China e-commerce law
Earlier this week, in China E-Commerce: Resistance is Futile, we set out what will likely be the new rules for foreign.

I could not have scripted better responses to that post as I personally received emails from what I would describe as “both ends of the spectrum.”

The first email is from a European businessperson I know who has been doing business with China for 25+ years and living in China for at least a decade. He has become pretty cynical about China and the focus of his email was on how China is setting everything up to “screw us foreigners”: Here is his email:

Great post as usual. It nicely encapsulates what I see happening here with everything. China is re-writing its laws to make its own companies rich and to screw us foreigners.

On the flip side, I got the following email from a very experienced China lawyer essentially saying nearly the opposite:

Exactly. The intelligent way to approach China is to figure out what is their plan and then work that plan to your advantage. Fighting against the plan is futile. Working with the plan can result in a lot of money. Google decided to fight, and they are gone. Microsoft finally decided to go with the plan and they are still in the middle of the China system.

When I say these sorts of things I get accused of being too negative and I would bet you will get that reaction to this post. But I do not view it negatively at all. It outlines a clear plan to success in China. It’s just that the plan follows a basic path outlined by the PRC government and Alibaba and the other rules of the PRC Internet. There is lots of money to be made and there are many things to be done to make the deals and to protect IP and similar.

That was our exact point with the post. There are great opportunities to make money on China e-commerce but to do so you must follow China’s rules. You can complain about those rules all you like, but the real issue is whether you are going to jump in and seize the opportunity (flawed though it is) or not. What’s your answer?

Earlier this year, I attended Alibaba’s Gateway ’17. The theme of that event was that there is easy money to be made by Western companies selling their products on Tmall and on Taobao. There is most definitely a lot of money to be made but it is debatable how easy it is to make it. I don’t know about you, but I doubt that any of our long list of clients who are making money in or from China — be it via China e-commerce or otherwise — would ever claim it to have been easy. And yet, I also doubt that any of them would say that it has been so difficult as to not be worth it.

The bottom line is that selling your products to China consumers via e-commerce will not be as easy or as cheap as selling your products to U.S. or EU consumers. But is that enough to stop you? In our next post, we will talk about what you should do to protect your IP before you start selling online to China.

 

China e-commerce laws
China e-commerce laws

The PRC National People’s Congress last week promulgated a second discussion draft of the PRC E-Commerce Law (电子商务法草案). If you are interested in commenting, you can find the new statute and a portal for comments here.

This statute is an attempt to gain greater control over the online consumer markets. These markets have exploded in China, in a situation where there is little or no regulation. The lack of regulation has not slowed development of e-commerce in the PRC. The success of online marketing is shown by the recent results of Alibaba’s November 11 “Singles Day” online sales event. As reported by ZD Net, the results were impressive:

Alibaba Group has raked in US$25.3 billion (168.2 billion yuan) in gross merchandise volume (GMV) from its annual online shopping festival, breaking last year’s record sales by 39 percent.

Held on November 11, its Singles Day shopping bonanza this year involved more than 140,000 participating merchants, including 60,000 international brands. Some 165 of these each generated more than US$15.1 million (100 million yuan) in sales, including Gap, Nike, and Samsung, with 17 merchants exceeding US$75.4 million (500 million yuan) and six surpassing US$150.9 million (1 billion yuan) in sales.

Japan, Australia, and Germany were amongst countries with the most sales selling into China during Singles Day this year.
At its peak, Alibaba processed 256,000 transactions per second and US$1 billion (6.6 billion yuan) was processed within the first couple of minutes. In the first two hours, it registered US$11.9 billion (78.8 billion).

Overall, Alibaba processed 1.48 billion payments, up 41 percent year-on-year, and 812 million delivery orders via its logistics arm, Cainiao Network. This was 23 percent higher than last year’s 657 million delivery orders.”

As you can see, foreign products played a big part in the success of the Singles Day event. Section 5 of the Discussion Draft sets out the proposed rules for cross-border sales. The Singles Day even illustrates the way the Discussion Draft plans for the future of cross-border online sales:

1. Foreign retailers will not be permitted to directly participate in online sales in China. All online sales will be limited to Chinese owned entities that have obtained the required commercial ICP license. Though there had been some hope there would be a limited exemption to the ICP license rule for e-commerce produce sales, there is no hint of such a change in the Discussion Draft. The PRC government intends to continue restricting e-commerce sales to Chinese owned or controlled entities.

2. Foreign-owned operators of e-commerce platforms will also be excluded from operating in the Chinese market. Sales of foreign products will be forced to come into China through Chinese owned or controlled platforms.

3. The Discussion Draft provisions on cross-border e-commerce focus on ensuring cross-border sales comply with Chinese law and only approved products are imported into China and all taxes and duties on those products get paid. The Discussion Draft seeks to shut down online sales as a way to import illegal products into China and to shut down online sales as a method for evading China taxes and import duties.

4. The method for control proposed by the Discussion Draft is to create highly centralized e-commerce processing centers. The China (Hangzhou) Cross-Border E-Commerce Processing Pilot Area is an example of the ultimate goal. The idea is that these centers will handle the procedures related to e-commerce: foreign purchase, shipping to China, import into China with full compliance with all PRC applicable regulations on product approval, inspection and quarantine, payment of duties and taxes, and warehousing and distribution.

The plan is to funnel all cross-border e-commerce through a limited number of processing centers, all of which are controlled by the national government. These processing centers will also be under the control of a single e-commerce sales platform. The Hangzhou Center will be controlled by Alibaba, with competing online sales giants in China presumably establishing and controlling their own competing centers. This would be the opposite of the freewheeling approach that typifies e-commerce development in the U.S. It is though quite consistent with the current domination of retail e-commerce in the U.S. by a limited group of large players.

