Microsoft fights Chinese pirates ... and gets paid for it

Microsoft Corp. (NASDAQ: MSFT) is fighting piracy of its software in China and getting paid for it.

Under a new arrangement with Lenovo, China's largest PC company, Microsoft will sell the local firm $1.3 billion in Windows and Office software, which will be be pre-installed in Lenovo PCs.

Both firms said they hoped that with this arrangement they could advance "one of the most important goals of international business: the protection of intellectual property," as Lenovo senior vice president Chen Shaopeng said.

The contract is great for Microsoft. Piracy eats into its revenue in China as copies of its OS are installed on PCs around the country with the world's largest software company getting nothing.

But, entering into the deal seems particularly lame-brained for Lenovo. It adds over $1 billion to its costs for the privilege of selling machines that are made more expensive by the Microsoft license. These will compete with PCs that have cheap or free pirated copies of Windows OS and Office.

While it is very kind of Lenovo to pay Microsoft the money, it is easy to see why the PC firm has been doing poorly in the stock market lately. The company's shares are off almost 20% since February and even more since late 2005.

Douglas A. McIntyre is a partner at 24/7 Wall St.