The Copyright Action on Mickey Mouse 
and other Disney Cartoon Images

The Plaintiff (Appellee): American Walt Disney Inc. (the "Disney")

The Defendants (Appellee): Beijing Publishing House (the "Beijing Publications") Beijing Juvenile Publishing House (the "Juvenile Publications") Beijing Distributing Branch of Xinhua Bookstore (the "Xinhua Beijing Branch")

The Third Party (Appellor): Great World Publications (the "Great World Inc")

Cause of Action: Copyright Infringement

Series Number in the Initial trial: No.141 Intellectual Property Case in 1994 of the initial trial by the Former Beijing Intermediate People's Court

The Series Number in the Appeal: No.24 Intellectual Property Case in 1999 of the appeal by Beijing Superior People's Court

Details of the Case

Grounds of Prosecution and Defense Statement:

The plaintiff, Disney, instituted legal action declaring that images of artistic figures created by Disney, such as Mickey Mouse, Cinderella, Peter Pan, and Snow White, had been registered in the United States. It further claimed that the defendants, Beijing Publications, Juvenile Publications and Xinhua Beijing Branch, used and duplicated without permission of Disney, the above-mentioned images to publish, distribute and sale The Disney Moral Teaching Series (The Series), including Bambi and His Friends, Dumbo and His Success, Dalmatians out of Danger, Alice in Wonderland, Loyal Leila, Sleeping Beauty, The Kind Cinderella, Snow White's New Home, and Peter Pan and His Victory, thereby infringing upon Disney's copyright of the above images.

Based on the above said infringement, Disney asks for a judgment from the court to make the defendants bear civil liability for such remedies as ceasing to publish, distribute and sale the Series, providing a written guarantee promising not to conduct any further infringement, making a public apology in newspapers distributed in China and abroad, and paying Disney damages of RMB 1,770,000.

In their pleadings, Beijing Publications and Juvenile Publications advocated that they had been licensed the right to use the above images in The Series by the Assigning Agreement of trial, audited the financial and accounting records kept by Beijing Publications and Xinhua Beijing Branch concerning the distributing and retail of The Series, which identified the following facts.

After the enforcement of the Memorandum of March 17th, 1992, the number of The Series published was 118,200, among which 41,779 were distributed by Beijing Publications, with 43,080 sold by Xinhua Beijing Branch and 33,341 remaining in stock. The publishing cost reached the sum of 116,353.89 RMB yuan, with tax payments of 6,679.01 RMB yuan, which resulted in a 40,197.50 RMB yuan loss for Beijing Publications, Xinhua Beijing Branch total sales were 62,850.17 RMB yuan, minus its purchasing cost of 56,112.60 RMB yuan and payment of tax of 738.53 RMB yuan, which left it with a gross profit of to 5,999.04 RMB yuan.

Xinhua Beijing Branch objected the above audit result by claiming that the sales and retail costs should be deducted from its gross profit.

The attorney fees paid by Disney to Beijing Beidou Law Office, Hong Kong Dejin Law Office and American Jack Law Office were 262,606.65 RMB yuan, 289,625.69 RMB yuan, and 317,332.46 RMB yuan respectively, totaling 869,564.80 RMB yuan. The related translation costs were 1,280 RMB yuan, with another 1,216.60 RMB yuan as travel expenditure.

The Judgement and Grounds for Decisions in the Initial Trial

Pursuant to the Memorandum, the copyright of American owners was protected from March 17th, 1992. Therefore, Beijing Intermediate People's Court Believed that Disney was the copyright owner of the images of Mickey Mouse, Cinderella, Snow White, Peter Pan, Bambi, Dumbo, Dalmatians, Alice, Leila and other cartoon images involved in this dispute, and all uses in business and trade without authorization and permission from the owner would be ruled as infringement.

Disney authorized Maxwell with the right to distribute Disney storybooks in China, however it had made clear that the right could not be transferred or sublicensed. Therefore Maxwell's activity of transferring and assigning authorized rights to Juvenile Publications before the expiration of the permitted selling term, which had constituted an infringement to Disney and a fraud to Juvenile Publications as well. Consequently, the Assigning Agreement by and between Maxwell and Juvenile Publications was decided to be invalid.

Generally speaking, entering into the Assigning Agreement by fraud was the main source of this infringement and Maxwell was judged to be the main perpetrator of infringement hence.

