Whack-A-Mole: A Brief History of Music Piracy in China

Posted by on Sep 30, 2014 in Copyright Law | 6 Comments
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Police officers look on as a road roller destroys confiscated DVDs in Xi'an. (Reuters)

Police officers look on as a road roller destroys confiscated DVDs in Xi’an. (Reuters)

Copyright owners have long lamented rampant media piracy in China. For years, international film and music industry groups have estimated the piracy rate for optical disc media (CDs, DVDs, and VCDs) to be at least eighty-five to ninety percent. As recently as 2011, virtually all music downloads in China were unauthorized. Subsequently, the international major record labels struck an accord with some of China’s major search engines — one of the most common sources of links to unauthorised music downloads — which resulted in the search engines receiving licenses for at least some music content. It is currently unclear what percentage of music downloads is unlicensed, but by all accounts the rate of online music piracy remains very high. China’s recorded music revenue is so disproportionately low that China’s total recorded music revenue in 2011 was eclipsed by that of Thailand — itself a high-piracy country with one-twentieth the population of China.

In a previous post, I introduced readers to the copyright environment and legal framework in which the culture industries in China operate. In this post, I briefly address the difficult and complex question of why copyright piracy has remained such a vexing problem in China despite decades of international efforts focused on reducing piracy rates.

International Pressure

It is worth noting at the outset that despite the real and persistent challenges that piracy presents to copyright owners in China, there have been notable gains in recent years, and at least some observers feel that the general trajectory in China is toward an improved enforcement environment. For example, while it has long been a major challenge to enforce injunctive orders that compel infringers to cease infringing activities, some experts say that recent events signal meaningful improvement on this front. The online streaming video space provides another example of improvement. The piracy rate for online video has declined markedly in recent years as several leading user-generated content (“UGC”) sites have self-purged pirated content and endeavoured to acquire licenses for any professionally produced content they serve. Nevertheless, video piracy remains a serious problem as users migrate from UGC sites to peer-to-peer streaming websites that serve high volumes of pirated content.

Any of the gains that copyright owners have achieved in China are only modestly attributable to international political efforts — led largely by the United States government — to pressure China. Since the 1980s, United States businesses have lobbied the United States government to pressure China into improving IP protection. However, diplomatic pressure from the United States resulted in what law professor Peter Yu calls the “cycle of futility”. That is, the United States, dissatisfied with the state of IP protection in China, repeatedly designated China as an offender of IP rights and then threatened to impose trade sanctions on Chinese imports. China, in turn, responded with threats of retaliatory sanctions of its own. In each instance, trade wars were averted by eleventh-hour memoranda of understanding in which China agreed to improve IP protection in return for the United States’ agreement not to impose tariffs. The fact that the cycle repeatedly played out the same way throughout the 1990s is a testament to the inefficacy of the process.

The cycle of futility ceased, but piracy did not, when China joined the WTO in 2001 and became subject to the WTO’s official dispute resolution process. Six years later, after bringing a number of other trade-related WTO cases against China, the United States brought a case concerning protection and enforcement of IP rights (“China — Intellectual Property Rights”). Two of the three issues the United States raised addressed copyright protection. First, it argued that Article Four of China’s Copyright Law, which denies protection to works that are not approved for distribution in China, violated TRIPS and the Berne Convention by conditioning copyright protection on the formality of prepublication review and by effectively depriving unapproved works of the guaranteed minimum standards of protection. Second, the United States argued that Chinese thresholds for criminal prosecution of copyright infringement were too high and therefore inconsistent with requirements under the WTO’s TRIPS Agreement. The WTO dispute resolution panel held in favor of the United States with respect to the Copyright Law Article Four claims, but not the criminal threshold claims.

China — Intellectual Property Rights indicates that the WTO dispute resolution mechanism has been a disappointment as a means of improving copyright enforcement in China. China amended its Copyright Law to comply with the WTO panel’s ruling, but it is unlikely this technical amendment will have a significant effect because it fails to remedy many of the principal causes of piracy discussed below. Therefore, even the partial United States victory in this case was likely Pyrrhic. Moreover, if United States copyright industries pressure the United States Trade Representative to initiate another IP case against China, a new cycle of futility may result.