The success of the Alibaba event shows that the model envisioned by the Discussion Draft is already fully functioning. Foreign retail brands were excluded from direct sales. They were instead funneled through the single channel provided by Alibaba. Alibaba assumed all liability for compliance with PRC rules and regulations. No foreign entity was involved in any way with the actual direct sale of its product or with any direct relation to any Chinese consumer; all of this was handled by Alibaba.

This is the future of e-commerce in China. For foreign brand owners that want to penetrate the PRC online sales market, the Discussion Draft makes clear how the system will work.

Resistance is futile.

China cyber law
Screenshot of Hangzhou Cyber-court Website, showing its Chinese name as Hangzhou Railway Transport Court as of end of June.

China has adopted a plan to establish a cyberspace court in Hangzhou lately. The plan is for this court to accept filings electronically, try cases via livestream and hear only e-commerce and Internet related cases.

Why Hangzhou? As a general rule of Chinese civil procedure law, lawsuits must be brought in the place of the defendant’s domicile. For companies, domicile means their principal place of business or the place where it has its registered address. Hangzhou is home to Alibaba and to many other technology companies, it has been dubbed the “capital of Chinese e-commerce,” and it is the site of the China Cross-Border E-Commerce Comprehensive Test Zone (中国(杭州)跨境电子商务综合试验区). Hangzhou courts have experienced a considerable increase in the number of e-commerce related cases, from 600 cases accepted in 2013 to more than 10,000 in 2016.

Before these most recent plans for a cyber-court in Hangzhou, the Zhejiang High Court launched a pilot program to create Zhejiang E-Commerce Online Court System to better handle Hangzhou’s increasing caseload in Hangzhou. Three Hangzhou trial courts and the Intermediate Court of Hangzhou initially joined this system to try certain e-commerce related cases online. Other than a different space (cyberspace versus an actual courtroom) for the actual litigation/trials, there are no significant differences between the online court and traditional courts. The Zhejiang E-Commerce Court website explicitly states that its litigation processes will strictly follow China civil procedure law.

What Cases Will the Cyber-Court Handle? The Cyber-court will have general jurisdiction over certain Internet and e-commerce related cases in the Hangzhou area. Although the Cyber-court’s website is currently inaccessible, according to the Zhejiang E-Commerce Court website, the following cases (over which the existing trial courts in Hangzhou would normally have original jurisdiction) will be tried by the Cyber-court beginning on August 18, 2017:

  • Disputes regarding online purchases of goods, online service agreements, and small [online?] loan agreements;
  • Disputes regarding “internet copyright” ownership and infringement;
  • Infringement on personal rights (e.g. defamation) using the Internet;
  • Product liability claims for goods purchased online;
  • Domain name disputes;
  • Disputes arising from Internet based administration;
  • Other civil and administrative cases concerning the Internet assigned to the Cyber-court by a higher court.

No matter in which district of Hangzhou a defendant is domiciled, cases that come within the above list should be filed with the Cyber-court instead of with the trial court in the previously relevant district.

How to file a case with the Cyber-court and Attend trials? Please note that because the Cyber-court’s website is currently offline and inaccessible we have had to base the information in this section on what we obtained from the website back when it was live in July and from news reports. The Cyber-court will use an online platform that allows people to file cases and attend trials. To be able to use this platform, users must first verify their identity and then register for an account. There are two options for doing this. One is to physically go to Hangzhou and show your ID to the court clerk, which to a large extent defeats much of the purpose of having the online court system. The other is to have your identity verified through Alipay (Alibaba’s payment service). If you already have an Alipay account and Alipay has verified your identity (because you probably used Taobao before), such a verification will be accepted by the cyber-court’s system.

Once you have a cyber-court account, you can file a complaint, submit evidence, and request service of process through this platform.

You can attend your trial remotely by entering a verification code on a webpage. Transmission of audio or video of any hearings and trials and the evidence presented and other data exchanges will be encrypted using security technologies provided by Alibaba Cloud.

Implications. For people who do not live in Hangzhou area and want to sue someone there based on causes that are within the Cyber-court’s jurisdiction, the new system sure will make that more convenient. It also will likely make rulings on internet and internet related cases more consistent and thereby give more and better guidance to potential and actual litigants

But I also wonder whether all of what has been put under the cyber-court’s jurisdiction makes sense. Take product liability as an example. How is a product liability claim for goods purchased online any different than that for goods purchased physically in a store? In what will the cyber-court be better able to handle such a claim? There may be difference in online and offline purchase agreements for issues such as where the defendant resides, the place of execution or performance of the agreement or jurisdiction. But those are typically answered by existing product liability law, contract law, and civil procedure law and there is no single “Product Liability Law for Cyberspace.” Do we need a separate cyberspace law or is it just the Law of the Horse? Many countries, including China, have separate maritime and IP courts and those have generally worked well. Does it make sense to have a separate court handle internet disputes? I hate to sound trite, but time will tell. Is this a genuine attempt to reform e-commerce and embrace technology? Will this one cyber-court eventually assume nationwide jurisdiction of internet claims (not likely)? Will other regions in China create their own cyber-courts? What have other countries done on this front? Please comment below if you know!

Does it make sense to have the system rely so heavily on one company’s technology (Alibaba’s)? Did it have any real choice? How secure is Alibaba’s technology as to data and privacy protection? What protections are in place to prevent Alibaba from appropriating and using the litigation data?

Finally, as with most new developments involving cyberspace and e-commerce in China much about the cyber-Court remains  unclear and will likely change, and fast. I will be covering the changes so please stay tuned.

China counterfeit lawyers
X out China counterfeits

Full disclosure. This post is on more than what to do when your product is being counterfeited in China. It also is on what to do to position yourself so that if your product is being counterfeited in China, you will have real options on what to do.

