Protecting high-end industrial software against pirates requires strategy. Lack of precedents, in terms of investigation and enforcement, and the sly nature of infringement operations make them hard to detect. Mary Yang, head of Legal Services, and Jessica Fan, principal legal counsel at Cognex Asia, reveal how they hunted down software pirates and brought them to justice, setting some game-changing precedents in the process.

Safeguarding IP is a key responsibility of any in-house legal team. The focus of IP defence work is to complement the overall business strategy. After more than seven years of rights protection in China, Cognex has learned that, unlike consumer and industrial products, protecting industrial software against piracy and infringement has some unique features, and entails high investigation and verification costs, because piracy is clandestine.

MARY-YANG,-Head-of-Legal-Services,-Cognex-Asia

Cognex is a machine vision technology company that develops software, sensors and systems used in computers and automation equipment for a wide range of applications in the electronics, automotive, logistics and life sciences industries. The company’s industrial software helps users to execute various functions, including geometric object positioning and identification, and measurement.

Some of the challenges in defending against piracy of high-end software include:

Difficulty in detection. Firstly, copying pirated software is a simple and quick process, easily done on a single computer. The infringer needs neither to prepare components in advance, nor have large quantities in stock, nor even use formal office space. Due to the special nature of industrial applications, traditional means of combating fakes are almost useless in Cognex’s work of detecting piracy and gathering evidence of infringement. The tracks of pirated software are obscured, making detection by the usual means difficult.

High technical threshold. Crackdown actions additionally require providing evidence of the attributes of the piracy to the government functional authority, requiring efficient means of providing such evidence, but due to the high technical threshold for industrial software, the costs required to evidence the attributes of piracy are high.

Lack of precedents. In the consumer goods sector, following long, wide-ranging and extensive administrative and judicial practice, actions to crackdown against infringement goods are now very common, with a plethora of major cases continually taking the spotlight. However, a lack of precedents on appropriate penalties for industrial software piracy makes law enforcement authorities cautious in their approach, and attracting their attention to such types of infringement poses a challenge.

Not only are industrial software cases rare, but they are usually concentrated in Shanghai and Beijing. Examples of such law enforcement cases in second and third-tier municipalities were almost non-existent until at least 2019. Due to limited practical experience and complex technical issues involved in industrial software, the understanding of identical facts among law enforcement and judicial authorities across municipalities and regions is inconsistent.

Case in point

In an industrial software infringement case in Jiangsu province, in a criminal complaint lodged by Cognex, the People’s Court of Huqiu district, of Suzhou municipality, on 9 August 2018 found the defendants guilty of copyright infringement and sentenced them to prison and imposed fines.

The company’s industrial artificial intelligence (AI) software range, VisionPro and VisionPro ViDi, is the high ground in the company’s IP strategy, given the piracy situation it faces in China.

Cognex received a tip-off that Yi Fuyi and his wife, Chen Jiang, had opened an online store on Taobao, from where they were selling unlocked Cognex VisionPro software and VisionPro dongles. Cognex, as the copyright owner, quickly filed a complaint with the Huqiu branch of the Suzhou Municipal Public Security Bureau. The case, involving simultaneous online and offline sales, was a crime that involved the IP of a foreign rights holder, to which the local public security authorities, procuratorate and court attached great importance.

The relevant judicial authority strictly followed the legal procedure in detaining, investigating, accusing and trying the parties. The court of first instance found that they had an illegal turnover amounting to more than RMB100,000 (US$15,500), thus constituting the crime of copyright infringement. The court of first instance sentenced Yi to one year imprisonment and a fine, and Chen to eight months imprisonment and a fine. Neither Yi nor Chen appealed.

Cognex had tracked and investigated the infringers for more than a year and, after obtaining preliminary evidence, the primary problem we faced was what action to take against them. Carefully considering the infringer’s ability to pay civil damages, and Cognex’s goal in cracking down on this activity (achieving a strong influence in the industry and sufficiently deterring infringers), we decided to take criminal action, the most forceful way of combating infringers, and communicated fully with the local public security authorities at the first opportunity.

