Collaboration or Confrontation: Beyond the False Dichotomy in US-China IP Relations

Recently several writers have criticized the Trump administration’s strategic choice of confrontation over collaboration with China.  Among them was an open letter published in the July 2, 2019, Washington Post, “China is Not an Enemy,” or “Making China A US Enemy is Counterproductive” (based on its hyperlink) that was signed by several former officials and scholars. Prof. Alastair Iain Johnston of Harvard University also wrote an excellent article, “The Failures of the ‘Failure of Engagement’ with China.”  Chinese commentators have also chimed in.  One of the signatories of the July 2, 2019 letter, Jim McGregor spoke on a podcast about the limitations of collaboration.  A counter-letter, “Stay The Course On China: An Open Letter To President Trump” .  The debate is also an extension of the Stanford University report “China’s Influence and American Interests: Promoting Constructive Vigilance” from 2018, which also generated its share of controversy.

The authors of these studies discuss all aspects of the US-China relationship – trade, security, scientific, intellectual property, etc., and fold these issues into the collaboration vs. confrontation dichotomy. I lack the breadth to discuss all aspects of a complex relationship.  My focus is solely on IP and innovation and the role of collaboration or confrontation. 

An assumption of many of these authors is that we should avoid making China an enemy unnecessarily.  I agree. At the same time, many of the commentators seem to suggest that either IP engagement or confrontation may be counterproductive because of systemic failures of the WTO, or past disappointments.  As Prof. Johnston notes: “[T]here is no doubt that there are persistent WTO incompatible non-tariff trade barriers, including weak intellectual property protection, technology theft, and non-transparent regulatory practices, among others.” 

Overall, the IP-related arguments present a false dichotomy between engagement or confrontation.  Bilateral engagement is only one tool, and it need not be sacrificed to more assertive strategies.  The toolbox includes varied approaches. Softer advocacy might include training programs in China on novel issues, supporting more focused strategies by businesses, joint collaboration on shared challenges and trade agreements that include China (such as a bilateral investment treaty), to name a few.  More assertive postures might involve critical white papers or non-papers, multilateral engagement, WTO or other international law diplomacy or cases, trade agreements that exclude China (TPP), and, in appropriate circumstances, quid pro quo retaliation such as tariffs and sanctions.  Simply put, carrots and sticks are not exclusive of each other.  Moreover, there are a variety of carrots and sticks.  Sticks, however, carry a cost and need to be carefully considered before deploying.

One of the legacies of the Obama administration on IP was that it was over-committed to dialogues.  As Chinese trade diplomacy has been highly transactional, this had permitted China to “buy time” without committing to any trade concession.  For those who lived through Obama’s excesses and opposed them, President Trump has demonstrated himself to be Obama’s Hegelian opposite.

The explosion in IP dialogues during the Obama period is well documented. For example, the 2015 Joint Commission on Commerce and Trade (JCCT), which was co-chaired by the Department of Commerce and USTR and was the highest-ranking trade-specific bilateral dialogue.  It established IP-specific sub-dialogues, exchanges and programs on such topics as: standards, trade secrets, geographical indications, sports broadcasting, media boxes and copyright, on-line enforcement (including referrals to another IP-related working group involving criminal law), case law and databases with the judiciary, bad faith trademarks, copyright legislation, IP legislation and protection of plant varieties.  Additionally IP was discussed outside of the JCCT in dialogues with a range of US agencies, including antitrust (DOJ/FTC), criminal law (DOJ/DHS), innovation (OSTP) and strategic and economic dialogues (State, USTR, Treasury), as well as at the WTO (USTR), WIPO (PTO), and in plurilateral discussions, such as the IP-5 (the five largest patent offices), TM-5 (the five largest trademark offices) and ID-5 (the five largest industrial design offices).  There were also other dialogues, including judicial exchanges (2016) and commercial rule of law (2016), which also focused on IP.

Properly and economically utilized, dialogues can advance understanding where ignorance is a major impediment to resolving differences. They can build trust and long-lasting government to government relationships.  Dialogues may also spread the burden of advocacy among the US government, industry and trade associations and even foreign governments.  Educational training and assistance can also be leveraged for seeking additional concessions.  They also help establish a baseline for a measured approach to escalating issues to increasingly higher political levels.  However, dialogues should never become ends in themselves and need to be periodically evaluated for their effectiveness and efficiency.  

In a typical, hypothetical IP matter, a strategic approach to dialogues and engagement might involve a white-boarded multiple-year plan for the US that reflects the varying interests of the US government, foreign governments, industry, and academia.  The plan might progressively escalate concerns from a discussion around, say, bad faith trademarks, to a seminar on this topic, a meeting between the heads of the US and Chinese trademark offices, a JCCT meeting at a political level, a TM-5 meeting, a program with the International Trademark Association or the EU’s technical “IP Key” assistance effort, comments on proposed legislation, a meeting among cabinet-level officials and/or a WTO case.  These approaches may be consecutive or simultaneous. This type of strategy is also well known in Chinese military history, as “coordinating one’s strategies” 连环计 i.e., never relying on a single strategy but having many to fall back on, which is the 35th of the 36th classical military stratagems 三十六计. 