Barely a day goes by without one of our China lawyers getting contacted by an American or European company telling us that its products are being counterfeited and would we please get so and so — either the alleged counterfeiter or the online site on which the counterfeit products are posted — to remove the offending items. Were it only that simple. We have for years been writing about how our lawyers have a near 100% success rate at getting counterfeit products removed from Chinese e-commerce websites like Tmall and Taobao and the same holds true for American websites like Amazon and Ebay. But our success rate depends largely on the advertised product is truly a counterfeit, as that term is commonly defined by lawyers not businesspeople.

All of the big American and Chinese e-commerce sites, including the Alibaba family of sites (Taobao, Tmall, Alibaba, AliExpress, 1688.com, etc.), have formal internal procedures for removing product listings that infringe a third party’s IP rights. To secure the removal of infringing listings, you must follow their procedures to the letter. Among other things, you must provide documentation proving (1) the IP owner’s existence and (2) the IP owner’s rights to the IP in question. Only after you have submitted these documents and had them verified by the e-commerce site can you even submit a takedown request. When you do submit your takedown request (assuming everything goes smoothly), most e-commerce sites will remove the counterfeit products within a week or so. When things don’t go smoothly with a Chinese e-commerce site (which judging from our volume of phone calls is rather frequently) it is vital to have a person on your side who speaks Chinese, understands Chinese intellectual property law, and is experienced in dealing with the particular Chinese website that is posting your products. This person is necessary to get to higher-level employees at the e-commerce site and explain to them why the listing does in fact violate your IP.

To date, we have succeeded with every takedown request seeking the removal of products that infringe our client’s trademarks or copyrights. But probably half the time, we have to tell the potential client there is no point in hiring us for the product removal. Why is that? The below email from one of our China lawyers who regularly works on takedown matters across multiple websites (both in China and elsewhere) explains.

Every Chinese website has its own takedown protocols, and the key to getting products removed is to follow that site’s protocols. You express an interest in suing these websites and we do not advise that unless and until we have sought to get your products taken down and failed. Lawsuits are expensive and based on our track record in securing takedowns, the odds are overwhelming that we will never need to file one on your behalf. To put things in perspective, we have never filed one. The lawsuit you mention against Alibaba deals a lot more with why so many counterfeit products show up on Alibaba websites in the first place than on Alibaba’s failure to take down counterfeit products once on one of their sites.

You are correct that only the copyright or trademark owner or its authorized representative can make takedown requests. However, sites vary as to the sort of authentication they require for a Power of Attorney and most of the sites know our law firm well enough that they almost never require we provide them with a formal Power of Attorney to achieve a takedown.

The most important thing is that we show proof that you have registered your IP (your trademark or your copyright) somewhere. Some Chinese sites sometimes will take down products with foreign IP registrations, but China registrations are always much better. Technically, China is obligated to recognize copyrights registered in any Berne Convention signatory nation, but explaining China’s WTO obligations to a 21-year-old customer service representative seldom works. And as you can probably imagine, securing the removal of copyrighted IP for which a copyright has never been registered anywhere is even more difficult. This is why gaming/video/music companies so often complain about how difficult it is to secure counterfeit takedowns from Chinese websites. By the time they get their China copyright registration and can submit a takedown request, the damage has been done. How many people will still be downloading today’s big game six months from now? US websites are not all that different.

Another thing to consider is that the more sophisticated/well-heeled the website, the more likely it is that they have a formal takedown procedure. For the smaller websites, we generally have to contact someone directly because there are no instructions on the website or they are hopeless. But unless the website is a pirate site (which is rarely the case), it does not want to be sued for hosting counterfeit or pirated items and so long as we do all the work for them, they’ll be happy to take down rogue products and content.

Finally, you should be aware that once this whole takedown process begins, it’s pretty much ongoing. The pirates and counterfeiters don’t just give up because their first upload got taken down. And even if we stop one or two of the counterfeiters, we should expect more to pop up. This is why companies hire us to monitor and report and after we remove the existing counterfeits, we should discuss what sort of future programs make sense for your company and your situation.. One of the things we can and should do though is try to figure out who is doing the counterfeiting, how they are doing it, and what we can do — if anything — to try to stop it or slow it down.

My law firm has an Alibaba account that makes us eligible to seek removal of links that infringe our clients’ IP. We do this by submitting proof of identification and authorization, as well as information regarding the IP which is being infringed upon. This is accomplished by our providing the following to Alibaba: (i) our client’s “business license,” (ii) any formal IP registration documents and (iii) (sometimes) a power of attorney signed by the client, authorizing us to file the complaint on its behalf. We also submit the following information: the IP registration number(s), the title of the IP, the name of the IP owner, the type of IP, the country of registration, the time period during which the IP registration is effective, and the period during which the IP owner wishes to protect its IP rights. We translate these documents into Chinese to make things easier on the Chinese website company and because doing so greatly speeds things up. After submission, it typically takes Alibaba a few days to verify our information.

Once Alibaba verifies the information we provide, we provide the infringing links and removal virtually always quickly occurs. For complaints concerning patent rights, we also need to provide proof of the connection between the infringing material and the IP being infringed. Alibaba normally takes a few more days to process the complaint, which typically consists of passing along the complaint to the infringing party.

If the infringing party does not respond to the complaint within three working days of receipt, either by deleting the infringing link or by filing a cross-complaint, Alibaba will delete the infringing link. Absent prior written permission from Alibaba, the infringing party would then be prohibited from posting the same information on Alibaba again. If the infringing party files a cross-complaint, we would then need to deny the cross-complaint, and then Alibaba would handle the “dispute.” Alibaba normally resolves such disputes within a few days. As you would probably imagine, counterfeiters almost never file a cross-complaint; they typically just slink away.

