CHINA INTELLECTUAL PROPERTY LAW NEWSLETTER

Vol. 2 , No. 2 - February 12 , 2001

SPECIAL ISSUE:

Latest Developments in Chinese Copyright Legislation

* Revision of the Computer Software Copyright Regulations

* Judicial Interpretation on Computer Network Copyright Issues

A draft for revisions of the Computer Software Copyright Regulations, which became effective October 1, 1991, will shortly be submitted to the State Council for approval. The draft has not officially been published yet.

It is expected that these Draft Revisions of Regulations for the Protection of Computer Software (Draft Revisions), if implemented, will:

* grant copyright protection to computer software for a term of 50 years; under the current law copyright is granted for 25 years, but may be renewed for another 25 years;

* grant the author the exclusive right to lease computer software;

* add new provisions for the determination of software copyright infringement, which include dissemination of software through computer networks;

* provide that damages shall be calculated based on the amount of the copyright holder's losses caused by the infringer or the infringer's profit. In case the losses and the profit cannot be calculated, the compensation for each infringed computer software shall vary between RMB 5,000 (US $604.81) and RMB 50,000 (US $6,048.07).

* clarify the legal responsibilities of those who use unauthorized computer software; and make changes to the system for computer software copyright registration.

COMMENTS

The Draft Revisions anticipate changes that will became necessary in China's intellectual property legislation following her planned WTO accession. China's current legislation does not conform with WTO rules, in particular the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).

The Ministry of Information Technology (MIT) and the National Copyright Administration (NCA) have been discussing the Draft Revisions since early November, 2000. They completed their work in early December, 2000.

In revising the Draft Revisions, the MIT and the NCA followed three principles: to conform with the principles of China's copyright law; to adapt the copyright law to the characteristics of computer software; and to conform to the standards of China's software industry.

One of the goals of the Draft Revisions is to provide software copyright holders with tougher enforcement measures against infringers.

The most significant changes are:

* Under the present legislation, software is protected for a 25-year period, beginning from the software publication date. Before the expiration date, the copyright holder may apply for a 25-year renewal. This provision does not comply with TRIPs, which stipulates a minimum term of 50 years. Consequently, the Draft Revisions abolish the requirement to apply for renewal and automatically grant copyright protection for a period of 50 years.

* Present legislation lacks a clear provision on software leasing. Copyright disputes have arisen where purchasers of software leased this software to third parties without compensating the copyright owner. The Draft Revisions provides that software leasing is a usage right, and therefore an economic right of the copyright holder. The copyright holder is entitled to remuneration from the lease of software. Therefore, leasing out software without paying royalties to the copyright owner will constitute infringement.

* The Draft Revisions include guidelines on the calculation of damages for copyright infringement. The court has discretion whether to calculate damages based on profits gained by the infringer or the losses of the copyright holder. Typically, pirated software is sold far below its market value and therefore the gained profits will be lower than the losses. Therefore, the copyright owner might not be fully compensated under this scheme. However, because infringers often do not keep records sufficient to prove damages, both traditional means of calculating damages have proven to be obstacles for copyright owners. The Draft Revisions address this by including a provision such that the court may award damages even if the amount of damages or losses cannot be proven. Unfortunately the cap of RMB 50,000 (US $6,048.07) is certainly too low.

Judicial Interpretation on Computer Network Copyright Issues

On December 19, 2000, the Supreme Court issued an Explanation on Legal Issues regarding Copyright Dispute Cases relating to Computer Networks(Judicial Explanation).

The main points of the Judicial Explanation are as follows:

* The Copyright Law lists the kinds of works that are eligible for Copyright protection. The Judicial Interpretation clarifies that the scope of protection extends to digital forms of these protected works. Other products of intellectual creation that are not defined the Copyright Law, but are original creations in literature, art and science and can be duplicated in certain tangible forms, shall also be protected by the People's Courts.