Factors Contributing to China’s High Piracy Environment

As the following discussion demonstrates, commentators attempt to explain China’s persistently high piracy rates by pointing to a number of systemic failures that limit copyright law’s effectiveness as a deterrent, and to cultural factors that allegedly have inhibited the uptake of IP norms in Chinese society. Identifying a simple explanation or set of factors appears increasingly elusive, however.

One important reason why piracy persists at such a high level in China is that the threat of copyright enforcement provides little deterrence value. Damages awarded in civil infringement cases are often far too low to deter lucrative infringing activities. Copyright law presently awards prevailing plaintiffs compensation for their actual damages or the defendant’s illegal profits; if the evidence is insufficient to substantiate either damages or profits, then the court may award statutory damages up to 500,000 RMB (approximately $79,000). Average damages awarded are nowhere near the statutory limit. From 2006 to 2009, the average award for copyright infringement was just 31,189 RMB (slightly more than $5000). In a 2009 study of damages claimed and awarded in fifty-four Chinese copyright cases, which included a number of cases involving major Western film studios and record labels as plaintiffs, the median copyright damages awarded were about $18,000 — a mere nine percent of median damages claimed. In one example involving unauthorised music downloads, the record label plaintiffs sought one million RMB in damages, but the court entered a judgment of just 60,000 RMB (approximately $8800) against defendant Baidu, China’s largest search engine and a frequent defendant in copyright infringement lawsuits. Administrative enforcement actions also do little to deter infringement because they tend to emphasise high-profile campaigns involving agencies with overlapping jurisdiction, which often results in uncoordinated and duplicative efforts.

Commentators argue that several other systemic deficiencies contribute to the existence and prevalence of piracy, including: high evidentiary thresholds for bringing criminal copyright enforcement actions; a relatively weak and under-resourced National Copyright Administration (the primary administrative organ tasked with developing copyright policy and enforcing copyright); and severe censorship and market access policies that greatly restrict the legitimate distribution of foreign copyright owners’ works, creating an enormous market for illegitimate copies.

In addition to these systemic factors, some scholars argue that cultural, social, and economic factors such as China’s traditional political culture, a lack of local IP stakeholders, and relatively poor economic conditions, among other factors, converge to impede the flourishing of IP norms in Chinese society. One view, most closely associated with Harvard Law School professor William Alford, holds that China’s political culture is primarily responsible for impeding the flourishing of copyright norms in China. In particular, China’s Confucian tradition of de-emphasising novelty and innovation while emphasising mastery through emulation, coupled with the historical and enduring importance to the Chinese state of central information control, has rendered China’s cultural soil relatively inhospitable to transplanted laws and norms aimed at establishing exclusive private property rights in creative works.

Others have argued that as China’s developing economy further integrates into the world economy and its knowledge industries and innovative capacity mature, China will reach a “crossover” point at which it will transform from a net infringer of IP into a net producer and protector of IP. This line of reasoning posits that piracy is endemic because China lacks IP stakeholders in sufficient numbers, that IP protection in China primarily benefits foreign rights holders, and that China will “get serious” about IP protection only when doing so is in its stakeholders’ best interests. As Chinese IP owners and the government recognize the value of China’s indigenous IP, they will begin to improve rights consciousness and enforcement. Another explanation, closely associated with the “crossover” theory, is that China’s relatively poor overall economic conditions exacerbate piracy because much of China’s population still has difficulty affording expensive legitimate goods. According to this view, as China further develops economically and the average income rises, people will choose to purchase legitimate products over cheaper, pirated ones.

Recent statistics, however, have called some aspects of these theories into question. The notion, for example, that China lacks sufficient numbers of IP stakeholders is undermined when one considers that China is already the most IP-litigious society in the world. Moreover, almost ninety-eight percent of all IP litigation in China involves only Chinese parties; in 2011, a mere 2.27 percent of IP cases disposed by Chinese courts involved a foreign party. These statistics suggest that many Chinese entities now value obtaining and protecting IP rights and believe that enforcing those rights is in their best interests.

