SOX Tax for Upgrades?

A very interesting piece by iLounge is creating a little buzz today. Hopefully in the next few weeks it will become clear if this is really true, or just FUD. Given my development background, and business education (especially going to school post-Enron) this was particularly interesting.

Most software and hardware products these days are updated after release through software updates to enable features that either weren’t reliable enough to be turned on when released, or weren’t possible (waiting for standardization, licensing, testing, certification, etc.). It’s not at all uncommon.

It’s no secret Apple has been shipping computers for several months with 802.11g/n cards, but calling them 802.11g. Presumably all it takes is a firmware upgrade, and it’s ready to go. Now it appears that because of the Sarbanes-Oxley Act (SOX) [pdf], they are required to charge a small fee to enable the feature because:

…supposedly prohibits Apple from giving away an unadvertised new feature for one of its products.

The logic in a way makes sense, but this raises a lot of business ethics. If an update enables added security (such as changing a default in a software firewall), does the software developer need to charge an upgrade fee according to US law? What about when Microsoft added support for WPA2? Presumably at least some of the buts utilized were in Windows prior to that update.

Here is an even more twisted example: Starting this spring with the new Energy Policy Act of 2005 in effect. Daylight Savings Time has changed. It starts earlier and ends later. For accounting and legal purposes you must correctly date your records, for example in Quicken/Quickbooks, or even timestamp on email could also be important. Does Microsoft need to charge for this upgrade to comply with SOX? Remember, this patch isn’t a bug “fix” since nothing was “broken” (the functionality was correct). This patch adds support for the new Daylight Savings Time. Hence it’s technically a [boring] feature to an existing product (Windows). Just like enabling 802.11n.

But what about Nintendo Wii or Playstation III which will presumably be getting firmware updates along the way to enable new features. I’m pretty sure Sony would be bound by the same laws. Not sure about Nintendo since it’s traded on the Nikkei Stock Exchange.

Disclaimer: I’m not a lawyer. I hope the Apple lawyers messed things up here and really misinterpreted the law. Since this is pretty messed up. I have a good feeling we’ll be learning more about this in the upcoming weeks.

Update [01/19/2007]: It’s Apple speaks: It’s $1.99.

Update [01/20/2007]: It’s not SOX, it’s GAAP causing the issue. CNet discusses.

Leave a Reply

Your email address will not be published. Required fields are marked *

Connect with Facebook

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>