Chinese IPRs and Trade Wars

Chinese IPRs and Trade Wars

著作權 or Zhùzuòquán means “copyright” in Mandarin Chinese. Earlier this week, Chinese authorities kicked-off a campaign against online copyright infringement. Is this crackdown a response to increased pressure from foreign investors —and the Trump administration— for China to combat widespread piracy and counterfeiting?

The latest Jianwang Campaign Against Online Copyright Infringement was jointly launched by several government agencies including the National Copyright Administration of China, the Cyberspace Administration, and the Ministry of Public Security. It will target key areas for intellectual property rights (IPRs) including unauthorised republication of news and plagiarism on social media, broadcasting copyrighted content on video sharing apps, and setting up overseas servers to get around territorial restrictions. The campaign, which will last for at least four months, will also push internet service providers to enhance internal supervision systems.

Similar to the crackdown last September, the campaign is seen by many as an attempt to alleviate major concerns among foreign investors, including those in the United States. China’s lack of strong IPRs protection measures “frequently draw complaints from foreign investors and have been a long-standing focus of attention at annual talks with the US and Europe.”

The issue hit headlines again last autumn, when the Office of the United States Trade Representative led an official seven-month investigation into China’s intellectual property theft, under section 301 of the Trade Act of 1974. Bolstered by the USTR’s findings that “Chinese theft of American IP currently costs between $225 billion and $600 billion annually”, the Trump Administration imposed retaliatory tariffs on Chinese products in early July.

Pedestrians strolling past adverts for western companies in Shanghai. Photo: Tomohiro Ohsumi/Bloomberg

Considering 200 years of history: is “Chinese culture” to blame for copyright infringement?

According to the 2017 Situation Report on Counterfeiting and Piracy in the European Union, China has long been recognised as the engine of the global counterfeiting and piracy industry. Whereas software piracy rates for the European Union are 28 per cent, analysts at BSA | The Software Alliance believe nearly 70 per cent of computers in China run unlicensed software.

In 2012, an article on Forbes explained that “IP protection will always be an uphill struggle in China and for companies doing business there,” as individual rights –including IPRs– may be at odds with traditional Chinese society. What support does that argument have?

Firstly, it’s important to note that IP is not an indigenous concept in China. Historically speaking, the lack of a strong IP regime can be traced to the early roots of China’s economic system, which emphasised agriculture and generally neglected large-scale commerce. Before the Opium War (1839-1842), foreign powers were unconcerned with the lack of IP protection in China primarily because there was little foreign investment there to protect in the first instance. Furthermore, the main European exports to China at the time were unbranded bulk commodities, and not technological innovations or creative works such as software, film, and music.

During the Chinese Revolution, Mao Zedong’s Communist Party abolished all legal systems in 1949. Throughout the Cultural Revolution of the 1960s and 1970s, China lacked any semblance of a functioning legal system. As per Communist political ideology, “Law” in China during this time was guided by general principles and shifting policies, rather than detailed and constant rules.

When chairman Deng Xiaoping adopted an open-door economic policy in the late 1970s, China’s trading partners were no longer restricted to the USSR and Soviet satellites, but instead now included Western countries. Several years later, the Communist party officially pronounced that the Cultural Revolution had been a grave error, and began to shift its economic and social reforms. To support its burgeoning and rapid economic development, China accordingly began to embrace a formal IPR strategy. When China joined the World Trade Organisation in 2001, it became bound by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Enhancing the protection of intellectual property rights is a matter of overall strategic significance, and it is vital for the development of the socialist market economy.

—Li Keqiang, Premier of the People’s Republic of China

The Wall Street Journal further explains that, incentivised by the influx of foreign technology and media companies wishing to invest in China, IPR protection in the country has been rising steadily for the last decade. In 2006, there were approximately 6,000 copyright lawsuits: in 2016, that number had multiplied nearly 15 times over to 87,000 cases.

If Chinese IP law is increasingly comparable to European and American standards, why then does China continue to attract disapproval?  