Likewise, there is little evidence that high piracy rates directly correlate with poor economic conditions, or that piracy rates decrease as economic circumstances improve. In fact, a recent study by the China Publishing Science Research Institute suggests that wealthy and educated Chinese consume as much or more pirated content than the poor and less educated. More than half of those surveyed holding college and graduate degrees purchase pirated content. Likewise, by profession, farmers, labourers, and military personnel were less likely to buy pirated goods than enterprise leaders, management, and professionals, of whom nearly sixty percent bought pirated goods. These statistics suggest the majority of educated professionals buy pirated content. This casts doubt on the hypothesis that China’s economic conditions prolong endemic piracy.

In short, piracy’s root causes evade simple explanations and solutions, and piracy remains a serious obstacle to the successful monetisation of creative works in China. For their part, copyright owners in China can do little more than focus on the pragmatics of how to subsist as “copyright extremophiles,” surviving in inhospitable conditions.

>> 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. This article is an excerpt from his “Copyright Extremophiles: Do Creative Industries Thrive or Just Survive in China’s High Piracy Environment?,” Harvard Journal of Law and Technology, Vol. 27, No. 2, 2014, and is republished here with permission. The full article can be downloaded here.

6 Comments

  1. China Copyrights: China Piracy Means Whack A Mole | Authority Court
    October 18, 2014

    […] Just read a really good, really comprehensive article on China copyright law with a focus on the music industry, entitled, Whack-A-Mole: A Brief History of Music Piracy in China. […]

  2. bystander
    October 19, 2014

    Great article. I worked in the music industry in China for five years and finally decided to walk away from it when I realized that it is an illusion to think that this problem will improve any time soon. There are too many stakeholders in the country who benefit in too many different ways from keeping ‘content’ something that has no economic power on its own. ‘Content’ might be music, books, movies, whatever. Giving content creators the ability to monetize their works directly is too threatening a proposition in China. If anything this problem is getting worse now that the new regime is in full retreat from “opening up”.

  3. blwinters
    October 20, 2014

    If there is basically no distribution mechanism for legitimate content, other than movie theaters and live concerts, what other choice do people have? Seems like censorship and limits on foreign entertainment are at the core of this issue. Moreover, the government benefits from keeping citizens well-entertained at minimal cost.

  4. Outdustry
    October 21, 2014

    “..what other choice do people have?”

    Chinese consumers have always had abundant choice in content and, being driven primarily by convenience and price, do not know/care whether this content is unlicensed or not. Realising this same problem in the west, the major studios/labels have largely moved on from attacking individual infringers and have turned their attention to the platforms, advertisers and payment service providers instead.

    We can see the same approach in China and the beginnings of a legitimate market appearing as a result (although this is an obvious over-simplification). The digital platforms are now actually getting their licenses in place – albeit for relatively modest sums – while the consumer remains blissfully unaware of the changes, still enjoying an all-you-can-eat music buffet for free. Just because it is very much free to the consumer, however, it doesn’t mean that there is no money being made by the rights owners.

  5. Outdustry
    October 21, 2014

    Always happy to meet a fellow China music industry soldier! I would agree that up until the last couple of years there was no light at the end of the tunnel – a market of perpetually unfulfilled promise – but there are now signs of progress.

    There is no question that we are still talking a 5-10 year time frame before China really gets in to gear – ie way longer than anyone would like – but when you consider the ascendency of karaoke money, performing rights, sync licensing, music video licensing, DSP licenses (see my article “Glaciers Aligning” on this site) it is not all misery. As modest as they are, most of these revenue streams did not exist a few years ago.

    Ed

  6. blwinters
    October 21, 2014

    Right. I was trying to emphasize that it is incumbent on foreign copyright holders to establish the paid distribution mechanisms that are easy for consumers to accept. They shouldn’t have any expectation that Chinese consumers (as individuals) will be forced to respect copyright laws.