MICROSOFT LOSING MILLIONS, CHINESE PIRATED

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 001413

SIPDIS

E.O. 12958: DECL: 09/05/2015
TAGS: ECON EIND ETRD KIPR EINV CH NI
SUBJECT: MICROSOFT LOSING MILLIONS, CHINESE PIRATED
PRODUCTS GROWING


Classified By: Consul General Brian L. Browne for reasons 1.4 (B)
and (D).

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Summary
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1. (C) Chinese copycat firms appear to be using Nigeria as
base for producing and selling pirated computer software.
Microsoft Nigeria executives complain the number of Chinese
factories and Nigerian outlets selling pirated software
products has increased the past year. Piracy likely will
increase unless the Government of Nigeria (GON) promotes
greater intellectual property right (IPR) protection and
enforces existing IPR laws. End Summary.

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Microsoft Claims Revenue Losses
of 10-20 Million/Year Due to Piracy
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2. (SBU) Consulate staff visited the Otigba Street Ikeja
Computer Village with Microsoft Nigeria Account Manager,
George Medebem, to obtain a better sense of the volume of the
traffic in pirated goods. The Ikeja Computer Village may be
the largest information and communication technology market
in sub-Saharan Africa with over 1,500 businesses selling
computer hardware and software products, many of them
pirated. Microsoft Nigeria sends a representative to attend
weekly trade forums at the Lagos-based market every Thursday
morning to encourage consumers to purchase licensed Microsoft
software.


3. (C) General Manager of Microsoft Nigeria, Gerald Ilukwe,
told us Microsoft Nigeria is losing between USD 10 to 20
million per year in potential revenue due to software piracy.
According to Ilukwe, his main competitors are Chinese firms
employing local Nigerians to sell pirated Microsoft products
in open markets, including the Ikeja Computer Village. At
Ikeja Computer Village, consumers can purchase counterfeit
Microsoft Windows XP software (valued at USD 100) and
Microsoft Office (valued at USD 150) for less than 2 US
dollars (naira 200 each). According to Microsoft Nigeria's
estimate, for every licensed Microsoft product, one hundred
fake products are sold, eating into Microsoft's margins.

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Lack of IPR Enforcement, Awareness,
Drives High Piracy Rate
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4. (SBU) At Ikeja Market, over 95 percent of Microsoft
software products for sale are pirated and company
representatives estimate that piracy rates for Nigeria as a
whole hovers around 75 to 85 percent. We did not find one
shop selling licensed Microsoft software products at Ikeja.
Microsoft representatives claimed three nearby shops did sell
licensed products. On average, total sales volume for
Microsoft licensed products among all three distributors at
Ikeja is 30 per week, with numbers reaching between 50 to 70
during special promotion weeks, according to company sales
representatives. (Comment: These sales numbers, however, are
insignificant compared to the hundreds if not thousands of
pirated products sold openly at Ikeja. End Comment)

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Chinese Firms Engaging Nigerians to
Produce and Sell Pirated Software
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5. (C) Chinese firms appear to be using Nigeria as an
operations base for producing and selling pirated computer
software. The number of Chinese firms hiring local Nigerian
vendors to sell pirated computer products at Ikeja is
increasing, according to both Microsoft representatives and
other industry experts.


6. (C) Ibrahim Balogun, President of Computer and Allied
Products Dealers Association of Nigeria (CAPDAN),told us the
number of mainland Chinese businessmen frequenting his office
asking for business contacts has increased since CAPDAN
established its Ikeja headquarters in November 2004. Balogun
presented us the company pamphlets, business cards, and even
emails from Chinese firms requesting CAPDAN's assistance.
One such company that visited Balogun recently was Tyce
Computer Co Limited based in Xianyong industrial area, Panyu,
Guangzhou, China. While we were there, we noticed that the
majority of companies visiting Balogun's office were mainland
Chinese, particularly Guangzhou or Hong Kong-based firms
seeking business opportunities in Lagos. Post has asked
Balogun to compile a list of mainland Chinese companies
operating at Ikeja. According to Microsoft representatives
and Balogun, Chinese firms are using between three to five
independent distributors to sell pirated products locally.
Post estimates that the numbers could be higher.

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Microsoft Goes to Court to Seek IPR Enforcement;
GON Prosecutes One Company, Slowly...
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7. (C) Microsoft is attempting to enforce IPR laws through
the courts. It first sought a criminal case against Computer
Ports in June 2003, but waited two years before the Nigerian
Copyright Commission (NCC) brought the alleged pirate to
criminal court in June 2005. The long delay has driven
Microsoft Nigeria to look to the civil courts as a faster
alternative. Microsoft sued two companies in civil court in
June 2005 (Dabmol Nigeria and Franike) for IPR violations.
Microsoft claims they were using Chinese pirated computer
software products in building Personal Computers (PCs)
locally. Microsoft Nigeria General Manager hopes these
actions will set a precedent to deter other companies from
using pirated computer software.

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Microsoft Aims to Build IPR
Awareness in Nigerian Public
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8. (SBU) Microsoft Nigeria has taken steps to build greater
IPR public awareness, including: random weekly visits to the
Ikeja market and the weekly trade forums there. Microsoft
Nigeria seeks to hire a permanent License Compliance Manager
devoted to IPR/piracy issues to serve as liaison with the
GON. The company also intends to hold educational seminars
at universities such as University of Ibadan, University of
Lagos and University of Benin in the coming months. In the
past, Microsoft Nigeria hired two contract workers at Ikeja
to promote IPR awareness.
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CAPDAN Claims Working to Tackle
Piracy, But Evidence Slim
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9. (C) CAPDAN President Balogun acknowledged September 5 that
IPR violations occur at Ikeja, and outlined his
organization's initiatives to tackle piracy. He is working
with local police to remove street vendors selling pirated
products from Ikeja, confiscate and destroy their pirated
goods, and trace the source of pirated items. He stated
CAPDAN will stage a "major raid" in the next two weeks
against street vendors. However, when asked about a raid
they claim they conducted earlier this year, CAPDAN
representatives were unable to provide detailed information.

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Comment
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10. (C) Comment: While a positive step, CAPDAN's planned raid
in Ikeja will have scant long-term inmpact on this problem.
The GON must play a more active role. To date, weak
regulatory agencies such as the NCC, lack of resources to
fund IPR enforcement, and the cheap cost of labor make
Nigeria and Lagos ideal for firms interested in selling and
producing pirated computer software products. End Comment.
BROWNE