By Jiao Hongbin  King & Wood Mallesons’ Intellectual Property Group

On March 31, 2012, the National Copyright Administration of the PRC (NCAC) released the Draft Amendments to the Copyright Law of thePRC (the “Copyright Law”) (the “Draft Amendments”) and the Brief Explanations on the Draft Amendments (“Brief Explanations”)[i] for soliciting public opinions. Unlike the two previous revisions, the Draft Amendments proposed by China on its own initiative are home-grown. 

The prevailing Copyright Law was adopted by the 7th Standing Committee of the National People’s Congress (NPC) on September 7, 1990 and became effective on June 1, 1991. Two revisions in 2001 and 2010 were undertaken in light of China’s involvement with the World Trade Organization (WTO). The first revision was made for China’s entry into the WTO, where modifications and complements were made to coordinate the inconsistencies between the Copyright Law and the Trade-Related Aspects of Intellectual Property Rights (TRIPS); two articles were revised in 2010 with an aim to enforce a WTO panel ruling on the dispute over intellectual property rights (“IPRs”) between China and the United States.

The current Draft Amendments make significant changes to the Copyright Law both in style and content. The Draft Amendments have 8 chapters and 88 articles, while the Copyright Law has 6 chapters and 61 articles. The proposed amendments include: (1) adding provisions regarding the lease rights of authors and performers and the broadcast rights of performers and phonogram producers; (2) perfecting the systems of technical protection measures and rights management information; (3) putting forward a new category of copyright works for “works of applied art” as well as the “three-step test”; (4) specifying information network transmission rights and broadcast rights; (5) clarifying the ownership of the audio-visual works and the works created in the course of employment; (6) establishing the framework for the measures of administrative mediation of copyright disputes; and (7) improving the infringement compensation standards (i.e. the maximum statutory damages were raised from RMB500,000 to RMB1,000,000 and the infringers who conduct infringing acts repeatedly shall pay a punitive damages of 1 to 3 times the amount of compensatory damages).

For the Draft Amendments, it was reported that the NCAC had received more than 400 written public opinions and over 1 million suggestions on Weibo[ii], most of which involved disputes over statutory licensing, network transmission and collective management of copyright as provided in Articles 46[iii], 48[iv], 60[v], 69[vi] and 70[vii] of the Draft Amendments, respectively.

Key Disputed Issue No. 1: Statutory Licensing

A statutory license means that a user can, under statutorily-defined circumstances, use a work without getting the permission from the copyright owner, provided that remuneration is paid to the right owner. The Copyright Law provides that a statutory license could be applied under five circumstances, such as editing and publishing textbooks, reprinting newspapers and periodicals, producing sound recordings, and broadcasting of radio stations and television stations. The legislative intent of the statutory license is to promote transmission of works. In practice, however, the copyright owner’s right to get remuneration could not be guaranteed. As the NCAC stated in its Brief Explanations, “[i]n view of 20-year practice on statutory copyright licensing, only few users have performed the obligation of paying remunerations and borne liabilities for their defaults on paying remunerations. Under this circumstance, the copyright owner’s rights are not well-protected and relevant legal provisions are just dead letters.[viii]

However, the NCAC believes that the value and function of the statutory copyright licensing are in compliance with China’s actual conditions. In the NCAC’s view, the failure in practice mainly lies in the deficiency of remuneration payment and legal remedy mechanisms. Therefore, the Draft Amendments adjusted and perfected the statutory licensing system from these two perspectives. In particular, the Draft Amendments adopt provisions that require users to file records in advance, pay remuneration in time and clearly indicate the source of work being used. The Draft Amendments also provide that the copyright management administration may, on a case-by-case basis, impose administrative penalties on the users who do not perform such obligations in a timely manner.

Article 46 of the Draft Amendments provide that, after 3 months from the first publication of a sound recording, other recording producers may use, under the statutory circumstances, the recorded music to make sound recordings without permission from the copyright owner of the music. Music industry representatives strongly opposed this Article, commenting that the period of “3 months” is so short that the production cost could hardly be recovered. According to critics, this could seriously harm the innovativeness of music production, and will directly threaten the survival of record companies, as well as other music transmission media such as radio stations. 

