Making Amends: China Music Copyright Law Primer

Posted by on May 6, 2014 in Copyright Law | 4 Comments
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Many people wonder why piracy of copyrighted works in China is such a persistent, difficult problem to tackle, and some may wonder whether China even has a modern copyright law at all. The aim of this article is to provide some background regarding China’s copyright law for those interested in understanding what China’s copyright environment is like, why piracy remains such a challenge, and what are some of the tensions and challenges that have hindered the law’s effectiveness.

China does have a modern copyright law that conforms in many ways to international standards, such as the rights granted to authors, types of works eligible for protection, and so on. China even has specialized intellectual property divisions within its courts (something the U.S. does not have), so the piracy problem in China is not the result of an overall lack of legal infrastructure.

The Development of PRC Copyright Law

One reason why copyright protection is substandard in China is that this legal infrastructure is very new. Modern copyright law has had less than two-and-a-half decades to develop and take root in China, as compared to four centuries in the West. Indeed, following the Cultural Revolution in the 1960s and ‘70s that resulted in an unfathomable upheaval of Chinese culture and society, there was no systematic copyright protection at all in China until 1990, when the PRC’s first copyright law was promulgated.

The 1990 Copyright Law was enacted after a decade of intense internal debate over the appropriateness of copyright in a socialist system. Its provisions reflected the irreconcilable tensions that shaped the drafting process, which one high ranking official called the “most complicated” in the PRC’s history. While the law provided economic and moral rights to authors, it also undeniably reaffirmed the central role of the state in a socialist copyright scheme. The law also lagged notably behind international standards, but laid the formal groundwork for legal recognition of authors’ rights in their creations and made copyright infringement an actionable offense for which civil remedies were available. The law also signalled China’s desire to show the international community that it took copyright protection seriously.

Despite these improvements to the formal law, the ability and perhaps willingness of Chinese authorities to enforce the law was sorely lacking, and fierce piracy persisted. International pressure has been instrumental in motivating China to improve its legal infrastructure, but it has had little practical effect. The United States, whose creative industries were already claiming substantial losses at the hands of Chinese pirates by the early nineties, continued to pressure the Chinese government to improve copyright protection. Several times during the nineties, U.S. threats to initiate a trade war and economic sanctions were followed by Chinese threats of retaliation, and to avert a trade war the two sides came to eleventh-hour agreements in which the Chinese side made minor concessions but the general situation failed to improve.

Copyright Law Since China’s Entry into the WTO

In the late 1990s, China sought to join the World Trade Organization (WTO). Because WTO membership would require China to sign the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) – which sets minimum standards for member nations’ intellectual property laws – considerable amendments to the 1990 Copyright Law were necessary to conform to international standards. In 2001, China enacted a major revision to its Copyright Law to bring it into TRIPS compliance.

Many of the primary changes and enhancements signalled a shift away from the socialist, state-centered philosophy of the 1990 Copyright Law and toward more extensive private rights. The 2001 amendments considerably expanded the economic rights available under the law. It created thirteen categories of economic rights, including the rights of reproduction, distribution, rental, exhibition, performance, screening, broadcasting, making cinematographic works, and communication through an information network.

Inclusion of the right of “communication through an information network – that is, the right to make a work available to the public by wire or by wireless means,” – was among the most important changes to the 2001 law. This right empowers copyright owners to, for example, prevent users on peer-to-peer networks from making works available to others by placing them in a “shared” folder – a right that is not even clearly available in the U.S. The provision mirrors the language of the WIPO Copyright Treaty (WCT), designed to enhance copyright protection in the era of digital technologies. Some in China had argued against the inclusion of this right on the grounds that the law should encourage development of new information technologies and take into account the public’s interest in allowing free dissemination of information over the internet. However, the mounting number of internet-related copyright cases demonstrated a need for clarity in the law.

