China is the most populous country in both the real and online world. According to statistics published by the China Internet Network Information Center (CNNIC) in January 2010, China has more than 384 million internet users, or netizens, a 28.9% increase from the year before. With a population of over 1.3 billion, this explosive growth in China's online population is expected to continue. This presents risks and opportunities to IP owners. Chinese authorities have recently responded to calls for an enhanced online copyright protection regime and more rigorous measures to combat piracy in China's virtual world.

Online copyright in China – a history

China, a late comer in developing its legal and regulatory framework for protecting online copyright, has been catching up fast in the past decade. Online copyright was first recognised in an Interpretation promulgated by the Supreme People's Court (SPC) in December 2000. In the following year, the PRC Copyright Law (2001) was amended to formally introduce a new form of right: the right of dissemination via information network.

Specific measures were issued in subsequent years to refine the framework for protecting online copyright. In 2005, China's copyright office, the National Copyright Administration of China (NCAC) issued the first set of administrative rules to address issues relating to online copyright enforcement. In 2006, the State Council, China's Cabinet, issued the Regulations to Protect the Right of Dissemination via Information Network. The regulations defined the rights of copyright owners in disseminating information using networks, provided a notice and take down procedure for handling online copyright disputes and afforded limited immunities to internet service providers (ISP) – the so-called safe harbour. The SPC also amended the Interpretation in 2006 to remove the exemption for acts of reprinting or extracting and editing copyrighted works that had previously been published in newspapers or disseminated through a network.

New legislation

China's online copyright regime is beginning to take shape after a decade of reforms and improvements have continued to be made in the past year.

In 2009, the NCAC revised its Implementing Measures on Administrative Actions against Copyright Infringement, which was first promulgated in 2003. The new measures came into force in June 2009 and have improved the power of administrative authorities in combating online copyright piracy. In particular, the new measures expanded the definition of infringing acts to include unauthorised provision of another's works on the internet and refusal to disclose the identity and information of the suspected infringer by an ISP without good reason.

Moreover, administrative authorities are empowered to confiscate equipment used for installing or storing infringing works. They are also allowed to preserve equipment (such as web servers) used for installing and storing suspected infringing works (such as web pages) during their evidence collection exercise.

To facilitate copyright enforcement, the new measures also drastically lowered various thresholds to qualify as severe infringement cases, which attract harsher sanctions:

• the illegal profit threshold is lowered from Rmb5,000 ($730) for individual infringers or Rmb30,000 ($4,400) for non-individual infringers to Rmb2,500 ($365) for all infringers;
• the illegal turnover threshold is lowered from Rmb30,000 ($4,400) for individual infringers or Rmb100,000 ($14,600) for non-individual infringers to Rmb15,000 ($2,200) for all infringers; and
• the quantity of infringing copies is lowered from 2,000 pieces for individual infringers or 5,000 for non-individual infringers to 250 pieces for all infringers.

Furthermore, Article 36 of the new PRC Tort Liability Law, which will come into effect in July 2010, provides that right owners can send a notice to and request ISPs to take measures to remove, block or disable connection to infringing content put up by people using the ISPs' network. If the ISPs fail to respond in a timely manner upon receipt of such notification, it will be held jointly liable with the infringing users in respect of any additional harm done to the right owners as a result of its failure to take prompt action. This article also stipulates that where an ISP is aware that a user is using its network to commit any infringing acts but fails to take any steps to stop or prevent such acts, it will be held jointly liable with the user.

Administrative enforcement

In the past few years, the Chinese courts and other enforcement authorities have stepped up their efforts to tackle online copyright infringement and test the boundaries of Chinese laws against new types of copyright infringement encountered in the ever-evolving online world.

The NCAC published a list of ten representative online copyright piracy cases at the end of 2009 which shows the escalating scale and seriousness of online piracy in China. Three of those cases involved illegal game servers and plug-ins, two related to pirated copies of literary works, three concerned pirated movies and television programmes and the remaining two had to do with pirated computer software and music respectively. In nine of those cases, the Public Security Bureau was involved, which means that the criminal thresholds for copyright infringement were met.

The NCAC also conducted a special campaign against online piracy in 2009 with the Ministry of Public Security and the Ministry of Industry and Information Technology. The campaign lasted for four months, during which 558 cases of online copyright infringement were investigated, resulting in the shut down of 375 illegal websites, imposition of fines totalling Rmb1,337,500 ($196,000), confiscation of 163 computer servers and the transfer of 25 cases for possible criminal prosecution.

To assist in combating online piracy of audio-visual works and to enhance the management of such works available on the internet, the State Administration of Radio Film and Television closed down more than 500 websites offering file-sharing and other services that failed to secure the relevant licences to operate as at the end of 2009.

The Ministry of Culture (MOC) issued a Notice to Strengthen and Improve the Review of Online Music Contents in September 2009. The Notice requires that all online music content, foreign or local, must receive prior approval. Documents such as licensing agreements and original lyrics with Chinese translation where appropriate will have to be submitted for inspection. The Notice stipulates clearly that business activities involving online music content, including the production, distribution, dissemination (including the provision of links to music products) and importation of online music products are business activities that can only be carried out by business entities established with the MOC's approval.