In considering that Disney did claim against Maxwell in its indictment and Maxwell went bankrupt in July 1993, the Court granted Maxwell relief from its liabilities of infringement.

Juvenile Publications entered into the Assigning Agreement with negligence of checking whether Maxwell was licensed the right to transfer or sublicense its authorized right. According to an act by the National Copyright Administration, namely The Regulation Concerning Copyright Trade with Taiwan, Hong Kong and Macao.

Any business agreement concerning copyright trade with Taiwan, Hong Kong and Macao after March 1st, 1998, should be registered in an appropriated copyright administrative authority, regardless of transfer, licensing or authorization of copyright to any party in the three designated territories, or accepting authorization from any party in the three territories. In the case of any failure to do so, supplementary registration needs to be done before March 1st, 1990. All such business agreements without necessary registration are deemed to be invalid agreements. During its application for registration, Juvenile Publications was denied due to the lack of legal documents for copyright authorization. Even subsequently, Juvenile Publications did not take any necessary measures to check Maxwell's transfer and sublicense rights and related legal documents, and also failed to apply for supplementary registration. Therefore, Juvenile Publications' willful negligence and mistakes were clearly seen.

As recognized by the Court, Juvenile Publications was not qualified to be a legal person, and its civil liabilities were transferred and imposed on Beijing Publications.

Pursuant to Item 7, Article 16 of the Memorandum,

(1) No legal liability and obligation will be imposed for any use of American original works or their duplicated copies for business and trade purposes before the establishment of the bilateral cooperation relationship between China and U.S.A.

(2) Any applicable law and act will be applied to any above-mentioned use, after the establishment of the bilateral cooperation relationship.

The Court decided that it was deemed as 'for business and trade purposes' that Beijing Publications published The Series three times successively. However, its publishing in August 1991 was done before the enforcement of the Memorandum and the Court granted Beijing Publications relief from its liabilities for this publishing. However, the publishing of The Series conducted after the Memorandum, which was carried out in November 1992 and November 1993 respectively was deemed to be infringement and Beijing Publications should commit itself to corresponding legal liabilities.

The Serieshed in November 1992 and November 1993, was distributed and sold by Xinhua Beijing Branch and Beijing publications jointly. According to Item 5, Article 5 of implementing Regulations of the Copyright Law of the People's Republic of China, distributing can be done through sate, regardless of different selling methods, such as exclusive selling or retailing, and thereby the method has no significance in deciding copyright infringement.

As a book distributor, Xinhua Beijing Branch was deemed to bear the obligation of confirming the legality and defects of its distributing books. Pursuant to the agreement by Xinhua Beijing Branch and Beijing Publications, in the case of publishing any book or work by a foreigner party, Beijing Publications should have entered into a contract with the relevant copyright owners and applied for the necessary registration. Soliciting for subscription publishing cannot be done until and unless the registration number is granted, otherwise all disputes concerning foreign copyright related to publication, distribution and sale shall be borne by the publishing house. In the case of dispute concerning copyright infringement arising from failure to perform any such contractual obligations during the whole process of publishing, distribution and sales, therefore Beijing Publications would be deemed liable for all subsequent civil liabilities.

In actual fact, Xinhua Beijing Branch did not check whether the registration application delivered by Beijing Publications had been granted. Clearly, this implied that Xinhua Beijing Branch had been conscious of its legal obligations to ensure the legal use of copyright in its distributing of The Series. However, it failed to perform it. Based on the foregoing, the Court believed that Xinhua Beijing Branch bore responsibility for the error and committed willful believed that Xinhua Beijing Branch bore responsibility for the error and committed willful negligence in its distribution and should not be relieved from its civil liabilities for remedies. Considering the joint tort in the distribution of The Series, Beijing Publications should bear joint-liability for Xinhua Beijing Branch's infringement.

Whereas the parties had agreed that any copyright infringement should be deemed to go against Beijing Publications, as well as the Beijing Publications' status as a defendant in this dispute, therefore the Court decided that all civil liabilities and obligations for remedies that arose from their joint tort should be assigned to Beijing Publications. However this could not be construed as an exemption for Xinhua Beijing Branch from its remedies of ceasing all infringement conduct and having all unlawful profits confiscated.

