. ... Again, flying under the radar."

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