Recently, the publication of the exposure draft of the Copyright Law (Exposure Draft) has become a hot topic among the public and some parts of its revision have generated agitated comments and discussions in society, especially the regulations concerning the “statutory license” and the “collective management organization,” which have been fiercely argued in the music industry. On April 20th, 2012, the Supreme People’s Court of China issued the “Regulations on Several Issues Concerning the Law Application in Hearing the Civil Cases of the Infringement against the Right to the Information Communication by Networks (exposure draft)” (New Judicial Interpretation). This was released to provide a special explanation on the application of the access right to the information communication by networks, which has thereby extended the influence of the legislature’s revision to the internet industry. What influence will we see in the music industry as well as the internet industry with the passing of the Exposure Draft and the New Judicial Interpretation? For this, we would like to share our opinions on the issue in this article.

I. Regulations on “statutory license” in Article 46 of the Exposure Draft

As provided in Article 46 of the Exposure Draft, “Three months after audio works have been published for the first time, other audio producers may use audio products to produce audio products without permission of the copyright holder, according to the conditions provided in Article 48 of this Law.”

Chen Binyin

Actually, there are similar rules in the current Copyright Law, which says that “A producer of sound recordings who exploits a music work another person has duly made into a sound recording to produce sound recordings, may not obtain permission from, but shall pay remuneration to the copyright owner as prescribed by regulations, such work shall not be exploited where the copyright owner has declared that such exploitation is not permitted.” The harsh response mainly comes from the deletion of the exceptive clause that “such work shall not be exploited where the copyright owner has declared that such exploitation is not permitted.” The deletion of this language means that the statutory license shall be coercive to the copyright owner; and therefore it has led to wide opposition from musicians. In our opinion, however, the revision makes sense to some extent, and the strong oppositions from musicians are mainly caused by their insufficient understanding of the new regulation. The following analysis is intended to clarify this issue.

(1). The scope of the statutory license

There is no specific definition of the scope of the statutory license in either the current Copyright Law or the Exposure Draft, but only the expression of “to produce the sound recording.” In addition, the meaning of “produce” is also undefined in the current Copyright Law. According to the opinion of Mr. Wang Qian, professor at East China University of Political Science and Law, the legal meaning of “produce” should involve the “publication” after the production. According to Mr. Wang, “If the statutory license to produce the sound recording can only be interpreted as a license to copy for production, excluding the right to publicize without the permission from the music copyright owner, or even excluding the right to copy the produced sound recordings, the value of the statutory license will not be realized and the legislative intent to break the monopoly with the introduction of competition will fail.”

But to analyze it on another level, for the music works, as argued by Professor Wang, its statutory license shall be embodied in the remastered version, which means to reproduce the music works with other artists’ performance instead of the site show, as well as the direct reproduction. In other words, when a record company wants to reproduce works that were first publicized by another company, permission from the original copyright owners or the authors of the lyrics and tunes are not necessary. The second company is only required to pay remuneration.

(2). No interest of the right owner will be damaged as long as the Article is enforced in a proper manner

As is discussed above, the statutory license refers to a wide range of music, including the remastered version of the works, the direct reproduction of the current works and the publication afterwards. This is seen by some as a serious infringement to the right owner’s right to make decisions at their own discretion. But, in fact, as long as the legislation can be enforced in a proper manner, the article is not as intrusive as imagined by the musicians.

(a). The remuneration is demanded for the remastered version

It is truly difficult for the copyright owner to stop the production of remastered music works, but the IP legislation is not only for the protection of the copyright owner but also for the balance among the public interests. In our view, it is also reasonable to permit someone to record a song which has spread widely in the general public if remuneration is paid; a view which we and most musicians judge to be acceptable.

(b). The direct reproduction is also infeasible in practice

The biggest concern of the musicians may be they do not know what to do if a third party continues to reproduce a large number of their recordings. This is a valid concern given that direct reproduction is included in the statutory license. Nevertheless, the direct reproduction is least possible to appear in practice since it requires the approval from both the sound recording producer (usually the record company in practice) and the performer (the statutory license is only applicable to the copyright owner). Moreover, the musicians share common interests with their record companies, who will be less likely to permit others to reproduce their recordings.

II. Regulations on the extensive management of the copyright collective management organization

Another focal point of the Exposure Draft is the regulations concerning the extensive management of the copyright collective management organization. And unlike Article 46 which has been discussed above, the articles related to the organizations are truly unreasonable in some parts. Musicians’ opposition towards these provisions does appear reasonable.

From January 1st, 2009 to December 31st, 2012, the China Audio-video Copyright Association (CAVCA) entered into an agreement authorizing certain musical usage rights to the Ningbo Jialedi Company (Jialedi) under a copyright license and service contract. Jialedi was required to pay royalties totaling 860,000 yuan to CAVCA for the authorization. The authorized musical works included “Damn Gentle,” “Siqingaoli’s Sad,” “Making Mistake,” and other 38 music pieces owned by Shanghai Shuitian Company (Shanghai Shuitian). However, CAVCA failed to obtain the license from Shanghai Shuitian before it authorized Jialedi the musical rights and collected the license fees. Shanghai Shuitian sued CAVCA and the court ruled in favor of Shanghai Shuitian’s claim for compensation.

(1). The current music copyright management system in China

As a collective management organization CAVCA mainly represents the recorders’ rights of recording companies. There is also another copyright collective management organization—the Music Copyright Society of China (MCSC)—representing the interests of the music copyright owners, mainly the authors of the lyrics and tunes. The case itself is not complicated, but the theory behind the ruling highlights the differences between copyright collective management organizations, the current Copyright Law and the latest judicial interpretations.

