WHEN WILL THINGS CHANGE
On June 6, 2014, the fourth draft version of the new PRC Copyright Law (New Law) was published for public comment, having first been published in 2010. The period for public comment ended on July 5, 2014 meaning the implementation of the New Law is drawing ever closer.
The overall aim of the New Law is to rationalize the existing PRC Copyright Law (Existing Law), bringing it in line with other developed copyright laws around the world. This update focusses on the key changes the New Law will introduce and the practical consequences for rights owners, assuming that the New Law is implemented as currently drafted.
SUMMARY OF KEY CHANGES
In summary, the New Law:
- Retains the general position that employees and not employers will be deemed first owners of copyright works but carves out specific copyright works from this general position;
- Provides that internet service providers (ISPs) are not obliged to review content thus making it easier for them to fall within the safe harbor rules and avoid liability for infringement;
- Introduces new provisions regarding the recordal of licenses and provides for the determination of royalties by the Copyright Administration Department of the State Council unless otherwise stipulated in a license;
- Broadens the scope of works protected by copyright to include “works of applied art” and “three dimensional works” and extends the “fair use exceptions” by introducing a “catch all” exception of “other circumstances” which would constitute fair use; and
- Introduces an increase in damages that can be awarded against infringers and increases the enforcement powers of the Copyright Administration Department of the State Council. These amendments should make it more fruitful and practical from a commercial perspective to take enforcement action in China and it should also help to act as greater deterrent to would-be infringers.
COPYRIGHT CREATED IN EMPLOYMENT
Unlike the position in most other jurisdictions where copyright works created during the course of employment are automatically owned by the employer, broadly speaking, under the Existing Law, an employee as author of a copyright work owns the copyright in such work but the employer has an exclusive right to use the work for two years from its creation, on a royalty free basis. The New Law retains this broad principle but specifically states that ownership shall, in the first instance, be dictated by what has been agreed between the employee and employer.
The New Law also carves out a number of works from this broad principle meaning that, under the New Law, unless otherwise agreed, the following works will be deemed to belong to the employer as opposed to the employee:
- Engineering design drawings;
- Product design drawings;
- Computer software; and
- Works created for news reporting.
Whilst the employer will be deemed to own these copyright works, the employee will have the right to be identified as the author and the employer will be required to compensate the employee based on the quality and quantity of the work. It is, however, unclear under the New Law as to how compensation will be determined. The New Law also fails to define how the scope of an employee’s duties will be determined for the purpose of identifying works created in and out of the course of employment.
Whilst the New Law provides that some works created by employees will belong to the employer, the key implication of the New Law regarding ownership of copyright works created by employees is that ‘Contracts are King’. Rather than relying on the provisions of the New Law to determine ownership of copyright works created by employees, we recommend that businesses ensure employment contracts specifically stipulate ownership of copyright works created by employees.
SAFE HARBORS FOR ISPS
The New Law specifically provides that ISPs are not obliged to review information where they only provide search, connectivity and other technical internet services to users. However, where an ISP is notified that its services are being used to infringe or facilitate infringement of copyrights and the ISP fails to promptly delete or block access to the infringing material, it may be held jointly liable for the infringement.
An ISP will also be jointly liable if it knows or should have known that users are using its services for copyright infringement and fails to adopt “necessary” measures to stop such infringements. The New Law also expressly provides that an ISP will be jointly liable for copyright infringement if it instigates and provides assistance to copyright infringers.
The New Law will bring PRC Copyright Law in line with copyright law and e-commerce law in most other jurisdictions, where safe harbors for ISPs already exist. We believe this is a positive amendment and should lead to a higher rate of compliance with take-down requests in China, as has been the case in other jurisdictions following the introduction of similar provisions. For example, in Europe, following the implementation of the E-Commerce Directive which provides that ISPs cannot enjoy the safe harbor provisions unless they act expeditiously to remove infringing content once on notice, the ability to remove infringing content from the internet increased significantly. In our experience, most ISPs in Europe remove infringing content within 7 days of receipt of an effective take-down notice and we are hopeful that the New Law will be a step towards this position in China.
LICENSING OF COPYRIGHT
The New Law introduces entirely new provisions regarding the licensing of copyright in China. The New Law provides that, where there is no explicit agreement on whether a license agreement is exclusive, it is deemed to be non-exclusive. In addition, the New Law provides that a license agreement should be registered with the special registration agency established by the Copyright Administration Department of the State Council and non-registration will render exclusive licenses void against third parties acting in good faith.