There have been several successful examples of coordinated engagement in IP that have delivered real changes over the years.  Examples include China’s providing design patent protection for graphical user interfaces, which involved multi-year engagement by industry, academia, the Chinese and US patent offices, and ultimately the offices of the JCCT, to deliver a tangible commitment in Chinese patent office practices.  Another example during the Obama period is the reform of China’s pharmaceutical patent examination process, which involved a similar process.   A longer-term engagement focused on the creation of China’s specialized appellate IP court.  It also involved several judges of the Court of Appeals for the Federal Circuit (CAFC) (including former Chief Judge Rader), the Federal Circuit Bar Association, academia, and others over a nearly 20-year period.  

To be effective, however, dialogues must be strategic.  The 2015 JCCT, by contrast, seemed to have an approach of letting “a 100 dialogues bloom”  (百对话齐放).   

An example of the failure of dialogue and coordinated strategies is found in the US handling of a request of China to revise China’s discriminatory Administration of Technology Import/Export Regulations (TIER).  The 2015 JCCT included a commitment to “support a technology licensing joint seminar to be convened by MOFCOM in the first quarter of 2016.”  This was a strikingly modest ask of the very senior US and Chinese officials that chaired the JCCT: a Chinese Vice Premier and three US Cabinet-level officials.  However, JCCT support was necessary to overcome entrenched Chinese resistance. Moreover, despite the JCCT commitment, China did not follow through on this modest ask.  Despite such high level support, China did not host the seminar.   

During this same time period, the US Chamber of Commerce, Global IP Center,  published a report through its “Track II”, IP Cooperation Dialogue calling for reform in the TIER. The Track II Dialogue seeks to encourage expert non-government IP-engagement and not rely solely on over-politicized official bilateral dialogues.  It includes former judges and patent office officials, as well as academics (including this author). The 2016 Report also did little to convince official China to reform the TIER.

USG persisted.  The 2017 JCCT reiterated the commitment to “hold a joint seminar”. This program was ultimately convened on March 18, 2017,  However, the program concluded with no change in China’s position regarding the reform of the TIER.     

With no demonstrable momentum by China, USTR identified the TIER in its 301 investigation of China’s technology transfer practices.  It also filed a WTO case in March 2018. China finally took notice and amended these discriminatory provisions in 2019. Now that the offending provisions of the TIER have been amended, the WTO case has been suspended.  Today, with the suspension legal case, its full implementation should be monitored.  It appears that “collaboration” did not work, but a more confrontational approach resulted in a positive outcome.

However, while it is likely that China would not have amended the TIER absent the WTO case, dialogue on the TIER also played the important roles of coordinating USG positions, elevating an issue politically, involving other foreign governments, testing the waters with senior leadership in China, and making sure that the US proceeded in a measured and thoughtful manner.   Many foreign governments, including the European Union and Japan were involved in these dialogue efforts and many also supported the WTO case.  Even more striking, the WTO “win” on the TIER is ironic as it came from an administration (Trump) has generally shown opposition to multilateral institutions as well as dialogues.   In fact, the President has demonstrated that a thoughtful combination of collaboration and confrontation with a diversity of approaches may be the most effective for advancing IP and innovation issues.

Nor is it wrong to cast the United States as the sole cause of the demise of softer approaches.  China contributed to the demise of dialogues and similar mechanisms in its use of bilateral meetings as instruments of delay and retaliation.  It responded to the first WTO IP case that the US brought in 2007 as an “act of aggression” that it would “fight to the bitter end” in 2007 (DS/362).  China thereafter suspended many forms of IP-related cooperation with the US.   In the build-up to DS/362, the United States also sought to compel China to publish all its IP cases, which the WTO declined to support (a TRIPS “Article 63” request).  China also did not oblige in that request. 

DS/362  was the only WTO case brought against China on IP prior to the Trump administration. That case dealt with infringement of consumer goods – notably, copyright piracy and trademark counterfeiting, particularly criminal and customs remedies. DS/362 did not involve technology. Anybody claiming that the WTO has been a failure with respect to China’s enforcement of patents and trade secrets should look elsewhere.  That case has not yet been brought.

USTR likely viewed DS/362  was a failure. The US did not succeed in compelling China to amend its criminal IP laws in DS/362, nor in requiring China to make its cases publicly available.  As a consequence of losing the case, the US government lost faith in the WTO as a mechanism for resolving IP-related disputes. USTR instead launched a series of bilateral and multilateral negotiations, including a proposed Anticounterfeiting Trade Agreement and revised model IP texts in bilateral and plurilateral trade agreements.  