We have achieved similar results with China’s other leading and legitimate online marketplaces. But as you would expect, China’s smaller and sketchier marketplaces are more problematic when it comes to IP protection.

If your IP (especially your trademark or your copyright) is registered in China, securing the removal from Chinese websites of products that infringe on your IP can be relatively fast and easy. If your IP is registered in a country other than China, securing the removal from Chinese websites of products that infringe on your IP can be accomplished, but not always. If your IP (your unregistered U.S. trademark, for instance, or your unregistered copyright) is not registered anywhere, your best strategy for securing removal of infringing products is to register it first and then seek removal, rather than to seek removal first. The same generally holds true for US websites, but US websites are a lot less likely to remove products that infringe on your patent rights than are Chinese websites. US websites typically take the position that you need a US court order stating that the product or products infringe on your patent for a removal.

In other words, plan now with your IP filings for takedowns later.

Every so often there seems to be an uptick in what some call the China domain name scam and now is one of those times. Our China lawyers frequently get emails from U.S. companies asking us what they should do about an email that they just received (usually in badly written English) telling them they must register their domain name in China right away or lose it forever. We have been getting a ton of those lately, but when I get one from a sophisticated international lawyer I feel it is time I write about it again.

China domain name scams are again on the rise.
China domain name scams are again on the rise.

These emails seem to come right after the foreign company just returned from a trip to China, or else it is then when they are most attuned to them and most concerned. I do though believe that there are people in China who get the names of U.S. and European companies that go there and then send out these emails.

Just so you know, these emails usually look something like this and they are complete fakes and should be ignored:

We are China’s internet domain services company and last week, we received an application from a Chinese company that has requested “[NAME OF U.S. COMPANY”] as their internet name and China (CN) domain name. But after checking into it, we learned that this name conflicts with your company name or trademark. In order to deal with this matter better, it’s necessary to send email to you and confirm whether this company is your distributor or business partner in China and to confirm that you authorized this domain registration Please respond soonest.

Or something like this one, which went to my international attorney friend:

This is about the registration of your company name “______________.” Please forward it to your companys leader. Thanks!

Dear Sir or Madam,

I am grateful for you checking this letter out. We are a Chinese domain registrar. Recently, we received the registration request from “__________ Technology Ltd” applying to register __________ brand and domain names(cn hk etc), which have same main body as your company’s name. We send this letter to confirm with your company whether or not you authorize them to register those names. Please give me your thoughts ASAP so as to let us carry on, Thanks.

It’s a scam, and even if it isn’t do you really care?
We first wrote about this scam back in 2009, in China Domain Name Scams. Just Move Along…., with this to say:
If your company has done anything in China (even just sending someone there to meet with a supplier), you have probably received a somewhat official email offering, at a steep price, to “help” you stop someone from taking your domain name.
DO NOT RESPOND.
Near as I can tell, every single one of these that I have seen (and I have seen at least fifty of them because clients are always sending them to me) are a scam.
You also may get emails from someone claiming to have already registered some iteration of your company name (or one of your product names) and seeking to sell it to you. For example, if your company is called “xyz” and you already own the xyz.com domain name, your email may come from someone who has purchased and now wants to sell you the xyz.cn domain.
What to do?
First off, as soon as possible, register whatever domains necessary to protect yourself. Determine now what domain names you care about so you do not need to make this determination with a gun to your head. Right now is the time to think about Chinese character domain names.
Secondly, if someone has taken a domain name that is important to you and they are now offering to sell it to you, you essentially have three choices. One, let the domain name go. Two, buy it from the company that “took” it from you. And, three, pursue legal action against the company that took it from you.
Preemption by registration is your best and least expensive protection.

Nothing has changed since then, near as we can tell, other than that the popularity of these domain name scams waxes and wanes and lately they’ve been on an upswing. Here’s something else you have to ask yourself: do you care that someone is registering your domain name in China? And if you do, do you have a trademark there, which likely would prevent it? And if you care about China, are there other countries where you should be registering your domain name?

Anyway, just be careful out there.

China copyright lawyer
China copyrights for internet content

One of our China copyright lawyers recently sent the below email (slightly modified) to one of our clients, and since it nicely lays out the basics on what is required to secure Chinese copyrights on internet content, I am running the key portion from it below:

1. To secure copyright protection for the original elements of a website, you need to file a copyright application for a particular category of creative work: a compilation. Each webpage would be a separate item in the compilation.

2. The application must include a hard-copy printout (typically, a screenshot) of each webpage. Although it seems illogical, China will not accept webpages in digital format.

3. Note that a website is protectable via copyright in China regardless of where the website is hosted. However, China will not grant copyright protection to content it deems to be against socialist morality, the Chinese government, or the Chinese Communist Party.

4. Once a copyright application has been submitted, it usually takes about three months to receive a copyright registration certificate.

5. To have enforceable protection for your copyrights in China, you must first register those copyrights in China. You also must register any relevant license agreements to receive payments from China. Though China is a signatory to the Berne Convention and is obligated to recognize copyrights created in any other signatory country, proving the existence of a foreign copyright (and its contents) is often difficult and sometimes impossible in China, whether before a Chinese court, a Chinese agency, a Chinese e-commerce site or otherwise. From a practical standpoint, it’s always better to have a Chinese copyright registration.

Let me know if you need further clarification.

Your thoughts?

 

China copyright lawI spoke in Beijing last week at a conference on legal protection of sports broadcasts, organized by the National Copyright Administration of China (NCAC) and the United States Patent and Trademark Office. Other speakers included Chinese judges, Chinese and American lawyers and academics, sports league and broadcaster general counsel, and American and European IP officials. What follows is based on the speech I gave at the conference.

