Copyright For Blockheads: Why Musicians Create in China’s High Piracy Environment

Following my recent blog posts on music copyright efforts in China, I have linked here an article published in July 2015 by  Prof. Jiarui Liu from Stanford University, on “Copyright for Blockheads: An Empirical Study of Market Incentive and Intrinsic Motivation” at the Columbia Journal of Law and the Arts.  A Chinese language summary of the statistics in that article (with English captions) is available here.

This Article presents a systematic study regarding copyright incentives, based on industrial statistics and extensive interviews from the music industry in China, which Prof. Liu states is “a virtually copyright-free environment featuring one of the highest piracy rates in the world.”  This has in turn has caused a dramatic transformation of the music business.

Prof. Liu seeks to answer the following questions:

–          How do musicians earn their living in the shadow of rampant copyright piracy?

–          Are copyright incentives still relevant if it turns out that most musicians create music for   music’s sake, not for money?

–          Can niche musicians benefit from effective copyright enforcement even though copyright piracy mostly targets mainstream music?

–          Why do musicians choose music careers over more lucrative jobs?

–          Why do musicians commonly become multiple-job holders?

–          Why do musicians often earn the majority of income from their second jobs but spend the majority of time on music?

From his abstract:

The empirical research indicates three seemingly paradoxical phenomena: (1) while 17.9% of all themusicians in the  sample  referred  to  economic  benefits  as  at  least part  of  their  motivations  for  music creation, 97.4%  specifically recognized money as being important and helpful for music creation; (2) while  56.4%  alleged  that  copyright  piracy  did  not  affect  their  creative  motivations,  72%  agreed  that copyright piracy does affect music creation and (3) while 53.8% explicitly admitted that they had little awareness or knowledge of copyright, 92.3% indicated that the current  level of copyright protection is insufficient and 71.8% suggested that copyright law should provide strong incentives for music creation.  The empirical evidence itself provides compelling explanations for such paradoxes: Even though musicians  seem to  primarily create music for music’s sake, copyright law could still supply powerful incentives  for  music  production  in  a  way  that  not  only  caters  to  market  demand, but  also  allows  for broader  artistic  freedom…

Copyright  incentives do not function as a reward that musicians consciously bargain for and chase  after,  but as a  mechanism  that  preserves  market  conditions  for  gifted  musicians  to  prosper, including a decent standard of living, sufficient income to cover production costs and maximum artistic autonomy during the creative process.

  

Legal Position Opens in Chief Counsel’s Office, USDOC

The Office of the Chief Counsel for International Commerce at the Department of Commerce has an opening or for an attorney with 1-3 years of legal experience (GS-12 or 13).  The application deadline is November 13, 2015.  The position covers legal aspects of competition law, international trade and intellectual property, amongst other areas.  Although this is strictly speaking neither a Chinese legal position or an intellectual property position,  both China experience and IP experience could be helpful to a candidate, amongst other issues in China and globally.  The position description is attached here.

A Porpourri of Autumn Copyright Developments

spices

Here’s a mix of copyright updates:

On October 13, Tencent and Netease signed a deal for Netease to takes licenses on 1.5 million songs.  Tencent, as I previously reported, has actively been promoting the legitimate use of music on-line.   The current “Sword Net” campaign was is focusing since mid-July on music, and these actions may be a reflection of the campaign’s efforts. Over the summer, NCA had specifically mandated that ISP’s should stop making unauthorized music available on line.  Anecdotally, I have heard that it is getting harder to find illegal music to download.  NCA’s crack-down, including an effort to remove two million songs from the on-line environment was also noted by the media.

Also on October 14, NCA issued new guidance for website service providers (关于规范网盘服务版权秩序的通知), which requires service providers to take proactive measures to screen copyrighted content being uploaded, including for works that have previously been removed, works that are the subject of a notice and takedown, and works specifically listed by NCA.  The rules also require service providers to not provide any support to users to illegally share unauthorized works, and requires users to make a reasonable explanation to service providers if there is abnormal logging-on activity. These rules require something more than responding to notice and take-down requests, and (laudably, in my opinion) appear responsive to the perspective that the late Prof. Guo Shoukang told me, that the obligations set forth in China’s DCMA-type laws and regulations should evolve as technology evolves.

Another important development of late is the formation in September of a sports IP committee under the China Intellectual Property Law Studies Association.  Hopefully, this committee can help spur better protection under China’s IP regime of live sports broadcasts, amongst other sports-related IP issues.

