Transcript Anti-Piracy Enforcement in China: Progress or Standing Still?

Anti-Piracy Enforcement in
China:
Progress or Standing Still?
Eric H. Smith
Greenberg Traurig LLP
© Greenberg Traurig LLP 2011
China’s Huge Unrealized Potential Market
for Creative Works
• 457 million Internet users: highest in the world –
most on broadband
• 66% using mobile phones to access the Web
(December 2010, up from 60.8% in December
2009); many phones now sold with apps to
access infringing content on WAP sites
• CNNIC reports that music and other content
have been principle “driver” of Internet growth –
virtually all unauthorized.
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• 79.2% of users access music, up 12.9% in the
last year; 66.5% web videogames; 62.1% web
video and 42.6% “web literature” (books were
greatest increase – 19.8%)
• Many industries have given up on distribution of
physical product; piracy just too out of control.
Legitimate physical product sales sinking every
year.
• Game consoles prohibited from sale in China –
piracy virtually 100%. Industry focused entirely
on online. Same is true of music and video.
• Except for software and books, almost total
focus is on online piracy.
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What could a legitimate market
in China look like?
• Estimates difficult and unavailable but
anecdotally would be among the largest in the
world.
• Example: 2009 legitimate market for recorded
music in China - $124 million, with $30 million in
physical sales, $94 in digital sales with 80% on
mobile devices and most ringback tones.
• Industry estimates a 99% piracy rate, 50% of
which is caused by deeplinking services like
Baidu.
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• Compare this with U.S. music sales of $2.8 billion,
$285 million in Korea (with high online piracy rates)
and $142 million in Thailand with about the same
per capita GDP as China and 5% of the population
– and also high piracy rates.
• If per capita sales in China were the same as
Thailand, sales would be $2.8 billion, not $124
million.
• Same conclusions can be drawn for other copyright
industries.
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• This represents a huge subsidy to Internet
companies and massive sales losses for
creators, whether Chinese, U.S. or international.
• Legitimate online business models exist in China
but are unable to gain a foothold due to high
piracy, ineffective enforcement, and for some
industries unprecedented and onerous market
access restrictions.
• While piracy rates have come down marginally
for some industries since 1990, industry
estimates still range from 79% (software) to 90%
and above for music, video and games.
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Is there any good news?
Potentially Yes
• 2010-2011 Special Enforcement Campaign
under the direction of a State Council “Leaders
Group.” Reported results so far have been more
positive than in past campaigns. Interagency
coordination somewhat improved. Example of
PSB cooperation in criminal enforcement across
provinces.
• Industry reports increased criminal convictions
for online piracy, many with deterrent penalties
and increased referrals from NCAC. Believed to
have resulted in increased ISP cooperation
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• More infringing sites have been taken down
(VeryCD) by MOC, SARFT and MIIT but usually
for failure to have a license.
• Motion picture industry reports lower piracy on
UGC sites.
• NCAC finally reports that it is investigating KJ
Med (a PLA affiliated pirate online service to
China’s libraries for medical journals etc.) (in
JCCT commitments). Dealing with this issue for
the publishing industry was a commitment in the
2009 JCCT but little was done.
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• Baidu under attack by Chinese authors for
infringing literary content. Reportedly 2.8 million
works were taken down with only 10,000 works
left. Baidu had to make a public apology. MOC
has recently cited Baidu as well (but arguably for
uncensored music).
• JCCT commitment on a new intermediary liability
JI which we hope will deal with the deeplinking
issue. SPC judges increasingly sophisticated
about these issues, JI expected by the end of
the year. Drafting has begun.
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• New SPC/SPP/MPS “Criminal Opinions” clarify
aspects of the “criminal thresholds.” Possible
opening on intermediary liability. Specific
language on advertising and online
memberships meeting “for profit” test. Minimal
loosening of thresholds, including 50,000 “clicks”
and 1000 members to meet thresholds in online
environment. Again, ascertaining whether
thresholds can be met remains very difficult.
Unclear if this will have a positive effect.
• JCCT new commitments on software
legalization, including pilot project on SOEs and
hoped for implementation of “software asset
management” (SAM)” Note that this is a slightly
more specific rehash of 2005 JCCT (and the
1995 MOU) written commitments on legalization,
but possible implementation of SAM is positive.
© Greenberg Traurig LLP 2011
• Copyright law amendments recently and finally
placed on 5 year plan.
• Chinese right holders becoming much more
active and vocal, complaining to government
that enforcement is ineffective and nondeterrent. Chinese composers complaining
bitterly about minimal royalties from collecting
societies. Chinese internet services suing
pirates and seeking licensing, particularly in the
online video environment.
© Greenberg Traurig LLP 2011
What is the “Bad News” Can we
look forward to further progress?
• Are any of these potential positives indicative of
a shift in priorities of the State Council? Unclear
but signs are not particularly positive:
• State Council involvement (“Leaders Group”) is
essential to coordinate a nationwide plan, but
Leaders Group will reportedly be disbanded at
the end of the Special Campaign. Desperate
need for high level and continuous government
leadership to rationalize overlapping agency
confusion and disarray.
© Greenberg Traurig LLP 2011
What is the “Bad News” Can we
look forward to further progress?
• No movement at all on increasing resources at
NCAC. Without this structural change, we must
question the commitment and continuity of
current efforts.
• There is a continuing lack of transparency at
NCAC. Right holders have great difficulty
following their cases and are thus unable to
contribute evidence or their own resources.
• Criminal enforcement remains key to reducing piracy.
Continuing problems with criminal referrals and need to
“prove” thresholds are met before PSBs will take a case.
NCAC has insufficient investigative authority.
© Greenberg Traurig LLP 2011
• No criminal reform (amendments to Article
217/218) or a lowering or further rationalizing the
thresholds is on the horizon.
• End user software piracy causes the largest
losses to the software industry in China – now
the largest PC market in the world. NCAC does
not have the resources nor the inclination to
enforce aggressively against this source of
piracy. No action on the few administrative
cases now pending in the Special Campaign.
• End user software piracy not a criminal offense –
violates TRIPS.
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• The government must implement an effective
SAM system to measure software use in
ministries at all governmental levels. Despite
the government’s claim that legalization is
moving forward aggressively, industry has not
seen sales increases.
• Local protectionism remains a debilitating
problem.
• Burdensome evidentiary issues continue to
plague civil enforcement, including narrow
injunctive relief, unnecessary notarization and
consularization problems, lack of discovery,
problems with enforcing judgments and noncompensatory damage awards.
© Greenberg Traurig LLP 2011
• The “national champion” – Baidu – continues to
operate its deeplinking service which would be
infringing in most other countries. Hopefully the
new intermediary liability JIs will definitively
clarify Article 23 of the Internet regulations (on
what constitutes constructive knowledge) and
Baidu will be forced to cease its service. Xunlei,
which has many judgments against it for piracy,
has recently announced a U.S. IPO and
apparently intends to run a Baidu-like service.
• It was a great disappointment that China has to
date refused to fully implement the important
WTO market access decision.
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Is China “getting it.”
• China is beginning to see the importance of its
“cultural industries” to economic growth and
Chinese right holders are seeing not only that
there is money to be made from legal services,
but that these gains cannot be realized without
better anti-piracy enforcement.
• However, high level leadership and essential
structural reforms remain elusive.
© Greenberg Traurig LLP 2011
THANK YOU!
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© Greenberg Traurig LLP 2011