A Chinese court sentenced four people to prison and levied roughly $1.6 million in fines against them for various counts of software copyright infringement, in what an industry group cheered as a major victory in a market where piracy is rampant.

Hong Lei and Sun Xianzhong, founders of Chengdu Gongruan Network Technology Co., and two others within the company were sentenced Thursday to 2 to 3 1/2 years in prison and collectively fined 11 million yuan ($1.6 million) by a district court in the eastern Chinese city of Suzhou. The state-controlled Xinhua news agency called it China's biggest software copyright infringement case.

The defendants were accused of illegally distributing software, including Microsoft Corp.'s Windows operating system, which they re-created and distributed free under their own brand on Tomatolei, a Web site through which they offered free software downloads. The popular Windows clone was called Tomato Garden Windows XP.

Reached by phone, Mr. Hong's father declined to comment. The defendants' attorneys couldn't be reached.

'This is the first successful criminal case to crack down on such large-scale online software piracy in China,' said the Business Software Alliance, a Washington-based industry group. According to the BSA, which represents a number of multinational technology companies including Microsoft, Intel Corp. and Adobe Systems Inc., Tomatolei was China's largest online software piracy syndicate. The case 'marks a milestone in China's efforts to crack down on Internet piracy,' it said. Authorities moved against Tomatolei after receiving complaints from the BSA last year.

Lawyers say the verdict is important because it is often difficult to seek criminal charges against software pirates in China, where many companies complain that rampant copyright infringement hurts their business.

Yang Chunbao, an intellectual-property lawyer for Haworth & Lexon in Shanghai, said makers of pirated software are often sued in civil court for tens of millions of yuan but fined only a fraction of that. This recent sentence was 'really harsh,' he said. 'The fine amount is unusual.' It's unclear how aggressively China will continue to pursue piracy, however.

Microsoft and other copyright owners have long complained that the Chinese government's punishments for piracy have been too soft, allowing companies like Gongruan to flourish. Just this week, California Democrat Howard L. Berman, chairman of the House Foreign Affairs Committee, said China's 'weak and ineffective efforts to stop intellectual property theft' cost billions of dollars a year.

In a statement, Microsoft said this new sentence would serve as a warning to counterfeiters of software products.

In China, computer users can easily pirate software for less than $2, or download software like Tomato Garden free of charge. Some software resellers would provide Tomato Garden's pirated Windows software on computer disks or would offer to preinstall the operating software on new PCs. Microsoft estimates that a significant portion of users in China unknowingly use pirated versions of Windows because it is so easy for sellers to preinstall the software and then sell the PCs at lower prices.

The case has sparked discussions on China's Internet forums, where thousands of users admitted to using Tomato Garden.

One user from Guangdong province said that without pirated software, 'I wouldn't have the chance to use a computer. . . . I show my respect to those who could decode Microsoft's software and share it with others.'

Microsoft cut prices last year to encourage consumers to use legitimate versions of its software. In China, home and student versions of Microsoft Office cost less than $30. The software starts at about $100 in the U.S.

China, the world's second-largest personal computer market by shipments, is increasingly important to technology companies world-wide, especially as companies and consumers are spending less in the wake of the economic downturn.

(Source: The Wall Street Journal, Augest 25th, 2009)