Copyright in sports broadcasts is not explicitly recognized in China by statute, though it has been recognized in some Chinese copyright cases. One of the ongoing debates in China copyright circles is whether explicit statutory recognition ought be given to copyright in sports broadcasts. Any such recognition would involve introducing a new class of copyright subject matter or the expansion of an existing class.

The introduction or expansion of a class of copyright subject matter is often rationalized as limiting free riding and providing an incentive to invest. In the absence of a clear sports broadcast copyright in China, one might therefore expect to find at least some evidence of market failure. However, a quick look at the business of broadcasting certain sports in China indicates a strong market — perhaps even a bubble.

Consider, for instance, Chinese Super League matches. China broadcast rights are, I understand, currently held by an associate of China Media Capital for a five-year term ending in 2021. Rights for the first two years were reportedly acquired for 300 million USD. Rights for years three, four and five were reportedly acquired for a total of one billion USD. In an indication this was a good deal for the head-licensee, Le TV committed to paying 414 million USD for a two-year sub-license, though Le TV subsequently defaulted and, as I understand it, the rights now lie with online TV service PPTV.

Now consider English Premier League matches. China broadcast rights are, I understand, currently held by Super Sports for a six-year term ending in 2020. These rights were reportedly acquired for 65 million USD. Note that this figure represents an assessment of market value made in 2013. For the three years commencing in 2020, PPTV has reportedly bid 700 million USD. This makes China the Premier League’s largest foreign broadcast market.

If these deals are any indication, the market is apparently already behaving as though sports broadcasts are protectable. But there is no proprietary foundation for this protection. The present foundation is contractual. The organizer of the game, a sports league, is the source of all rights in the game. The sports league relies on the “economics of exclusion” — the ability to monetize by controlling access to a sporting venue, in much the same way a theatrical exhibitor of a motion picture controls access to a movie theatre. In some cases, and in some courts, copyright protection has been recognized in China but a consistent jurisprudence has not emerged. The more readily available legal means of protection involve anti-unfair competition laws or the use of administrative or even criminal sanctions. Chinese tort laws and “related rights” laws are also invoked by rights holders when they fight piracy. Whatever the actual or potential legal redress for piracy may be, in assessing the applicable law in China it must be appreciated that a sports broadcast is always a special type of broadcast presenting unique challenges.

What makes sports broadcasts special is that the viewer wants to watch a game as it is played at the venue from which the broadcast is being made. The replay or the highlights are not as valuable as the live feed. The threat posed by illegal downloads after a game concludes is minimal. From a technical perspective, a live broadcast of any kind involves the compression of pre-production and post-production into a seamless and immediate production. That production, and the broadcasting of it, must occur simultaneously. Incidentally, sports leagues report that the advent of hand-held live streaming technology is not a major threat to their businesses because the quality of the stream lacks the production values of a professional broadcast.

The unique challenge of a sports broadcast is that satisfactory relief from a pirated version must be swift. It must be pre-emptive (in advance of the game) or instantaneous (well before the game ends and, ideally, within the first quarter hour). In either case, only urgent injunctive relief can ever be entirely satisfactory. Non-urgent preliminary injunctive relief will not solve the problem, and damages and accounts of profits are insufficient remedies.

Even if sports broadcasts are accorded clear and consistent protection under Chinese copyright law, it is fair to say that uniform urgent injunctive relief (as opposed to preliminary injunctive relief) is still largely beyond the capacity of the Chinese legal system. Therefore, the recognition of copyright in a sports broadcast would not, of itself, solve the underlying need for urgent relief. Still, China’s legal system in its present form does allow rights-holders to tackle repeat offenders, and the large Chinese platforms are already mostly respectful of broadcast rights anyway. In many ways, the real challenges are presented by the smaller, and often ephemeral, pirate sites. Even if these pirate sites can be identified and located, the people behind them nearly always lack substantial assets and are therefore rarely worth pursuing. To be effective in the present environment a sports league (or its local partner) needs a team of Chinese-qualified in-house litigators who understand the piracy landscape and are capable of engaging in guerrilla warfare using technological as well as legal or administrative means.

Despite the existence of these other means, despite evidence pointing to a strong market, and despite the inherent limitations of an action for copyright infringement in China, there is little doubt that explicit statutory recognition of sports broadcast copyright would provide greater certainty and support greater market efficiency. This is especially so if this statutory recognition were given to a broad-based, technology-neutral right embracing traditional broadcasting as well as streaming.

Industry stakeholders are not resisting the recognition of such a sports broadcast copyright. There is apparently a broad consensus among broadcasters and sports leagues on the issue. There is apparently no division between foreign and Chinese interests on this point either. Nor is a sports game sensitive — it is not subject to the kind of censorship, quotas, and approvals processes applicable to motion picture or episodic content. Nonetheless, there is ongoing resistance to the recognition of copyright in sports broadcasts. Resistance has arisen, I understand, because recognition of copyright in sports broadcasts would require the NCAC to change its understanding of the meaning of a copyright “work” and the applicable standards of “originality.” Absent market failure this issue is perhaps not viewed as a major priority. Whatever the reason, until the NCAC resolves this and other current issues it cannot present a coherent solution to the State Council Legislative Affairs Office (SCLAO). The SCLAO is therefore not in a position to recommend final legislation to the National Peoples Congress. The discussion has been bogged down for nearly a decade. All the while, the sports broadcasting industry is getting further and further ahead of the law.

As an important source of or influence on China’s copyright law, the Berne Convention, with its focus on works and authorship, provides a frame of reference for a consideration of the underlying problem in China. China became a party to the Berne Convention in 1992. Berne sets a number of minimum standards applicable to works and authors. A broadcast right is among those rights that must be recognized as exclusive rights of authorization. Authors enjoy the exclusive right of authorizing the broadcasting of their works.

