China Media & Entertainment Law Report : China Media Lawyer & Attorney : Reed Smith Law Firm : Entertainment, Sports & Consumer Rights Law

As reported by Caijing via its website, industry insiders are speculating that video websites in China may be frustrated if rules for banning the dissemination of films via the internet without a Permit for Public Projection of a Film (“PPF Permit”) are issued sometime between April to June this year (the “Rules”).  The Rules may apply to both films and short films, with no distinction between professionally produced and amateur videos. 

A ban on the dissemination of films via the internet without a PPF Permit is set out in Article 26 of the Draft Law on the Promotion of the Film Industry.  Article 26 provides that films without PPF Permits may not be distributed, projected or brought to film festivals (exhibitions).   The Draft Law also bans dissemination of such films via the internet, telecommunication networks, radio and television networks or other information networks. The State Council released the draft on December 15, 2011 to solicit public comments through January 15, 2012.  It is not clear when the law will be formally promulgated.  The Rules may follow soon after promulgation of the Law.  

According to the Caijing report, currently most of the foreign films that are broadcast by China-based video websites have not obtained PPF Permits.  The user generated content on these websites also is being broadcast without PPF Permits.  With more than 70,000 videos uploaded a day on some websites, if the new Rules are passed and enforced, they could either result in massive new employment opportunities, or significant lay-offs!
 

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The Ministry of Culture (MOC) published the 2011 Annual Report on the Internet Music Market in China in March.  The report stressed MOC’s role as the primary regulator of the Internet music industry, stating that MOC had certified a total of 452 companies to engage in Internet music business by the end of 2011, while 54 companies were sanctioned in 2011 for failure to comply with MOC’s music content screening and filing requirements.  In terms of market growth, the report notes that the size of the mobile music segment, estimated at RMB 2.4 billion (for content providers) in revenue with nearly 700 million users, far exceeded that of the online music segment, estimated at RMB 380 million in revenue  with 380 million users.  These numbers were dwarfed, however, by the mobile music related revenue of RMB 28.2 billion raked in by the telecom operators, which clearly dominate over the content providers in the burgeoning mobile music market.

In addition to the chronic problems of rampant piracy and inadequate content origination, the report also points out the following hurdles to the industry’s growth: (i) fee-based business models have yet to be established, as advertising revenue remains the dominant source of income; (ii) optimal profit sharing scheme between content providers and platform operators has yet to be worked out; (iii) industry standards for Internet music have yet to be developed; and (iv) Chinese Internet users are still used to free access to online content.

Looking to 2012, MOC vows to strengthen its regulation of the industry while facilitating innovation, standardization and growth.  It also predicts the emergence of several trends in the industry, including (i) the growing impact of social networks; (ii) the proliferation of innovative mobile applications; (iii) the growth of open platforms; (iv) the rise of cloud music; and (v) the rapid growth of mobile music software and applications.

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 We reported on the establishment of the Shanghai Cultural Assets and Equity Exchange ("Exchange") in November 2009. On March 27, 2012, the Exchange opened a Beijing headquarters and announced cooperation arrangements with fourteen central-level cultural enterprises, including, among others, the China Publishing Group, China International Television Corporation, China Culture Media Group, China Foreign Culture Group, China Oriental Performing Arts Group, and China Record Corporation. On the same day, the first batch of more than two-hundred culture-related projects (all dealing with central-level enterprises) was listed on the Exchange for sale/investment.

Since its establishment, the Exchange has facilitated a number of deals, including the purchase of 60% shares of Shanghai Handy TV Corporation by China Broadcast Corporation; a subscription of shares in the Shanghai Evening Post by Shanghai Zhongrun Jiefang Media Co., Ltd.; and the purchase of 2.32% of the shares in SMEG Outdoor Media Co., Ltd. by a Hong Kong outdoor media company.

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Initial Decision

On November 17, 2011, the Shenzhen Intermediate People’s Courrt ruled that Proview Technology Shenzhen Co, Ltd. ( “Proview Shenzhen”) is the legal owner of the registered trademarks for iPad in China (#s 1590557 and 1682310). The ruling was in response to a lawsuit brought by Apple and IP Application Development Limited (“IPADL”) which was filed in June 2010. In their lawsuit, Apple and IPADL claimed that IPADL had purchased the rights to the two trademarks from Proview Electronics Company, Ltd. ( “Proview Taiwan”) in 2009. 

