Thursday, January 11, 2007

Sarbanes-Oxley means no features in future software updates from publicly traded companies?

The claim is that Sarbanes-Oxley has the unintended consequence of making it illegal, or costly, to distribute ‘free’ software updates.

Oh, about that 802.11n card in your C2D Mac | iLounge

... I’m not going to claim to understand this next part, which really just makes no sense to me at all, but the claim Apple’s making is that it _can’t_ give you the 802.11n-unlocking software for free. The reason: the Core 2 Duo Macs weren’t advertised as 802.11n-ready, and a little law called the Sarbanes-Oxley Act supposedly prohibits Apple from giving away an unadvertised new feature for one of its products. Hence, said the Apple rep, the company’s not distributing new _features_ in Software Update any more, just _bug fixes._ Because of Sarbanes-Oxley. If this is an accurate statement of Apple’s position, which as an attorney (but not one with any Sarbanes background) I find at least plausible, this is really crazy. ...

Presumably this falls under the category of a publicly traded company cheating shareholders of revenue. It is certainly startling if true, but it does seem plausible. It may, of course, be something that vendors like. It would not apply to non-publicly traded companies, which produce most of the software I like.

Sarbanes-Oxley is due for a review by Congress. I’ll ask my Representative to take a look at this claim.

Update 1/18/07: It looks like this is genuine:
Apple's alleged 802.11n enabler fee: blame Enron etc. | Reg Hardware

... The reason: changing a product's functionality changes the timeframe in which the manufacturer can recognise revenue from the sale of that product.

If Apple begins selling a product at the start of, say, Q1 and then adds a previously unadvertised feature to it at the beginning of Q2, under Sarbanes-Oxley, it has to recognise revenues from the product from Q2 onwards. Revenues recognised in Q1 run contrary to the rules enshrined in the Act. Unless, of course, the extra feature is a 'new' product, attracting its own revenue stream.

Crazy, but that's accountancy for you. Had Apple actually said at their launch that its latest Macs would one day be upgradeable to 802.11n, it could have avoided the charge, it seems...

Microsoft Vista, it was announced today, will be installed with a comprehensive feature set which may be unlocked over time for a fee. I wonder if Sarbanes-Oxley determined that.

I'm not sure this is all bad. Companies now have a clear economic incentive to deliver incremental value to existing solutions. If and when I want 802.11n support I have no problem with paying $5.00 for a driver. Perhaps Apple will consider adding phone support to iSync for a similar fee; I'd be delighted to pay $5.00 for official iSync support of my Motorola V3M.

Update 3/10/07: I'd read some coverage that claimed Apple was interpreting Sarbanes-Oxley incorrectly. I'd written our representative to ask about this, and Betty McCollum's office replied "Apple has to account for the separate value of a software upgrade that allows for additional capabilities from the hardware.... a nominal fee ... establishes a reportable value for the upgrade." So Apple has interpreted the law as congress understands it. At least when it comes to enabling new hardware capabilities, SO means Apple must account for the value delivered. A nominal fee is one way to do that. I wonder if there's more wiggle room when no hardware capabilities change ...?

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