China Opportunities for U.S. Entertainment Industry Still Saddled with Government and 'Copycat' Hurdles

[Editor's Note: Entertainment Law & Finance Editor-in-Chief Stan Soocher traveled to China over the summer to teach the course "American Music Goes to Court" at the International College of Beijing. He reports here, in a two-part series, on the state of entertainment industry issues in China, as U.S. companies try to expand their reach there. Part One covers the current state of copyright law in China and discusses TV and film concerns. Part Two, which will be published in our October 2012 issue, will discuss online content issues as well as the increase in U.S. intellectual property and entertainment firms involved in China.]

Beijing ' The banner just inside an entrance to the Silk Market in the capital city this summer read: “Embrace national brand, increase awareness for national intellectual property.” As it hosted the World Intellectual Property Organization's (WIPO; http://www.wipo.org/) Diplomatic Conference on the Protection of Audiovisual Performances, the capital city of China wanted to promote an image of a growing
protector of intellectual property for both domestic and foreign rights owners.

The international convention delegates did sign a Beijing Treaty on Protecting Audiovisual Performances. But Beijing streets and shops were soon be stocked again with “knock-off” goods of famous brands and illegal copies of entertainment products. And foreign individuals and trademark owners often find their trademarks registered in China by Chinese companies. For example, Chinese companies domestically registered the names of 88 athletes who played in the 2012 Euro Cup. (See the article on the process in China for disputing trademark registrations in this issue.)

In fact, with China's deeply rooted “copycat culture” and long-held reputation as a leading nation for piracy, still estimated to be at least 90% ' and the Communist government's often-stringent control of content ' this second largest economy in the world remains a significant challenge to a U.S. entertainment industry seeking to establish stronger business ties to the Asia nation. These ties currently range from U.S. producers/China joint film ventures to the formal licensing of audio and visual content for online uses, and an influx of U.S. intellectual property lawyers. In May 2012, the Chinese investment conglomerate Wanda Group's announced it would acquire AMC Entertainment, the second-largest U.S. theatrical film exhibition chain for $2.6 billion. China itself is one of the top three film theatre-exhibition markets in the world.

Increased U.S. entertainment industry participation in China certainly requires more consistent use of intellectual property protections. At the same time, much of the recent move to strengthen China's intellectual property laws in copyright, trademarks, patents and trade secrets laws can be attributed to the government's desire to back the surge in the number of Chinese businesses that now have such valuable rights to protect.

According to statistics released in June 2012 by China's National Copyright Administration, the copyright industries' share of the country's Gross Domestic Product increased from 4.94% in 2004 to 6.55% in 2009. However, this is only than one-fourth the value of U.S. copyright industries. China's GDP percentage stats include from WIPO-defined core copyright industries like music, film and television to partial-copyright sectors like architecture and craft works. (China's core copyright exports accounted for just .66% of the country's exports.)

Changes in Chinese Copyright Law

In 1991, China instituted a modern copyright law. The country added revisions in 2001 so that China could join the World Trade Organization and then again in 2010 regarding U.S.-China intellectual property issues. Still, rights ownership can be murky. In March 2012, the China's National Copyright Administration issued for public comment a draft of extensive amendments to the Copyright Law of the People's Republic of China.

One proposed People's Republic change would make it clear that copyright registration provides some proof of ownership, though the March 2012 draft didn't detail registration procedures. Among other proposed copyright law clarifications, the draft also provided for joint authors to be able to file suits over a work and set forth a punitive damages range of one to three times actual damages for
ongoing intentional infringement.

Two proposed changes were particularly controversial in the Chinese music industry. One would have permitted formalized copyright income collection via an agency that would also bind non-members without these artists' authorization. The other proposal would have changed current Chinese law that states “no work can be used if the copyright owner refuses permission” to instead allow third-parties to use sound recordings three months after initial public release. The third parties would have been able to do so by applying to the National Copyright Bureau, rather than requiring permission of the original recording's owner, who would be paid through the non-profit Music Copyright Society of China. But in July 2012, after an outcry from China's artistic community, the National Copyright Administration largely backed down on these two proposals.

The international Audiovisual Performances Treaty was negotiated over 12 years before it was signed at the Beijing conference in June 2012 by 122 WIPO members. In an official statement, WIPO explained: “The new treaty brings audiovisual performers into the fold of the international copyright framework in a comprehensive way, for the first time. ' The Beijing Treaty on Audiovisual Performances (BTAP) will strengthen the economic rights of film actors and other performers '. It will potentially enable performers to share proceeds with producers for revenues generated internationally by audiovisual productions. It will also grant performers moral rights to prevent lack of attribution or distortion of their performances.”

“For the first time it will provide performers with protection in the digital environment,” the WIPO statement added. “The treaty will also contribute to safeguarding the rights of performers against the unauthorized use of their performances in audiovisual media, such as television, film and video.” A PDF of the Beijing Treaty is available at http://bit.ly/PVl7Ph.

This is a step in the right direction from the acting community's perspective, but enforcing the provisions of the Audiovisual Performances Treaty on an international scale will be complicated.

In China, dating shows and talent competitions are very popular programming formats. But opportunities for U.S. industry players in the film and TV markets are hampered by content and distribution restrictions. In summer 2012, for example, the State Administration of Radio, Film and Television (SARFT; www.sarft.gov.cn) enacted new restrictions on TV program genres, such as eliminating dramatizations from shows that reenact historical events. Remakes of foreign TV serials and those based on online games have banned.

But even with this, major U.S. film releases are China's biggest box-office generators. In a deal negotiated this year in the United States through Chinese Vice-President Xi Jinping (who becomes president this fall), the Chinese government increased the permissible number of foreign films, from 20 to 34, on which income can be based on box office revenues ' an important gain for Hollywood, whose major releases like The Avengers and the 3-D version of Titanic drew blockbuster audiences in China in 2012, the latter quickly grossing close to $150 million. According to a May 2012 report compiled by the Chinese entertainment research center EntGroup (http://english.entgroup.cn/),
nine recent foreign film releases, dominated by American movies, generated five times as much in box-office revenues in China than did Chinese domestic film releases. In addition, Chinese distributors annually obtain rights to almost three dozen foreign movies under flat-fee licenses.

The Chinese government collects 5% of box-office revenues for its National Film Development Fund, created to stimulate movie screenings outside big cities and to support the patriotic and children's film sectors. But to more generally help domestic film production, the Chinese government recently considered rebating its cut to movie houses that emphasize domestic films.

Members of the Chinese film community nevertheless point to content restrictions as a major damper on making Chinese films competitive with foreign film offerings. For example, China Daily newspaper quoted film director Yang Shupeng as saying: “Domestic filmmakers are not allowed to shoot ghost stories, but we had Ghost Rider, starring Nicolas Cage, in theaters. We obviously can't compete with Hollywood in visual effects and action scenes.” See, “Coming Soon: Battle for the Big Screen,” China Daily.com, http://bit.ly/LUCCtk.