Appeal

Apple and IPADL appealed the Shenzhen ruling to the Guangdong Provincial High People’s Court. The Guangdong High Court hearing ended on February 29th, and a decision is pending.

iPad Distribution in China

After the November verdict, Proview Shenzhen took actions to seek court and government rulings to remove the iPad from retail distribution outlets around China. On February 17, the Huizhou Intermediate People’s Court upheld Proview Shenzhen’s position. However, Apple successfully convinced the Shanghai Pudong People’s Court to reject Proview Shenzhen’s application on February 23rd. The Shenzhen Futian District People’s Court has suspended a hearing on this issue pending the final judgment of the Guangdong High People’s Court.

U.S. Lawsuit

On February 28, Proview Taiwan also filed a complaint against Apple in the State of California, claiming that Apple’s purchase of the iPad trademarks back in 2009 was fraudulent.

Proview Shenzhen and Proview Taiwan Relationship

Both Proview Shenzhen and Proview Taiwanare 100% subsidiaries of Proview International Holding Limited, a public company listed in Hong Kong. In 2000, Proview Taiwan apparently registered the iPad trademark in various countries (excluding mainland China). Proview Shenzhen registered the iPad trademark in mainland China in 2001. IPADL claims that it entered into an agreement with Proview Taiwan in 2009 to purchase iPad trademarks registered worldwide (including mainland China). It is not clear at this point why Apple thought that Proview Taiwan had rights over the mainland China marks. It also is not clear what rights Proview International, may or may not, have with respect to the trademarks.

Proview Shenzhen Bankruptcy?

Proview International Holdings Limited announced on March 7, 2012 that there had been no bankruptcy petition filed against its subsidiary Proview Shenzhen, contrary to reports in the media.

Recent news reports appear to claim that one of Proview Shenzhen’s creditors, an insurance company in Taiwan named Fubon, attempted to file a bankruptcy petition with the Shenzhen Intermediate People’s Court against Proview Shenzhen in June 2011 and that on February 20, 2012, Fubon made an additional filing to urge the court to accept the case.   There is speculation that the case will not be accepted until the Guangdong High People’s Court issues its ruling on the underlying trademark registration matter.

Going Through Customs

Proview Shenzhen also has reportedly alleged that it would file an application with the Customs authorities in China to prevent the importation of iPad products into China (in particular, the newly released iPad3).

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A spokesman for Sina Corporation (“Sina”) said on March 12, 2012 that 60% of its microblog users, will have registered their real identities by March 16th in compliance with the "Regulations on the Administration of Development of Microblog in Beijing" (the “Microblog Rules”).  The Microblog Rules, issued by the Beijing Municipal Government Press Office together with other relevant authorities on December 16, 2011, require that any organization or individual who intends to publish information through microblog should register its identity with the microblog service provider. After March 16th, any microblog user that has failed to register will be unable to continue microblogging.

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We recently reported that Youku sued Tudou. Well, it appears now that both sides have made up and are walking down the aisle. The companies announced plans to merge on March 12th. Youku will be acquiring Tudou via a share transaction, which will result in Tudou's delisting from NASDAQ. The current plan is for both websites and brands to be maintained post-merger. The CFO of Youku stated that the merger would not trigger any anti-trust review in China. According to research firm Analysys International, Youku accounted for about 22 percent of the nation's online video advertising revenue in the fourth quarter of 2011, while Tudou had a 14 percent share. Who knows what will happen with the lawsuits?

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The Chinese government launched a new round of actions in February to crack down on false or illegal advertising. In early February, government agencies issued new regulations which require that all radio and television broadcasting institutions, newspaper and magazine publishers and online media appoint an advertising examiner to review ads for inappropriate or misleading content.  The actions were initiated by twelve government agencies, including the State Administration for Industry and Commerce, the Ministry of Public Security, the State Administration of Radio Film and Television, the Ministry of Health, and the State Food and Drug Administration.

