Copyright Due Diligence Investigations in China: Legal Entity Work or Occupational Work?

Wang Rui, Partner, International Trade

The Chinese legislature created a hybrid from the different approaches adopted by civil and common law jurisdictions through the Copyright Law of the People’s Republic of China (the “Copyright Law”) and the Regulations on the Implementation of the Copyright Law of the People’s Republic of China (the“Implementation Regulations”), and produced the twin concepts of “legal entity work” and “occupational work” for assigning rights to works made in the course of an employment relationship. For example, a book written by a group of employees organized by an entertainment company for celebrating the company’s anniversary would likely be considered “legal entity work”, but a piece of music composed by a composer employee (not for specific purposes) is “occupational work”, because in the former case, supervision of the company would be involved but the latter case it would not.

Being able to draw a clear line between “legal entity work” and “occupational work” is crucial during a due diligence investigation in terms of copyrighted materials in employment relationships- ascertaining an accurate chain of title from the author turns out to be a thorny issue. Though these two types of works are seemingly similar, the attribution of the copyright ownership between a legal entity employer and an employee is critical. Though the determination of “legal entity work” and “occupational work” can be extremely confusing, neither the legislatures nor judicial organs have ever promulgated any guidance. Thus far, only the National Copyright Administration of the People’s Republic of China (the “NCA”) has expressed its viewpoints on this matter in the circular “Reply to the Liaoning Tieling Mediate Court Regarding How to Determine Legal Entity Work and Occupational Work” (the “NCA Circular”), which however does not have judicial binding force.

“Legal Entity Work”
The NCA Circular recognized a three-point standard concerning “legal entity work.” I.e., creation of a “legal entity work” should at least satisfy three conditions: (i) supervised by the legal entity; (ii) developed according to the intentions of the legal entity; and (iii) the legal entity is responsible for the work.

This standard sheds some light on the issue but is far from clear. Point (ii) is especially difficult to apply due to uncertainties regarding a legal entity’s intention. Three issues are often considered in practice to identify the existence of a legal entity’s intention:

(a) Signature on the work. According to Article 11 [paragraph (4)] of the Copyright Law, so long as the legal entity’s name is mentioned in connection with a work and there is no proof to the contrary, the legal entity should be deemed to be the author of the work and therefore the work should have reflected the intention of legal entity.

(b) Content of the work. Does the content of the work likely reflect the legal entity’s intention or only the employee’s own creative expression?

(c) The nature and purposes of the work. Given the nature and intended purposes of the work, in which party’s name will the work be published? For example, the advertising and explanatory materials created by a governmental agency for policy making, or an agency’s declaration or statement on certain events or actions (such as the “China’s Situation in IPR Protection” issued by the Press Office of the State Council of PRC)—are all considered having reflected the intention of the legal entity.

“Occupational Work”
According to the NCA Circular, “occupational work” should meet two criteria: (i) the citizen who created the work should have an employment relationship with the legal entity; (ii) the work is created to fulfill tasks assigned by the legal entity employer. While criterion (i)–existence of employment relationship is to be decided in accordance with the labor law of China, Article 11 of the Implementation Regulations interpreted the term “work assignment” in criterion (ii) as –“a work within the scope of the duties that a citizen should fulfill for the legal entity or body.”

Two issues are often considered in practice to identify whether a work falls within the scope of the duties to be fulfilled by the employee: (a) whether the duties are specified in the employment contract or labor rules & regulations of the company, or reflected in the company’s long term work planning; (b) whether the work has significant and direct correlations with the normal business of the legal entity employer.