The ensuing devaluation of WTO mechanisms was, in my view, premature.  While lawsuits in the US often appear binary in their outcomes, pressuring foreign countries to adopt legal regimes that they are otherwise opposed to at the WTO is much more complex.  Additionally, US impatience is not well-justified as the US itself has also been slow in responding to many WTO rulings.  USTR’s assessment regarding DS/362 may also have reflected its own institutional limitations. USTR is thinly staffed and lacks resources to engage in softer programs such as technical training or monitoring.  USTR relies heavily on industry suggestions, which may also be short-term in nature.  Unlike other US government agencies involved in IP, USTR is not the lead USG agency in a number of important IP exchanges, such as at the World Intellectual Property Organization, Interpol or the World Customs Organization. It does not participate in or promote IP office related exchanges,  does not have IP officers or law enforcement officers posted to China, and does not have a China Resource Center like the USPTO, which provides statistical analyses of IP-trends in China.  Despite this lack of depth, it has two important primary functions: negotiates deals with trade officials and bring disputes. This binary choice is limited when compared to the much broader toolbox that can be used to address an IP issue. 

The arguments that the WTO does not work in addressing IP-related disputes also ignore the success achieved by the Trump administration in seeing the TIER revised, as well as the demonstrable impact that DS/362 had in elevating the importance of criminal trademark and copyright enforcement to China, despite the setback of a loss in dispute proceedings.  The victory the US achieved in the criminal enforcement case materialized in the form of an uptake in criminal IP prosecutions. China increased its criminal IP cases from 904 in 2007 (the date DS/362 was filed) to 15,121 cases, involving 17,869 people in 2012This is a  16 fold increase.  By 2012, the Chinese criminal IP docket also grew to over 200 times the  US criminal IP docket of 2018. which consisted of 117 defendants in 67 cases.  One Chinese Supreme People’s Court judge confided in me that he attributed that increase to the spotlight that the US gave to the importance of criminal IP in China’s evolving IP ecosystem. For some recent analysis on these trends, please see Dan Prud’homme and Zhang Taolue’s excellent book “China’s Intellectual Property Regime for Innovation” (Springer 2019) which summarizes recent research on this increase, and provides data on criminal IP cases, defendants, prosecutions and convictions.  

A similar argument regarding the ultimate success of the US claims might be made about the request of the US that China should make all its IP cases publicly available in 2005/2006 (the so-called “Article 63 Request”). By 2014, China had decided to publish the  majority of its cases of all types.  This publication of cases has been welcomed by the legal and judicial community alike and has helped to provide greater predictability in adjudication, minimize corruption and provide a basis for strategic IP enforcement.  

By contrast to these successes, there was one claim in DS/362 that had no significant positive impact.  This failure was not due to China’s intransigence. In DS/362 USTR also alleged that China’s disposal of seized infringing goods by auction offended WTO requirements to dispose of such goods outside of the channels of commerce.  However, WTO rules only require Chinese Customs to seize goods upon importation (TRIPS Agreement Art. 51). China was and remains primarily an exporter of counterfeit and pirated goods.  The WTO was unable to identify a single instance where China had auctioned off counterfeit goods imported into China.   “No infringing goods destined for importation”, the panel stated “have ever been auctioned…during the period for which statistics are available.” (Para. 7.351).  The Customs claim, criminal IP claim and the case publication achievement all underscore the continual need for good data to support IP engagement of either the “carrot” or “stick” variety.

Arguing over whether China is becoming our enemy and the need for confrontation is redolent of the post-Korean War China rhetoric in the US.  A better approach might be to remake the US government into an institution that better understands, persuades and strategizes on complex technological and IP issues in China.  During the past 30 – 40 years, the US government has defunded or terminated every technology–oriented agency that cared to engage in a significant way with China, including the Office of Technology Assessment in Congress, the Technology Administration in Commerce, and the Office of Science and Technology Policy in the White House.  USTR’s mandate is  too limited to effectively engage in collaboration. USPTO has the deepest technical resources on IP and innovation issues, but lacks political clout. We need to coordinate more closely, and provide incentives for deeper engagement among all US agencies as well as with industry in order to be effective.   These issues have been apparent since at least the time of China’s WTO accession.  As I noted at a conference at the 24th Annual Fordham University IP Conference in 2016 (Session 4B-b “Asia and the Political Landscape”):

MR COHEN:… One of the lessons from WTO accession was — and I don’t know how to say this gently — how … under-informed US industry was about the legal system.  I say that because if you look at the number of civil cases involving intellectual property, in the year that China joined the WTO — and the negotiations occurred in the years before — there were about thirty.  So one could, theoretically, have contacted every company that had filed a lawsuit involving IP and you still wouldn’t have a very large cohort.

So a lot of trade negotiations, unfortunately but necessarily, are based on hypothetical constructs.  What makes a good legal system, with big words like “impartial,” “fair”?…

METALITZ:  So who was under-informed in that situation?  Was it the US negotiators or was it the US industry?  US industry — you’re right — was not bringing these cases.  But that may not have been out of ignorance. That may have been out of a supposition that they would not be useful.

