This spring has witnessed several important moves in copyright law related legislation in China. On March 31, the National Copyright Administration issued the draft of the PRC Copyright Law (Revised Draft) (the “Draft”)to gauge public opinion. Indeed the articles on copyright liability for ISPs caused heated discussion. On April 22, the Supreme People’s Court, in a similar attempt to gauge public opinion, issued the exposure draft of the Regulation of the Supreme People’s Court on Several Issues Concerning the Application of Law Involving Civil Disputes over Cases of Information Network Dissemination Right Infringement (Exposure Draft) (the “Exposure Draft”), which contains more comprehensive and specific provisions on the copyright infringement liability of Internet Service Providers (“ISPs”). Although these two documents are not in force yet, they can be assessed to better understand the legislative and judicial intent of the national copyright administration and the highest judicial organ on the copyright related legal liability for ISPs. The documents are expected to have a significant impact on the trend of application and adjudication of copyright related legal liability of ISPs.

  1. Understanding Article 69 of the Draft

With the third, and most comprehensive  amendment to the PRC Copyright Law[1] (the “Copyright Law”) imminent, it is clear that unlike the previous two amendments which were implemented as a result of China’s commitment to the WTO or enforcing the ruling from WTO dispute settlement body, the Draft reflects a truly proactive effort for progress. Following Article 36 of the PRC Tort Liability Law[2] (the “Tort Liability Law”), the Regulations on the Protection of Rights to Information Network Dissemination[3](the “Dissemination Regulations”), and the Supreme People’s Court’s relevant judicial interpretation, Article 69 of the Draft provides three principles for ascertaining infringement by ISPs.

  1. The Principle of “No Obligation of Prior Review”

The first provision of Article 69 [4]of the Draft stipulates that certain ISPs do not have an obligation to review the information. That is to say, providers of storage, search or linking services are not obliged to review information relating to copyrights or related rights (neighboring rights). This principle should be understood as follows: First, it only applies to certain types of ISPs engaged in certain types of technical services, i.e. those who provide simple services including storage, search, linking and point-to-point services. It does not apply to content service providers (“SPs”) or where content services are involved. Second, this principle refers to the lack of an obligation on the part of service providers to actively conduct a review, but does not mean that they are free of a duty of care to take necessary measures when infringement is discovered or discoverable. Such duty is stipulated in the 3rd provision. Finally, this principle only applies to the review of copyright and related rights. Where the laws and regulations impose other review obligations, SPs shall abide by them. However, these obligations should not negate the principle of “no obligation of prior review”. In other words, SPs should not be held liable for failing to discover the copyright infringement when conducting the review.

  1. The Principle of “Notice and Deletion”

Paragraph 2 of Article 69 of the Draftstipulates the principle of notice and deletion, which means that where the users commit infringing activities by utilizing the Internet service, if the Internet service provider does not take any necessary measures in a timely manner upon receiving the notice from the owner, he/she shall be jointly liable with the infringing user. This principle contains four key features: First, it applies only when the ISP commits no act of infringement, and only provides storage, search, linking, and other neutral technical services. It does not apply to those who themselves have committed such acts. Secondly, where an Internet service provider violates this principle, he/she shall be jointly liable with the actual infringer. The scope of such joint liability should be determined in accordance with Paragraph 2 of Article 36 of the Tort Liability Law, which means that the ISP shall be liable for the damages over and above the portion of infringement damages, which arises out of his/her failure to take necessary actions upon receiving such notice. Such liability shall not include damages that have already happened before notice is received, or damages not caused by the defendant regardless of the timing of notice. In deciding on the specific amount of damages, the court should essentially consider the portion of damages that are caused by the service provider’s failure to act after receiving the notice. Third, once joint liability is found, the service provider has the right to recover compensation from the infringing user over and above the amount for which he/she is liable in accordance with Article 14 of the Tort Liability Law. Finally, when applying the principle of notice and deletion, the validity of the notice should be determined in accordance with theDissemination Regulationsand the Supreme People’s Court’s relevant judicial interpretation.

  1. The Principle of Fault Liability: Know or Should Have Known

Paragraph 3 of Article 69 of the Draftimposes on ISPs a duty of vigilance on infringement. Where the users commit infringing activities that are open and obvious such that the ISPs are deemed to know or should have known such activities, the latter should take necessary measures to prevent the expansion of the infringement or otherwise should be held liable[5],and cannot be exempted by asserting the defenses of no notice received from the owner or no obligation to review. This is called the red flag principle. Note that the “red flag” should be clear enough in order to trigger the duty of care. In determining the “know or should have known” liability, the court should adopt an ordinary, reasonable person standard, and take into account the cognizance level of the individual service provider as well as factual context of the case, so that the service provider will not be unfairly burdened by a duty of overt vigilance or forced to play the role of cyber police. The provision restates the principle of fault liability as stipulated in the Tort Liability Law, and prevents the abuse of the principles of “no obligation of prior review” and “notice and deletion”, integrating Article 69 into a systematic framework.