According to an inter-ministerial action plan published by the agencies on February 23, 2012, supervision over advertisement publication at the prefectural level or above will be  strengthened, especially in connection with TV shopping ads, ads in relation to medicine, food and dietary supplements, beauty services, cosmetics, and franchising. In addition, the online ad content will be regulated more strictly.

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Where is Jeremy Lin? In Wuxi, China, and he does not appear to be playing basketball. Reports now indicate that Yu Minjie, a businesswoman from Wuxi, successfully registered the name "Jeremy Lin" as a trademark in August of 2011. The trademark was registered in Categories 25 and 28, which cover things like garments, shoes, hats, sport-related balls, and toys, and is effective from August 7, 2011 to August 6, 2021. 

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MIIT published China’s first draft set of national standards for the protection of personal information on February 10, 2012. Organized by the Department of Information Security at MIIT, the new draft guidelines, entitled Information Security Technology: Guide for Personal Information Protection (the "Guide"), are currently open to public comment. At present, there is no comprehensive law or regulation governing the protection of personal information in China.

The Guide sets out both general principles and specific requirements with respect to the collection, processing, transmission, utilization and management of personal information in various information systems. It also specifies the rights of the owner of personal information (the "Owners").

The Guide requires that personal information be processed only for specific and reasonable purposes without any abuse and that Owners be notified of their rights (e.g., the purpose and scope of use) before their personal information is processed. Entities are required to ensure that the personal information collected is accurate and updated and is protected with necessary management and technical measures to prevent unauthorized access, release, loss, leak, destruction or alteration. The Guide also requires that the methods used to process personal information should be reasonable and that no illegal, disguised or indirect collection of personal information is permitted. According to the Guide, the processing of personal information should be subject to the Owners’ consent. The Guide further provides that all inappropriate actions with respect to how personal information is used should be subject to corresponding liabilities.

The Guide also further prohibits entities processing personal information (the "Managers") from collecting personal information from juveniles below 16 or collecting any personal information irrelevant to the defined purposes, especially with respect to race, religion, genetic background, fingerprints, health status or sexual activities. Entities are required to formulate and implement detailed policies in connection with their handling of personal information.

According to the Guide, Owners have the right to request that Managers keep their personal information confidential and to inform them of relevant information with respect to how the information is obtained, process and/or disclosed. The Owners also have the right to demand that any false information be corrected.

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On February 15, 2012, the Communist Party and the State Council announced the issuance of the Outline for the Cultural Reform and Development Plan during the 12th Five-year Period ("Plan”). The Plan maps out the various aspects of China’s cultural development within the next five years, including, among other things, public cultural services, cultural industries, the creation of cultural products, protection and utilization of cultural heritage, cross-boarder communication and cooperation, and personnel.

The Plan intends to promote the cultural industries as a new engine for China’s economic growth. Apart from the traditional cultural industries, (e.g., publication, film and TV production, printing, advertising, entertainment, exhibition),  the Plan states that further endeavors will be made for the development of emerging cultural sectors, like digital publication, mobile multimedia, animation and games. In addition to government support, private capital also is  encouraged to participate in the sector. Detailed supporting policies and preferential treatment programs will be promulgated with respect to investment approval, financing, real estate, tax, initial public offerings, cross-boarder trade and fiscal subsidies.  The Plan stresses developing the investment environment for culture-related projects.

The Plan also focused on promoting Chinese culture abroad via overseas cultural festivals and the establishment of China Cultural Centers and Confucius Institutes in other countries. The government will make an effort to promote the export of cultural products (films, TV series, documentary, animated cartoons, etc.) and services. Domestic companies also are encouraged to expand overseas (via the operation of cultural enterprises, cinemas, publishing houses, theatres, book stores, radio and TV stations).  The Plan also welcomes foreign investment in China’s cultural industry to the extent permitted by Chinese law.    

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Any entities that have not applied for internet mapping service qualifications will not be permitted to engage in such services according to a new regulation issued by China's National Administration of Surveying, Mapping and Geoinformation in December 2011. The regulations were issued in December 2011 and became effective on February 1, 2012.