NYU Program on Due Process for Foreign Business in China

I was honored to be invited to moderate the opening session for the 21st annual Timothy A Gelatt Dialogue at NYU Law on “Due Process for Foreign Business in China?” on November 12, 2015.

Here’s a quick summary the program (November 14, 2015):

There were presentations on intellectual property (by me/Mark Cohen), antitrust, human rights, detention and release of foreigners, and cybersecurity.

As several speakers noted business people have human rights too, although these interests are often ignored by the human rights community in favor of non-commercial issues. Another speaker also suggested that the current division between human rights and commercial law made little sense, and that human rights advocacy should pick up commercial concerns, while commercial concerns should also not ignore human rights issues.

In listening to various anecdotes, it became apparent to many of us that no matter how cautious, expert or how much of a “China hand” one is, one (or one’s client) may not be immune from detention, arrest or arbitrary proceedings, and that these legal proceedings may be initiated out of spite and well distanced from any kind of legal accountability. One speaker suggested that in the current environment, China has neither rule of law nor rule by laws, but rule by agency in a range of fields.

I gave a presentation on due process concerns for foreigners, noting that there were increasing concerns about national treatment and differential procedures and remedies for foreigners in IP litigation, including detention during the pendency of a disputed legal matter, extended time periods for civil litigation, delays in evidence gathering and extra-territorial reach of the courts. I also briefly discussed how foreign courts were handling disputes that involved concerns over handling of matters by Chinese courts or enforcement agencies (notably Gucci and Vringo). Some speakers also expressed concern about an increasing extraterritorial reach of the Chinese courts.

Regarding antitrust and intellectual property, one expert in the field asked a question about whether Chinese practices were mercantilistic/outliers, or simply reflected the interests of “implementers” vs innovators.  I noted that I had heard these perspectives expressed previously, but I wondered if China was in fact proposing a different kind of question: whether antitrust law demanded any proportionality with IP protection as it seemed to me that imposing nearly one billion dollars in damages (in the Qualcomm case) is disproportionately high in a country where average patent damages are 20 to 30,000 dollars, and even injunctive relief can be difficult to enforce.

There appeared to be widespread support regarding the Xi/Obama outcome on establishing a dialogue on cybersecurity. Some speakers noted that cybersecurity had widely different concepts in the United States and China, with the Chinese focus on cybersecurity referring to the overall control by the state of the Internet and related infrastructure.  The Chinese government was also interested in direct regulation of the Internet with more government controls.

Several speakers saw an important relationship amongst cyberespionage, innovation policies and antitrust as calculated efforts by China to develop its technological edge. In addition, several speakers from a range of disciplines noted that China and Chinese officials were now increasingly engaged in efforts to advance its own perspectives in areas such as human rights, cybersecurity/internet governance and antitrust, which may increasingly challenge the United States’ role as a global norm setter.

Altogether, it was a great group of thought leaders with divergent backgrounds but convergent and deep interests in China. My congratulations to Jerome A. Cohen, Ira Belkin and NYU’s Asian law Institute.

ABA Section of International Law Comments on NDRC Questionnaire on IP Abuse Guidelines

The American Bar Association has once again made publicly available its response to the NDRC questionnaire on drafting IP abuse guidelines, attached here.  This is a useful and large bilingual download which contains useful background materials.

Some of my prior recent blogs on this questionnaire include a posting of George Mason University’s comments, and my comments on the questionnaire itself.

Thanks again to the ABA for the transparency of its efforts!

Battling for information on Counterfeiters: Can Courts and Litigants Do Better?

On October 7 of last week, several news services picked up on the September 29, 2015 order of Judge Richard J. Sullivan in the Southern District of New York in the long running battle of Gucci America, Inc., et al versus Weixing Li et al (No. 10 Civ. 4974).  In his recent decision, Judge Sullivan decided to compel the Bank of China to produce documentation regarding its customers that were selling counterfeit versions of luxury products on-line in 2010 (2015 U.S. Dist. LEXIS 131567).

Earlier decisions in this long-running battle have been discussed on this blog.  This decision responds to the remand by the Second Circuit (the intermediate appellate court) (Gucci Am. v. Bank of China, 768 F.3d 122, 2014 U.S. App. LEXIS 17948 (2d Cir., 2014) ) of the earlier August 23 and May 18, 2011 orders of the court (the “Orders”) which required BOC to comply with a 2010 Subpoena and asset freeze motions and denied BOC’s cross-motion to modify the injunction to exclude assets held by BOC in any of its locations in China.  On November 30, 2011 BOC filed a motion for reconsideration of the Orders based on a letter received from the People’s Bank of China and the China Bank Regulatory Commission regarding application of China’s bank secrecy laws to disclosures of customer information outside of China, the efficacy of China’s commitment to using the Hague Convention for judicial document requests, and the possibility of sanctions being imposed on BOC by reason of compliance with the Orders.