As for the objection by Xinhua Beijing Branch to the audit result by Beijing Tianzheng Accounting Office, the Court held that the named distributing costs were incurred by its related infringement and the objection was consequently nullified.

In the agreement by and between Great World and Juvenile Publications, Great World agreed to provide Juvenile Publications with a copyright license agreement confirmed by the foreign party, as a legal basis for the use of related copyrights in China. The phrase herein 'confirmed by the foreign party could be construed as confirmed by Maxwell', according to Great World's explanation.

However Maxwell's confirmation could not be regarded as legal grounds for Juvenile Publications' use. Hence the Court believed that Great World failed to perform its contractual liability to ensure the legality of Juvenile Publications' use.

Due to Great World's consent to be bound by the liability to ensure the legality of Juvenile Publications' use, Great World should have checked whether the confirmation by Maxwell was legal and valid. The fact deserving attention was that Maxwell though the mediating of Great World. Under such circumstances, Great World's consent to the above contractual liability bore great significance to the success of Maxwell's fraud in concluding the Assigning Agreement with Juvenile Publications. In its pleadings, Great World identified itself as a medium, which should not be bound by the above-mentioned contractual liability. However, this argument was rejected by the court. Even though there was no evidence for malicious collusion of Great World and Maxwell. The Court held that Great World failed to perform its liability and recognized the existence of its willful negligence and mistake. Therefore, Great World would not be relieved from its liability for Beijing Publications loss arisen from bearing the correspondent damages in this dispute, and its related illegal profits would be confiscated.

The Court held that Disney's claim against the defendants was legal and would be sustained. However, the damages claimed and their grounds were not completely reasonable. Disney's claim for $100,000 US Dollars minimum royalty was based on its copyright trade agreement implemented in Hong Kong and Taiwan. And the economic difference between China and the two territories should be taken into consideration. Further more, generally speaking, the minimum royalty was a result of negotiation, which could only serve as a reference rather than a necessary factor in the Court's judgment. Therefore, based on the specific circumstance of this infringement and dispute, the minimum royalty claimed by Disney would not be granted.

The Court further identified that among the 869,564.80 RMB yuan compensation claimed for attorney fees, 606,958.16 RMB yuan was not used for the purpose of this dispute, which would not be granted. Considering the foregoing, the Court believed that it was unfair for the compensation to be calculated according to the attorney fees negotiated and agreed by and between Disney and its designated attorneys. Hence the compensation for attorney fees was determined according to correspondent regulations by relevant government authorities.

Beijing Publications instituted a claim in the trial, within which it requested the Court to determine its damages based on a royalty of 6% to 8% of the total sales, which was said to be international normal royalty criteria. However, under this dispute, the Court believed that it was possible to determine damages according to the royalty. However, under this dispute, the Court also held that damages determined on the royalty was not sufficient to compensate Disney's loss incurred by the infringement and could not be granted consequently.

Pursuant to the audit result by Beijing Tianzheng Accounting Office, Beijing Publications incurred a loss in distributing the infringing books. However, the Court believed that the pecuniary loss or profit was not always in compliance with the loss or profit regarded by law. From the legal view point, the profit was the surplus of the total sales minus necessary publishing costs (including printing costs and tax). In determining the compensation from Beijing Publication, the profit, as well as reasonable bank interest and the plaintiff's costs in the action would be considered, also.

In considering that the written guarantee to not commit any infringement of the plaintiff's copyright in the future was not a statutory remedy for copyright infringement, the defendants were not compelled to deliver such a guaranteed requested by the plaintiff.

Based on the foregoing, as well as pursuant to Article 29, Item 5 of Article 45, and Item 2 and Item 3 of Article 46, the former Beijing Intermediate People's Court issued following judgment.

1. Beijing Publishing House and Beijing Distributing Branch of Xinhua Bookstore must stop publishing and distributing the Disney Moral Teaching Series immediately, after the enforcement of the judgment.

2. Beijing Publishing House will make a public apology to Walt Disney Inc. for its infringement days after the enforcement of the judgment.

3. Beijing Publication House will pay Walt Disney Inc. damages equal to the sum of 227,094.14 RMB yuan, within fifteen (15) days of the enforcement of the judgment.