BAI:  May I chime in?… I have seen US government officials talking about China when they don’t get their briefing right…. 

One way to improve policy is to hire the right people.  We need to promote and reward individuals who have the three “magic” skills: knowledge of Chinese law, knowledge of Chinese IP  or technology, and Chinese language skills. These individuals should also be given roles commensurate with their knowledge and skills.  The 2013 Report of the Commission to Stop American IP Theft, also identified this as an issue in the staffing of our embassies overseas: 

Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP. 

The need to restructure US government on tech and IP issues has long affected the quality of our “engagement.”   

Whether confrontation or engagement are pursued, the choice is complex, should be well-coordinated, and will need to evolve based on circumstances.  It should be based on the right information made by well-informed people.  It is not, ultimately, an ideological issue as many of the recent articles might otherwise suggest.  

Revised: July 21, 2019, October 8, 2019.

 

Updates March 6 – 12, 2018

SIPOstats

From SIPO’s 2017 Statistical Report (see last entry below).

1.  Intellectual property issues discussed during China’s “two sessions” – the annual meetings of the national legislature (The National People’s Congress) and the top political advisory body (the Chinese People’s Political Consultative Conference). In addition to proposals on reorganizations of State agencies, including SIPO and SAIC,  Premier Li Keqiang delivered a government’s work report on behalf of the State Council. In this work report, Li Keqiang noted that the total number of in-force Chinese invention patents issued in China had tripled, the volume of technology transactions had doubled, and trademark registration cycle had been significantly shortened. In addition, Li set out the agenda for the government in 2018, and one of the items on this agenda is to strengthen intellectual property protection and enforce a punitive compensation system for intellectual property rights infringements.

The Chief Justice Zhou Qiang (周强) also delivered the Supreme People’s Court (SPC) work report. Zhou emphasized again the role of judicial protection of IP rights. This report often provides a hint of the more detailed IPR White Papers that the SPC publishes around IP Week in April.

Wan Gang (万钢), minister of the Ministry of Science and Technology, also addressed IP related issues during a press conference. A more detailed report on that is forthcoming.

A number of NPC delegates also made proposals regarding IP issues. Many of these are unlikely to be enacted into law. For instance, a delegate from Royalstar (荣事达) proposes using Chinese character as one of the basic requirements in trademark registration; a delegate from Su Ning urges IP protection/clarification for live broadcasts of sporting events (see my blogs on the ongoing debate over copyright protection for sports broadcasts); and a delegate from Nanjing Normal University urges stronger protection for Internet service platform, a topic which is long overdue for reform.

2.  Huawei tops European patent applications Huawei ranked the first in patent applications in 2017 on the European Patent Office patent-filing list, the office said in its latest reporting. With 2,398 patent applications in 2017, Huawei became the first Chinese firm that tops the EPO ranking in the office’s history, followed by Siemens with 2,220 and LG with 2,056.

3.  CAS plans patent auctions  The Chinese Academy of Sciences (CAS) will hold a patent auction for the first time, involving a a portfolio of 932 patents. The patents were selected from those obtained by 104 institutes and 89 national labs affiliated with the academy, and cover a wide spectrum of fields, including new materials, intelligent manufacturing, advanced biomedical technology, new energy and ecological environmental technology. The 932 patents are a small subset of CAS’ patent holdings in China of approximately 46,000. According to An Lili from CAS’s intellectual property center, the minimum starting bid for the patents is expected to be 100,000 yuan (15,700 U.S. dollars). The Intellectual Property Operation and Management Center of CAS is promoting the patents in the coastal provinces of Shandong, Jiangsu and Zhejiang as well as the cities of Shanghai, Fuzhou and Shenzhen, where auctions will be held in March.

4.  SIPO releases basic statistics of patent application in 2017  As detailed in this collection of tables (Chinese language), the United States was the second largest foreign filer at SIPO, after Japan (about 41,000 to 37,000 applications — see chart above).   State Grid was the largest Chinese invention patent grantee, with about 3,622 patents, ahead of Huawei (3,293).  Among foreign filers, the United States had four companies in the top 10: Qualcomm (no 1), Intel (7), IBM (8) and General Motors (10). Huawei was the single biggest Chinese user of the PCT system. The report also provides snapshots of One Belt One Road filings. China’s top two filing destinations were India and Russia, while China’s top two foreign filers in the OBOR were Singapore and Israel.