Although the rate of unlicensed or “pirated” software in China is nearly 70 per cent, the piracy rates in Indonesia, Pakistan, Vietnam, Albania, Belarus, Ukraine, Bolivia, Algeria, Botswana, Zimbabwe and many others is much higher. However, because Chinese economy is behemoth, and uses an incredible amount of software, the value of such pirated software is over $6.5 billion.

Secondly, although true that Chinese IPR enforcement is catching up to U.S. and European standards, considerable weakness remains in the high levels of bureaucracy. For example, court decisions might apply on a provincial level rather than nationally, and judges often have different interpretations of the laws.

a farm in Altay Prefecture, China. 42 per cent of people in China live in rural communities. Photo: @linsyorozuya

Of China’s 1.5 billion residents, nearly 600 million live in rural communities. While central authorities may establish the laws and regulations, it is the local authorities tasked to implement those laws and regulations. It is therefore important to note that local protectionism probably constitutes the largest obstacle to cracking down on piracy in China.

Finally, from a sociological perspective, it could be argued that English-language media promotes an inaccurate portrayal of IP piracy as somehow rooted in Chinese culture and Otherness. To be fair, European and American copyright law is also plagued with intense debate and woeful inadequacies surrounding the evolution of online technologies.

IP is a complex area of law, and for a variety of reasons copyright is perhaps one of the most difficult areas to legislate. China still has a long way to come in respect of is IPR regime, a sentiment acknowledged by Beijing. However, the danger of perpetuating snippets and sound bites without adequate context is non-trivial. IPR policy affects United States foreign policy, and incorrect understanding the problem can lead to disruptions in international relations, or even trade wars.

 

featured image photo of Shanghai: @Usukhbayar Gankhuyag

Lights, camera, data protection.

Lights, camera, data protection.

Cannes: movie stars, auteurs, glamour, the French Riviera, and… data privacy?

Before the cameras start rolling, a film production company will need to agree service contracts for cast and crew.  In honour of the Cannes Film Festival happening this week, let’s consider how data protection issues need to be addressed for an actor’s contract.

A standard Actor’s agreement will cover payment, travel and residence allowances, box office bonuses, and of course, intellectual property.  But if the production company intends to process a significant amount of personal data about the Actor – such as dates and locations of filming, and details of travel arrangements and accommodation –  the agreement should also contain a data protection clause.  Remember that “processing” is widely defined, and covers any activity involving personal data, including storing, sharing, or reading.

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The Cannes 2018 poster, featuring an image from Jean-Luc Godard’s 1965 film “Pierrot le Fou.”

“The Actor agrees and hereby give her consent to the holding and processing of personal data relating to the Actor in any form, whether obtained or held in writing, electronically or otherwise, by the Producer.”

The above clause may be acceptable under the UK Data Protection Act 1998, but is problematic under the incoming General Data Protection Regulation (GDPR).

Consent. As worded above, the Actor is providing the Producer with blanket consent to process her personal data.  Under the GDPR, consent means “freely given, specific, informed and unambiguous indication of the data subject’s wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her” (Art. 4(11)).

Given that this is a contract between a prospective employee and her boss, there is an imbalance of power between the parties. Accordingly, the Actor’s consent statement is unlikely to be considered “freely given” as is required under the GDPR.  Furthermore, personal data processing should neither be disguised nor bundled with the provision of a contract (Art 7(4)).

Even in other contexts, it would be unwise to rely on the Actor’s consent for processing, as this can cause difficulties if consent is withdrawn at a later date.  It is therefore advisable to rely on another lawful basis.

Another lawful basis? “Lawful basis” is just another way of saying “reason to do something.” Consent is just one of the six lawful bases permitted (Art. 6 GDPR). As the conditions for consent are very strict and unlikely to be met in this scenario, the Producers should consider their other options:

  • Contract: Processing is necessary for a contract with the person. Employment contracts are certainly applicable in this instance: for example, the Producers must process the Actor’s bank details to pay her.
  • Legal obligation: Processing is necessary for the Producers to comply with the law. This could include their tax obligations for HMRC, or complying with money laundering regulations.
  • Legitimate interests: The Producers must process the data for their legitimate interests. This could include business purposes such as sending out publicity emails with the Actor’s name and contact details, posting her image on social media, and so on. This is the most flexible basis to rely upon, but requires the Producers to demonstrate (inter alia) that their objectives are not unreasonable, and do not harm the Actor’s human rights (Recital 47).
  • The other lawful bases of protecting vital interests and carrying out a public task are not applicable in our scenario, but worth noting for completeness.