On September 23, 2014, the Second Circuit affirmed the Court’s injunction but vacated the Orders to consider whether the court had specific, personal jurisdiction over BOC and whether exercising such jurisdiction is consistent with principles of comity in light of recent Chinese court decisions involving BOC and some of the defendant/counterfeiters in this action.

Judge Sullivan concluded, based on evidence presented, that the BOC has shown “purposeful availment of New York’s dependable and transparent banking the system… and the predictable jurisdictional and commercial law of New York and the United States”  He based his determination in particular on the fact that BOC provides banking services to individuals in China and the United States, including through use of a correspondent account at a New York bank to conduct secure, efficient and quick wire transfers.    BOC’s conduct in New York was found to be not “random, isolated or fortuitous”, satisfying New York requirements for minimum contacts with the jurisdiction.  In sum, BOC’s subsidiaries in New York did not insulate the parent company from exposure to the courts in New York for conduct undertaken there as there was a sufficient direct jurisdictional nexus to BOC.

With respect to New York’s interests in adjudicating this dispute, Judge Sullivan noted that apart from New York’s manifest interest in providing effective means of redress for its residents, which include several notable luxury good companies that are incorporated in New York and have a principal place of business there, New York also had an interest because “allegedly ill-gotten gains” were routed through New York, and the litigants have a strong interest in compliance with discovery obligations.  Finally, Judge Sullivan noted that New York and the United States “ha[ve] a powerful interest in enforcing the acts of Congress, especially those, such as the Lanham Act, that are design to protect intellectual property rights, and prevent consumer confusion.”  In fact, Judge Sullivan found these Lanham Act interests so important, he repeated them twice in his opinion.

With regard to the discovery requests, Judge Sullivan concluded that “Hague Convention requests in circumstances similar to those presented here are not an available alternative method of securing the information [Gucci] requests.”  The Court thereafter ordered BOC to produce all documents requested in the 2010 and 2011 subpoenas, including all documents and communications regarding defendants on their accounts, and all documents associated with any accounts or deposits held in any defendants’ name, and all documents related to negotiable instruments obtained by defendants.   The court’s approach to use of Hague Convention requests is similar to that of my former student, Minning Yu, who, in her note in the Fordham Law Reviewendorse[d] a presumption against the Hague Convention whenever cooperation from the foreign sovereign is unclear… [T]his policy will incentivize sovereign states to be more accommodating with their handling of foreign requests for evidence and any conflicting laws that might hinder such production.”

Sadly, Judge Sullivan’s decision provides additional support for those who believe China is doing little to address global counterfeiting, and that Chinese authorities are unwilling to cooperation on case-specific matters.  Judge Sullivan noted that BOC, in addition to failing to prove that Hague Convention requests are a viable alternative to discovery, failed in its submissions to address “the clear and obvious harm caused by counterfeiters to mark holders” and “the fact that such counterfeiters have deliberately utilized institutions such as [BOC] to thwart Congress and the reach of the Lanham Act.”

With a one-year plus average response time to Hague Convention requests, as well as reservations by China concerning the type of information it will produce, requesting comprehensive time-sensitive information via a Hague Convention request is, of course, not likely to be satisfactory.  This is especially true in China, where first instance civil litigation is typically concluded within six months and has been used by Chinese litigants to get a strategic advantage in transnational litigation.  Of course, US discovery demands can also be excessive and costly and are easily misunderstood by foreign litigants.   However, almost anybody who has used the internet necessarily understands that on-line infringements demand timely enforcement responses.  Moreover lack of cooperation on trademark-related matters undercuts the important policies set forth in China’s revised trademark law (2013) which recognizes that institutions that facilitate infringement can be held liable along with their counterfeiting partners (Art. 57) and that certain types of pre-trial evidence production regarding damages should be made available to plaintiff/victims (Art. 63).

The bottom line: Had BOC or a Chinese court sought to enhance China’s reputation on intellectual property, they might have shown a greater willingness to cooperate on discovery requests, to enable a Hague Convention request to be handled in an expeditious manner with a robust response, or otherwise taken pro-active steps to settle this matter such as by addressing brand owners concerns during the five years that this matter has been pending.  Such efforts could have helped to avoid future liability by BOC under Chinese law, helped address on-line counterfeiting,  support enhanced judicial cooperation between our countries,  and help address the perception that China has institutions that “deliberately thwart” anti-counterfeiting legislation in the United States.  While aggressive discovery tactics are of concern to many overseas litigants, the “thwarting” and delays of this case are also particularly concerning in light of increased efforts at judicial cooperation, including some limited enforcement of Chinese judgements in the United States (see my presentation, referenced below), a forthcoming program of the Federal Circuit Bar Association and other efforts.

