Change Agents: Inside China’s Music Copyright Law (Panel/DongDong Special)

Posted by on Apr 2, 2015 in Copyright Law | No Comments

In November last year, Beijing music industry conference DongDong played host to a panel focusing on the development of music copyright in China, curated and moderated by China Music Business. The panel consisted of three China music industry heavyweights – each of whom has been intimately involved in the development and implementation of copyright law in China over the last several decades – delving deeply into the history, inner workings, and future of the Chinese music copyright system and institutions based thereon.

DongDong IPR Panel

L to R: Cherry Guo, Guo Biao, Ma Jichao, Ed Peto

What follows is a heavily abridged/edited/translated/paraphrased (for readability) transcript of the bilingual panel. First though, the panelists:

Cherry Guo (Partner, Juntai Law): Cherry is one of the most highly regarded music industry lawyers in the country. She represents major players at all stages of the industrial chain, including the likes of Alibaba, Warner/Chappell…and Outdustry Group (China Music Business’ parent company). Formerly legal counsel to the IFPI, Cherry has been instrumental in opening up the karaoke market on behalf of rights owners – a potentially enormous new revenue stream.

Ma Jichao (Deputy Director General, CAVCA): Having started as Head of Legal and Licensing Affairs at the Music Copyright Society of China (MCSC – songwriters/publishers collection society) on its launch in 1992, and now as Deputy Director General for China Audio-Visual Copyright Association (CAVCA – recording collection society), Ma Jichao is a storied veteran of the Chinese collective management landscape. He is frequently called upon as an expert by the Chinese government to contribute to research relating to copyright law amendments.

Guo Biao (China Director, IFPI): As Deputy Director of International Division and Secretary to Vice Minister of the National Copyright Administration China (NCAC) between 1988 and 2000, Guo Biao was a genuine insider during the formative years of China’s copyright law. Now in his role as head of the IFPI in China, Mr Guo is responsible for lobbying the government for copyright reform on behalf of the global recorded music industry.

Moderator: Ed Peto (Managing Director, Outdustry Group)

1. China joins WIPO / A land before copyright

Guo Biao: Prior to 1980, Chinese companies who tried to do business with foreign companies found their foreign counterparts raising the issue of IP protection since, at this time, China had no patent, trademark or copyright protection.

In 1979, Dr Bogsch, the Director General of the World Intellectual Property Organisation (WIPO), visited China to meet with Chinese Vice Premier, Fang Yi. Dr Bogsch gave an introduction to WIPO – what is its purpose, why WIPO is important for IP protection – and Fang Yi decided that China should join. There was a period of academic and expert exchange between WIPO and China, with China eventually making their WIPO application in 1980.

During the 1980s, despite nothing being legally protected still, we actually had a very good record market. At that time, tapes were flourishing as Chinese state publishing houses had a monopoly on the market. It was very easy for these state publishers to make money because they didn’t pay anything to the composers, lyricists and performers. They only paid a salary. But, from one tape, they made several million copies – so this was very good for companies like China Records and Pacific. I remember one famous artist, Cheng Fangyuan, saying that she got a salary of 700 RMB (around US$500 in today’s money) from about a million tapes.

China music copyright timeline

2. China’s first copyright law, 1990

GB: For the record labels, the 1990 law only protected the reproduction right. That means that the record companies had the right to authorise other people to reproduce these sound recordings. And before they make these sound recordings, they must get permission from the composers and the performers, and pay remuneration.

Cherry Guo: Having joined WIPO, the first copyright law in China had similar basic principles, for example, when a foreigner publishes works in China, they can get the same treatment as a Chinese citizen.

Also there was automatic protection, meaning a produced work would get protection automatically without registration. These were all in line with the principles of WIPO.

Another one was copyright independence: copyright protection should be conducted according to the Chinese copyright law, no matter what the regulations are in foreign countries.

In the 1990s, this was a totally new area for China. I remember there were only a limited number of state-owned labels like the China Record Corporation. It published some old classic revolutionary songs. These labels were given limited rights, such as reproduction rights. Not many areas were protected.

3. The arrival of the Music Copyright Society of China (MCSC), 1992

Ma Jichao: The MCSC was established in 1992, honouring China’s commitment having signed the Berne Convention that same year. It was established in very difficult circumstances as there was no law outlining its legal status. There was only one regulation in implementing the copyright law, stating that the copyright owner can exercise its power by way of collective management. It didn’t state clearly the nature of the MCSC, so there were many difficulties in practice, such as in litigation and when charging fees.

