A China IP Reality Check

China IP

A strange and fascinating story is unfolding right now in the world of Chinese reality television programming. One of the most popular shows in China, The Voice of China, is embroiled in legal controversy, and the outcome could affect every content license in China. Okay, that might be a bit of hyperbole, but still, this is one episode you won’t want to miss.

The story begins back in 2012, when Shanghai Canxing Culture & Broadcast Co. (上海灿星文化传播有限公司) licensed the format for The Voice from Dutch media entity Talpa. Talpa had originated the format back in 2010 with The Voice of Holland and has since licensed the hugely popular singing competition to more than 60 countries, including the U.S. where it is simply known as The Voice.

The Voice of China began airing in July 2012 on Zhejiang Television, and quickly became one of the most popular television shows in China. Though the English name followed the usual naming convention, the Chinese name of the show was 中国好声音, which translates, more or less, as “China’s Best Voice.”

Guess who didn’t register the Chinese name of the show? That would be Talpa. It’s depressing how often we have to repeat this: please, please, please register both your English-language trademark AND the Chinese version. By now, any company that gets caught flat-footed on this issue only has themselves (or their IP counsel) to blame.

Meanwhile, starting in 2012, the Chinese government agency overseeing media and censorship (currently known as SAPPRFT, for State Administration of Press, Publication, Radio, Film and Television), which had always restricted foreign content in China, began to announce even more directives regulating foreign film and television content, including specific limitations on when and how often foreign content shows could air on television and on streaming sites, and even specific limitations on singing competition programs. News stories and commentary about these directives often singled out The Voice as a possible target, but Zhejiang vowed that the show would remain on the air, and so it did — and continued to be a ratings powerhouse.

In early 2016, license renewal talks broke down between Canxing and Talpa. According to Canxing, Talpa asked for an exorbitant royalty percentage and also tried to get Canxing to take a package of shows when all Canxing really wanted was The Voice. This latter negotiating ploy, if true, is hardly unique to this situation; the dismal choice faced by Canxing is familiar to anyone who’s been a cable subscriber.

After Canxing ended the talks unilaterally, Talpa quickly licensed the format to another Zhejiang-based Chinese production company, Zhejiang Tangde Film & TV Co., Ltd. (浙江唐德影视股份有限公司), and Talpa and Tangde announced plans to produce seasons 5-8 of The Voice of China.

Undeterred by Talpa finding a new licensee, Canxing announced it would keep producing a singing show. The format would be different, Canxing claimed, but the name would be virtually the same: The Voice of China 2016 and 2016中国好声音. Because – surprise! – Canxing’s distribution partner Zhejiang Television was the registered owner of the 中国好声音 trademark.

Talpa sought a preliminary arbitral award in Hong Kong against STAR Group Limited, Canxing’s Hong Kong affiliate. But the Hong Kong International Arbitration Centre (HKIAC) denied Talpa’s request (at least insofar as it pertained to the Chinese name) because Talpa had no rights to the Chinese name. Did we mention that Talpa should have registered the Chinese-language trademark?

More or less at the same time, Tangde filed suit in a Beijing IP court against Canxing, claiming trademark infringement and unfair competition, and seeking a preliminary injunction. To the surprise of some, on June 20, 2016 the Beijing court ruled in Tangde’s favor insofar as the name of the program, holding that Canxing could not call its program either The Voice of China or 中国好声音. Canxing appealed the ruling, but changed the English name to “Sing! China.” On appeal, Canxing lost again, and complied with the ruling by changing the Chinese name of the show to中国新歌声, which roughly translates as China’s New Singing Voice.

Around June 13, 2016, while all of these legal proceedings were ongoing, SAPPRFT issued a directive curtailing the airing of television programs based on foreign formats. The directive clarified that programs produced in a foreign country (like The Big Bang Theory) and programs based on a foreign format (like The Voice of China) would both be considered foreign content, and that television channels (1) would have to secure prior government approval to air such programs, (2) could only show two foreign content programs during prime time each year, and (3) could only show one new foreign content program each year, and not during prime time in the first year.