China’s current copyright law has been in effect since 2010. It too applies to “works,” which include, among other things, works of literature, art, natural sciences, social sciences, engineering and technology, which are created in certain “forms.” With the exception of computer software, these forms are limited to specific kinds of works enumerated in the law. The sixth form in the list is “cinematographic works and works created by a process analogous to cinematography.” The ninth and final form in the list is “other works as provided for in laws and administrative regulations.” The rights comprising copyright in these works include the broadcast right. China also recognizes related, neighboring or “small” rights in other subject matter including video recordings. The protection given to these other subject matter is lower than that given to works. The standard of originality expected of a video recording is much lower than that applicable to cinematographic works.

In China, the sports broadcast copyright controversy arises for two reasons. First, because a game of sport is not generally seen as a “work,” so there is no broadcast of a work when a game is broadcast. Second, because even if it is accepted (as it is in the United States) that a broadcast always requires the simultaneous making of a recording, any such recording is insufficiently original to be regarded as a cinematographic work. There is little disagreement on the first reason. The real debate is about the second reason. The competing considerations on this point have been ventilated in the leading Chinese cases. Basically, the debate boils down to whether modern-day live broadcasts, with their professional directors, multi-camera units and advanced editing techniques, are producing content sufficiently original to qualify as a copyright work. It seems obvious to anyone with even a basic understanding of the production process that sports broadcasts are a form of entertainment every bit as sophisticated and entertaining as motion picture or episodic content, the originality of which is already recognized in China.

It will be seen, then, that the minimum standards of Berne, as reflected in Chinese copyright law concerning “works,” are at risk of becoming impediments to the recognition or creation of other copyright subject matter. There is an opportunity here for China to go its own way over and above minimum standards.

Other nations have, of course, gone their own ways and I want to mention two that have found instructive solutions to the problem of “works”: The United States and Australia. Both are obviously common law countries. There are many others, including civil law countries. Incidentally, as a last resort, those who oppose grafting common law principles to the Chinese legal context are fond of saying that German law is the proper source of Chinese copyright law and German law is inconsistent with the common law point of view on the points at issue. The trouble is that claims of this kind are generally made without a German copyright lawyer on hand to clarify the point. A German copyright expert would obviously make a welcome addition to future panels dealing with this issue.

The United States became a party to Berne in 1989. US copyright law is concerned with protecting “original works of authorship.” The recognized works include motion pictures and other audiovisual works. In US jurisprudence, sports games are not “authored” in the relevant sense so they are not “works.” Even so, sports broadcasts in the United States are entitled to copyright protection. The key to their protection is that the broadcasting of a game is understood as always involving the “fixing” of an audiovisual work, and the fact that this fixing occurs simultaneously with a transmission does not matter. This elegant solution was applied in 1976 and obviously did not prevent the US from later joining the Berne Convention.

Australia became a party to Berne in 1928. Australian copyright law is concerned with protecting “works” and “subject matter other than works.” The scope of protection for subject matter other than works is lower than that for traditional works, but this has not stopped them being treated as full copyright subject matter. Subject matter other than works include sound recordings, cinematograph films, and broadcasts. Copyright in a television broadcast is the exclusive right to make a cinematograph film or sound recording and to re-broadcast or communicate to the public otherwise than by re-broadcasting. The maker of the broadcast is the copyright owner. In Australia, copyright protection applies to the signal itself. There is no need to stretch the definition of “work” to include a broadcast. There is no need for the broadcast to contain a work.

These two examples demonstrate how a nation can recognize a certain type of copyright without compromising the minimum standards of Berne or being strangled by a debate about originality standards.

The sports broadcast problem could be solved in China if broadcasts were recognized as involving the fixing of a cinematographic work, of a work created by a process analogous to cinematography, or even of a video recording. Alternatively, some form of recognition could arise within the existing category of “other” works or through the mooted inclusion of a new general category of “audiovisual” works. These solutions would involve minimal disruption to China’s existing copyright system. All they would require would be an acknowledgement that a modern sports broadcasts satisfies a minimum standard of originality. It would not be necessary for a game of sport to be deemed a copyright work. Ultimately, though, these solutions would need to embrace a broad-based, technology-neutral definition of broadcast and they would need to depend on continued improvement in the availability and efficacy of urgent injunctive relief for copyright infringement.

Picture for China Cybersecurity law 101

China’s Cybersecurity Law (CSL) became effective on June 1, 2017 and it regulates the construction, operation, maintenance and use of networks, as well as network security supervision and management within mainland China. The Cyberspace Administration of China (CAC) is the primary governmental authority supervising and enforcing the CSL.

The CSL regulates cybersecurity from different aspects, including network operation security, network information security, as well as monitoring, early warning, and emergency responses.

1. Network Operations Security

Under the CSL, all network operators are required to perform the following duties to protect their networks from interference, damage, or unauthorized visits, as well as to prevent data leaks, thefts or falsification:

  • Create internal security management systems and operating policies, appointing dedicated network security persons;
  • Adopt technological measures to prevent computer viruses, cyber-attacks, network intrusions and other harmful activities;
  • Monitor and record network operational status and network security incidents, and retain relevant network logs for at least six months;
  • Take measures to classify data, back up and encrypt important data.

The CSL states that China has (or will have) a tiered network security protection system and network operators must perform the above duties to ensure network security and to meet the requirements of such a system. This indicates network operator obligations vary depending on their tier.