The Chinese Musicians Association and National Copyright Administration jointly initiated the establishment of MCSC. Using music works for free for concerts, background music and so on, had been the norm. It was not easy for the copyright owners to know where the work was used, and, even when they knew, it was impossible to collect the fee.

Ed Peto: The 1990 law only provided reproduction and public performance rights for musical works. Can you remember what the first usages for which you collected were?

MJ: The first money we collected under the new Chinese Copyright Law was reproduction for records. For public performances, the first case we had was Jacky Cheung‘s concert in Shanghai. Up until then no one paid any [public performance] money for concerts, so it was really difficult for us to collect and we had to do so via litigation. For this case, MCSC consulted the Supreme Court and got the response that MCSC could institute legal proceedings in its own name. That’s how we collected the money, through legal proceedings. That’s the beginning.

MCSC licensing revenues

The money we collected on background music was more from companies that had connections with foreign investment, which were familiar with this type of concept, such as McDonalds, KFC and Hilton. So it was a tough procedure for MCSC to establish and develop. We all saw it just now, MCSC’s income was 28 million RMB (~US$4.39m in today’s money) in 2003, and it only reached 100 million RMB (~US$16.3m) [in the last few years]. During the ten years from 1992 when it was established to 2003, the money collection grew from several million RMB to the level of 20 million RMB.

Based on the collective management statutes and regulations, and adopted by the General Assembly of the members, after deducting costs, MCSC takes about 20% [in admin fees].

4. The first copyright law amendment, 2001

CG: China became a member of the WTO in 2001. At that point, our copyright law was officially amended for the first time in order to keep consistent with the regulations of TRIPS, an essential component of WTO membership. For the music industry, an important right was added: distribution via network, covering Internet and wireless networks.

On the law enforcement level, the statutory compensation was set, which means that when the copyright owner claims its right in court and has difficulties providing proof of the amount of loss, the court can make its own decision. If it is under 500,000 RMB (~US$81,000), then the judge can decide the compensation according to the specific circumstances of the case. All the changes showed huge progress.

GB: The 2001 amendment was revolutionary for the record labels. We already had the reproduction rights in 1990. [In 2001] we got the distribution rights, the rental rights and, as Cherry said, the Internet right. We have these four rights, which are very important.

MJ: The 2001 copyright law amendment confirmed the legal status of collective management organisations. In 2005, the supporting regulations – ‘Collective Management of Copyright Regulations‘ – were officially published. These provided collective management of copyright with a specific legal basis on which to operate and carry out legal proceedings, laying the foundation for the development of collective management of copyright. Meanwhile, in the copyright law of 2001, it also set the remuneration right of broadcasting, for composers and lyricists, although it was 10 years later that the standard was made and the money was payable. Also, Article 15 of the copyright law regulates a theatrical right for the music videos used in karaoke works. This brought about the establishment of CAVCA.

5. The arrival of the China Audio-Visual Copyright Association, 2008

CG: CAVCA is the collective management organisation in charge of managing recordings and videos for record companies. I was at the IFPI in 2003, before CAVCA had started. At that time we represented foreign record companies, such as Universal and EMI, and carried out a series of national lawsuits. We picked and sued several very big operators of karaoke venues across the country, and the right we used to sue them on was the theatrical right we just talked about, which was new to copyright law. At that time, this concept didn’t exist in China. Neither the government nor the karaoke operators or consumers understood this concept, so it became a really popular topic of discussion. A lot of media, TV and newspapers were discussing if this kind of fee should be charged. So the procedure was actually a process of popularising the law.

MJ: Since its establishment in 2008, CAVCA’s main income is from karaoke as the current copyright law doesn’t give the record companies remuneration right on broadcasting or public performance.

According to the Ministry of Culture, there are 100,000 karaoke operators, but from our research there are actually fewer than that. Right now there are about 5-6,000 operators paying money to CAVCA, which is about 10 percent of the total number of the whole market. In 2009, our annual income was around 90 million RMB (~US$14.7m in today’s money), which has gradually grown to 130 million RMB (~US$21m). But it is still far below the market potential.

