Copyright infringement in China The war against Baidu
09 September 2008
This article was first published in the
July/August issue of Copyright World.
The last five years has seen a huge rise in
the availability of music to download from the internet. Personal
MP3 players loaded with thousands of songs have become ubiquitous
in our society. According to a recent report published by the
International Federation of the Phonographic Industry, the sales of
music online has risen from nothing to an estimated US$2.9 billion
– 15% of industry sales - over the last five years.
The choice available to music lovers on the
internet on the five hundred or more legitimate music download
sites runs into millions of tracks – far greater than even the
biggest record shops. The convenience of being able to access this
music at the touch of button has revolutionised the way in which we
access music. In addition, a number of bands have risen to stardom
solely by virtue of their presence on the internet, which has
allowed them to communicate with their fans in a much more personal
way than was possible through more traditional channels.
However, the internet has not been an
exclusively positive influence on the development of the music
industry. Illegal downloads have become a massive problem, from the
early beginnings of hosting sites such as the original Napster, to
increasingly more sophisticated peer to peer sites that try to
escape liability themselves by allowing consumers to download
directly from each other. Independent surveys indicate that between
50% and 80% of traffic through internet service providers is on
peer to peer networks, which takes up around 50% to 70% of internet
service providers (ISPs) bandwidth.
Tens of billions of illegal downloads took
place in 2007, with an estimate of 20 illegal downloads taking
place for every one legal download.
The music industry has found it incredibly
difficult to combat this problem. This is in part because of its
scale, but also because in contrast to the traditional problem of
large scale copying of compact discs by relatively few groups,
music is being shared and illegally downloaded on the internet on a
smaller scale, but in millions of otherwise law-abiding households
around the world. This makes the identification and prosecution of
the people involved a monumental task.
What can be done? - The current
strategy
Artists, record companies and others involved
in the music industry are understandably upset at the current
position. The scale of the illegal download problem represents a
huge loss of potential revenue for those making their money from
music sales. So far no major breakthroughs in tackling the problem
have been achieved, despite numerous attempts to make examples of
people by imposing massive fines on those found with illegally
downloaded material.
The affected parties would like to place the
responsibility of stopping the problem squarely on the shoulders of
the ISPs, primarily because it is their networks which have
facilitated the growth of illegal downloads. The argument is that
the people illegally downloading content from the internet can only
access the internet through ISPs, and so the ISPs have the power to
monitor their users and stamp out the problem. The ISPs, however,
have been extremely reluctant to take responsibility for the
actions of their subscribers, arguing that they simply act as a
conduit for the downloads and are not infringing anyone’s rights
themselves. Civil liberties groups have been up in arms over the
potential invasion of privacy issues that would result from closer
monitoring by ISPs.
Following pressure from the music industry,
however, the Government in February this year announced that they
would legislate to force ISPs to monitor their customers unless a
voluntary agreement could be reached between the ISPs and the
record companies by April 2009. Following this announcement, Virgin
Media, in collaboration with the British Phonographic Industry,
introduced a new policy whereby it would send customers involved in
illegal downloads warning letters which, if ignored, could result
in the termination of their internet service. Other companies may
follow suit.
The Chinese problem
Trying to enforce your intellectual property
rights in China has traditionally been very difficult. In addition,
many of the goods bought in the Western world are manufactured in
China. The result of these two facts is that China has for a long
time been a hot-bed of counterfeiting and other intellectual
property infringement.
However, in recent years the problem has been
exacerbated by the explosive rise of internet use in China.
According to recent figures released by the Chinese government,
there are now 210 million people in China using the internet. China
will soon take over from the United States as the country with the
most internet users. This statistic is made even more significant,
as this number of users only represents 16% of the population,
meaning that the number of users is likely to increase
significantly as the internet becomes more widely available and the
economy continues to grow.