 

27th JCCT Concludes in DC: Many IPR-Related Outcomes

 

JCCTPanorama.jpg

The 27th Joint Commission on Commerce and Trade concluded in Washington, DC on Wednesday, November 23, 2016, in time for the Thanksgiving holidays in the United States.  Here is a link to the U.S. government fact sheet.  The following is my summery of IP-related issues –

Amongst the “core” IP issues the fact sheet notes that China agreed to “take further efforts to combat bad faith trademark filings.”  Regarding technology transfer, China advised that it is “actively conducting research on the Technology Import and Export Administration Regulations (2002) (TIER) to address U.S. concerns.”  Both of these statements are forward leaning although they admittedly lack specificity.  Regarding trade secrets protection, China agreed that “ in practice, trade secrets misappropriation may be committed by individuals, including employees, who may not be directly involved in the manufacture or sale of goods and services” , thus addressing the concern that the trade secret provisions of the anti-unfair competition law only address commercial undertakings (this issue was also addressed in the draft revisions of the AUCL that was released earlier this year).  China also announced that it plans to bolster other elements of its trade secrets regime, including with respect to  evidence preservation orders  and damage calculations.  Also on the technology side, China also confirmed that “the government has never asked the fund to require compulsory technology or IPR transfer as a condition for participation in [state semiconductor] Funds’ investment projects.”

Issues involving entertainment market access in China also got some attention.  Regarding music licensing, China committed to “issue a measure allowing foreign-invested enterprises to engage in online music distribution and revoking the requirement established by the Ministry of Culture’s 2009 Circular on Strengthening and Improving Online Music Content Examination.”  Regarding theatrical film distribution, which had been the subject of a settlement of a WTO case between the United States and China, China affirmed that it will “enter into consultations with the United States in calendar year 2017 in order to provide further meaningful compensation to the United States.”  Furthermore, the United States and China agreed that, as part of the calendar year 2017 consultations, they will seek to increase the number of revenue-sharing films to be imported each year and the share of gross box office receipts received by U.S. enterprises.

There are several outcomes which are cooperative in nature.  Regarding on-line IP issues, both sides committed to training of small and medium-sized enterprises as well as exploring the use of big data and other new information technologies to enhance the capability for combating infringement and counterfeiting online.  A program on copyright protection for live sports broadcasts is planned for 2017.  In addition, China committed to further study the feasibility of protecting the broadcasts of sporting events under its Copyright Law and the United States “welcomes further clarification” on this issue from the Chinese judiciary “at the earliest possible time.”    Other cooperative programs include ones on: “legal protections for product and service designs, and U.S. trade dress protections “; “criminal enforcement of trade secrets and counterfeit pharmaceuticals”; a joint conference in 2017 on criminal law, legislation and enforcement “to share experiences on recent trends in technologies, business models, and legal developments”; and a workshop on Judicial IPR Protection in China in 2017.

Often events happen on the margins on the JCCT which may not be fully reflected in JCCT outcomes.  There were two notable developments around the time of the JCCT affecting intellectual property rights.  One was the publication of the draft revisions of China’s patent examination guidelines, which address post filing data supplementation, software and business method patents.   Post-filing supplementation of data has been the subject of prior JCCT and bilateral commitments.  Another development involved de-linking of government procurement policies with indigenous innovation, which has been the subject of a recent State Council document that, according to the fact sheet, “requir[es] all local regions and all agencies to further clean up related measures involving linking the indigenous innovation policy to the provision of government procurement preferences….”

The JCCT has a long history, but has typically grown in scope and significance over the years as the US and Chinese economies have increasingly become interdependent.  This was the last JCCT of the Obama administration.  It will next be up to the Trump Administration to decide how to guide the JCCT to continue to play a useful role in bilateral trade relations.

The above are my personal, non-official observations.  All photos are by Mark A. Cohen.

JCCTwangyang.jpg jcctend

 

US-China Entertainment Law Conference Highlights Business and Legal Developments

huayi

(From a presentation by Lisa Wang, General Counsel, Huayi Brothers Media Corporation)

The following is a readout of the US-China Entertainment Law Conference held at Loyola Law School of Los Angeles on November 2, 2016.  A list of the speakers is found at the end of the blog.  The program was co-hosted by USPTO and Loyola Law School.

Industry Trends:

 Although there have been several notable legal developments in entertainment law in China, the most dramatic changes have been in the market.  China is now the world’s second largest market for theatrical films, after the United States.  While box office revenue and attendance are down in the United States for motion pictures, China has experience incredible growth, with box office revenue nearly 50% in 2015 compared to 2014.   China will likely experience slower growth in 2016, and may enter a more sustainable rate of growth thereafter.   The industry is adapt to the increased importance of China through changing content to have wider appeal and including China in marketing and business development plans.   

Among the major China players, Wanda is now the largest owner of theatres in the world.  It acquired Legendary Pictures in a $3.5 billion media deal.  Tencent is the world’s largest purveyor of of videogames, with 4.2 billion USD in global revenues in 2015.  It is also the first ranked publisher on IOS and Apple app stores.  The Chinese market had 489.2 million video game users in the first half of 2016, with a growth rate of 30.1 percent compared to the first half of 2015.   Importantly, Chinese consumers now accept paying a fee for using online videogames.