However, both CAVCA and MCSC must follow the rules in the current Copyright Law. The law clearly states that “The copyright owners and copyright-related right holders may authorize an organization for collective administration of copyright to exercise the copyright or any copyrightrelated right. After authorization, the organization for collective administration of copyright may, in its own name, claim the right for the copyright owners and copyright-related right holders, and participate, as an interested party, in litigation or arbitration relating to the copyright or copyright-related right.” In other words, the license from the copyright owner is the bases for exercising the right of the copyright collective management organization to enter into agreements and collect fees. As the above case illustrates, CAVCA had not obtained the rights in advance of entering into the agreement and collecting the fees; therefore its unauthorized conveyance of the usage rights was undoubtedly why the court ruled that CAVCA was liable and was required to pay compensation.

(2). The “extension of management” in the Exposure Draft

According to the latest Exposure Draft, a completely different decision on the above case may be reached. By Article 16 of the Exposure Draft, “Where collective copyright management organizations obtain authorization from rights holders and can represent the interests of rights holders at a nationwide level, they may apply with the State Council administrative copyright management department to represent all rights holders in exercising copyright or related rights, except where rights holders indicate disallowance of collective management in writing.” Although the copyright collective management organization is “authorized” in default by law, the copyright owner is legally entitled to state the exclusion in written form. This means the burden is placed on copyright owners to opt out of coverage. If they fail to do so their rights are, by default, handed over to the collective management organization.

The extended right of the collective management organization mainly comes from Article 70 in the Exposure Draft, “Where users pay remuneration to collective copyright management organizations according to the contract concluded with collective copyright management organizations or statutory provisions, and a lawsuit is raised by the right holder concerning the same right and the same use method, they do not bear responsibility for compensation, but shall cease the use, and pay remuneration according to the corresponding collective management use fee standards.” According to the provision, even when the unauthorized collective management organization licenses others and collects a fee, the copyright owner is only compensated according to the legal standard. The legal copyright holder does not receive satisfying compensation, which clearly limits the option of the right owner in exercising the sort of rights which previously came with copyright ownership. If the new regulation were applied in the previous case, CAVCA would not have to fully compensate Shanghai Shuitian and would only be required to pay them the remuneration.

Luo Yanjie

The two new rules constitute the socalled “extension of management” of copyright collective management organization, which is facing the opposition of most copyright owners. Despite that it provides in the Regulation on the Management and Organization of Copyright Collective Management that the organization shall be set up by the copyright owner. The fact is that most such associations are sponsored by the government and their works are denounced by the copyright owners, especially in the music industry, which charges what some consider excessive management fees, unclear authorization fees and has many other problems.

Given these facts it obviously inappropriate to expand the rights of the collective management organization to such an extent and limit the options of the right owner. Consequently it is strongly suggested that the above clauses be deleted in the final legislature.

III. Will the new regulations stop the flooding piracy of online music?

(1). More liabilities for infringement and more difficulties to refer to the safe harbor principle

In the Internet industry, nearly all the Internet Content Providers (ICPs) try to evade infringement liabilities by referring to the safe harbor principle, especially the music websites. The main precondition to apply the safe harbor principle is that the broadcast party is the Internet Service Provider (ISP). According to Article 4 of the New Judicial Interpretation, “When the plaintiff could demonstrate that the ISP is providing the works, performance or the recording works, the people’s court may thereby determine the illegal conduct, unless the ISP could prove that it only provides the automatic connection, transmission, information storage, search, link, p2p technology for the infringing works, performance or the recording works.” Based on this language, the copyright owner can fulfill the burden of proof by demonstrating that the broadcaster actually provides the copyrighted works, while the broadcaster may submit further evidence to demonstrate its status as ISP.

As for the music websites, most of them do have the appearance of “content provision” (such as the classification over music works and the album material). In the past, many music websites claimed that most infringing contents are uploaded by the netizens, and therefore they shall only bear the liability of indirect infringement when the infringement is established by the court; namely the application of the “red flag” standard. Once the New Judicial Interpretation is passed, by the law, music websites of this kind will be less likely to be determined as the ISP but the ICP who shall bear the indirect infringement liability thereafter. Although the consequences in practice may be different, the nature of infringement in the latter situation will be more obvious and the compensation paid by the music websites will be increased accordingly.

(2). The procedure of deletion on notice with the limit on dilatory tactics

It shall be first clarified that the procedure of deletion on notice is only applicable to ISPs with no fault. Although by the business models of most music websites, it demands no procedure of deletion on notice when the right owners are protecting their right, the music websites could always receive the similar request. In the past cases, the music websites have demanded that the right owners resubmit the notice due to the inadequacy of the notice. The site may require that the right owner provide more information, such as providing the detailed link, clarifying the time the link was available and other such details. In the New Judicial Interpretation, the dilatory tactics are limited.

According to Article 17 of the New Judicial Interpretation, “When the ISP may strictly focus the content on the notice received; it shall be deemed that the notice complies with the law and regulation.” In other words, in future judicial practices, the right owner is only required to provide the basic information of the works and then the court may focus on the infringing part, which means the past practices to demand more detailed information is no longer applicable. Furthermore, according to Article 18 of the New Judicial Interpretation, “Unless there are sound reasons, when a hit TV drama is involved, any ISP shall take any necessary measure within one working day after the notice to comply with the laws and regulations; when other works are involved, the term of the necessary measures shall not exceed five working days.” The regulation has also made a provision on the time period of the deletion, which reduces the possibility of the dilatory tactics.