* Public dissemination of works via the Internet is a form of exploitation under the Copyright Law. The copyright holder is entitled to the rights of such exploitation and to the remuneration through license or similar contractual agreement.

* If a work has been published in newspapers, magazines or disseminated through computer networks and does not bear a "copying or editing is forbidden" statement, a website holder may use that work on its website without the author's approval, but it must quote the source and pay a remuneration to the copyright holder.

* Internet Service Providers (ISPs) who participate in copyright infringement via the Internet, or instigate or assist others in copyright infringement via the Internet, shall be responsible for their share of the infringement.

* Internet content providers (ICPs) shall be liable for copyright infringements of their users, if they are fully aware of such copyright infringement, or despite warnings from the copyright holder who has adequate evidence, fail to take measures such as deleting the content involving copyright infringement. Absent convincing reasons, ICPs must provide data on the suspected copyright violator.

COMMENTS

The Judicial Explanation is based on judges' practice on copyright dispute cases regarding computer networks in the last few years. It strengthens online copyright protection relating to computer networks through three major measures:

First, it clarifies that the data form of any work is within the scope of protected works under the Copyright Law. To put it in other words, works that are protected in the "real world" are protected in "Cyberspace" as well. This eliminates to some degree the uncertainty that has been responsible for discouraging copyright holders from aggressively fighting against online infringers. Although many instances of online infringement have been obvious, it was feared that some judges would be open to a legal argument challenging the scope of the Copyright Law. This explanation puts some of those fears to rest.

Second, the explanation makes clear that the dissemination of a created work through computer networks is one of the exclusive economic rights of the copyright holder. Again, this is in response to the technical argument that the rights listed in the Copyright Law are explicit and do not include the right to disseminate created works online.

Article 10 of the Copyright Law states that:

The copyright comprises the following personal rights and property rights:

5. the exploitation right and the remuneration right, that is, the right of exploiting one's work by means of reproduction, performance, broadcasting, exhibition, distribution, making cinematographic, television and video production, or adaptation, translation, annotation and compilation, and the right of authorizing others to exploit one's work by the above-mentioned means and of receiving remuneration therefor.

Moreover, prior to the explanation, one could argue that the posting of copyrighted information online was not even a reproduction according to the terms defined under the Copyright Law:

Article 52 The term ''reproduction'' in this Law means the act of producing one or more copies of a work by such means as printing, photocopying, copying, lithographing, making a sound or video recording, duplicating a recording, and duplicating a photographic work.

Third, it puts more responsibility on ISPs and ICPs and makes it easier for the copyright holder to collect evidence.

The language indicates a rather strict approach to the responsibility of ISPs, as it states that ISPs shall be responsible, if they participate in copyright infringements. The Judicial Explanations do not require that the ISP must have intentionally or knowingly participated in the infringement. This would require ISPs to monitor their users, which is not feasible. However, the ISP's liability is limited, because it only bears liability for its share of the infringement. Further judicial interpretation will show how far ISPs are liable for content posted on their servers.

There are two fact patterns that oblige ICPs to stop copyright infringements. First, these new measures create responsibility of ICPs, where Internet users disseminate copyrighted works via an ICP's site. Second, they will apply to rare cases where dissemination of works by the ICP itself does not constitute infringement, but copying the works from the website by Internet users is an act of infringement. In these scenarios the ICP will be obliged to take steps against an infringement when it becomes aware of it or has been made aware by the copyright owner. The ICP cannot take the stance that it was not the ICP itself that set the infringing actions into motion, but one of its users.

The Judicial Explanations also make it clear that ICPs have to release information of their users that are suspected to have infringed another's copyright. Under Chinese law, ICPs will have to keep limited records of their users, although the feasibility of this requirement has been questioned.

Although there are still gaps to be filled, the Judicial Explanations are a step towards clarifying issues that have arisen through the use of the Internet. They are in line with interpretation in other jurisdictions and affirm the general notion that if someone's copyrighted work is used online without the consent of the author, the act is an infringement, method notwithstanding.