 The investment trends for films from China include more direct investment in the United States and Europe, more collaborative production, and more local financing, especially for shows and including both television production and online productions.   Box office revenue will likely continue to grow, and online video will continue to disrupt ticket prices.  

Prof. Seagull Song of Loyola noted that in 2015, foreign films captured five of the top ten grossing films in China.  Market access restrictions are still impeding the market, and that the China market is still underperforming for its size.  However, with respect to market access restrictions, the dean of the Beijing Film Academy predicted that the current quota on foreign films is also likely to be relaxed, but that this relaxation is not likely to have much impact due to the preference of the public for locally made films.  

Regarding the on-line environment for content, Prof. Robert Merges of UC-Berkeley suggested that as platforms affect the distribution of content and provide increasing vertical integration, maintaining competition among the limited number of platforms is likely to become more difficult.  With vertical integration, Merges predicted that copyright is likely to become less important in China.  Branding will instead become more important to develop loyalty to a platform that provides a variety of content and services.   In addition, the development and ownership of data originating from platform services will become critical to platform success.

Taking a different approach, Prof. Eric Priest of the University of Oregon addressed the question of what happens when copyright is harder to enforce such as in the online environment.  With changing technologies, copyright allows its owners and creators to access new markets as they are created, providing them with some leverage with intermediary platforms, and helps stabilize the market for content creation by creating multiple revenue streams.  LeTV is an example of a company in China that began driving new copyright norms by investing in licensing of copyrighted content around 2009 and 2010.   The theme of a diversity of licensing revenue streams in addressing new markets and new technologies was later underscored by Shira Perlmutter of USPTO, who also look at trademark rights derived from copyrighted content in her key note speech, while also underscoring many of the continuing enforcement challenges foreign rights holders face.

As an example of the competitive challenges faced by copyright owners, Priest cited the example of ring back tones for music.  Seventy percent of China’s huge netizen population consume music.  However, most are not paying for this music – except for cell phone ring back tones.  Gross revenues received by mobile cell companies for ring back tones were nearly as high as gross revenue for the music industry in the United States.  However, the music industry received a paltry 105 million USD for its content from Chinese cell service providers compared to the 4 billion that was generated.  Thus, Priest’s discussion to a degree validated Merges’ discussion regarding how competition and integration were becoming increasing concerns.

IP Challenges:

Prof. Song gave a brief presentation on some of the top entertainment cases in areas such as defamation, ideas/expression dichotomy, merchandising rights, and first look rights of publishers.

In trademark, several speakers discussed the Kung Fu Panda / merchandising right case, which has also appeared in this blog.  Not all speakers were in favor of this modest trend of creating a new “merchandising right.”  In the United States, the issue was first addressed by our courts and later adopted into amendments in the Lanham Act which look at likelihood of confusion based on misleading endorsement or sponsorship of a product or service. (Trademark Law Revision Act of 1988 – concept of “confusion as to the sponsorship”), as well as the Federal Trademark Dilution Act of 1995 (protecting famous marks against either the blurring of their distinctiveness or the tarnishment of their reputation caused by unauthorized uses of identical or similar marks not solely on related goods but also on unrelated goods.)  In the United States case law requires a case by case analysis, particularly for unrelated goods and services, where the plaintiff can show a likelihood of confusion as to “sponsorship.”  Cynthia Henderson of USPTO underscored that in China, there may be a greater need for a merchandising right because of rampant bad faith filings,  lack of flexibility under China’s first to file system, lack of protection for lesser known marks, and difficulties in addressing infringements for protection across different classes of goods and services.

Prof. Zhang Ping. from Peking University, discussed the various possibilities for protecting the title of a work under Chinese law, including trademark protection, copyright protection and unfair competition.  Trademark protection in her view, could be deficient since  “in [the] real world, one does not pursue trademark protection for the title of a work until this work gains certain commercial value.”  In such instances, unfair-competition protection might be pursued as a supplemental remedy.   Prof. Zhang gave the example of the famous Wahaha mark (1989), which was originally the title of a popular song (1954).  A court determined that the creator of the song did not enjoy copyright protection in the title.  Unfair competition and merchandising rights may help in addressing these issues .

Several speakers addressed problems in copyright protection for live television entertainment, including but not limited to, live sports broadcasting.  Rebecca Borden of CBS noted that the scope of content that has uncertain protection under current Chinese copyright law incudes live broadcasts of sporting events (about which I have previously blogged), but also includes award shows, games shows, annual galas, etc.  Award shows have many similarities to sporting events, including filming of live reactions to awards/unexpected reactions, driving viewership in conjunction with unique performances or achievements, etc.  Prof. Jiarui Liu of the University of San Francisco noted that recognizing the creation of a professionally produced live sports broadcast as a creative work would likely provide the most stable protection for the investment in these works.