This means that search engine operators such as Baidu (see below) are also subject to the Notice and they are expected to set up internal audit systems to ensure that the online music content they disseminate are compliant. It is still unclear how such seemingly cumbersome measures may be effectively enforced in practice and work to the advantage of music copyright owners.

Civil and criminal cases

Online music is the most popular use of the internet in China – CNNIC reported a usage rate of 83.5%. According to the International Federation of the Phonographic Industry (IFPI), China's top search engines have been facilitating massive unauthorised MP3 downloads. The legal battles in the Chinese courts between record companies and Chinese search engines, including the Nasdaq-listed Baidu.com (Baidu) which commands almost 60% of China's search engine market share, have continued to make headlines this year.

Undaunted by defeat in 2007, a number of the global music labels (Sony BMG Music Entertainment Hong Kong, Universal Music and Warner Music Hong Kong) filed a lawsuit against Baidu and another major Chinese search engine, Sohu.com, in February 2008 and demanded that they remove thousands of links to music downloads that were said to be infringing. In January 2010, local media reported that the Beijing Intermediate People's Court found in favour of Baidu and ruled that Baidu was not liable to pay any damages as it merely provided search service for the pirated music files and was not engaged in the actual unauthorised copying by the third party sites.

Just one month after that decision the Music Copyright Society of China (MCSC), the Chinese counterpart of IFPI, had better luck in court. In a lawsuit involving the lyrics of 50 songs belonging to members of the MCSC, A Beijing District Court penalised Baidu at first instance for unauthorised redistribution of copyrighted music lyrics on its MP3 lyrics search service. When users of Baidu's lyrics search service entered a song name, the relevant lyrics were displayed in the form of snapshots taken from the original third party web pages containing the lyrics. According to local media reports, the court found that such storage on its server and display of lyrics in snapshot form by Baidu violated MCSC's right of dissemination using an information network.

The Court is said to have awarded Rmb50,000 ($7,300) damages against Baidu. Notwithstanding the nominal amount of damages and Baidu's likely appeal, this decision represents a notable step taken by the Chinese courts towards better protection of online copyright in civil proceedings.

The Chinese courts were also active in criminal enforcement against online copyright violations. The first successful criminal conviction for large-scale online software privacy in China was concluded in August 2009. The principal of the infamous Tomato Garden website (www.tomatolei.com) – one of China's most popular websites for pirated software, which offered free downloads of a modified version of Windows XP to an estimated 10 million users – was given a three-and-a-half year prison term and a fine of Rmb1 million ($146,000). The owners and operators of a notorious illegal website selling over 6,000 pirated DVDs were sentenced to 14months imprisonment by the Beijing Tongzhou People's Court and fined Rmb80,000 ($12,000).

Industry initiatives

At the end of December 2009, the Online Copyright Working Committee of the Internet Society of China was established to promote awareness of and compliance with the relevant laws and to provide a forum to mediate online copyright disputes and facilitate communication between internet-related businesses and copyright owners.

Both international and Chinese copyright holders are actively protecting their rights using industry organisations. The China Written Works Copyright Society is reported to be in active negotiations with Google, which is rumoured to have scanned and uploaded at least 18,000 books written by 570 Chinese authors into its digital library without permission. As a proactive measure to address online copyright piracy, the Motion Picture Association entered into memorandums of understanding with major Chinese user-generated content websites that have agreed to take down infringing materials upon receiving notice from member Hollywood studios.

Effective online copyright protection will remain a challenge for IP owners given China's burgeoning virtual world. The developments described above clearly demonstrate that Chinese authorities and other stakeholders are committed to improving the legal and regulatory environment to safeguard the interests of everyone involved in the creation, dissemination and enjoyment of copyright works in China. It is hoped that those positive steps can provide more certainty in enforcement and guide further advancement in online copyright protection in China.

Cedric LAM

Cedric Lam is a partner of Dorsey & Whitney and leads the IP groups in Dorsey's offices in Shanghai and Hong Kong. He has 14 years' experience in counselling IP transactions and implementing IP protection and commercialisation strategies in Greater China. Lam has been recognised repeatedly as an AsiaLaw Leading Lawyer in IP. He is also experienced in anti-counterfeiting and other enforcement matters and has served as Asia-Pacific regional legal counsel to one of the largest associations of copyright owners in the US. He has published more than three dozen IP articles and book chapters and speaks frequently on IP-related subjects. Cedric is also admitted to practise before the Canadian Intellectual Property Office.

Janet WONG

Janet Wong is an IP associate at Dorsey & Whitney's Hong Kong office. She is experienced in anti-counterfeiting and other IP enforcement matters in Greater China. She regularly advises on brand protection strategies, counsels on copyright piracy actions and conducts domain name dispute resolution proceedings. Janet is also experienced in handling matters relating to trade mark portfolio management on a worldwide basis for both local and multinational clients. She has a second degree in Chinese law from Tsinghua University and is admitted as a solicitor in Hong Kong and England and Wales.

Grace WONG

Grace is an IP associate at Dorsey & Whitney's Hong Kong office. Her practice focuses on IP matters in Greater China. She has handled a wide range of contentious and non-contentious IP work including anti-counterfeiting, brand protection and licensing. Grace also has experience advising on domain name dispute disputes and labelling issues.