China currently has two existing network security related tiered protection systems. One is the Computer Information Systems Security Tiered Protection (计算机信息系统安全等级保护制度), the other is Telecommunication Networks Security Tiered Protection (通信网络安全分级保护制度), though the contents of these two overlap regarding network security. Both of these protection systems put computer information systems or telecom networks into five levels of protection, depending on a system’s importance in national security, economic development, and social life, and potential damages to these aspects in the event of network interference. Whether the tiered system mentioned in the CSL will be similar to these two existing systems or a completely new one is not yet clear. But these systems and related national standards likely will be helpful guides to understanding the concept of China’s tiered protection system.

Critical Information Infrastructure Operators

Critical information Infrastructure (CII) and CII operators must comply with more stringent requirements on top of those applicable to all network operators. The CSL provides for the State to implement key protections for CII in public communication and information services, power, traffic, water, finance, public service, electronic government affairs, and other CII that may endanger national security, national welfare and the people’s livelihood, or the public interest in the event of destruction, malfunction or data leakage. No clear definition of CII is found in the CSL and the catchall language leaves plenty of room for interpretation.

However, there is a Network Security Check Practice Guide (网络安全检查操作指南, the “Guide”) created by the CAC[1] before the CSL became effective that may give some guidance in determining CIIs. The Guide lists out fourteen industries[2] and a few key businesses in each industry. If a network or information system is mainly used to support any of these key businesses in  corresponding industry and meets other specific conditions, such a network or system will likely be deemed to be a critical information infrastructure.  For example, online shopping is a key business in the telecommunication and the Internet industry, according to this Guide. One of the conditions for a platform to be determined as a CII is that the platform has more than 10 million registered users or more than 1 million active users.

Though a clear definition and scope of CII have not yet been clarified, the CSL does require CII operators comply with the following, in addition to the requirements for all network operators:\

— Annual security assessment

CII operators shall review their networks’ security and assess potential risk at least once a year, either by themselves or through a third-party service provider.

— Procurement Security Review

When purchasing network products and services, CII operators must sign a security and confidentiality agreement with their vendor, clearly setting out the duties and responsibilities for security and confidentiality. If a vendor procurement may impact national security, CII operators must also go through a national security review by the State network administration (CAC) and other relevant departments of the State Council. The Security Assessment Measures for Network Products and Services provides further details in this regard, which became effective on the same day as the CSL.

— Data localization

CII Operators are required to keep within mainland China all personal information and important data collected and generated within mainland China. They are not allowed to transmit such data overseas without firs passing a security review.

The Draft Data Transfer Measures released in April 2017 (“First Draft”) appear to expand the scope of undertakings for such data localization and security review requirements to non-CII operators, which raised concerns for many foreign companies doing business in China. In a revised draft of the First Draft in May (“Second Draft”), this localization requirement was removed. The Second Draft focuses only on security assessment of cross border data transfer.

— Other requirements

Other requirements for CII operators include the following:

  • Set up dedicated security management and persons responsible for security management, and conduct security background checks on those responsible persons and of personnel in critical positions.
  • Regularly educate, train, and evaluate employees on cybersecurity;
  • Back up important systems and databases in preparation for disasters;
  • Establish emergency response plans for network security incidents and perform drills periodically; and other obligations by law or administrative regulations.

2.  Network Information Security

“Network Information Security” essentially refers to the protection of personal information collected and stored by network operators. All network operators are subject to the following requirements when collecting and using personal information:

  • Maintain strict confidentiality of collected user information.
  • Collect and use personal information legally, properly, and only to the extent the collection is necessary.
  • Disclose the purpose, method, and scope of collection and use, and obtain consent from the person whose personal information is to be collected; personal information irrelevant to the service provided shall not be collected.
  • Networker operators shall not disclose, alter, or destroy collected personal information.
  • In the event of data breach or a likely data breach, network operators must take remedial actions, promptly inform users, and report to the competent government agencies according to relevant regulations.
  • In case of illegal or unauthorized collection and use of personal information, a person is entitled to ask a network operator to delete such personal information; when information collected is wrong, an individual can request correction.

3. Monitor, early warnings and Emergency Response.

 In terms of establishing cybersecurity monitoring, early warnings of potential risk and emergency response plans, the CSL also sets out the responsibilities of the CAC, network operators, local government, and industry specific departments.

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[1] We found different versions of this Guide on the Internet (websites of universities, local governments, etc.), each of which claims to have been released by the CAC. However, the CAC website did not itself have its own guidance on its website when we looked for it.

[2] The different versions of the Guidance we saw are substantially similar. As for the industries listed, one version includes education, news websites, and commercial platforms as key businesses industries, while another does not have these three lists 11 industries. We refer to the former version only for the purpose of this blog post.

Amazon lawyers
How to keep duplicates off Amazon

American and European companies that have their consumer products made in China constantly have to contend with their own products or a counterfeit of their own products showing up on Amazon. Our lawyers frequently get inquiries from companies that sell their products on Amazon and have seen their sales fall by 30 to 80 percent because they are now having to compete with duplicate/counterfeit products sold on Amazon. These inquiries spiked when Amazon started encouraging Chinese companies to sell their products on Amazon.

The following are five key things you can do to reduce the risk of your product showing up on Amazon and to better position yourself to remove those products if they do show up.