In 2007, the U.S. employed the WTO’s dispute resolution mechanism in hopes of resolving its ongoing issues with China over piracy and market access. The U.S. brought two WTO cases against China that involved copyright law and entertainment products. The first, China — Intellectual Property Rights, targeted a provision in Chinese law that denied copyright protection to works that had not been authorized for distribution in China. U.S copyright owners were frustrated that while their works awaited official review they had no recognized rights and therefore no recourse against pirates who were doubtless not waiting for completion of this process. The WTO panel agreed with the U.S., holding that Article 4 of China’s Copyright Law conflicted with China’s obligation under TRIPS to provide minimum levels of protection and not condition that protection on formalities such as prepublication review. The panel disagreed, however, with another of the U.S.’s claims related to copyright piracy, deciding that the thresholds for establishing criminal liability were not inconsistent with China’s TRIPS obligations.

The U.S. had more success persuading the panel in its second WTO case involving the copyrighted works, China — Publications and Audiovisual Products. The U.S. challenged Chinese regulations that prevented foreigners from importing and distributing copyrighted works. The WTO panel agreed that some of China’s relevant regulations violated China’s WTO commitments and recommended that China revise its laws to give foreign enterprises the right to import and distribute audiovisual works in China. To date, however, China has not fully complied. Nevertheless, the U.S. seems to have stopped pressing the issue at the WTO since China signed a Memorandum of Understanding with the U.S. in which China agreed to increase the number of foreign films it would approve annually for theatrical distribution on a revenue-sharing basis (from twenty to thirty-four) and increase Hollywood’s box office revenue share in China from 13–17 percent to 25 percent.

Copyright Enforcement—Administrative and Judicial Enforcement Routes

Where ongoing copyright infringement is deemed to impair the public interest, copyright owners can pursue enforcement through administrative agencies. Copyright owners may also – or otherwise – pursue civil remedies against the infringers, including damages or injunctions. This bifurcated administrative–civil enforcement system developed in the 1980s when a heavy caseload overwhelmed Chinese courts as the legal system underwent massive reforms and entirely new categories of legal rights came into existence. It is also a remnant of the pre-reform socialist governmental organization, which was structured to protect public interests through state agencies rather than protect individual rights through courts. The bifurcated approach has been criticized for confusing administrative and judicial functions, undermining judicial independence, and causing overlap and conflict among administrative authorities. Regardless, the system appears well entrenched, and administrative powers are even expanding.

The National Copyright Administration of China (“NCAC”) is the primary (but not sole) administrative body with jurisdiction over copyright disputes. Thus, copyright owners seeking to enforce their rights through administrative action typically submit a complaint and evidence of infringement to the NCAC, which has the power to investigate copyright claims either at the request of copyright owners or on its own initiative. Complainants may take their case instead to other agencies with jurisdiction over the matter, such as the Public Security  Bureau (“PSB”), the principal police agency, which has authority to conduct raids if criminal levels of infringement are suspected. The PSB possesses powers that the other enforcement agencies do not, including the power to force entry and to detain and arrest suspects. Typically, the agency involved will raid the infringer’s premises and confiscate infringing items and other evidence. Once the enforcement action is complete, the agency involved will issue a judgment concerning the infringement of the substantive law at issue. Complainants can appeal a dissatisfactory administrative decision in court or can skip the administrative route altogether and file a civil action directly. If, during the course of the administrative action, the agency obtains evidence that the infringing activity has exceeded the criminality threshold, the agency can refer the case to the PSB, which can, if criminal liability is established, forward the case to the People’s Procuratorate (roughly analogous to a prosecutor in common law jurisdictions) for criminal prosecution. Because litigation proceeds slowly, thus allowing defendants time to continue infringing activities or, more likely, disappear altogether, the Copyright Law empowers courts to grant preliminary injunctions in cases where irreparable injury will result if an infringement (or pending infringement) is not stopped promptly. As a practical matter, however, injunctive orders have been difficult to enforce in China.