The New Law further provides that where the license has no express provision for the calculation of royalties, the market rate or standard set out by the Copyright Administration Department of the State Council should be applied.
The practical implication for rights owners is therefore to: (a) make sure any license states the level of royalty payable (even if it is royalty free) as silence on this point could lead to royalties being deemed payable by the Copyright Administration Department of the State Council; and (b) ensure that all licenses are recorded with the Copyright Administration Department of the State Council, failing which exclusive licensees will be at risk of third parties taking free of their rights
NEW FORMS OF COPYRIGHT WORK PROPOSED
The New Law proposes to broaden the category of copyright work to include “works of applied art” and “three-dimensional works”.
The introduction of “works of applied art”, which are works of arts which have a practical use, is an important change. Whilst the Existing Law gives some degree of protection foreign works of applied art if the foreign copyright owner’s home copyright law protects works of applied art, the proposed change is important because the New Law will also protect works of applied art belonging to Chinese copyright owners which are arguably not protected under the Existing Law. The New Law, fails, however, to specify how to determine whether a work of applied art is available for copyright protection.
The New Law also introduces “three-dimensional works”, which are three-dimensional works created for the purpose of manufacturing products, illustrating geography and topography and demonstrating the fundamental aspects or structure of an object.
These are welcome changes and should have some practical and tangible benefit for businesses in fighting the manufacturing of counterfeits in China using molds.
The Existing Law includes a list of exhaustive examples of circumstances under which un-licensed use of a copyright work will not be considered to be infringing use (the so-called “fair use exceptions”). The New Law extends the “fair use exceptions” by introducing a “catch all” exception of “other circumstances” which would constitute fair use. However, it remains to be seen how the Courts will interpret “other circumstances” if the New Law comes into force in its current form. The New Law also adds that fair use should not affect the normal use of the works nor unreasonably compromise the legitimate rights and interests of the copyright owners. This is a welcome amendment to rights owners and arguably curtails the impact of the extension of the “fair use exceptions”.
DAMAGES FOR INFRINGEMENT
The New Law introduces significant amendments to the way in which damages are calculated and the amount of damages which are payable. Under the New Law, with respect to the calculation of damages, the calculation may be based on the:
- Actual loss suffered by copyright holders;
- Unlawful gain made by the copyright infringers; or
- Price for an assignment the copyright infringed.
Statutory damages may also be awarded and the New Law increases the level of statutory damages from RMB 500,000 (circa USD 80,000) to RMB 1 million (circa USD 160,000). Statutory damages may be increased 2 to 3 fold for repeat infringers. Reasonable expenses incurred in stopping the infringing act will also be included in the determination of the amount of damages.
Where the copyright holder has endeavored to give evidence in support of the calculation of damages but relevant information is held by the infringer(s), under the New Law the Court may order the infringer(s) to disclose such information.
This is a positive amendment for rights owners as it should lead to an increase in the level of damages awarded, which will in turn make it more fruitful and practical from a commercial perspective to take enforcement action in China in respect of copyright infringement. It should also help to act as a greater deterrent to would-be infringers.
ADMINISTRATIVE FINES AND INVESTIGATION POWERS
The New Law also provides that the Copyright Administration Department of the State Council has the power to order an infringer to stop infringing acts, confiscate monies made from infringement and confiscate/ destroy infringing articles and materials. The Copyright Administration Department of the State Council can also impose a fine:
- Equivalent of 1 to 5 times the illegal business revenue made if such illegal business revenue is larger than RMB 50,000 (circa USD 8,000); or
- Up to RMB 250,000 (circa USD 40,000) if the illegal business revenue is less than RMB 50,000 (circa USD 8,000).
The New Law also gives wider powers to the Copyright Administration Department of the State Council to enable it to investigate copyright infringement, including the right to question relevant parties, conduct onsite inspections, inspect and make copies of relevant documents such as contracts, invoices, accounting records and books and to seal and confiscate infringing articles and materials.
As is the case with the increase in damages that can be awarded under the New Law, this is a positive amendment for rights owners and should, from a practical and commercial perspective, make enforcement more readily available as an option in relation to “lower level” instances of infringement where, for example, it is not commercially viable to bring court based infringement proceedings.
The New Law in general brings about some welcome changes to the copyright regime in China and is another example of China’s recognition of the need to enable rights owners to protect and enforce their intellectual property rights in China.
We will provide further updates on the implementation of the New Law.