  • File for United States Trademark Protection. Amazon is quick to remove products that clearly violate a registered U.S. trademark. If you ask Amazon to remove a product because it “duplicates” yours, but it does not use your trademark, Amazon virtually never will do so. This is true even if the offending product violates one or more of your patents. In our experience, Amazon typically will not take down cloned products without a court order. 
  • Block your China Manufacturer From Competing with you. In Your China Factory as your Toughest Competitor we noted how our China attorneys have become fond of pointing out to our clients, “since you will essentially be educating your Chinese manufacturer in how to compete with you, you need contracts that will at least limit what it can do when it does so.” The most deadly copiers of all are those that are literally making your exact product. How do you compete with that if they are selling it for 50% less than you are?
  • Copyright your key photos in the United States or in China or in both countries. Counterfeiters are often lazy. It never ceases to amaze me how often Chinese copiers will use our client’s own photos (oftentimes downloaded straight from Amazon) on Amazon to sell their products. We have on many occasions been able to remove entire listings because the photo or photos on those listings violate our client’s registered copyright in either the United States or in China. Technically, in both the United States and in China, you do not need a registered copyright to hold the copyright to a photo, but you are far more likely to get a listing removed from Amazon for copyright infringement if you have a registered copyright. A registered copyright in one country (either China or the United States, or even some third country) should be enough for this, but where you choose to register should depend on a whole host of factors. It is true that if you remove a listing for copyright infringement of one of your photos, the company that violated your copyright can just put up a new listing with a new photograph that does not violate your copyrights. Surprisingly enough, we have found that they generally just move on instead, either because they were blocked by Amazon from listing or because they simply choose a different product to push.  See China Copyright Law: We Need to Talk.
  • Build your brand, be distinctive, and change often. This is non-legal advice, but I have found that companies that work from day one on building their brand and their image and have well-crafted Amazon listings are simply more difficult to copy. Being difficult to copy not only means that you will be copied less often than your competitors but it also means that when copied the negative impact on your business will be less. And if you are constantly changing up what you do, you can sometimes stay at least somewhat ahead of your imitators.

What are you seeing out there?

 

China Cybersecurity law
China’s new Cybersecurity Law becomes effective on June 1
China’s new Cybersecurity Law will become effective on June 1, 2017. In addition to focusing on cybersecurity, the law also details how companies are to handle personal information and data. In determining what is allowed and not allowed for handling personal information in China, it is important to examine The Decision on Strengthening Information Protection on Networks (2012), The Guidelines for Personal Information Protection Within Public and Commercial Services Information Systems (2013), and The Provisions on Protecting the Personal Information of Telecommunications and InternetUsers (2013). There are also many industry-specific rules, including such rules for banking and credit information services. China’s new Cybersecurity Law adopts and modifies existing regulations and codifies them.

Under the new Cybersecurity Law, collecting any user’s personal information requires the user’s consent and network operators must keep collected information strictly confidential. Personal information is defined as information that can be used on its own or with other information to determine the identity of a natural person, including the person’s name, date of birth, ID card number, biological identification information (e.g. fingerprints and irises), address, and telephone number. Once such information has been de-identified, it is no longer subject to the requirement for personal information under the law.

According to the new Cybersecurity Law, network operators are subject to the following requirements when collecting and using personal information:

  • Collection and use of personal information must be legal, proper and necessary.
  • Network operators must clearly state the purpose, method, and scope of collection and use, and obtain consent from the person whose personal information is to be collected; personal information irrelevant to the service provided shall not be collected.
  • Network operators shall not disclose, alter, or destroy collected personal information; without the consent of the person from whom the information was gathered, such information shall not be provided to others.
  • In the event of a data breach or a likely data breach, network operators must take remedial actions, promptly inform users, and report to the competent government agencies according to relevant regulations.
  • In case of an illegal or unauthorized collection and use of personal information, a person is entitled to ask a network operator to delete such personal information; when information collected is wrong, an individual can request correction.

Who are the network operators to which the new law will apply? Owners of networks, administrators of networks, and network service providers. Telecom and Internet service providers, clearly, but “network” is broad enough to go well beyond that.

Networks are systems consisting of computers or other data terminal equipment and relevant devices that collect, store, transmit, exchange, and process information according to certain rules and procedures (Article 76 of the new Cybersecurity Law). If you have a couple of computers at home that can share files, and perhaps a printer connected to them, you technically have a network. The law is not likely to go that far, but the generic definitions of network and network operators leave a lot of room for interpretation, which is exactly how the Chinese government wants it.

The new Cybersecurity Law also requires critical information infrastructure operators (CIIOs) store within China personal information and important data gathered and generated within China and conduct annual security risk assessments regarding their data. Though the definition of CIIO is yet to be clarified, we already know China’s yet to be finalized Measures for Security Assessment of Personal Information and Important Data Leaving the Country will likely require foreign companies doing business in China make big changes in how they handle data. The Cyberspace Administration of China (CAC) published a draft of Measures for Security Assessment of Personal Information and Important Data Leaving the Country back in April, raising many concerns for foreign businesses operating in China.

These Measures for Security Assessment would expand the data localization requirement to all network operators. This would mean that pretty much all personal information and important data collected by network operators within the PRC must be stored within China and not leave China, other than for “genuine business need” and after a security assessment. And if you think you may be a network operator, you probably are.

Since the new Cybersecurity Law does not differentiate between internal and external networks, it is broad enough to include any company that owns an internal network. Will your China WFOE be able to transmit employee information back to its overseas headquarters? In China’s Cybersecurity Law and Employee Personal Information, we set out best practices for doing this, but that was written before publication of the Draft Measures. Should the Draft Measures become effective — as expected — our views on data transfers will almost certainly toughen. Foreign companies are already setting up data centers in China so as to be able to keep data local and many of our clients are looking at doing the same.

We have been reluctant to write much about data and privacy protection in China because existing laws are both unclear and in a massive state of flux. But because this is so important and because this reluctance cannot extend to a client who needs to know what it must do now with specific data, we plan to write more often about these topics in the weeks and months ahead.

Please stay tuned.

Editor’s Note: Sara Xia is an experienced lawyer with law degrees from Shanghai University of Finance and Economics and the University of Washington. Sara practiced law in China from 2010 to 2013 and then in 2015 she became licensed to practice law in California and 2016 in Washington. Sara recently joined Harris Bricken to assist our clients with their cyberlaw and corporate matters, mostly while working out of Seattle, Beijing and San Francisco.