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Microsoft in China: Making Inroads with Azure, Accused of Monopoly Behavior in Guangzhou

Two interesting pieces of news for Microsoft today. Microsoft is both gaining a foothold in Shanghai and starting a legal battle in Guangzhou.

Azure

Microsoft made the announcement that it will be cooperating with China’s carrier-neutral internet data services provider 21Vianet to provide its Azure cloud services in China. According to Netease, Azure will be the first foreign cloud platform in China. They will be building a data center with their Office 365 software.

This is upsetting some reporters, as it is essential for Microsoft to receive regulatory approval to operate in China. Techcrunch is making the assertion that this is a step towards appeasement of China’s government on the part of Microsoft, though it is worth noting that this happens every time and any time a foreign company comes to China. You have to have a Chinese partner in order to do business.

For its part, Microsoft makes the claim that customers will be able to save their data both in China and abroad, suggesting that it will be more open than circumstances appear. They have signed a deal with Shanghai’s Municipal Government to provide Office and Windows services to them through 21Vianet’s channels.

Antitrust Accusations

But while Microsoft deals with this potential international PR issue, it is also receiving some backlash in Guangzhou, where an unnamed defendant enterprise is bringing a countersuit in local Nansha District Court against Microsoft for alleged monopoly practices. This comes in response to Microsoft’s suit against said enterprise for purchasing pirated versions of Microsoft products.

Though this appears insignificant, Microsoft may run against some of the same hurdles Apple dealt with earlier this year in Guangzhou, where China’s gray legal system makes judicial oversight unpredictable. Earlier this year, Apple was sued in a legal battle with its former partner Proview over its continued claim to the iPad patent on the Chinese Mainland. Apple eventually settled the case for a price of $60 million. Though this is pocket change for Apple, this is a not insignificant precedent for a lawsuit that was questionable to begin with.

The parent company of the unnamed manufacturing enterprise located in Panyu County, Guangdong province (next to Hong Kong) once bought legal Microsoft software, but was unable to gain approval from Microsoft to use the software for its Mainland division after repeated attempts. Subsequently, they installed pirated software at their Mainland location, and Microsoft filed a complaint with Guangdong authorities.

After consultations with Microsoft, who demanded they buy a certain quantity and price of legal software they were not prepared to pay, the enterprise came to no successful agreement and Microsoft froze their accounts. Microsoft then filed a lawsuit demanding they purchase the software and pay damages of 5 million RMB ($800,000 USD).

Yesterday, the defendant company filed a countersuit in court, accusing Microsoft of monopolistic behavior and of rampant abuse of its dominant market position. The defendant attorney has explained his position: “Microsoft behavior requires that the company buy its software in full has squeezed out other software in the competitive space; they geographical discriminate prices, where the Mainland their software price is higher than in Hong Kong, for example SQL Server 2012. In Hong Kong a purchase of this two-part software set is 210,000 RMB ($33,650 USD), whereas the Mainland price is 270,000 yuan ($43,260 USD). These are all suspected abuses of the market that from their dominant position that amount to monopolistic behavior.”

Microsoft’s lawyer, however, explains that the defendant’s counterclaim has already passed the deadline for proof submissions, and that an intellectual property rights case and an antitrust case are completely different legal circumstances that cannot warrant a counterclaim in this case. The judge has, however, received the defendant’s counterclaims materials and will give a conclusion on a separate day.

If the judge validates their claims, the case will be taken to Guangzhou’s Intermediate People’s Court, as the Nansha Court has no legal authority in cases of antitrust.

Sources: Netease (1, 2)

Picture: Courtesy of ZDNet (via SplitReason.com)

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