By Susan Ning, Huang Jing and Angie Ng, King & Wood’s Competition Group
On 14 October 2010, the PRC National Copyright Administration (NCAC) published two pieces of regulations (the regulations) which govern the collection of copyright royalties for movies provided on the Internet, on flights and on public transport.(1) Recently there have been concerns from internet cafes that these royalties are unreasonably high.(2) There has also been some discussion in the press that these alleged “high” royalties could constitute an abuse of intellectual property rights, in breach of Article 55 of the Anti-Monopoly Law (AML).(3)
The collection of copyright royalties will be undertaken by the China Film Copyright Association (CFCA). According to the China Daily, the CFCA has 62 members (who own the majority of domestic movies) and will share in 90% of the royalties collected – the CFCA will keep the remaining 10% as management fees.(4) Pursuant to the regulations, the CFCA will commence collecting royalties on 1 January 2011. The CFCA will commence collecting royalties in eight municipalities and provinces to begin with (including Beijing, Shanghai and Jiangsu). In addition, the royalties will be collected only in respect of domestic movies.
The regulations stipulate formulas for the calculation of domestic movie royalties. In respect of internet cafes, royalties will charged based on the fees they charge each visitor per hour and based on the number of computers they own. According to the China Daily, in respect of an internet café with 100 computers, that charges a visitor RMB3 per hour, it would have to pay a copyright royalty of RMB22.5 per day or about RMB8000 annually.(5) Bus companies will have to pay between RMB365 to RMB500 annually per bus, regardless of the number or type of films shown on each bus.
Collecting societies such as the CFCA are an important part of the copyright regime in China. By allowing for the collective administration of copyright, the CFCA provide the creators of copyright material (such as domestic movie makers) the opportunity to efficiently and effectively gain returns for use of their copyright material. Collecting societies such as the CFCA minimize the costs of administering individual licences for the use of copyright by putting in place a “collective” licensing system. Users of the services provided by collecting societies also benefit by gaining easy access to a large volume of copyright material (in this instance, to a large database of domestic movies). This access may be inexpensive when compared to a situation where potential copyright users have to locate and negotiate individual licenses with individual copyright owners.
However, collecting societies also have the potential to raise antitrust or competition issues. Collecting societies bring together the rights of entities who would otherwise be competitors in their respective markets. Without collecting societies, copyright users would only be able to deal with a single entity to acquire a licence – thus collecting societies (who “control” a large segment of licences) could potentially use their “market power” to impose higher prices or less favourable conditions on users.
The antitrust or competition regimes of other jurisdictions (such as Australia) deal with this “intersect” between intellectual property law and antitrust or competition law – by putting in place an authorization system. This is where entities such as collecting societies may seek a formal opinion or clearance from the antitrust or competition authority, each time they wish to undertake certain conduct such as raise royalty fees. In China, we do not currently have a “formal” authorization system in place. Entities are encouraged to “self-assess” to see if their conduct is in breach of the AML. We expect that there should be more clarity in respect of what constitutes an “abuse of intellectual property right” once the State Administration for Industry and Commerce (SAIC) issues detailed guidelines explaining how Article 55 would operate (see our articles entitled “IP rights and Antitrust – awaiting Guidelines (and the Tsum-Sony Case)” ) and “The intersect between intellectual property law and competition law – implications for China” for more on this issue).
(1)These regulations are: the Film Copyright Group Management Royalty Fees Collection Standards; and the Film Copyright Group Management Royalty Fees Transfer Method. See: http://www.gov.cn/gzdt/2010-10/14/content_1722409.htm.
(2)See for instance a complaint to the press by an association representing internet cafes in Shanghai at http://tech.163.com/10/1025/09/6JR3HDOS000915BF.html.
(3)Article 55 of the AML states that the AML will not apply to the exercise of intellectual property by business operators (pursuant to the relevant laws and administrative regulations on intellectual property). However, the AML will apply to the abuse of intellectual property by business operators to exclude or restrict competition.