When we collect the money, we represent MCSC and CAVCA to authorise the performing rights and theatrical rights. 40 percent of the collected money goes to the composers and lyric writers for performing rights and 60 percent of the collected money goes to the record companies. The record companies strongly disagree with this ratio and we also think that the ratio that goes to composers and lyricists is too high, but the ratio was negotiated between the two organisations, co-ordinated by the NCAC. Now we are trying to make the ratio more reasonable through the NCAC.

In order to collect the money, we authorised Tianhe Group to form subsidiaries in 28 provinces and cities across the country, employing more than 400 people to do this. We used different methods, one was to cooperate with administrative departments, one was to negotiate with entertainment associations, and for most of the cases, we used lawsuits. Right now, we handle more than a thousand cases for the whole country. In 2008, the year CAVCA was first established, we sued 200 karaoke venues. Basically we have formed the common concept of the necessity to pay money for using karaoke works, the problem is that the payable amount still needs to be negotiated.

It’s really difficult to collect these fees in practice. Our employees have to work after 9 PM if they want to talk to the karaoke operators. And many of our authorised agencies and lawyers have been threatened. There were actual cases where karaoke house bosses detained our employees or took to the police station. A lot of people don’t understand our job, some of the karaoke operators asked us if we had government-issued documents with an official government seal, or if we had approval from the Administration of Commodity Prices. We had to explain that the rights we claimed were a type of private right. Some of them reported us to the National Development and Reform Commission, and the National Development and Reform Commission and Beijing Development and Reform Commission came to us to investigate if we were genuine. We explained that this was exercising a civil private right through a collective management method, and that there was no need for approval from the government.

CAVCA’s [admin fee] is pretty high, as has been reported in the media. It is 50 percent after deducting costs. People always ask this question, and I’m not trying to avoid it: Why is it so high? Like I said earlier, after we were established in 2008, we had to deploy a team of 500 employees and build branches in 28 provinces and cities; this cost a lot money. I know some collective management organisations had to get loans during the first few years after they were established. So the percentage we deduct is adopted by our General Assembly of Members and confirmed by our council. CAVCA has been established for almost six years, and we will continuously try to lower our management costs, and we believe the costs will be significantly reduced in the coming years.

GB: We are trying to push the transparency and efficiency of the collection societies in China. IFPI is working closely with CAVCA and trying to reduce the costs as quickly as possible. We have a good example from PPL in the UK and societies in other countries. So I believe that in one or two years CAVCA will work very efficiently as this is very important in order for Chinese rights holders to collect their money.

6. Broadcasting rights for songwriters

GB: So, the publishers enjoy broadcasting and public performance rights, but in practice it’s difficult for MCSC to collect for these. It is really difficult for the MCSC to negotiate with the powerful Chinese broadcasters as they are state-owned.

After 10 years of tough negotiations and arguments with SARFT, they reached a very small margin to pay for the publishers. This is the fruit of 10 years’ work. I still believe that this is progress, because we got money for the publishers, finally.

They’ve got two levels of payment. One level is for the central TV stations who pay a [lump] sum of money. For the local stations the MCSC will have to negotiate, but it’s a very small margin.

MJ: In 2010, the State Council published the tariff for broadcasting rights, which was already really low, but the money we can collect will be even lower. By the end of 2013 the MCSC had entered agreements with 34 TV stations and 40 radio broadcasters, but the actual money it received on broadcasting rights is only about 30 million RMB (~US$4.8m). 30 million RMB in a market as big as China! So, the standard is really low.

When the government sets the charging standard, they use two ways: one is a percentage of the annual advertising revenue, the other is to calculate the money according to the broadcasting time.

For the first one, after 15 percent costs are deducted from the advertising revenue, they then use the ratio between the music broadcasting time and the total broadcasting time to calculate the fee. If the music broadcasting time is less than 1 percent of total broadcasting time, then the fee is 0.01 percent of advertising revenue. If the ratio is higher than 80 percent, which means it’s a specialist music channel, then the fee can be up to 0.8 percent. Five years after the implementation of this charging standard – which will be 2015 – this fee will increase to 0.9 percent, an increase of 0.1 percent.

If calculating the fee by broadcasting time, the radio broadcasters will be charged 0.3 RMB/min (~US$0.048) and TV stations will be charged 1.5 RMB/min (~US$0.24). 5 years after the charging standard implementation, TV stations will be charged 2 RMB/min (~US$0.32). This is really low compared to international standards.

