(c) 2009 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.BEIJING -- Hong Lei and his partners were among the biggest pirates of Microsoft Corp. software in China, but since his arrest last December, the 30-year-old creator of a popular Chinese clone of Windows called Tomato Garden Windows XP has become something of an Internet hero.
The phenomenon underscores the challenges faced by Microsoft and other technology companies as they battle rampant piracy in China, despite official efforts to crack down.
Users of Mr. Hong's software have launched fan sites, including one where they swap stories about how they "grew up" using his software, recognized by a cartoon icon of a smiling tomato wearing sunglasses. A survey of 184,000 people on Chinese Internet portal Sina.com, asking about the detentions, found that 80% of respondents supported Tomato Garden and only 4.4% supported Microsoft.
"People regard Hong Lei as a talent, a national hero," said Liu Fengming, vice president for Microsoft in Greater China. "This is part of the problem."
Last week, after a court in the eastern city of Suzhou sentenced Mr. Hong and three others to 2 to 3 1/2 years in prison for copyright infringement, the banner at the top of Mr. Hong's Web site read: "Hong Lei is judged. Tomato is finished." On Monday, court officials said the four would be transferred to a prison to start serving their sentences Tuesday.
Mr. Hong was more than a simple distributor of bootleg software. He and his partners built a sophisticated business distributing copies of an altered version of Windows XP that made what the court said was at least hundreds of thousands of U.S. dollars in advertising revenue. And he developed a loyal base of customers, many of whom saw him as a standard-bearer for Chinese innovation.
Many users of pirated software outside China share the view that there is nothing wrong with using pirated IT products. But experts say the sentiment plays out differently here. "In China you have the additional layer of nationalism -- Chinese hackers sticking it to a big American corporation is a story with which many Chinese netizens are bound to sympathize," said Eric Priest, an assistant professor at the University of Oregon School of Law who researches copyrights and the Chinese entertainment industry.
Unauthorized versions of Microsoft products are offered in a variety of illegal ways in China, from pre-installations using stolen license keys at computer stores to sophisticated advertising-supported operations like Mr. Hong's.
New licenses for Windows and other revenue from China make up a disproportionately small part of Microsoft's global sales each year, according to people familiar with the situation. This is despite the fact that China is the world's second-largest PC market by shipment, accounting for 18% of global shipments as of the second quarter, according to research firm IDC.
According to the court's judgment, reviewed by The Wall Street Journal, prosecutors said Mr. Hong was the creator of Tomato Garden and oversaw Tomatolei.com, the Web site where users could download the software free and chat with each other. In China, a licensed copy of Windows Vista, which followed Windows XP, is 499 yuan, or about $73.
Mr. Hong and his partners allegedly sold advertising to several companies, including Baidu Inc., China's leading Internet search company, and e-commerce company Alibaba Group, in which Yahoo Inc. owns a 39% stake.
Baidu, for example, paid 936,000 yuan, and Alibaba paid 1.6 million yuan to the company, prosecutors said. Based on estimates of how much money the software was able to generate, the court fined Mr. Hong, three others and their company about 11 million yuan.
A Baidu spokesman said the company has "not had this relationship [with Tomato Garden] since last year." "Baidu takes IP matters very seriously," he said.
An Alibaba spokesman said the payment refers to an advertising deal made by Yahoo China, which is owned and operated by the group, because the company was assured by the vendor that its products were authorized. "We do respect intellectual property rights. In this case we are a victim in that respect as well," the spokesman said.
According to the judgment, Mr. Hong's lawyer, Mao Qinyong argued that prosecutors overestimated the number of downloads of Tomato Garden, and that advertising revenue earned from the operation shouldn't be viewed as income from the distribution of pirated software. When reached for comment, Mr. Mao declined to elaborate.
The case against Tomato Garden could be the beginning of stricter crackdowns by the government on piracy. An official at China's National Copyright Administration said that Tomato Garden was chosen as a key case for the administration's campaign against online piracy last year after it received complaints from Microsoft. The official declined to say what the focus of this year's campaign is.
Microsoft and the Business Software Alliance, a Washington-based industry group, praised the government's handling of Tomato Garden as a milestone in China's efforts to crack down on piracy.
The Tomato Garden case "so far is the largest for Microsoft," said Mr. Liu, the Microsoft vice president, in an interview. The fine, which will be paid to authorities, "is a lot to pay for a Chinese company," he said.
Despite being a legal victory for the company and Beijing authorities, the arrest and prosecution of Mr. Hong has turned him into a martyr of sorts, potentially turning more Chinese users against Microsoft.
"He must be a genius," said Lu Yuchao, a 25-year-old user of Tomato Garden in Shanghai, who bought a copy of the software for 10 yuan, or about $1.50, when his computer crashed. "I've been using it and it works very well."
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Kersten Zhang and Ellen Zhu contributed to this article.
Credit: By Loretta Chao
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