On July 28, 2012, roughly 100 investigators from China⊙s State Administration for Industry & Commerce (“SAIC”) carried out a dawn raid at Microsoft offices in four Chinese cities on suspicion of alleged anti-competitive practices. SAIC said that the purpose of the visit was to investigate the issues of its Windows and Office software related to tied sale, file validation and interoperability caused by the incomplete disclosure of related information. During the raid, the investigators duplicated some of the contracts and financial information from Microsoft, as well as extracted massive electric data from internal communication files that were kept in the computers and servers, and detained two computers as well.

However, piracy issues of Chinese characteristics may be encountered during the process of anti-monopoly investigation against Microsoft for its suspected abuse of market dominance related to Windows and Office software. To accuse Microsoft for abuse of market dominance, the prerequisite is that Microsoft has to possess a dominant position in the relevant market. To determine whether Microsoft is holding a market dominance, relevant market shall be defined as the first step. However, since Chinese market is mostly filled with pirated software, an obvious issue emerges as to whether the pirated software shall be included in Microsoft’s market share. The answer is negative.

According to the media reports on” tomato garden” case in 2008, the piracy rate of Microsoft XP operating system exceeded the rate of the legally licensed ones. A 2010 report from Business Software Alliance also indicated, the PC software piracy rate was 78%. A 2012 Chinese software piracy rate investigation report hosted by internet lab also stated that the piracy rate of operating system was 23% while the piracy rate of office software was 53% in 2012.

The above-mentioned data to a large extent reflects piracy rate of both Windows and Office software wasrelatively high in Chinese market. As far as the Windows is concerned, the piracy rate has fallen substantially since Chinese government has required the computer manufacturers to install an official operating system on computers at the time of ex-factory. Microsoftmay likely be found as holding the market dominance on operating system. On the other hand, for the office software, the piracy rate may still be more than 50%, thus it is an tricky issue to determine the market dominance of Microsoft’s Office software. Admittedly, if taking into consideration of other factors relevant to the determination of the dominant market positions, Microsoft might still be regarded as holding the market dominance in the relevant market. However, in the situation where the piracy rate is as high as 25% for Windows and 50% for Office in Chinese market, the losses suffered by Microsoft due to piracy in Chinese market may also be taken into consideration when SAIC decides the final fine number.