The video gaming industry also faces a number of IP challenges, as noted by Zhang Xin of Tencent and Song Haining of the Junhe Law firm.   Haidian District Court has been the epicenter of litigation involving onine gaming IP issues.  Total  adjudicated cases in 2014-2015 involving copyright were 183; trademarks 17, and unfair competition 9.  Courts have been willing to impose progressively higher damages, including damages based on actual or implied revenues attributable to the copyrightable infringement.  Due to the large amounts at stake, some cases will also satisfy criminal thresholds, and the public security agencies have been supportive.  See, eg., WeMade v. Xiaoxian (2016), which involves potentially billions of RMB in damages.

Charles Feng of East & Concord Partners gave an excellent presentation on preliminary injunction (PI) practice in China, an issue I have covered elsewhere on this blog.   Mr. Feng gave permission for me to post his ppt here.

In Mr. Feng’s view, the likelihood of prevailing on the merits is based on a calculation of the “certainty to prevail” minus “opposing evidence.”  If there is sufficient evidence and clear facts, which do not involve complicated comparison or necessitate judicial verification, a plaintiff is more likely to prevail.  PI’s are also rare in invention patent or software infringement cases.  The case should also not involve disputable or controversial issues, such as those involving the originality of a work, the doctrine of equivalents,  a prior-art defense, the similarity of marks  or goods, the well-known status of a mark, etc.  

In assessing the public interest, the court also looks at issues such as the necessity of intervening against fake and shoddy goods, supporting the security of people’s life, environmental conservation, etc. Generally, preliminary injunctions are rejected in case of a pharmaceutical products related patent and SEP’s.

Among the cases he cited: Telpa v. Media Plus(灿星)(Voice of China case), where  the defendant may have used trademarks completely incorporating plaintiff’s registered mark, and there was also trade name infringement.  A contrary case example is HBSA v. General Administration of Sport, involving the  跤王 “Wrestling King” mark in in Cl. 41 covering.  The General Administration of Sport organized games called “China Wrestling King Competition”. During the litigation, the defendant claimed the fair use defense. The Beijing No.2 Intermediate Ct.  noted that “Given the alleged mark of Wrestling King is a generic name, which may not be registered as a mark, and that the Trademark Review Adjudication Board has accepted the application for invalidation, the court does not believe that there is likelihood of prevailing on the merits.”

The concluding panel, which was moderated by me, included a lively discussion over IP, rule of law, the importance of the Chinese market, the role of the Chinese government, and the future direction of “entertainment law” in China.   Monique Joe highlighted the differences and unpredictability in the way the TM law is applied to address infringement and squatting issues.  Joshua Grode noted that he thought IP issues were not a major factor in deals.  Sheri Jeffrey noted that many deals do not contemplate the full scope of rights that may be licensed or created, including rights

Prof. Ma Yide refuted assertions that China is not protecting IP or that there were regulatory risks in China that made investment unattractive, noting that the growth in the market was likely the single biggest attractive force for foreign investor. Regulatory uncertainty was noted as a major factor in driving investors away from co-productions, despite a higher revenue share (47%) for coproduction versus an imported film.  The lack of certainty also dries down liquidity.  Putting together Robert Merges’ comments, the deal makers on the last panel, and the concerns about over the uncertainty of copyright protection in certain areas, several speakers questioned whether copyright was becoming the “chopped liver” of the entertainment sector – beautiful to look at, but rarely exploited in the proper way, which was a somewhat negative way to end an otherwise very positive and forward- looking program.

The preceding are my personal observations only.

SPEAKER LIST

Rebecca Borden Senior Vice President and Associate General Counsel, CBS
Mark Cohen Senior Counsel, United States Patent and Trademark Office
Jay Dougherty Professor, Loyola Law School, Los Angeles
Charles Feng Partner, East & Concord Partners
Neil Graham Attorney Advisor, Office of Policy and International Affairs,                                        United States Patent & Trademark Office
Josh Grode Partner, Irell & Manella LLP
Sheri Jeffery Partner, Hogan Lovells LLP
Monique Joe Head of Trademarks, Dreamworks Animation
LIU Chun-Tian  Dean,  Renmin University Intellectual Property Academy
LIU Jia-rui Assistant Professor, University of San Francisco School of Law
MA Yide President, Beijing Zhongguancun IP Research Institute
Robert Merges Professor, University of California Berkeley School of Law
Shira Perlmutter Chief Policy Officer, United States Patent & Trademark Office
Eric Priest Associate Professor, University of Oregon Law School
Bennett Pozil Executive Vice President and Head of Corporate Banking, East West Bank
SONG Hai-ning Partner, Junhe Law Firm
Seagull Song Professor, Loyola Law School, Los Angeles
Simon Sun Executive Vice President, Le Vision Pictures USA
Lisa Wang General Counsel, Huayi Brothers Media Corporation
Michael Waterstone Dean, Loyola Law School, Los Angeles
Martin Willhite Chief Operating Office and General Counsel, Legendary Pictures
WU Manfang Dean,  Beijing Film Academy School of Management
ZHANG Ping Professor, Peking University Law School
ZHANG Xin Legal Director, Tencent Interactive Entertainment

