Developments in Online Civil Copyright Enforcement in China: NCAC’s Analysis

The National Copyright Administration of China (NCAC), in its 2014 Annual Report Online Copyright Protection in China (2014年中国网络版权保护年度报告), analyzed published opinions on online civil copyright cases involving the “right of transmission to the public” (making available right)  drawing on three public databases (the Supreme People’s Court’s “中国知识产权裁判文书网” 、 “中国裁判文书网” ,and Peking University’s “法宝数据”).

There were 1650 reported civil opinions on online infringement in 2014, an increase of 18.8 percent from last year. Audiovisual cases occupied first place, at 44.5 percent of these opinions.  Literary works constituted 390 cases, or 23.6 percent. This was an increase of six times over last year. Graphical works were 363 cases, a 3.3 times increase. Video games totaled 56 cases and music was last of these major categories with 20 cases, or about 1 percent, a decrease from last year of 80 percent. In total these categories constituted 98 percent of reported cases.

The report identifies that were 86 cases involving 11 of the 20 websites that were subject to supervision by China’s copyright administrative authority (NCAC), and were 5.2% of the total cases.  These cases were a declining percentage of online infringement cases compared to past year.  It appears that NCA is using this data to show the effectiveness of its administrative mechanisms.

The decline in music cases, in my estimation, likely reflects the great difficulty the music industry faces.  Music is a priority area for NCA this year.  Improvements in administrative IP protection planned at the beginning of 2015, including a recently launched campaign,  will also hopefully reduce the level of infringement by key internet companies and/or support more effective civil enforcement in this sector.

Plaintiffs in online copyright cases were mostly enterprises, and defendants were mostly internet companies. Individuals were a small number of the plaintiffs (about 6.4 percent), which was about the same as last year. Online media companies were principal defendants (87%).  The remaining 13 percent consisted of traditional media companies, including traditional publishers, newspapers, motion picture studios, and television stations.

Civil online cases were principally heard in Guangdong, Beijing and Zhejiang with about 70 percent of the cases.  Zhejiang jumped from fifth place last year to third place.   Fujian also showed a significant increase.  A large share of the audiovisual infringement cases in Guangdong involved Kuaibo (www.qvod.com).  The regional distribution of the cases also shows that there was a drop in audiovisual cases in Beijing, but an increase in other areas such as written works.  Most of the plaintiffs in Beijing were well known companies in such fields as motion pictures, cultural product distribution, and internet technologies, which in NCAC’s view could suggest a maturing of the Beijing environment towards protecting a greater variety of content owners.

The increase in cases in Zhejiang in online cases is due to the rapid increase in online industries in that province, which also has consequences for trademark counterfeiting. As I recently reported, online counterfeiting has also become a priority for China Customs in China, with Zhejiang also figuring prominently in seizures of exports at such ports as Hangzhou and Ningbo.

The report also notes that there were 30 online criminal copyright cases as well, and that fines and punishment had increased, with one fourth of the cases involving fines over 500,000 RMB.

Note that I tried to compare this data with the data that is available on www.ciela.cn.  Unfortunately the data sets do not match well.  CIELA analyzes data by cities and provides more granular detail on proceedings and outcomes (length of time, damages, “win” rates, etc.).  Moreover, CIELA does not breakout on-line copyright cases.  I was thus unable to reliably further validate NCA’s observations in this report.

The NCAC report was released on April 22, 2015.  However, with only 219 hits since it was placed on line as of today, it remains a “sleeper” of a report, notwithstanding the dramatic growth in online copyright issues in China.

Vringo vs ZTE: What the NDA Dispute in New York Suggests For Licensing Strategies

As many of my readers may know, I was not a fan of the Chinese courts’ decisions in Huawei vs. Interdigital in Shenzhen and Guangdong, which raised a number of process and substantive concerns.  A key question raised in that case was whether “the licensee has been afforded a fair opportunity to take a license.  If the licensee has been afforded an opportunity and declines to take a license, then it is my personal opinion that the licensee should not take the “shield” of a FRAND commitment, and turn it into a sword that weakens the licensors ability to license on fair terms.”    The decisions in those cases plus the Qualcomm investigation has also raised many substantive and procedural concerns, including concerns regarding how to license IP within China in an environment that is increasingly seen as nationalistic, whether foreigners have been singled out, and counter-strategies to deal with Chinese companies inclined to seek protection under China’s antitrust laws.