Article 69 of the Draftdemonstrates the balanced interests of the creators of intellectual works as well as the information users and disseminators, equality between rights and obligations, the neutrality of technology, and the principle of fault liability stipulated in the higher ranking law.

  1. Understanding the Exposure Draft

On April 22, the Supreme People’s Court issued an Exposure Draft that contains 20 articles. Most of the provisions of the Exposure Draft were already stipulated in the First Guidance Rules on Several Issues over Cases of Internet Copyright Disputes (Trial Implementation) [6](the “Trial Rules of Beijing Higher Court”), which was issued by the Beijing Higher People’s Court in May 2010. The articles in this Exposure Draft still remain unrevised two years since the implementation of the Trial Rules of Beijing Higher Court, which may be a testament to their durability.

  1. Scope of Infringement of Information Network Dissemination Rights

Article 3 and 4[7] of the Draft delineate the specific infringement activities on information network dissemination rights, which provides significant guidelines for adjudicating infringement. Article 3 defines infringing activities as those which provide the works, performance and audio-visual products, through information networks and without prior permission from the rights owners. It defines the activities of “providing” as to “put such works, performance and audio-visual products to the information network open to the public through uploading to network servers or otherwise, rendering the public ability to download, browse or obtain otherwise such works, performance and audio-visual products”. The Supreme People’s Court here avoids using the controversial expression of “interactive dissemination”. It is clear that “uploading” refers to “transmitting” digital works from local hardware and other storage devices to the network servers, which is identical in nature to the act of copying as stipulated in the Copyright Law. The question is how to define “otherwise”. This should not include services such as information storage, searching, or linking. Such SPs would have become direct infringers had we defined “otherwise” this way, which is inconsistent with our current laws and provisions. The “otherwise” should nonetheless refer to the activities, uploading excluded, of connecting storage devices with the Internet, such as connecting an information-loaded hardware with an internet server, or connecting a flash drive with an internet terminal so that internet users can access such information. Such actions are essentially identical to uploading in that they both allow information to come into being, gain entry into the network world, and enable network users to obtain such information. This is precisely why such actions fall within the scope of “providing” activities under the control of information network dissemination rights. Future means of providing such works and information that are yet to be introduced shall also be included so long as they resemble the copying activities in nature.

  1. Nature of Deep Link Services

It is worth discussing whether providing deep links should be categorized as a “providing” activity as stipulated in Article 3. Simply providing deep links in the absence of other activities should not be regarded as “providing” those works, because it is technically still a type of search and link service. The target information is uploaded to the network server by someone other than the link provider. It is not copied to the link provider’s server. Rather, users still need to visit the information server that contains the target information. Deep link service is legally indistinguishable from ordinary link providing service. In particular, a lot of sharing videos (sourcing websites, etc.) add the codes before the video files so as to direct search engines to those deep links automatically, which could help boost their site visits. Such deep link service should be treated in compliance with Article 4 of the Exposure Draft which stipulates that no works, performances, or audio-visual products are provided so long as the “network service provider has the appearance of the provided works, performance or audio-visual products . . . (but) the network service provider has the evidence to prove that it only provided the works, performance and audio-visual products in dispute with automatic access, automatic transmit, information memory space, search, links, P2P technology, etc.). As for the potential unfair competition among information sourcing website operators arising from the deep link services with the appearance of the provided works, this is a separate issue that ought to be regulated by the PRC Anti-Unfair Competition Law[8], not the Copyright Law. The above understanding is in compliance with Article 4 of the Trial Rules of the Beijing Higher Court.

However, it is worth noting that when some highly popular artistic works such as hit movies, TV programs, literature, and music works are involved, where deep link providers actively guide web users to browse around by creating billboards, catalogs, and indexes, such actions would be adjudicated as “should have known” infringement, namely the ISPs should have known that providing such deep links services will be used for infringement, but fail to take necessary steps to prevent its expansion. This is reflected in Paragraph 1 of Article 11.[9] It intends to make two points: First, this Exposure Draft is consistent with the principle of fault liability by distinguishing pure search and link-providing activities from fault-based activities that facilitate infringement; Second, it confirms that deep link providing activities are not within the scope of infringing actions on right to network dissemination of information. Even in the circumstances of “should have known” infringement, deep link providers are jointly liable for expanding the infringement only, but are not considered direct infringers.