On July 15, 2016, the first season of 中国新歌声 began on Zhejiang Television. It had the same judges as last year’s season of中国好声音 and an almost indistinguishable format. As of this writing, the season is about half over, and the main difference appears to be that during the blind audition phase, instead of swiveling 180 degrees, the judges’ chairs slide down a long ramp. Everyone I know who watches the show (including my entire family) agrees it is virtually the same show. And it seems to be as popular as ever, both with the viewing audience and with the sponsors.

The coverage to date has focused on this story as a contract, copyright, and trademark dispute. That’s true enough, and as far as that goes it’s not a particularly noteworthy dispute by Hollywood standards. Indeed, the fact that this dispute is the subject of multiple legal proceedings could even be seen as a sign of China’s maturity as a media market. Twenty years ago, if a Chinese production company copied an American or European television program, no one in the West would have cared (much), because (1) the rights owner would not have had a plausible remedy in China, (2) the Chinese company never would have paid for the rights, and (3) even if it had paid, the amount paid would have been a pittance.

But there’s another story here. By making a few superficial changes to the show and changing the name, Canxing and Zhejiang Television are trying to skirt the restrictions on foreign content. According to them,中国新歌声 is a 100% Chinese content show. Canxing has also stated that it won’t purchase any more foreign formats in the future.

If Canxing and Zhejiang can get away with such copyright infringement — and thus far they have – this becomes a cautionary tale for foreign content owners licensing to China. Chinese companies may still see value in licensing foreign formats, because just copying a show isn’t as easy it looks. Indeed, that’s why Canxing and other Chinese production companies have been paying serious money for the most popular formats. But once they have received the production bible and produced a season or two, what incentive do they have to keep paying a license fee, if they can make a couple changes and call the show 100% Chinese?

What you can and should do if you are licensing content in China

As a preliminary matter — before you license anything to anyone in China — you should register, in China, any of your intellectual property worth litigating over. That means registering not only your English-language trademarks but also the Chinese-language versions of those trademarks. If the Chinese-language versions don’t exist, it’s time to create them. Because if you don’t, someone else will, and they’ll register it too — just like Zhejiang Television did with 中国好声音, the Chinese version of The Voice of China.

That also means registering copyrights for any meaningful content. For television shows, that means at the very least registering the show bible, scripts, and any produced episodes. It’s true that China is a signatory to the Berne Convention and therefore a valid copyright in the US or Europe is valid in China without registration, but for practical purposes, it’s much easier to enforce a copyright in China if you have registered it in China.

Do not delegate the task of registering your IP in China to your Chinese licensee. The licensee’s interests may not always be aligned with yours.

Once you have registered your IP in China, you should draft an enforceable contract to protect your interests in China as against the Chinese licensee. A contract with the licensee’s Hong Kong affiliate, with disputes resolved by arbitration in Hong Kong (or any other country other than Mainland China), achieves none of these goals. Yet this is what we see again and again from companies who either don’t trust or don’t understand the Chinese court system. I haven’t seen the Talpa-Canxing contract but it appears to have followed this model, as the dispute was submitted to arbitration in Hong Kong. The problem is usually not that Chinese law won’t protect foreign content owners. The problem is usually that content owners (and their lawyers) often decline to take advantage of the protection Chinese law offers. They write contracts designed to be unenforceable in China, and then complain about China’s legal system when their contracts prove to be worthless.

A properly drafted contract would address the following issues:

1. Make sure the contracting party on the licensee side is the actual Chinese entity that will be licensing the content, and not a Hong Kong affiliate. As a corollary, choose the right law and the right jurisdiction for your dispute. If you want to sue a Chinese company for breaching your contract by using your IP in China, choose Chinese law and dispute resolution via Chinese courts in the hometown of the Chinese licensee. See China Contracts: Make Them Enforceable Or Don’t Bother and China Contracts. Watching The Jurisdictional Sausage Get Made.