Prof. Epstein expressed similar concerns in a policy brief  and a Forbes Magazine article earlier this year: “Far from being a device to promote competition, the AML is used to harass foreign firms that provide much needed competition to China’s state-protected agencies….The antitrust laws should not be applied so as to single out patents or any other intellectual property rights for special treatment; all property deployed in the marketplace should be treated equally under the competition laws.”

Two interesting decisions from Judge Kaplan in the Southern District of New York in the matter of Vringo vs ZTE Corp (14-CV-4988) highlight strategic responses to this perception of an aggressive posture of the Chinese courts and administrative enforcement authorities on alleged abusive licensing practices.

By way of background, Vringo has raised money from venture capital firms and is a licensor of telecomm patents, including patents formerly held by Nokia Corporation and Alcatel-Lucent.  From the perspective of a Chinese licensee, of which ZTE may be typical, Vringo is engaged in “abuses of intellectual property” as a “non-practicing entity” that uses “the threat of litigation and injunction to support [its] demands for unfair licensing fees.”  Vringo claims that patents it is asserting are standards essential.  Moreover, it has brought litigation in such places as Australia, Brazil,  France,  Germany,  India,  Malaysia,  the Netherlands, Romania, Spain, and the United Kingdom against ZTE for their alleged infringement.

In a June 3, 2015 decision by Judge Kaplan of the Southern District of New York regarding a July 2014 action filed by Vringo for breach of a Non-Disclosure Agreement (NDA) related to possible settlement of these litigations and any other disputes between them, Judge Kaplan issued a preliminary injunction to enjoin ZTE from further disclosing information subject to the NDA in antitrust matters in the EC and China brought by ZTE. The NDA specifically required that confidential information disclosed could not be used in “any existing or future judicial or arbitration proceedings” or “for [their] commercial advantage, dispute advantage, or any other purpose.”

Judge Kaplan’s decisions are suggestive of possible strategies for companies concerned about entering into settlement discussions without increasing Chinese AML litigation risks through well drafted NDA’s. Here is what I derive:

  1. Insist on Appropriate Governing Law, Know Chinese Legal Arguments and Make Sure Your NDA Has A Close Nexus to the Jurisdiction. Judge Kaplan applied New York law, and rejected ZTE’s arguments that Chinese law should govern the NDA and that that ZTE was required to provide the information to Chinese authorities.   Based on an affidavit submitted by my friend Doug Clark, a Hong Kong barrister with considerable Chinese patent experience, Judge Kaplan characterized ZTE’s assertions that it needed to disclose confidential information, as “nothing more than gamesmanship.”  Also of dispositive importance was that Vringo maintains its principal place of business in New York and sought protection under its laws when entering into the NDA.  ZTE voluntarily consented to New York law knowing this background.
  2.  Enter Into Settlement Discussions To Support Resolving Resolve Litigation. Judge Kaplan also rejected ZTE’s argument that the NDA is unenforceable under New York law as “an agreement to suppress evidence.”  The NDA was a permissible agreement between private parties about use of information in private litigation.  New York has a strong public policy encouraging settlement and “[t]here can be no doubt that the NDA was entered into for the explicit purpose of facilitating candid settlement discussions.”  Moreover, “it was entirely lawful for Vringo and ZTE to agree that they would not use information exchanged in settlement discussions in any judicial proceedings.”
  3. Make Out a Case for Irreparable Harm and Appeal to the Courts Sense of Equity. Judge Kaplan found that the irreparable harm requirement was met because “Vringo … probably would suffer injury in the future that could not be undone even if it prevails in this action.”  As with any well-crafted NDA, this NDA also contemplated the availability of equitable remedies for breach including by providing for procedures for the parties to seek a protective order from a court and by reciting, “that money damages may not be a sufficient remedy for any breach of this Agreement and that, in addition to all other remedies to which it may be entitled, the Parties will be entitled to seek equitable relief, including injunction and specific performance, for any actual or threatened breach of the provisions of this Agreement.” Judge Kaplan also noted that Vringo had not been made informed of the initiation of civil litigation or the unauthorized disclosure of its confidential information in an administrative action filed by ZTE in China, which had further compromised its position in those matters. Although he didn’t discuss the fast pace of litigation in China, which I have raised elsewhere in this blog, I am glad to see judges and rightsholders recognize how critical timing is to IP and antitrust matters involving China.