However, Article 46 also sets forth some pre-conditions for a statutory license. According to Article 48 of the Draft Amendments, if a user has filed records of the use of the works, indicated the necessary information such as source of the works and paid corresponding remuneration, he/she can use the published works without permission from the copyright owner. The Copyright Law does not aim to protect the interests of a specific group of people but the interests of the copyright owners, the first recording producer, the other recording producers and the public in order to balance the interests of different parties. 

From a historical perspective, a statutory license of recording of musical works was devised with an aim to prevent big record companies from monopolizing the music recording market. Big record companies can, by signing exclusive license agreements with song writers and composers, obtain the exclusive right to produce recording products of relevant musical works. By doing so, big record companies will monopolize the music recording market, so as to control the pricing of the products. However, it is worth discussing whether the period of “3 months” as currently proposed in the Draft Amendments, is reasonable or not. In order to reach a balance between the interests of the first recording producer and those of other recording producers, the lifecycle of recording products should be fully considered when determining a reasonable period.

Furthermore, the Draft Amendments only grant newspaper operators the right to declare their exclusive rights over the works, and other copyright owners are not entitled to the right to reserve their rights. Such provisions aim to facilitate the implementation of a statutory license system and make it a practical rule. In substance, statutory copyright licensing provides a limit on the rights of copyright owners. Therefore, only if the copyright owners’ right of getting remuneration is fully guaranteed can the owners’ rights not be deprived through such mechanism.

Key Disputed Issue No. 2: Network Transmission

There are three paragraphs in Article 69 of the Draft Amendments. Paragraph 1 provides that internet service providers (“ISPs”) which provide pure technical services have no examination obligation. Under the Draft Amendments, the ISPs would not be obliged to review copyright rights information where they simply provide storage, search, connection, and other technical internet services to users. In fact, the Regulations on Protection of Information Network Transmission Right[ix](the “Transmission Regulations”) also provide a similar rule — the “Safe Harbor” Rule of technical neutrality or principle of liability for fault— for the sake of balance between the interests of the creators of works and those of the online transmitters. The Safe Harbor Rule is commonly adopted by many countries in the world to exempt the ISPs from liability for infringement of copyright. The rule that the ISPs bearing fault liability tracks the general principle when determining liability for infringement damages. It is impracticable and technically impossible to request the ISPs to review the contents on the network. Therefore, such provision takes roots from China’s current situation.

Paragraph 2 of Article 69 sets forth the duty of care and removal liability for an ISP in a copyright infringement dispute. An ISP is obliged to delete the infringing contents upon receipt of notification from a copyright owner. If not, the ISP shall bear joint and several liabilities with the network users. Paragraph 3 of Article 69 provides for the ISP’s joint liability where it knows or should have known of the users’ alleged infringements. Such a provision is usually called the “Red Flag” Rule. Under the rule, the ISPs are shouldered with a duty of care, and shall bear liabilities if they fail to adopt necessary measures to stop the infringement. This provision aims to distinguish the ISP’s misdeeds according the theory of direct and indirect infringements. If network users conduct direct infringement, the ISP will be jointly and severally liable if it also bears subjective malicious intent to infringe (i.e. it knows or should have known the infringement was conducted by network users).

Opponents hold that the above provisions do little to protect the rights of copyright owners against numerous infringements from the network enterprises. Considering the difficulty of identifying the network user who has conducted infringement, the interests of copyright owners could not be substantially protected under such provisions. However, creativity will be stifled if the copyright owner’s works can be obtained free of charge through the internet piracy. As discussed above, the Copyright Law aims to balance the interests of various parties, and partial protection for interests of a certain specific group fall far short of the legislative intent.

Key Disputed Issue No. 3: Collective Management

Articles 60 and 70 of the Draft Amendments expand the copyright collective management (“CCM”) from members to non-members: A copyright collective management organization (“CCMO”) can exercise a copyright owner’s right even if the right owner does not join the organization. A user does not bear liability for damages to the copyright owner if he/she has paid remuneration to the CCMO. Such provisions deprive copyright owners of the right to get compensation through civil actions against the users who have paid remunerations to the CCMO. Currently, the amount of damages rendered by the Court is usually higher than the fee the CCMO collects from the infringer. Therefore, the extended CCM mechanism is seriously challenged by copyright owners.