Unfortunately, with the increase in internet
use comes an increase in copyright infringement in the form of
illegal downloads. It is estimated that between 80% and 99% of
music downloaded from the internet in China is pirated. This
represents a massive loss of revenue to the music industry, and has
contributed to a 90% reduction in revenue for the Music Copyright
Society of China, despite the increase in internet use.
Part of the problem stems from the fact that
self-standing copyright law in China has only been a fairly recent
development. Prior to September 1990, there was no dedicated
copyright legislation in China, and it was not until 2000 following
a decision by the Supreme People’s Court that copyright in online
material was properly recognised. However, since 2006 the rights
and prohibitions in relation to online copyright have been
enshrined in law in the form of the Regulations on the Protection
of the Right of Communication through Information Networks (the
“2006 Regulations”). A number of recent cases have also served to
clarify the law in this area.
Baidu – the root of all
evil?
The rise of Baidu has been nothing short of
meteoric. Founded in late 1999, it has become the dominant player
in the Chinese search engine market, accounting for over 60% of the
Chinese search market. Alexa Internet Inc., a company which
specialises in monitoring website traffic, ranks Baidu as the 13th
most popular website in the world. From fairly humble beginnings,
the company was the first Chinese company included in the
NASDAQ-100 index, which on its first day of trading increased its
value by 354% making it the most successful launch on NASDAQ since
the dot-com boom. The company now has a market value of almost
$10.7 billion.
The secret behind the success of Baidu’s
revenue generation is advertising. It was one of the first
companies in the world to allow advertisers to bid for ad space and
then pay Baidu every time that someone clicked on the
advertisement. Baidu is the market leader in terms of advertising
revenue and now commands over 20% of the online advertising market
in China, compared to Google in fourth place which only has around
a 10% market share. Part of the reason for this may be that some of
Google’s efforts to infiltrate the Chinese market have been blocked
by the Chinese Government, who heavily censure the internet and
impose strict rules on foreign internet companies who seek to
profit from the growth of the internet in China. In contrast Baidu,
in return for allowing censors full access to their website, has
the support of the government which aids its dominance of the
market in China.
Outside of China, however, the rise of Baidu
has been less well received, particularly by the Western music and
film industries. Baidu provides an index of hundreds of millions of
websites and tens of millions of multimedia files. The service
offered by Baidu includes a music search engine, with a link from
its home page. However a high proportion of the music and
multimedia files indexed by Baidu are pirated. All of the music
files indexed by Baidu are stored on third party servers, none of
which is owned or controlled by Baidu, but the music industry
nonetheless puts the blame for the rampant levels of copyright
infringement on the internet in China firmly at the feet of Baidu.
The Music Copyright Society of China has labelled Baidu “the
largest and most incorrigible purveyor of pirated music in
China”.
The first Baidu battle
The music industry sees the control of the
problem on Baidu to be a fundamental priority in the fight against
online copyright infringement in China. The music being illegally
downloaded is both international and Chinese in origin, and so
solving the Baidu problem is a concern shared by both the
international music community and also the music industry in
China.
The first attempt to tackle the Baidu problem
came in 2005, when a coalition of a number of major music labels,
including EMI, Universal, Warner and Sony BMG, together with
Chinese companies Gold Label, Go East and Cinepoly sued Baidu for
copyright infringement. The coalition’s argument was that Baidu was
infringing copyright by providing links to sites which offer
illegal downloads which users could actually access from within the
webpages of the Baidu website, by a process known as “deep
linking”.
Unfortunately, the Beijing First Intermediate
Court did not agree with the coalition’s arguments and found that
by providing links, as opposed to the pirated music itself, Baidu
was not guilty of copyright infringement. The decision was
appealed, but in their decision published in early 2008, the appeal
court upheld the decision of the lower court. The reasoning for the
decision was that Baidu could only be liable for the infringement
if it continued to provide infringing links following notification
regarding the links and a request to have them taken down, or if
Baidu had actual knowledge that linked music was pirated. No actual
knowledge was proved, and as Baidu had not received notification or
a request to have the links removed, they were not liable for
copyright infringement.