To be GDPR compliant, the clause could be amended to something like:

The Producers will collect and process the Actor‘s personal data in accordance with the Privacy Notice annexed to this Agreement. The Actor will sign and date the Privacy Notice and return it to the Executive Producer within 10 days of signing this Agreement.

The purpose of the Policy Notice is to provide the ActorActor with the information she is entitled to receive as a data subject (Articles 13 and 14). The Privacy Notice, likely to take the form of a letter, will explain how the Producer obtains, uses, and retains the Actor’s personal data. It will also set out the relevant lawful bases for each type of processing, and explain how the Actor can exercise her rights (Articles 15 through 22 inclusive).

Of course, the work doesn’t end once the agreement is signed. The Producers will need to make sure anyone who handles personal data within their organisation understands the new requirements under the GDPR. Having clear policies is only part of the story: those policies will need to be followed.

It’s a common misconception that the GDPR is just about IT security and marketing emails filling up your inbox. In reality, the legislation will provide enhanced rights for data subjects, and it’s important to remember that employees are data subjects too.

No more Safe Harbours for EU-ser Uploaded Content?

No more Safe Harbours for EU-ser Uploaded Content?

The European Union is considering a sweeping new Directive on Copyright in the Digital Single Market, currently in draft stages. Industry groups are keen to ensure their opinions are taken into consideration, especially in instances where consumers share content which belongs to artists, authors, record labels, and television channels.

Digital platforms and internet service providers which host User Uploaded Content (UUC) argue that they are not responsible for any copyright infringing material uploaded by their users. However, trade bodies representing various industries believe the incoming Copyright in the Digital Single Market Directive doesn’t go far enough to reform this safe harbour principle.

The E-commerce Directive states that EU Member States shall ensure that internet service providers are not liable for copyright infringements carried out by its customers, on condition that: (a) the ISP does not have actual knowledge of illegal activity or information;  and (b) the provider “acts expeditiously to remove or to disable access” to the illegal content, once they become aware of it (see Article 14).

This article provides ISPs with a “safe harbour” from copyright liability (also known as the “mere conduit” provision). Generally speaking, a safe harbour* is simply a protection available within a regulation that specifies that certain actions do not to violate a given rule, in particular circumstances.

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In the United States, this principle operates under the “notice-and-take-down system”

About 18 months ago, the European Commission announced its plans to introduce a new Directive on Copyright in the Digital Single Market. As the explanatory memorandum sets out, “the evolution of digital technologies has changed the way works and other protected subjectmatter are created, produced, distributed and exploited. In the digital environment, cross-border uses have also intensified and new opportunities for consumers to access copyright-protected content have materialised. Even though the objectives and principles laid down by the EU copyright framework remain sound, there is a need to adapt it to these new realities.”

Amongst other things, the propsed Directive seeks to rebalance the position of the copyright owner against that of the internet service provider. Last week, various trade groups representing Europe’s creators and creative content producers published an open Letter to the European Council.

The authors suggest that, far from ensuring legal certainty, the Directive as currently drafted “could be detrimental to our sectors,” which include journalism, film and TV, music, and sport. While the authors support the objectives of the proposed legislation, the Letter critiques the latest draft of the directive, and expresses significant concerns about the safe harbour reforms.

In particular, the problems seem to arise with sections addressing the “use of protected content” by ISPs and other platforms which “store and give access to large amounts of works and other subject-matter uploaded by their users”. Put simply, the copyright industries want the safe harbour reformed, so that it no longer applies to user-upload sites (Complete Music Update).

