China's software industry hits the sky for the first time overseas fines CDC software was fined 61 million US dollars

A US subsidiary of the CDC Software Group, Rose Systems, was recently fined US$61 million by the US District Court of Alabama for suing alleged “attractive fraud” by a local US customer. This is also the Chinese software industry’s overseas operations to date. The first time the market suffered a "high price ticket." In response, CDC Software has firmly denied any fraud and is actively appealing.

Software disputes have attracted high prices. CDC Software is a wholly-owned subsidiary of CDC Investment Group Co., Ltd. In 2004, the company acquired a US-based software provider Ross Systems for US$68.9 million. In August 2009, CDC Software was listed on NASDAQ.

Sunshine Mills, a pet food manufacturer in Alabama, USA, purchased a beta version of Rose ERP software in 2005 for a contract value of $235,000. In 2008, Sunshine Mills sued the local court, claiming that the Ross system was fraudulent in the sales and implementation of ERP software in 2005, and the software sold was not working properly.

At the end of 2010, the Circuit Court of Franklin County, Alabama, made a first instance ruling on the lawsuit and ruled that Sunshine Mills received a total of US$61 million in compensation, including US$16 million in compensatory damages and US$45 million in punitive damages.

In response to the $61 million penalty, Yu Xiang, chairman of CDC Software's (China) Board of Directors, responded in an interview with reporters. "The cause of the incident was a malicious client's lawsuit. The company did not respond fully to such malicious lawsuits at first. The other party used its influence in one of the largest employers in the local town to sue on the ground and form a jury in the locality, raising a $235,000 software sales case to one of the state's biggest compensation cases in recent years. ”

According to Yu Xiang, when Sunshine Mills purchased Roth Systems' ERP software in 2005, both parties agreed to purchase the beta version. In the few days before the expiration of the statutory lawsuit period in 2008, Sunshine Mills suddenly appealed to the court. In the lawsuit, the complaint brought by Sunshine Mills was mainly based on the one-page PPT file used by Ross system sales personnel. The PPT file showed some specific data of Rose system to help other customers reduce costs. Sunlight Mills believes that the Ross system software is not Can achieve the same effect, allegedly "attractive fraud."

Yu Xiang said that the $61 million fine, if implemented, would have a fatal effect on the Ross system, which could directly lead to the closing down of the system. The company recently applied to the Supreme Court of Alabama for a reduction of the deposit, in order to actively appeal and eventually win the lawsuit.

A domestic software company executive told the reporter that the dispute between CDC Software and Sunshine Mills is not uncommon in the software industry. Software vendors are used to showing customers successful cases in the sales process. Sometimes there are exaggerations. This practice may be nothing in China, but it may be given abroad in foreign countries and bring legal trouble. If the user intends to sue for this, domestic companies will be at a disadvantage. As for the failure of the implementation of the software project, the supplier must provide the user with the necessary economic compensation, but compared with the domestic, foreign countries sometimes include huge punitive damages.

Faced with the new global barriers against China's software industry for the first time faced with this huge offshore fine, Zhao Xiaofan, vice chairman of the China Software Industry Association, believes that the lawsuit brought punitive damages to CDC Software and was issued by the Chinese government in recent years. A series of policies encouraging and supporting Chinese software companies to invest abroad, and for those Chinese companies that have or will go out, this high compensation case may become a warning message, which is worth thinking and learning from other Chinese companies.

According to Liu Chunquan, deputy director of the Shanghai Law Association Information Network and High-tech Law Research Committee, the experience of CDC Software reflects to a certain extent that at present some Chinese companies may not be familiar with the local legal environment when they enter overseas markets. Unexpectedly, the United States has a punitive damages system, and once losing the lawsuit, the company may have bankrupted or suffered heavy losses. However, punitive damages cannot be abused and must be directed against malicious infringement.

“Chinese companies are not satisfied with going out of the country. The lessons of these years are quite profound. For example, Shanghai Automotive’s acquisition of South Korea’s Ssangyong and TCL’s cross-border mergers and acquisitions are all worth reflecting on. However, it is not worthwhile to waste food. Understanding of the market environment and legal environment," said Liu Chunquan.

Gong Bohua, director of the Information Department of the WTO Affairs Consulting Center in Shanghai, pointed out that with the large number of Chinese companies actively investing overseas in recent years, they sometimes face competition or disputes with local companies. And some local companies in the normal market competition or trade process, for a number of interest claims will find many reasons to initiate legal proceedings against Chinese companies, through legal means to make Chinese companies fall into a disadvantage situation, this phenomenon can be called " Law abuse."

Recently, the trend of trade protectionism in some countries and regions has risen, and “legal abuse” has also become a new barrier faced by Chinese enterprises when they go out. On the other hand, in the face of such barriers, domestic companies must first carry out their own checks and precautions when implementing a global strategy, and they must actively respond to similar lawsuits.

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