Note that Judge Kaplan did not enjoin ZTE from filing an AML action in China, but only from using the information obtained in violation of the protective order. Although the facts and circumstances are different, from the perspective of the Huawei vs InterDigital case, Judge Kaplan showed deference to the parties’ choice of law and did not take steps to interfere with decisions to file legal proceedings in other jurisdictions.  Of course, from ZTE’s perspective, it was likely being deprived of  information that it thought would be highly valuable to Chinese authorities.

In a more recent, July 24, 2015 decision, Judge Kaplan threatened sanctions against ZTE’s counsel for interposing objections that appear to be intended to delay or harass the deposition of ZTE’s counsel in what appears to have been subsequent discovery related to the above mentioned brief of the ZTE/Vringo NDA. This order appears to have been issued to support Vringo’s allegations that ZTE’s counsel “had an active role in coordinating pressure tactics by Chinese authorities in response to Vringo’s licensing demands.”   ZTE’s counsel have been ordered by Judge Kaplan to show cause why they should not be sanctioned under F.R.C.P, Rule 11.

The spate of IP-related Chinese licensing and antitrust decisions has also come at a time when the US and Chinese judicial and administrative systems are increasingly interacting, sometimes with a deepening sense of each other’s legal system or the comity that may be afforded to another court, or the different time frames that US and Chinese courts operate under.

The opinions expressed here are the author’s own academic perspectives and should not be taken as a reflection of any opinion of any client or employer, past or present, or a reflection on any market valuation of any stock or equity of any kind. Please email me with any corrections to this or any other posting, or feel free to post your own commentary on this blog.

US Chamber – China Director Position

The US Chamber of Commerce has posted a position for Director, China.  As much as 50% of the work in this position involves intellectual property and antitrust.   Please send your application to our HR dept. (all applicants must apply via the link below to be considered).

 https://www.uschamber.com/about-us/careers/apply-online-now

Job Title:

Director, China =

Job Type:

Full-Time

Location:

Washington,

 

Job Description:

Director, China
International Division

POSITION OVERVIEW:
Help develop, promote, and execute U.S. Chamber advocacy and programs relating to U.S. trade and investment policy with China.

RESPONSIBILITIES:
Work closely with a team to ensure that the Chamber actively identifies and manages key China trade and investment policy issues with a focus on competition, standards, procurement, and intellectual property; draft and present statistical and narrative analysis on trade and foreign investment trends, emphasizing member priorities; write briefings, testimony, speeches, and other communications materials; participate in the strategic development and implementation of a wide variety of China-related activities; represent the Chamber’s policy views and positions on China vis-à-vis U.S. and Chinese government officials in Washington, D.C. and Beijing; help with program development, speaker recruitment, communications, and research across the Asia Task Force; respond to China-related member company inquires on market access and operational concerns in the China market; and support the vice president and executive director to increase membership in and support for the Chamber’s China and broader Asia programs.

REQUIREMENTS:
An advanced degree and 7-10 years’ experience working with business, trade or investment issues focused on China; familiarity with PRC government practices, policies and government structure; exceptional interpersonal and communications skills, both written and oral; ability to work productively as a team player in a fast-paced environment; knowledge of the U.S. business community operating in the China marketplace; experience in a China-related business or policy context; a knowledge of the trade and investment policy formulation process tied to U.S. trade and investment with China; and a willingness to travel overseas. Chinese language skills, including the ability to read Chinese regulations, and fundraising or business development experience preferred.

Salary commensurate with experience.

For more information, please contact Megan Bartlett at x5314 at the Chamber.