  1. Nature of Snapshot and Thumbnail Services

Article 5[10] of the Draft defines the nature of snapshot and thumbnails. Snapshot and thumbnails are born in their SPs’ network servers, and remain there if not deleted or updated in agreement with the corresponding changes in the source websites. In general, the snapshot and thumbnail services are regarded as a type of “providing” service, subjecting their SPs to scrutiny on information network dissemination rights. However, it is also recognized that sharpshooting and thumbnailing services can enhance web users’ searching efficiency, and can be recognized as reasonable use. Paragraph 2 of Article 5 thus borrows the three-step method from the TRIPS to evaluate the reasonableness of their use, namely when they “have neither affected the normal use of works, performance and audio-visual products, nor jeopardized in any unreasonable way the lawful rights and interests of right holders in works, performance and audio-visual products”. In recent years, copyright disputes involving sharpshooting and thumbnailing services are growing globally. The United States and European countries have ruled differently. Continental legal systems historically enumerate all circumstances of “reasonable use”, but such circumstances are limitless. Although some judges may recognize the reasonable use of the sharpshooting and thumbnailing services (shown by the ruling on the Google snapshot infringement in Germany), no sufficient statutory basis is available to support its reasonable use when a judgment is rendered. In China, a similar three-step assessment can be found in Article 21 of the Copyright Law, but it is generally regarded as a supplemental provision to Article 22 which enumerates the circumstances of reasonable use, so that is not widely applied in determining their reasonableness. It wasn’t until the end of 2011 that the Supreme People’s Court officially brought in the abstract three-step test for evaluating reasonableness called Opinions on Issues on Promoting IP Adjudication, Cultural Prosperity, and Balanced Development of Economy.[11] TheDraftfurther takes a proactive step by setting up the three-step principle in the first Article (Article 39) of Chapter 4 (“Limitations of Rights”). Coupled with the Paragraph 2 of Article 5 in Exposure Draft, such changes demonstrate that the legislative “balance of interests” principle is being carried out in network copyright infringement disputes.

  1. Factors in the Application of “Know or Should Have Known” Principle

Article 8 of the Draft stipulates that six factors should be taken into account when determining whether an ISP has knowledge of or should have knowledge of the infringement, including: “the expected information management capability of the ISP; types, reputation and appearance of infringement of the disseminated works, performance and audio-visual products; direct benefits of the network service provider obtained from disseminating the works, performance and audio-visual products; whether the network service provider proactively selects, edits, amends or recommends the works, performance and audio-visual products; whether the network service provider adopts the technical measures generally accepted in the industry to prevent infringement, and whether it makes reasonable response; whether the network service provider takes the reasonable corresponding measures toward the repeated infringement of the same works.”

The Supreme People’s Court also lists other relevant circumstances in determining the fault of ISPs based on the different types of network services in Article 11, 12, 13 and 14. These are important guidelines for the operation of Internet businesses.

  1. Applying the “No Obligation of Prior Review” Principle

Article 9 of the Draft stipulates that “the ISPs' failure to actively examine the activities of network users of infringing others' rights to network dissemination of information shall not generally be regarded by the people's court as a fault of such ISPs. Where an ISP actively takes the relevant technical measures to prevent infringement of the right to network dissemination of information, the people's court may take that into account when determining the fault of such ISP. Where an ISP has taken reasonable and effective technical measures, but fails to find the activity of infringement, it shall not be generally regarded by the people's court as fully aware or should have known the infringement of information network dissemination rights by its network users.”

This article echoes and elaborates on the “no obligation of prior review” principle in Article 69 of the Draft. They are essentially consistent.

  1. Determining the Validity of Notice

Article 17[12] provides some guidelines in evaluating the validity of notice from right holders. On the one hand, right holders must provide the specific network address of the works and information in dispute, pursuant to the Dissemination Regulations. On the other hand, exceptions are available. Where no specified address is provided, but the notice is such that ISPs are able to locate the address accurately, such notice should be regarded as sufficient and valid. This provision is consistent with Article 28[13] of the Trial Rules of Beijing Higher Court. In determining the sufficiency to locate the address accurately, this article lists several factors for consideration, including the type of the network service in dispute, as well as file type and special features of the works, performance and audio-visual products requested to be deleted or cut off with links.

To conclude, the Draft and Exposure Draft are consistent on issues including fault principle and scope of infringement activities. These drafts reflect the rising consensus on the adjudication of copyright infringement between academia, judicial and administrative bodies, which is rational and well balanced.