Principle impact

On January 26 2009, the panel of the dispute settlement body (the Panel) of the World Trade Organisation (WTO) issued its report on the various complaints made by the US against China in connection with certain measures pertaining to the protection and enforcement of intellectual property rights in China. The Panel was specifically asked to consider, amongst other allegations, the denial of copyright protection in relation to works that have not been authorised for publication or dissemination within China. The US relied on the explanation given by China, during a review of its legislation for trade-related aspects of intellectual property rights (TRIPs) in 2002, that the previous Article 4 referred to works that would be considered illegal under the PRC Criminal Law, the Administration of Publishing Regulations (出版管理条例), the Administration of Broadcasting and Television Regulations (国务院广播电视管理条例), the Regulations on the Administration of Audio Visual Products (音像制品管理条例), the Administration of Films Regulations (国务院电影管理条例) and the PRC Telecommunications Regulations (中华人民共和国电信条例). The US argued that any work that fails to pass or has not yet passed the “content review” by the relevant administrative bureaus in China, thus prohibited from publication or dissemination, would not be protected by the Copyright Law by operation of the previous Article 4. Such denial removed authors' minimum rights specifically granted by the Berne Convention.

In its submission to the Panel, China argued that there was a distinction between “copyright” granted under Article 2 of the Copyright Law and “copyright protection” which could be denied under Article 4. The application of Article 4 was limited to works consisting of entirely unconstitutional or immoral content. Furthermore, copyright protection was not dependent upon the regulatory system in respect of publication and dissemination of works.

The Panel did not agree with the arguments submitted by China and concluded Article 4 to be inconsistent with Article 5 (i) of the Berne Convention as incorporated by Article 9.1 of the TRIPs Agreement. Enforcement provisions are thus unavailable to works which fall within Article 4 and are also found to be inconsistent with Article 41.1 of the TRIPs Agreement.

The Panel's report was adopted on March 20 2009 and China is obliged to bring its policy in line with the ruling and recommendations set out in the report. The recent amendments to the Copyright Law, in particular, the revision of Article 4 is a response to the WTO's ruling in 2009.

The amended Article 4 now reads:

Enforcement of copyright by the copyright owner shall not violate the constitution or law or prejudice the public interest. The State shall regulate the publication and dissemination of works in accordance with the law.

The “denial” of copyright protection causing all the controversy has been removed. The added second sentence makes the specific provision that publication and dissemination shall be governed by the law and clarifies that entitlement to copyright protection does not mean entitlement to publication or dissemination in China. How the new Article 4 will facilitate copyright owners in enforcing works that have no rights to be published or disseminated in China remains to be seen.

Registration of a pledge of copyright

The new Article 26 is inserted under Part 3 of the Copyright Law which deals with copyright licensing and copyright assignment contracts. It provides that “A pledge of copyright [shall] be registered by the pledgee and the pledgor with the Copyright Administration Department of the State Council”. The registration system of a pledge of copyright is not a newly established system. Back in September 1996, the National Copyright Administration issued the Registration of Copyright Pledge Contract Measures (国家版权局著作权质押合同登记办法) (Measures).

Although Article 26 does not expressly state that registration of a pledge agreement to be mandatory, Article 3 of the Measures provide that a pledge agreement shall be in writing and registered with the registration authority and a pledge agreement will become effective upon registration. The 1995 PRC Securities Law (中华人民共和国证券法) which stipulates that trademarks, copyright and patents which are transferrable according to the law can be pledged, requires that the pledgor and pledgee shall enter into an agreement in writing and register the pledge agreement with the administration department in charge. It is also stated that a pledge shall become effective upon the date of registration.

Similar registration systems for the pledge of trade marks and patents are also available in China. There are specific regulations on the procedures of registration of those rights. There has been a gradual change of the legislation which relate to the requirement of registering a pledge agreement of intellectual property rights. In both the relatively recent PRC Property Law (中华人民共和国物权法) in 2007 and the 2009 Measures on Registration of Pledge of Trade Mark Agreement (注册商标专用权质权登记程序规定), the provisions that a pledge shall become effective upon the date of registration have been removed as such provisions have created confusion as to whether failure to registration will affect the validity of the pledge agreement as a whole.

In the recent decision issued by a Beijing District Court in relation to a dispute between the Beijing Rural Commercial Bank (Rural Bank), and Beijing Huan Cong Film and Video Cultural (Huan Cong), the Court ruled in accordance with Article 227 of the PRC Property Law that since the pledge agreement of the exclusive publication and reproduction rights of various television series specifically mentioned in the agreement was not registered with the National Copyright Administration Bureau, the Rural Bank would not have priority over other unsecured creditors in respect of the specific copyright owned by Huan Cong. However, the Court ruled that Huan Cong, together with the legal representative of the company who was brought into the proceeding as a second defendant, would have to pay the debt owed to the Rural Bank. It follows from these developments that failure to register a pledge agreement will risk losing priority claim over the assets pledged and the pledgee will become an unsecured creditor.

Other provisions in the Measures worth noting are that a pledgor must be the owner of the copyright. In the event that a pledgor is unable to repay his debt, the pledgee has the priority of using the proceeds from the sales of such copyright to settle the debt. However, a pledge agreement providing a transfer of the copyright to the pledgee in case of the pledgor's failure to repay his debt would not be accepted for registration.

It is anticipated that following the revision of the Copyright Law, revised Measures may soon be issued to update the existing registration procedures and requirements.

Annie Tsoi, Deacons, Hong Kong