How is this case being perceived in China?  I was fortunate to be able to discuss this and other decisions at the recent US-China IP Conference held at Berkeley, in the context of a presentation on “When IP Systems Collide – True Adventures in Foreign-Chinese Judicial Interaction.”   My presentation generated some interest by Chinese scholars and practitioners who may not have been fully aware of the numbers of cases overseas involving Chinese litigants.

I hope we can do better in the future.

Legislative Plans and Updates For the Balance of 2015

The following is a summary of recent and some near-term legislative developments:

According to its legislative plan (September 2, 2015), the State Council will accomplish the following during the balance of 2015:

  1. Completion: Revisions to the Regulations on Patent Agents (SIPO is drafting)
  2. Preparatory work for submission to the NPC or regulations by the State Council: Anti-unfair Competition Law (SAIC is drafting); patent Law (SIPO is drafting)
  3. Research projects:   Antitrust Law (MofCOM, NDRC and SAIC are drafting); Regulations on Science and Technology Rewards (MoST is drafting); Copyright Law Implementing Regulations (NCA is drafting), Regulations on Protection of Olympic Symbol (Sports Administration and SAIC are drafting); Platform for Innovation in National Defense Regulations (State Administration for Science, Technology and Industry for National Defense [“SASTIND”] is drafting); Management of Military Engineering and Science Research (SASTIND is drafting); National Defense Patent Regulation (revision) (PLA  General Armament Department, MIIT and SASTIND).

In addition, the new Advertising Law has been put into effect (September 1). Article 12 specifically regulates advertising that involves mentioning patents, including requiring permission of the patentee, and prohibiting mentioning patents that have lapsed, terminated or been invalidated. Enforcement authority is with SAIC.    Falsely representing that a product is patented seems to have also caught the attention of Guangdong authorities, which also recently issued guidance on new thresholds for referral of “counterfeit patenting” cases from Guangdong IP authorities to criminal prosecutions.

On October 1, the Law on Promotion of Transformation of Science and Technology Achievements 促进科技成果转化法 (the STA Law) came into effect, after having been passed by the NPC on August 29, 2015. Article 45 of the STA Law requires minimum compensation for those who make important contributions to scientific accomplishments of their work unit in the absence of specific provisions in an agreement. These presumably include service inventions and are not limited to state enterprises. They may also extend beyond patents to trade secrets, software development, plant varieties and other “technical” IP matters. The STA Law specifies high minimums if an agreement is not negotiated and provides non-negotiable minimum compensation for “state-maintained research and development institutions and institutions of higher learning”.   The regulations also do not identify how someone who has made a significant but not an “important contribution” is to be compensated, particularly as it often takes a team to make an invention.

The relationship between the STA law and proposed service invention regulations, which were made available for public comment earlier this year, now appear even murkier to me than before.   The service invention regulations are not mentioned in the 2015 State Council legislative plan on IP, noted above. This may suggest that its consideration by the State Council is less imminent. On the other hand, the State Council may have been waiting for the passage of the STA Law to come into effect, as well as for further consideration of the imminent patent law revisions.  This might seem more efficient, but for the fact that the State Council has often drafted implementing regulations while the superior law has still not been adopted. This is evident in the current drafting work of copyright law implementing regulations in the absence of finalization of proposed revisions to the copyright law.

As a higher ranking document, the STA Law should govern an inferior-ranking law, such as a regulation. If there is a conflict, China will also look at which enactment is more specific and which is later in time to interpreting the STA Law. Minister of Science and Technology Wan Gang had specifically made it clear at the US-China Innovation Dialogue that the then-proposed law permits freedom of contract and we hope that this perspective is maintained.

As can also been seen from the legislative agenda, China seems to be rapidly integrating defense related IP into its overall IP efforts. Another item in legislative work is dealing with advertising for patented products.

I think a better focus regarding patent passing-off might be on insuring that the public knows that there is no necessary product quality association with a patented product, particularly in a system where patent applications are heavily subsidized and most of the patents are not examined for substance. I find it hard to believe that Chinese consumers are looking up patent numbers and making their own assessments on the contribution of the patent to determine if a product has the product quality it desires.

The factual information in this article is drawn from the newsletter of the Beijing Intellectual Property Institute and other sources.