 

 

 

 

USPTO and Renmin University Copyright Protection Program Highlights Importance of Copyright Reform for China

revenuestreams

Last July 20, 2016,USPTO and Renimin University jointly hosted a program at Renmin University on Copyright Developments in China and the United States.  The program was covered by some of the specialty media.  Here’s a brief summary regarding some of the four key developments in China that I abstracted from the speakers at the conference:

  1. Building upon some of the path breaking work of Eric Priest and others, there appeared to be near unanimity amongst the speakers and audience of the importance of revenue diversity for China’s creative industries to thrive.  Amongst the areas highlighted, were the importance of public performance rights, of licensing for digitalization of content, of small claims procedures for copyright owners, the utility of collective management in certain contexts, and the importance of providing copyright protection for sports broadcasting (as opposed to using neighboring rights or antiunfair competition law).  The current copyright licensing environment in China uniquely supports one exclusive license, but even that revenue source is vulnerable to non-renewal if piracy erodes the value of buying legitimate content and may therefor not be sustainable in the face of “piratical” or free competition.  Musicians, as an example, are heavily dependent on public performances and secondary sources of revenue, such as DVD/CD/ streaming sales are thin.  Revenue diversity can also included non-copyright revenue streams, such as trademark rights, and perhaps merchandising rights.  Efforts have also been underway to increase pledging of copyrighted content, which can help with financing of copyrighted content.
  2. Many of the Chinese speakers spoke about increasingly creative enforcement approaches, such as the Sword Network Campaign,  enhanced administrative supervision over platforms (16 video sites/20 music sites/20 literary sites) and punitive damages.  Although they are still a minority of criminal IP cases, there is an increasing number of  criminal referrals from administrative cases (from 2005 to 2015, more than 450 cases were referred to criminal prosecution).  Article 287 of the newly amended Criminal Law, which provides for criminal liability by reason of providing computer services was noted as a potential area for expanded criminal copyright liability.
  3. Technology and globalization were making enforcement increasingly more difficult, while at the same opening up possibilities for more efficient enforcement techniques.  Audiovisual use of the internet was one of the most popular reasons in China to be online (73.2% of netizens view AV products in China). Music is a close second (72.8%), while literature was only 43.1%.     Copyright protections which did not extend to interactive (online) environments, were increasingly undercutting revenue streams.  China’s reservation under article 15(1) of the WIPO Performance and Phonograms Treaty was noted (“(1) Performers and producers of phonograms shall enjoy the right to a single equitable remuneration for the direct or indirect use of phonograms published for commercial purposes for broadcasting or for any communication to the public.”).  The increasing complexity of the copyright environment, including the environment for licensing was highlighted as a theme in both the United States and China.   Media box piracy was identified as a problem (see 湖南快乐阳光vs 清华同方).  A case involving use of parasitic software to modify the original code was noted, under the Antiunfair competition law ( 鹏讯 [深圳] v 上海虹连网络)
  4. Regarding enforcement, the efforts of the courts to develop precedential or guiding cases to resolve complicated emerging issues was also underscored, particularly due to the extensive delays in passing copyright law reform, which has now been ongoing for several years.  There were over 70 research topics underway as part of the copyright law reform.  There needs to be increased scope of protection of copyright and improved mechanisms for enforcement.  Some of the difficulties in providing copyright protection to certain areas were traced back to the original training program in 1985 in Nanjing on copyright law, which was provided by European experts, and introduced European concepts and models, such as neighboring rights.    Changes in substantive law and judicial practice, such as providing for treble damages,  sampling of allegedly infringing content, establishing a requisite standard for “originality” vs a non-original product (see 北京乐东 vs 北京昆仑 concerning copyright in entertainment software characters) idea vs. expression in variety shows (See Beijing High Court’s: 关于审理涉及综艺节目著作权纠纷案件若干问题的解答), harmonization with other laws (such as the Antiunfair Compeittion Law),  how much copying constituted infringement, discovery of source code to verify infringement of software products, and specialized IP courts/three-in-one (administrative/civil/criminal) tribunals were all noted.  In addition, an expanded scope for audiovisual works, or lowering of the creativity required for cinematographic works were noted as possible approaches to providing protection for sports broadcasts.   Rights holders were also selecting overseas venues for litigation where rights were sometimes better protected.

In general, the speakers agreed that China needs copyright reform for its own needs, and that this reform was not due to outside pressure. In addition, there are increasing opportunities for collaboration between the United States and China on the creation and distribution of copyrighted content, which appear to be mirroring increased collaboration in science and technology.  Ultimately, China needs improved copyright protection and enforcement in light of its own desires to increase its soft power, and support its creative industries.