Contrast with the Yahoo! China
case
At roughly the same time as the Baidu case was
in the judicial process, another coalition, headed by the
International Federation of the Phonographic Industry (IFPI) and
including EMI, Mercury Records, Sony BMG and Warner Music, were
involved in a similar case against Yahoo! China with very similar
facts, but which was based on the new 2006 Regulations, which were
not in force when the Baidu case was commenced. In this case, as
with the Baidu judgment, the court rejected arguments relating to
the liability of the Defendant for direct infringement. However,
the coalition were successful in their claim for contributory
infringement. Yahoo! China appealed.
On the same day that the Baidu appeal decision
was released, the Beijing People’s Higher Court also released their
decision in the Yahoo! China case. The decision of the lower court
was upheld, marking a major victory for the record industry. Yahoo!
China was ordered to remove all links to all infringing music, not
just the music owned by the Claimant record companies.
Some commentators have suggested that the
reason for the difference between the two decisions could be due to
the fact that the 2006 Regulations, which clarify the rules on
contributory infringement, were not available to the coalition in
the Baidu case. Whatever the reason, the fact remained that Baidu’s
activities continue.
Baidu – A new strategy
Following the Baidu appeal decision, the
record industry realised that a strategic rethink on how to deal
with the Baidu problem was needed. Action through traditional
enforcement channels failed to produce any results, and despite the
prospect of potential future success following the 2006 Regulations
and the Yahoo! China decision, initiating a new legal challenge
would take time and involve additional expenditure. New cases have
been commenced, but the industry has also been looking at
alternative ways of addressing the problem.
In June of this year, the Music Copyright
Society of China and IFPI together with a group of record companies
consisting of Universal Music, EMI, Sony BMG Entertainment,
Warner-Chappell Music and several Chinese record companies such as
Seed Music, R2G and Zhu Shu Fang Music announced their new strategy
to combat Baidu. The consortium decided that they would try to
force Baidu into taking action themselves through commercial and
public pressure by trying to cut off their main source of revenue –
advertising.
The consortium announced that it has sent
letters to the major advertising companies in China to urge them to
“carefully consider” whether they should be using Baidu
for their online advertising needs, as giving money to Baidu
effectively supports music piracy. It is hoped that if sufficient
numbers of advertisers either withdraw or withhold future adverts
from Baidu, then Baidu may be forced to reassess their position and
help the fight against online piracy in China, as opposed to be
being the main location through which users access the pirated
material.
The fallout
The question remains, will it work? Only time
will tell is the answer. However, this departure from the
traditional methods of protecting copyright through legal
enforcement is a bold step for the music industry, and in the
current climate it may just work. China is going through a period
of massive economic growth which has propelled Chinese industry,
and the country as a whole, into the spotlight. In the year when
one of the world’s biggest spectacles, the Olympic Games, comes to
China, the government and Chinese business are keen to impress, and
to advertise to the world that China is a great place to do
business.
Given the bad press that has traditionally
surrounded intellectual property protection and enforcement in
China, curbing the effects of websites connected with piracy such
as Baidu could have a really positive influence on the perceptions
of foreign business towards investment in China, which could
provide a further boost to the economy. If one way for Chinese
business to secure this goal is to stop spending money on
advertising with Baidu, then it is worth doing.
There is another factor of which Baidu should be aware. At the
present time, Baidu’s profits continue to grow. However,
commentators have recognised that the technology behind Baidu is
less advanced than that of Google and other Western search engines.
This means that if the government, in their desire to access more
of the benefits of the global economy, were in the future to
liberalise the content of the internet in China and allow companies
like Google to work unimpeded, then Baidu’s advantage may be
vulnerable. In this context it perhaps also makes commercial sense
for Baidu to listen to the public opinion and clean up its act.
For further information, please contact Hamish Porter or Edmund Wilkie.