Under the Draft Amendments, a CCMO widely accepted by the copyright owners is permitted to conduct extended CCM on behalf of non-members of the organization. The “extended management” is formulated to cope with the embarrassing situation: Users could not find the copyright owner even if they are willing to use the works in a legal manner. The protection scope of the copyright agencies is thus enlarged under this circumstance, but some non-members under the extended CCM are reluctant to be represented by the CCMO. Some members may withdraw from the collective management because of the fact that non-members may get more compensation through litigation, and this will greatly impair the CMO system. The consistency between the amount of compensation to be obtained through litigation and the CCMO would help solve this problem.

Considering that the functions and mechanism of the CCMO have a lot to be improved, critics argue that the compulsory extended CCM on non-members may not be appropriate at the current time. Though the word of “management” is part of its name, the CCMO is essentially a non-profit social institution, endeavoring to provide service to copyright owners and establish its credibility through its superior service quality. However, the credibility of the CCMO is low because it does not protect the copyright owners’ interests in an active and comprehensive manner and its collection and management of member fees are not open to the public. Therefore, the CCMO has gained slim support from the copyright owners and the conditions for the extended CCM are not mature. In addition, it is imperative that competitive mechanisms be introduced into the CCMO system.

In order to meet with the requirements of the economy and technology developments, to implement the Outline of the National Intellectual Property Strategy and to make the Copyright Law consistent with relevant international treaties, China actively initiated this comprehensive amendment to the Copyright Law. Incorporating relevant provisions set forth in different administrative regulations and judicial interpretations, The Draft Amendments tried to resolve the long-standing issues in copyright protection. The Draft Amendments have significant meaning in terms of promoting copyright protection in China and seeking a balance between the interests of authors, transmitters and the public.

(This article was originally written in Chinese, the English version is a translation.)



[iii] Article 46 of the Third Amendments:

After 3 months from the first publication of a sound recording, other recording producers may use, according to the conditions as provided in Article 48, the recorded music to make recording products, without obtaining permission from the copyright owner.

[iv] Article 48 of the Third Amendments:

According to the provisions of Articles 44, 45, 46 and 47 of this Law, a published work may be used without permission from the copyright owner under the following circumstances:

(I) Application shall be made with the copyright administrative management authority of the State Council for filing records before use of the work.

   (II) The author’s name, the work’s title and source shall be indicated when the work is being used;

(III) Within one month after the work is used, the user shall pay remuneration, according to the standard established by the copyright administrative management authority of the State Council, to the copyright collective management organization.  Meanwhile, the relevant information such as the author’s name, the title and source of the work used shall be indicated to the copyright collective management organization.

The copyright administrative management authority of the State Council shall publish the recorded information on its official website in the event that a user applies for filing records of the statutory license.

The copyright collective management organization shall pass the remuneration, as stated in paragraph 1 of this Article, on to the relevant right owner in a timely manner, and establish an inquiry system of use of works through which the right owners can search for the information free of charge regarding use of the works and payment of remunerations.

[v] Article 60 of the Third Amendments:

After being authorized by certain right owners to represent them nationwide, the copyright collective management organization may apply with the copyright administrative management authority of the State Council to represent all the right owners to exercise their copyrights or related rights, unless the right owners declare in writing not to be under such collective management.

[vi] Article 69 of the Third Amendments:

 Network service providers who provide pure network technical services such as storage, search or linking services to network users are not obliged to review information relating to copyrights or related rights.

In the event that network users utilize network services to conduct infringement on copyright or related rights, the party whose interests are infringed upon may notify the network service providers in writing and request them to take necessary measures such as deleting and shielding the infringing contents or cutting off the link. The network service provider does not bear liability for damage if it takes necessary measures upon receipt of the aforesaid notice; otherwise, it shall bear joint and several liabilities with the network user.

The network service provider shall bear joint and several liabilities with the network user if the network service provider knows or should know that the network user conducts copyright infringement through its network service but the network service provider does not take any necessary measures.

[vii] Article 70 of the Third Amendments:

 In the event that the user has paid remuneration to the copyright collective management organization according to the contract between them or the legal provisions, it does not bear liability for damage if the right owner initiates a lawsuit against the user based on the same right and against the same method of use. However, the user shall stop using the work and pay remuneration correspondingly according to the standard of royalty fee as established by the collective management.

[viii] Brief Explanations on the Draft of Proposed Amendments to the Copyright Law of the P.R.C. (the National Copyright Administration of the PRC., March 2012)

[ix] The Regulations on Protection of Information Network Transmission Right was passed at the 135th standing meeting of the State Council on May 10, 2006, and became effective on July 1, 2006.