7. Enforcement of copyright law

CG: When I was in the IFPI [around 2001/2002], the lawsuits were mainly about [CD piracy]. For factories making illegal copies of CDs, each [counterfeit release] could be compensated at 100,000 RMB (~US$16,000) to 200,000 RMB (~US$32,000), which was pretty high. Later we found that, as the internet developed, CDs were gone and people went online to download for free. At that point it is not possible to calculate how much the loss was, so we often used the term “statutory compensation”. If it is under 500,000 RMB (~US$81,000), the court will make its own decision. This gives the court great power of discretion. A song from a record label can be judged for a compensation of several thousand RMB for one download.

For the ringtone or ringback tone downloads on China Unicom or China Mobile’s websites, sometimes the compensation will be counted according to the number of clicks, such as 2 RMB (~US$0.32) per click. The total amount could be high. But when there’s no number like this, then it is based on the local courts’ understanding of these types of problems.

The copyright owners might have to bear heavy burdens on the cost. First of all, they have to hire a lawyer, which might even cost more than the compensation; sometimes we need to get notarisation for the downloaded illegal copies, which will result in paying notarisation fees; also the court charges litigation fees. If you add these costs together, it might be several times the compensation you get for one song.

A kind of case we’ll often see is for one music video used in a karaoke, the court will determine 300-1000 RMB (~US$50-US$160) compensation for this infringement. The publisher will receive 20-30 percent of this. According to Chinese Internet use, when a song is used on the Internet, the publisher will get 8-10 percent, so this is how the court determines how much goes to the different rights owners.

But overall, copyright protection in the Chinese legal system is currently quite harsh [on rights owners]. If you’re the plaintiff, when you file a case you have to provide very comprehensive evidence. If you’re a publisher, you’re right at the bottom of the pile – you have to provide all of your licenses. Even a big publisher like Warner/Chappell, they have to provide all of their contracts with their composers, their OP/SP contracts, then the agreements between SPs and local companies, that’s the rights chain you have to provide evidence of. Then you have to provide evidence of infringement.

GB: We have three methods of enforcement in China: litigation, administrative complaints via the NCAC/Ministry of Culture and criminal investigation.

Today, as Cherry said, it’s difficult for Chinese rights holders to go to court for Internet cases, because they have high costs and low payments, so nobody wants to do this job. Major labels never go to the court for Internet cases, except for big cases such as Baidu and Sogou. So, the IFPI have relied much more on the administrative cases with the NCAC and eventually the NCAC have closed some illegal music websites. This is a good way for us at this stage for China.

For the criminal cases, it’s difficult, but we have been successful in a few cases.

8. The current copyright law amendment process

GB: Since 2000 our industry has faced a very serious challenge from the Internet. In China  today, we don’t have so many record labels producing physical products, so it is now very important for us to raise the question whether or not we will expand our rights, equivalent to sound recording producers [in foreign countries]. In China, the publisher enjoys  broadcasting and public performance rights, but for the sound recording, we have no such rights. The IFPI is now lobbying for these rights.

We immediately faced difficulties when we started lobbying [around 2006]. The NCAC said “Mr Guo, do not talk about these rights”, because while China is a signatory of the WPPT we have made the reservation of [i.e., excluded] this article. China is not a signatory of the Rome Convention, so we actually meet the minimum standard of protection for sound recordings. This was a big problem for us at the beginning.

So, we started educating people. We had discussions with professors, we gave them materials, background, everything they would need to lobby. So the professors began a media campaign, writing articles and so on.

After this media activity, we organised seminars. Today, the NCAC fully supports the granting of the rights, so it has been fruitful. The current amendment of this law, the third amendment, the NCAC has made the final draft in which we have broadcasting and public performance rights [for the label]. So the bill will be submitted to the State Council for the second stage of legislation.

We’re now facing difficulties at the second stage, however. The State Council is reviewing the bill but the Chinese [state-owned] broadcasters strongly oppose granting the rights, so we are entering into a second battle. [If we get through this then] the bill will be submitted to the National People’s Congress. I think that in two or three years, the law will be final.

CG: In the draft of the copyright law that’s waiting for approval, we are trying to promote a concept of “extended collective management”, which means no matter whether you are a member or not, collective management organisations can always represent you unless you declare that you don’t want to join the collective management organisations. In this way, it is easy for users to get 100 percent of the right to use the work, this is beneficial to all parties. We still don’t know if it will be approved or not. Let’s wait and see.