The issue with contracting with a Hong Kong company is not so much that the Hong Kong company may be a shell company with no assets (although that is often the case). Rather, the issue is that any legal resolution in Hong Kong is unlikely to be effective in China. And if you’re licensing content to China, China is where the action is going to be. Hong Kong still has the common law system passed down from its days as a British colony; it favors injunctive relief and disfavors liquidated damages (aka contract damages). China is the opposite. What good is injunctive relief in Hong Kong if you’re trying to get the judgment enforced in China, which disfavors injunctions? You might argue: we will arbitrate in Hong Kong but provide that Chinese law governs. For a variety of reasons that almost never works, particularly if the defendant is a Hong Kong company. Meanwhile, the infringement in China continues.

2. Provide for upfront payment of the license fee in an amount that makes the deal worth it to you even if the contract is terminated early. See China Licensing Agreements: The Extreme Basics. Provide for substantial contract damages for late or non-payment of the license fee, and do not provide the Chinese side with any of your content until it has paid the license fee and the funds are in your bank account.

3. Provide for substantial contract damages for (1) early termination and (2) each instance of infringement. Do not mess around with lengthy provisions about injunctive relief. Unlike the common law systems of the United States, Canada, Great Britain and Australia, contract damages are not disfavored under Chinese law. In fact, use of contract damages is well established in China and favored by statute. On the other hand, though Chinese judges may be legally empowered to issue injunctive orders, they have virtually no power to ensure those injunctions are implemented. There is no Chinese equivalent of the U.S. Marshals Service. For this reason, Chinese judges are hesitant to issue an order they know is likely to be ignored. Instead, they will seek to convert every decision to an order to pay a sum certain in damages. Including a contract damages provision gives a China judge the roadmap. Most importantly, since Chinese companies know well the power of contract damages provisions, your merely having one in your contract greatly increases the odds of your Chinese counter-party abiding by that contract.

4. The contract damage amounts must be a good faith estimate of the actual amount of income that would be lost by the licensor in the event of early termination. These amounts are not guaranteed even if the plaintiff prevails: at trial, the defendant can argue that the contract damage amount is too high and the plaintiff can argue that the amount is too low. The utility of contract damages is that when a plaintiff seeks pre-judgment attachment of assets China’s courts will almost always allow attachment in an amount equal to contract damages if such damage amount is specified in the contract. In contrast, if the contract provides for injunctive relief and monetary damages in an amount to be determined at trial, it is virtually impossible to obtain a writ of attachment. To repeat: Chinese companies do not like putting their assets at risk of being seized and so having a contract damages provision is a great deterrent.

Note also that an arbitration body cannot issue an enforceable assets seizure order and it is also virtually impossible to obtain such a writ from a court outside the district where the assets are located. That is why we normally want to sue in the “home town” of the defendant, even though that sounds counter-intuitive to a most U.S. and European lawyers, who have been taught to avoid getting “home-towned.” The Chinese understand the “home town” issue, which is why there is an automatic right of appeal to a higher court in a different town, and also why such appeals are de novo. Home town favoritism is often reversed at the higher court level.

5. Do not rely on the default provisions of Chinese intellectual property law to protect you against your licensee. Chinese IP law and your IP registrations protect against random third-party infringement. If you want protection against your licensee stealing your IP, put it into the contract. Your contract with your licensee is your best chance to control your Chinese counter-party and to protect yourself. Take advantage of it by using a contract that actually achieves those things.

6. The license term should be relatively long; say, five years. If the term is too short, then the penalty for early termination becomes irrelevant.

If your Chinese counter-party refuses to sign a contract that addresses the above, you know what they have in mind and you should reconsider whether to do the deal.

And so ends our story….

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