4. Great World Publications will pay Beijing Publishing House damages equal to the sum of 90,837.66 RMB yuan.

5. Other remedies claimed by the plaintiff are denied.

Grounds for Appeal and Pleadings

Refusing to accept the judgment of the initial trial, Great World lodged an appeal to Beijing Superior People's Court. Its grounds for the appeal were based on the following.

1. Both the agreements by and between Great World and Juvenile Publications and the enforcement of the Memorandum. And the conduct of Great World prior to the Memorandum could not be judged to be infringement and should not be investigated in the trial either.

2. Great World had fulfilled its contractual obligations to provide the qualified cartridge before August 1st, 1991. Furthermore, its performance of its contractual obligation had been confirmed and no objection or claim had arisen from it within two years. Due to the expiration of the two year limitation of action, Great World should not be listed as the third party in the request of Juvenile Publications in July 1994.

3. Pursuant to the judgment, the infringement did not occur until the enforcement of the Memorandum. Considering the denial of the registration application for the Assigning Agreement, Juvenile Publications should know that the agreement was invalid and could not be implemented. After clearly realizing the possible infringement and subsequent civil liabilities, Juvenile Publications published The Series for two times, which should be regarded as intentional tort solely conducted by Juvenile Publications. It should commit itself to unrelieved liability for infringement remedies.

Disney, Beijing Publications and Xinhua Beijing Branch accepted the judgment of the initial trial without objection.

The Recognized Facts in the appeal

The facts recognized in the appeal were the same as those in the initial trial.

The Judgement and Grounds for Decisions in the appeal

Beijing Superior People's Court held that any works by Americans were not protected by Chinese law until the enforcement of the Memorandum. Any use of fine art works for business purposes, of which Disney owned the copyright, without authorization of permission for Disney, was deemed to be infringement to Disney's copyright after the Memorandum.

Juvenile Publications entered into the Assigning Agreement without checking whether Maxwell had the right to sublicense and therefore should not be granted relief from legal liabilities for the invalidity of the agreement.

Another point deserving attention is that after the denial of the registration application for the Assigning Agreement, Juvenile Publications did not take any necessary measure to remedy this problem. On the other hand, it continued to publish The Series, clearly conscious of the illegality of implementing the agreement, as well as without applying for supplementary registration. Considering the foregoing, Juvenile Publications was willfully negligent and the fault for the infringement could not be denied.

As recognized by the Court, Juvenile Publications did not have a legal person status and did not qualify to be a legal civil subject either. As a result, its civil liabilities for remedies should be transferred and assigned to Beijing Publications, which was regarded as its responsible organization.

Xinhua Beijing Branch's infringement of Disney copyright lay in the fact that it distributed The Series without checking the legality of the publication of the book. Whereas, it concluded an agreement with Beijing Publications, within which Beijing Publications agreed to be liable for all civil liabilities from any copyright infringement, therefore, its civil liabilities for remedies from this infringement would be transferred and assigned to Beijing Publications. However, Xinhua Beijing Branch would be charged of confiscating all unlawful profits from The Series. The agreement by and between Great World and Juvenile Publications of March 21st, 1991, lasted for a term of 3 years, within which Great World failed to perform its contractual agreement to deliver the confirmed copyright license agreement to Juvenile Publications. After the enforcement of the Memorandum, Great World should inform Juvenile Publications of its inability to deliver such a copyright license agreement and should take measures to cure or to terminate the agreement, in order to avoid possible infringement of Disney's copyright arising from the further implementation of the agreement. However, Great World's failure to act left the infringement in non-interference. The forementioned provided the grounds for Great World's liability for remedies in this infringement case.

As recognized above, the agreement by Great World and Juvenile Publications was effective for 2 years, and the limitation for action did not expire when Great world was listed as the third party by the Court of the initial trial. Therefore, the Court would not sustain all claims by Great World in its appeal.

Considering the foregoing, the Court held that decisions to judge Beijing Publications and Xinhua Beijing Branch to be guilty of infringement and to confiscate the unlawful profit of Xinhua Beijing Branch and Great World were based on ascertained facts and correct law application, which should be sustained by the Court of the appeal.

However, the recognized fact by the Court of the initial trial, that Great World was liable for guaranteeing the legal use of the copyright by Juvenile Publications, was incorrectly ascertained. The consequent decision to transfer and assign Beijing Publications' liabilities for remedies to Great World was undue and should be withdrawn.