Whether a copyright owner chooses to pursue an administrative action or a civil lawsuit very much depends on the copyright owner’s goals at that stage of the procedure. For example, a company that simply seeks to stop the infringement may choose the administrative route because agencies can act with speed and efficiency unattainable in court, and it is often the less expensive route. However, companies seeking civil damages must take their cases to court. Administrative enforcement actions are more likely to be reported in the news, so some international companies like to work with administrative agencies in part because of the potential to receive free promotion.

In general, the dual-track enforcement system is often woefully insufficient to deter pirates. On the administrative enforcement side, the NCAC tends to focus on high-profile campaigns that deliver low quality enforcement. On the civil enforcement side, damages awarded tend to be too low to provide effective deterrence. Plaintiffs may seek compensation for actual damages, the defendant’s illegal profits, or, if there is insufficient evidence to substantiate either, the court may award discretionary statutory damages capped at 500,000 RMB (approximately $79,000). Actual damages awarded to successful plaintiffs are usually dishearteningly low, however—often around ten percent of the amount of damages sought. From 2006 to 2009, copyright damages awarded in China averaged a paltry $5,000. In one instructive example, several major record labels sued Baidu, China’s largest search provider, for widespread unauthorized downloads and publication of song lyrics (Baidu has been a frequent copyright defendant). The plaintiffs sought 1 million RMB in damages, but were awarded just 60,000 RMB (approximately $8,800). Other challenges to effective copyright enforcement that commentators have noted include competition, overlapping jurisdiction, rivalry among bureaucratic agencies charged with intellectual property protection, and strict censorship and market access restrictions that create a market void and concomitant demand for pirated copies.

Internet Enforcement

In the digital media age, the internet presents yet greater enforcement challenges. Peer-to-peer networks and major search and streaming platforms regularly provide easy access to unlicensed downloads and streams. The law seeks to attempt to balance the rights of copyright owners with the needs of technology providers, who worry that development of their technologies and business models will be stunted if they are constantly held secondarily liable for the infringing activities of their users. Chinese regulations therefore provide a notice-and-takedown regime akin to § 512(c) of the Digital Millennium Copyright Act in the U.S. Under the Chinese regulation, if a copyright owner notifies a website of the presence of an infringing work, the website is not contributorily liable so long as it: (1) provides notice to the subscriber using its storage space, (2) does not alter the work in question, (3) has no knowledge of or reasonable grounds for knowing of the infringing act, (4) does not seek to financially benefit directly from the works, and (5) expeditiously removes the content after receiving the notice. For music copyright owners in particular, this procedure has provided little relief. For example, a 2008 investigation by The Register reported that Baidu search results linked to music files hosted on a rotating network of suspicious domains, and “infringement notifications resulted in unlicensed songs simply moving from one of these domains to another”. Copyright owners have also publicly complained that Chinese websites’ onerous and inconsistent requirements for establishing copyright ownership and infringement slow down the take-down process while infringement continues unrelentingly.

Nevertheless, music copyright owners have achieved some noteworthy gains in the the online piracy wars in recent years. Search engines Baidu and Sohu’s Sogou have recently signed broad licensing agreements with international major record companies. Far and away the most celebrated of these was Baidu’s 2011 agreement with three of the four major international record companies – Universal Music Group, Warner Music Group, and Sony BMG – in which the labels agreed to license a 500,000-song catalog to Baidu, and Baidu reportedly agreed pay upfront licensing fees as well as per-stream or per-download fees. Most importantly, Baidu agreed to phase out its MP3 Search feature in favor of a new service called “Ting” (subsequently renamed “Baidu Music”). The agreement also made provisions for the future introduction of a paid tier, ushering in a recognisable freemium model during 2013. This licensing model has been replicated across a number of other major services.

>> Eric Priest is Assistant Professor and LL.M. Program Faculty Director at the University of Oregon School of Law, and a veteran of the Chinese digital music industry

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