This draws into question how online platforms hosting UUC should monitor user behaviour and filter their contributions. Currently, the platforms review material after it has been published and reported or “flagged” as copyright infringement. This may, as has been discussed with Facebook’s proposed use of artificial intelligence in copyright and hate speech monitoring, “inevitably require an automated system of monitoring that could not distinguish copyright infringement from legal uses such as parody” (The Guardian).

The authors of the Letter voice complaints in respect of the draft forms of Article 2, Article 13(1) and Article 13(4):

  • Article 2 defines which services fall under liability, mentioned further at Article 13. The latest draft could leave most UUC platforms outside the scope, despite the fact they continue to provide access to copyright protected works and other subject-matter. For example, music playing in the background of a makeup tutorial on YouTube.
  • The problem with Article 13(1) as currently written is that it risks narrowing the scope of the right and contravening CJEU jurisprudence. The Letter’s authors argue that “any new EU law should secure that this right is broad,” and “contain no additional criteria which could change via future CJEU rulings.”
  • As for Article 13(4) and its relevant recitals, the authors suggest the language is tantamount to a new safe harbour, which would both “seriously undermine fundamental principles of European copyright,” and pose “unwarranted liability privilege risks breaching the EU’s obligations under international copyright treaties.”

The Letter closes with the authors’ promise to “remain at the Council’s disposal to find solutions to these points.” For more on the proposed Directive, be sure to check out the IPKat’s numerous posts on the subject.

*This “Safe Harbour” in copyright law is not to be confused with the Safe Harbor Data Privacy exemptions between the US and the EU, which have since been declared invalid. On that subject, I might write on the new Privacy Sheild… at some point…

From Stockholm to Stock Market: Sweden’s Spotify set to list on NYSE

From Stockholm to Stock Market: Sweden’s Spotify set to list on NYSE

Music streaming giant Spotify recently filed its application to put shares on the New York Stock Exchange. The 264 page document details the company’s key risks and challenges: I’ve read them so you don’t have to!

The Securities Exchange Act of 1933, often called the Truth in Securities law, requires that investors receive financial and other significant information concerning financial securities. To avoid misrepresentations and other fraud, any company wishing to place its shares on an American market must submit a prospectus, formally known as an SEC Form S-1 (or an F-1 for foreign companies).

Sweden-based Spotify filed their prospectus for the New York Stock Exchange on 28 February.  Prospectuses are heavily regulated, and accuracy is vital: it is a lawyer’s job to fact-check these documents in a process known as “verification.” To allow investors to make informed decisions, a company must be honest about its particular commercial situation, and explain how share prices may decline. Spotify’s estimated valuation is nearly $20 billion, but it has never made a profit and reports net losses of €1.2bn (£1.1bn).

Spotify clearly needs a capital injection,
but given the risks below, would you invest?

Hitting the right note with listeners.
Spotify’s unique features include advanced data analytics systems and proprietary algorithms which predict music that users will enjoy. These personalised streams rely on Spotify’s ability to gather and effectively analyse large amounts of data, together with acquiring and categorising new songs that appeal to “diverse and changing tastes.” If Spotify fails to accurately recommend and play music that customers want, the company may fail to retain or attract listeners.

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Spotify knows that 71% of my recent tunes are energetic, upbeat, and suitable for a fitness enthusiast. Touché!

Licensing and royalties.
To make its 35 million tracks available for listeners, Spotify requires licenses from the musicians and record labels who own the songs. Additionally, Spotify has a complex royalty payment scheme, and it is difficult to estimate the amount payable to musicians under their license agreements. Even if Spotify secures the necessary rights to sound recordings from record labels and other copyright owners, artists may wish to discontinue licensing rights, hold back content, or increase their royalty fees. In 2014, Taylor Swift removed her songs from the streaming service in protest, although she later added it back.

Technical glitches and data protection.
Spotify’s software and networks are highly technical and may contain undetected bugs or other vulnerabilities, which could seriously harm their systems, data, and reputation. Growing concerns regarding privacy and protection of data, together with any failure (or appearance of failure) to comply with data protection laws, could diminish the value of Spotify’s service. This especially worth noting as Europe nears the General Data Protection Regulation (GDPR) implementation date of 25 May.