For all the above-mentioned reasons, and because it involved a new area in IP, the case attracted strong interest from the local public security authorities, which took very swift and effective enforcement action. However, because of a lack of precedent, the local public security authority, procuratorate and court proceeded with great caution at every stage, including evidence collection, conviction, etc. For example, in order to confirm the infringer’s online sales turnover, the public security authority spent more than four months, going to great lengths to visit dozens of purchasers, ultimately confirming the infringement amount.

Throughout the long case handling process, Cognex’s legal department co-operated closely with the judicial authority and, as the victim, provided a great deal of valuable reference advice from multiple perspectives, including technical and legal ones. Additionally, as the case took far longer than expected, the legal department also actively kept in touch with senior management at Cognex’s US headquarters, keeping it abreast of the progress on the case.

This case was ranked as one of the top 10 typical IP cases in Jiang-su province by the Jiangsu provincial law enforcement authorities that year, and it will have significant reference value in the criminal adjudication of similar cases in future. This ranking not only effectively relieved the pressure on all sides, thus promoting the smooth progress of the case and the achievement of a favourable outcome, but also allowed Cognex’s senior management to understand the actual status of, and continual progress in, IP defence in China. With our tenacious and practical work style, and wielding Chinese laws as a weapon, the authors vigorously defended the company’s most important asset, and effectively enhanced the long-term confidence of American high-tech companies in the Chinese market.

Tactical play

One should not give up on protecting IP because of difficulties. There is not much pirated Cognex software circulating in the market, and the quantity is in no way comparable to consumer products, so the goal of Cognex’s IP rights defence also differs from that of the average consumer product.

After assessing the cost outlay to benefit ratio, we ultimately concluded that the most effective goal would be to monitor and detect acts of infringement in realtime, keep abreast of infringing acts and infringement facts at all times, and adopt flexible and variable attack strategies based on the specific circumstances.

First, in the course of execution, Cognex’s legal department actively carried out inter-departmental co-operation and communication, and regularly held discussions and collaborated with the technical department. After two years of inter-departmental co-operation, we finally found the technical reasons for the software being cracked, corrected them in the subsequent premium version, and quickly put it on the market after beefing up encryption measures.

We continued to track and monitor the piracy of the new version for more than a year. The results showed that there were no more pirated copies of the advanced version of the software on the market.

Second, Cognex strengthened its regular monitoring of B2B and B2C websites to find any hints that the pirated software was being downloaded or purchased online. For the more veiled offline piracy, the legal department provided wide-ranging anti-piracy training, and created a Cognex anti-piracy incentive bonus to encourage internal staff to monitor and report suspicious cases of piracy.

Third, IP protectors must not become complacent, and they need to have a great deal of foresight, combining IP protection with corporate profitability and brand development, thereby enabling business growth. The authors believe that a confrontational rights defence without regard to consequences should not be the main approach; rather, defence of IP rights should be based on commercial interests.

For different types of infringers, we have formulated different combat strategies.

JESSICA-FAN,-Principal-Legal-Services,-Cognex-Asia

Users of pirated software are sometimes customers of the company. In such cases, we will consider commercial factors such as the size of the business of the pirated software user, whether it is in competition with Cognex, its upstream and downstream co-operative relationships and so on, to formulate a reasonable plan with a view to halting the infringement, and realising use of the genuine version. Anti-piracy actions and disputes relating to IP sometimes even become an important factor in promoting co-operation between Cognex and the infringing customer.

In other cases, we will not scrimp on costs to hunt down pirate software producers and sellers. Once we run into such infringers, we see this as an ideal opportunity to crack down hard. While many provinces and municipalities still lack administrative penalty decisions and criminal judgments related to copyright in computer software, once we succeed, we may achieve a substantial breakthrough by going from zero to one rights defence case in the place in question.

This will provide an appreciable boost to rights defence practice for Cognex, and the entire industrial software industry down the road. Even if a crackdown does not succeed at first, our persistent monitoring and crackdown campaigns will nevertheless increase the costs of infringement, eventually compelling infringers to give up.