Therefore, pursuant to Item 3 of Paragraph 1 of Article 153 of Civil Procedure Law of the People's Republic of China, Beijing Superior People's Court judged

1. to sustain Item 1, Item 2, Item 3 and Item 5 of the judgment by Beijing Intermediate People's Court.

2. To withdraw Item 4 of the judgment By Beijing Intermediate People's Court.

Comment

1. The Applicability of the Memorandum and the act by The National Copyright Administration

The Memorandum and The Regulation Concerning Copyright Trade with Taiwan, Hong Kong and Macao are two important legal bases involved in the trial of this dispute. As a bilateral convention by and between the government of P. R. C. and the government of the U. S. A., the Memorandum is among the applicable laws pursuant to Chinese Constitution, which identifies the conventions' binding force.

According to the Memorandum, any work by Americans would be protected by Chinese law. In considering Disney as the only copyright owner of the art works of Mickey Mouse, Cinderella, Snow White, Peter Pan, Bambi, Dumbo, Dalmatians, Alice and Leila, any use of these works for used business purposes without authorization by Disney, is deemed to be in infringement of Disney's copyright.

The fact, that Beijing Publications published The Series three times successively, should be identified as using American works for business purposes. Due to its publishing in August 1991 prior to the enforcement of the Memorandum, the Court did not make the judgment retroactive. However, its publishing after the Memorandum should be judged to be infringement. Further more, pursuant to stipulations set forth in The Regulation Concerning Copyright Trade with Taiwan, Hong Kong and Macao.

Any business agreement concerning copyright trade with Taiwan, Hong Kong and Macao after March 1st, 1988, should be registered in an appropriated copyright administrative authority, regardless of transferring, licensing or authorizing copyright to any party in the three designated territories, or accepting authorization from any party in the three territories. In the case of any failure to do so, supplementary registration needs to be completed before March 1st, 1990. All such business agreements without necessary registration are deemed to be invalid agreements. Beijing Publications' publishing of The Series, with failure to do the necessary checks and to apply for supplementary registration, was done with clearly willful negligence and undeniable mistakes.

On one hand, it is infringement of Disney's copyright because of Maxwell sublicensing and assigning the right to publish and distribute The Series to Beijing Publications without permission of Disney, it is fraud to Beijing Publications on the other hand. As recognized by the two courts, Maxwell's concluding of the Assigning Agreement with Beijing Publications is the main source for this infringement case and it should be regarded as the main perpetrator of infringement as a result. Due to its bankruptcy, it should be regarded as the main relief from remedies.

2. The civil liabilities of Xinhua Beijing Branch for this infringement

As held by the two courts, as a book distributor, Xinhua Beijing Branch is liable to check any defect of its subject matters. Considering covenants under the agreement by and between Xinhua Beijing Branch and Beijing Publications, especially the covenant that states the distributing and publishing can not be started until the registration number is granted, the message is that Xinhua Beijing Branch failed to perform its legal obligations, with clear consciousness of related regulations and acts by government authorities. From this point of view, Xinhua Beijing Branch was with willful negligence and mistake, which provided the ground for its liability remedies.

3. The liabilities of Great World, as the third party.

According to the covenant, Great World was liable to deliver a confirmed copyright license agreement to Beijing Publications, which was supposed to be the legal base for any Beijing Publications' use of the copyright. The two courts confirmed Great World's explanation and held that the phrase 'confirmed by the foreign party' referred to a confirmation by Maxwell. However the confirmation by Maxwell cannot be regarded as a legal base for such use. Therefore, Great World should be regarded as failing to perform its contractual liabilities to check the legality of the confirmation by Maxwell.

Maxwell entered into the Assigning Agreement with Juvenile Publications when Great World was a joint venture partner. Furthermore, the Assigning Agreement was concluded under the mediating of Great World. The foregoing implies that Great World played an important role in the infringement. Considering the above-mentioned, Great World's willful negligence and mistakes are clearly seen and it should bear more liabilities for this infringement.

During the trial, Beijing Publications claimed that Great World should be listed as one of the defendants, based on their contract. However, because the action was instituted by Disney, and Disney did not make such a claim against Great World. Great World can only be regarded as the third party in this action. There leaves an assumption, that Great World will be involved in the infringement dispute and its subsequent remedies, provided that Beijing Publication is judged to the main perpetrator of infringement.