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Spotify’s NYC offices

Innovation and skilled employees.
Rapid innovation and long-term user engagement is prioritised over short-term financial gain. Spotify admits “this strategy may yield results that sometimes do not align with the market’s expectations.” The company also depends on highly skilled personnel to operate the business, and if they are unable to attract, retain, and motivate qualified employees, the ability to develop and successfully grow the company could be harmed.

International regulation and taxation.
As Spotify expands into new territories, it must adhere to a variety of different laws, including those in respect of internet regulation and net neutrality. Spotify even admits that language barriers, cultural differences, and political instability can bring share prices down! Furthermore, public pressure continues to encourage governments to adopt tougher corporate tax regimes, and tax audits or investigations could have a material adverse effect on the company’s finances.

Image result for bloomberg spotify

Method of offering.
While Spotify may not be able to successfully overcome each challenge listed in its prospectus, many of the risks are relatively common amongst international technology and media companies. But as an additional risk, Spotify has chosen a relatively unconventional method known as a direct public offering (DPO) to bring its shares to the stock market. Unlike a traditional IPO, in a DPO a company will not use an investment bank to market or underwrite (insure) its offering. While this avoids bank fees, uncertainty can result in a discounting of share prices. This is a really technical point and somewhat nuanced (it gave me headaches in law school!) but a risk worth noting.

I’ve written previously about Spotify’s copyright challenges, as well as its controversial privacy policy

Lawyerpalooza: when music festivals get intellectual property licensing wrong

Lawyerpalooza: when music festivals get intellectual property licensing wrong

Commercialisation is the process of bringing Intellectual Property (IP) to the market in order to be exploited: put simply, it’s how artists make money from their creations. To maintain control and balance risk against rewards, creators often use license agreements to ensure their work is used only in accordance with their wishes. So what happens when things go wrong?

Juan Marco is an artist from Los Angeles, California who has created illustrations and branding projects for the last decade. Marco’s work includes characters “inspired by musical energy — how it flows through your body when you create and listen to music.”

For the last several years, Marco has been the official designer for the popular Lollapalooza music festival. As part of this business relationship, he entered into an intlelectual licence agreement with C3 Presents, the concert promotion and artist management company responsible for Lollapalooza.

Licensing is a common way of commercialising intellectual property. A licensing agreement is simply a partnership between an intellectual property rights (IPR) owner and another user who is granted permission to use the IPRs in exchange for an agreed fee or royalty payment. This allows Marco (the licensor) to retain ownership of his work, while at the same time receiving income from C3 (the licensee).

One of the most important provisions of the agreement concern the scope of the licensee’s rights, covering (1) which IPRs are being licensed, (2) exclusivity, and (3) the extent of the licence. “Extent” in this context simply details if the IP can only be used for certain activities, events, or within certain territiories.

The original licence was for the non-exclusive use of various illustrations for Lallopalooza events in Chicago, USA and Santiago, Chile for three years. However, in a recent lawsuit filed in California District Court, Marco argues that his illustrations have been used outside of the original scope as agreed in the licence.

The alleged infringement includes using and modifying the artwork in unauthorised ways, as well as using it in locations beyond Chicago and Santiago. For example, Marco’s artwork is used in connection with the Lollapalooza event in Paris, as seen on the Lollaparis website. Additionally, Marco accuses C3 of sub-licensing his artwork to other users without his permission, in order to manufacture and create products which are similar or substantially similar to Marco’s original artwork.
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Marco is therefore claiming for copyright infringement, together with vicarious and contributory copyright infringement. In the first claim, he alleges that he has suffered substantial damages – both general and special – to his business. He notes that the Defendants have profited as a direct result of their “wilful, intentional and malicious” copyright infringement, and is asking for statutory damages of up to $150,000 per infringement.

In his second claim, Marco alleges that the C3 and the other Defendants are vicariously liable for the infringement carried out by other parties. The lawsuit states that the Defendants “knowingly induced, participated in, aided and abetted in and profited from the illegal reproduction and subsequent sales” of his artwork.