So far, a total of 254 companies have obtained the online mapping license. Google has yet to obtain its license, which is under examination after submission late last year. Foreign companies are prohibited from directly providing internet mapping services. According to reports, Google submitted an application in November 2011 via a joint-venture it establsihed with Chinese company Ganji.com. Industry watchers have speculated that there could be some level of market disruption if the Google-related application is not approved because of the number of apps built around the service.      

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In February 2012, Youku, China's largest online video site, sued Tudou, the No. 2 site, for losses caused by remarks made by Tudou in December 2011 in which the latter claimed that Youku misused some of its copyrighted material and that it would launch a lawsuit against Youku. 

Youku is seeking a court order requiring Tudou to (i) apologize for its alleged unfair competition practices and (ii) pay compensation of 4.8 million yuan (US$761,900). The case has been accepted by Beijing's Haidian District Court.

Youku claims that Tudou’s accusation has damaged its reputation and has resulted in Youku’s losses in share price and advertising customers.

The dispute started when Tudou held a press conference on Dec. 16, 2011 announcing that the company would file a lawsuit against Youku regarding its use of the Taiwanese television show "Kangxi Has Come," the rights to which were previously obtained by Tudou and which are allegedly in force from Dec. 1, 2011 until the end of November 2012. Tudou asked for 150 million yuan in compensation. The dispute escalated several days later, when Youku accused Tudou of stealing its own programs. The companies have both accused each other of trying to use legal claims to gain a competitive edge.

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On February 17, 2012, as part of Vice President Xi Jinping’s visit to the U.S., DreamWorks Animation (“DWA”), producer of the blockbuster animation Kung Fu Panda, announced that it will form a joint venture with China Media Capital (“CMC”) to establish the leading China-focused family entertainment company, Oriental DreamWorks. CMC is China's first media sector focused fund and boasts several state sector backers, including Shanghai Media Group (“SMG”), China’s second-largest broadcaster and Shanghai Alliance Investment, Ltd. (“SAIL”), an investment arm of the Shanghai municipal government. The new joint venture will develop and produce original Chinese animated and live action content for distribution both within China and globally. In addition to content creation, the joint venture will pursue business opportunities in the areas of live entertainment, theme parks, mobile, online interactive games and consumer products.

As required by relevant regulations, the shareholding of foreign investors in a film production company shall not exceed 49%, in line with which, DWA will hold approximately 45% of the shareholding in Oriental Dream Works and the remaining stake will be held by Chinese companies. According to DWA’s press release, Oriental Dream Works will initially be capitalized with cash and intellectual property valued at $330 million. The joint venture plans to launch business operations in Shanghai later this year.

While Xi was in the U.S., the two countries also reached an agreement whereby the US will be allowed to export an increased number of 3D and IMAX movies to China.

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In January 2012, People.cn, a State-level news medium, obtained approval from the China Securities Regulatory Commission (the "CSRC") for its proposed initial public offering (the "IPO") on the Shanghai Stock Exchange. This is reportedly the first IPO among China’s State-level news media since the Chinese government released a series of policies encouraging enterprises in the cultural industry to go public. In September 2009, the State Council issued the Plan on Reinvigoration of the Cultural Industry.

People.cn’s core business is running a web portal, which, together with its subsidiaries in China, the United States, Japan, South Korea and other countries, provides a platform for news release and information exchange worldwide. People.cn plans to raise about RMB 527,024,100, out of which, RMB288,535,100 will be used to develop mobile internet value-added services, including services related to mobile games, comics, music, books, and WAP, RMB146,056,000 will be used to upgrade the system platform for the web portal, and RMB92,433,000 will be used to expand its news production capability, such as recruiting additional editorial staff and purchasing additional news production equipments.

People.cn is owned by fifteen shareholders, including many large State-owned enterprises, such as the People’s Daily, China Mobile, China Telecom, China Unicom and Sinopec. Its largest shareholder is the People's Daily, one of the country's biggest newspapers by circulation and also China’s Communist Party’s mouthpiece. The People’s Daily now directly and indirectly holds 79.54% in People.cn, and will remain the controlling shareholder after the IPO, which is expected to be completed in six months.

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