Microsoft busted by Indian government for avoiding royalty tax by saying that it sells -- not licenses -- its software

Microsoft's been hoist on its own petard in an Indian tax dispute. Microsoft argued that it should be exempt from paying a royalty tax on sales of its software, since the transaction was a sale, not a license, and so the money wasn't really a royalty. The clever Indian authorities noticed that every inch of Microsoft's packaging and presentation is plastered in license agreements sternly informing customers that they don't own Windows, that they're only licensing it, and furthermore, the license terms are onerous and must be obeyed.

This have-your-cake-and-eat-it-too approach to licensing and sales isn't unique to Microsoft. The musician T-Bone Burnett once explained to me that the standard record deal gives artists seven percent royalties on sales and fifty percent royalties on licenses. However, when artists get paid by their labels for iTunes downloads, they're only paid the seven percent sales royalty, despite the fact that the record companies keep telling courts, Congress and customers that a download is not a sale, it's only a license, and don't you dare try to resell your music, loan it, or give it away -- all stuff you're allowed to do with purchased goods.

So Microsoft uses the sales/license flip-flop to avoid its taxes, and the record companies use it to pocket six-sevenths of the money they owe artists for downloads. Link (via /.)

[#1 posted by Hounskull , April 3, 2008 12:45 AM]

lol. excellent.

[#2 posted by madjo , April 3, 2008 1:31 AM]

Now if only the artists would unite and confront the labels with this too. Even the RIAA can't have eat their cake and still have it either.

[#3 posted by declan , April 3, 2008 3:33 AM]

Should "have-your-cake-and-eat-it-too" be "eat-your-cake-and-have-it-too" ?

It is easy to have it, then eat it. The paradox is in eating it then expecting to still have it.

Yes, I'm an English Major.

:)

D

[#4 posted by Jeff , April 3, 2008 5:00 AM]

Declan, that's one of my peeves. Or it could also be said that, "You can't have your cake and eat it too." The phrase originates in the 16th century, I think. It's a way of saying you can't have something both ways, and the phrase always gets reversed.

[#5 posted by LSK , April 3, 2008 5:06 AM]

You can't eat your "You can't have your cake and eat it too" and have it too.

[#6 posted by lautaylo , April 3, 2008 5:16 AM]

Great article! Can't feel too guilty for schadenfreude over Microsoft when they get caught in schemes like this one.

B-but...is that math on the royalties correct? If the artists are getting 1/7th, it's true that the record company gets 6/7ths. But each party should be getting 3.5/7ths, so the artists are missing out on 2.5/7ths, per contract. Right? Maybe it's just too early.

[#7 posted by Scuba SM , April 3, 2008 5:23 AM]

Since there seem to be a fair number of lawsuits based on this exact technicality, is there a way that this issue can be forced? Can we take Microsoft's statement before a court that it sells software and use it to render all their EULAs null and void?

[#8 posted by Remy LeBeau , April 3, 2008 5:47 AM]

That music business argument really does not work. There are a few types of licenses in most record contracts. Sync licenses, which means selling the work to be used in a movie or video game or whatever are the licenses that pay 50%. So just because itunes is using the word "license", doesn't actually mean that the record company should pay the 50%.

Now whether it is a license or not is very debatable, but even if their lawyers prove that it is is somehow, the contracts would not give the artist 50% of the itunes rates, because that is only for "sync" licenses.

[#9 posted by PukeBazooka , April 3, 2008 6:13 AM]

Some quick googling turned up an article that described how the Allman Brothers Band and Cheap Trick were suing Sony for 30% royalties on digital downloads, rather than the 4.5 cents per d/l that they were receiving. So the artists may not be pushing for sync licensing rates, but rather for some other licensing rate that pays less than fifty percent but more than a paltry 4.5 cents per song.

Remy, if it's "very debatable" that iTunes downloads constitute a sale and not a license, why might you think that the customer owns his or her copy of the work rather than licenses it? I have a hard time understanding the concept of owning something that I can't resell.

[#10 posted by Xodarap , April 3, 2008 7:57 AM]

@3

The statement is not time-indexed. The speaker did not use any term like "then." As such, the conjunction is paradoxical regardless of the spoken order of conjuncts ("commutative" law). In any case, you are mistaken: the time index doesn't matter -- UNLESS you were to state that you can't "have your cake and then [fail to have your cake AND eat your cake]." The having is always negated by the eating; so to eliminate the paradox, you'd need a trinary proposition.

Yes, I'm a philosophy grad. ;)

(And yes, my login name is Paradox spelled backwards :P)

[#11 posted by Cowicide , April 3, 2008 10:36 AM]

I loved in the documentary called "The Corporation" where they determined what kind of "person" corporations are as a whole. The diagnosis?

Lying, hypocritical psychopaths.

Instead of corporate America (an oxymoron) shouldn't we just call it "lying, hypocritical psychopathic America"?

http://www.thecorporation.com/index.cfm?page_id=312