By alleging contributory copyright infringement, Marco is asking the Court to consider the Defendant’s secondary liability. To be found guilty of this offence, the Defendants must have reasonably known, or had reason to know, of the infringement. Marco asserts that under the original licence agreement, the Defendants had both the right and ability to supervise the copying of Marco’s artwork, but nevertheless failed to prevent infringement. The Defendants also benefited financially as a direct result of the infringement by other parties, and therefore must have known of the illegal copying in the first instance.

It is interesting to note that Marco is not seeking any damages in respect of harm done to his reputation. By his own admission, Marco has previously collaborated with big names in the music industry, as well as freelance work for record labels and bands. Rather, Marco is suing C3 because of the ways in which his artworks were used in contravention to the original licence agreement. No matter the payments or promotion involved, it is important to remember that permission to use artwork usually comes with very specific strings attached.

Cisco v Arista: what next for computer programs and copyright?

Cisco v Arista: what next for computer programs and copyright?

Computer programs are functional, but they are also “literary works” that may be protected under copyright law. In December 2016, Arista Networks defended itself against a $335 million copyright infringement lawsuit from Cisco Systems. Cisco is now appealing the decision.

Cisco Systems, the largest networking company in the world, is trying to prevent Arista Networks from building ethernet switches which partially rely on technology copied from Cisco. Now on appeal before Federal Court in California (9th Circuit), the legal question is whether aspects of the particular technology deserves copyright protection in the first place.

ethernet switches connect devices together on a network

Copyright protects creative expressions of an idea, but not the idea itself. This “idea–expression dichotomy” therefore limits the scope of copyright protection. In an earlier blog post, The Copyright Between Oceans, I explained how the scène à faire doctrine was used as a successful defence in a copyright lawsuit regarding the novel The Light Between Oceans, and its subsequent film adaptation. When scène à faire (French for “essential scene”) is applied, common or typical plot developments are denied copyright protection. This means that broad themes, storylines and ideas which are common in a particular genre remain free for use by authors, screen writers, and other artists.

In the United States, computer programs are considered “literary works” under the Copyright Act, 17 U.S.C. § 101. Accordingly, scène à faire may be applied to preclude copyright protection from aspects of a computer program which are common or otherwise “dictated by practical realities.” Practical realities include hardware compatibility, manufacturer design, and industry practice. Arista’s defence turns on this concept.

Continue reading “Cisco v Arista: what next for computer programs and copyright?”

UEFA scores goal against internet giants to prevent copyright infringement

UEFA scores goal against internet giants to prevent copyright infringement

Union Des Associations Européennes De Football (UEFA), whose members include 55 national football associations, organises some of the most famous and prestigious football competitions in Europe. Recently, UEFA obtained an injunction against the UK’s main retail internet service providers.

As a substitute for paid subscriptions to sport packages through Sky, BT and others, some football fans are instead using set-top box devices such as Kodi to connect directly to streaming servers via their IP addresses. A survey for the BBC found that 47% of adults have watched a football match through an illegal provider at least once, with 36% streaming matches at least once per month.

Infringement in this way is on the rise for two key reasons. Firstly, an increasing proportion of UK consumers mistakenly believe using devices to access unauthorised streams is lawful. Secondly, most people know they personally won’t face charges for pirating illegal streams.

UEFA therefore applied for an injunction against the internet companies themselves, relying on the principle of “online intermediary liability.” Online intermediaries are companies which provide the infrastructure and data storage to facilitate transactions over the internet. Examples of intermediaries are search engines, web hosts, and internet access and service providers (“ISPs”).

Rather than go after private users, copyright holders – such as UEFA, movie stuidos and record labels – consider corporate intermediaries to be more viable targets for lawsuits. Accordingly, if online intermediaries have actual knowledge of the copyright infringement, they may be liable for the illegal behaviour of their customers and viewers.

Services of intermediaries may increasingly be used by third parties for infringing activities. In many cases such intermediaries are best placed to bring such infringing activities to an end. — Recital 59, Information Society Directive (2001/29/EC)

Continue reading “UEFA scores goal against internet giants to prevent copyright infringement”