In the wake of the progressive development of technology and society, online games have gained popularity among the public as an emerging cultural phenomenon and an important target of consumption. Statistics show that online games made up the largest market share in the Chinese game market in 2014, accounting for over 41% of the entire game industry. In the meantime, the tremendous profitability and market potential of online games have given rise to numerous “shanzhai” (i.e. counterfeit) games. Some market participants not only commit obvious acts of copyright infringement by “plagiarizing” the frames and sounds of a game but also directly imitate the playing modes and rules of the game so that they can reap windfall profits by reducing R&D costs.

To some extent, the imitation of playing modes and rules give birth to homogenous games that encroach on the market share of the corresponding original online games. In response to this phenomenon, more and more IP rights enforcement actions have been taken by game developers in recent years Nevertheless, a review of the results so far demonstrates that very few initiatives have actually succeeded in protecting playing modes and rules. The case discussed in this article, the unfair competition dispute between Plaintiffs Blizzard Entertainment Inc. and Shanghai NetEase Network Technology Development Co., Ltd. and Defendant Shanghai Unico Network Technology Co., Ltd.[1], serves as an illustrative and weighty precedent because it won effective protection for the playing modes and rules of legitimate games for the purpose of curbing unfair competition.

  1. Facts

Blizzard Entertainment Inc. (hereinafter “Blizzard” or “Plaintiff 1”) released a newly-developed electronic card game called Hearthstone: Heroes of Warcraft (hereinafter “Hearthstone”) at a game exhibition in theUnited   Stateson March 22nd, 2013. Shanghai NetEase Network Technology Development Co., Ltd. (hereinafter “NetEase” or “Plaintiff 2”) introduced the game onto the Chinese market under license and publicly released it for testing on October 23rd, 2013. Shanghai Unico Network Technology Co., Ltd. (hereinafter “Unico” or “Defendant”) displayed an online game called The Legend of Crouching Dragon: Heroes of the Three Kingdoms (hereinafter “The Legend of Crouching Dragon”) to the public on October 25th, 2013. Legend of Crouching Dragon comprehensively copied Plaintiff’s game interfaces, including the game’s logo, the battlefields, the 382 cards and the combination of card sets, used decorative designs and other game elements that were extremely similar to the Plaintiffs’, copied Plaintiff’s game rules, and even published a promotional article entitled The Sudden Appearance of Chinese Hearthstone: Blizzard Too Slow or Chinese Company Too Fast? on its own website. In the article, Unico asserted that The Legend of Crouching Dragon was the Chinese version of Hearthstone and that it copied Hearthstone almost completely. Plaintiffs claimed that Defendant’s acts constituted unfair competition as prescribed under Article 2 and Article 5.2 of the Anti-Unfair Competition Law and petitioned the Court to order Defendant to (i) cease its infringement of Plaintiffs’ special decoration of well-known products; (ii) cease its false advertising; and (iii) cease the public testing, release, publication or dissemination of the game by any other means and (iv) eliminate the unfavorable influence of its copyright infringement and pay damages.

  1. The Decision

The Court held that the fact that game rules are not yet protected under the Copyright Law does not necessarily means that no legal protection can be granted for such an intellectual creation. The Court reasoned that categorically refusing to protect game rules simply because they represent abstract ideas would adversely affect innovation and fair competition in the game industry.

The Legend of Crouching Dragon used game rules that were substantially identical to the rules for Hearthstone including card-related rules such as the number, composition, values and usages of the cards, as well as battle-related rules such as the turn-based competition mode. In addition, Defendant also comprehensively imitated Plaintiff’s game logo and interfaces. Defendant’s employees accessed the core data for Hearthstone’s game cards and restored the entire numerical value system before Hearthstone entered the Chinese market. Since (i) The Legend of Crouching Dragon was produced in only twenty days after the project was established, a period far shorter than the normal period spent by a game company on similar original games, and (ii) the two games are basically consistent in terms of their card compositions, usages and battle rules, the facts were sufficient to support Plaintiffs’ allegation that Defendant copied the entire game. Defendant did not express shame over these actions; on the contrary, it used its infringement as a selling point to promote its own game, revealing its obvious intent to obtain a “free ride” from Plaintiffs R&D.

The Court further held that electronic games do not exist only for entertainment purposes; instead, they incorporate extremely high commercial value. The China Software Industry Association organized and formulated the Self-Governing Convention of the China Software Industry Association (hereinafter the “Self-Governing Convention”) to encourage operators to engage only in legitimate, fair and orderly competition. Since Plaintiffs and Defendant are competitors in the game industry, they must comply with relevant provisions of the Anti-Unfair Competition Law and the Self-Governing Convention. Defendant did not compete on the strength of its own legal intellectual labor; rather, it misappropriated Plaintiffs’ intellectual property through unjustifiable infringement, and even used its infringement as a selling point. Its acts violated the principles of equality, fairness, honesty and integrity as well as other generally accepted business ethics. All of these acts, ruled the Court, crossed the boundaries of justifiable reference and imitation between competitors in the game industry. Consequently, the Court ruled that the Defendant’s acts constituted unfair competition.

The Court ordered Defendant to cease its acts of unfair competition -- it specifically ordered Defendant not to operate and/or release the game The Legend of Crouching Dragon through information networks or any other means, and it ordered Defendant to eliminate the influence of its infringement and compensate Plaintiffs for their losses. 

  1. Lawyers’ Comments
  1. Determining an Enforcement Strategy for Online Game Infringement – the Copyright Law and the Anti-Unfair Competition Law

The P.R.C. Copyright Law lists computer software as a protected category of works. Meanwhile, in view of the player-machine interface that occurs when an online game is running, the game represents digital content such as texts, figures, sounds, animation and sound effects in the information network environment. When this content incorporates originality and qualifies as a “work” under the Copyright Law, copyright protection is normally available as an artistic or compiled work.

However, in practice, even if the Copyright Law can protect elements represented by the content of an online game such as figures, sounds and animation, this protection might not satisfy the developer’s wishes and objectives in protecting the elaborately developed core content of the game -- the playing modes and rules of the game (its design). A game is an integration of many interesting options – a successful game should offer a series of options before it is finally concluded with a victory or other condition for completion. The settings of parameters for the roles, careers and skills and the balance between the values of RPG card games are prominent compared to the type of originality exhibited by other types of games.

Whether or not the establishment of the roles of a game and the various options that appear during the game (including the balance between various persons and roles, props and skills) are reasonable will ultimately determine whether or not the game will be able to attract and manage a large number of players and whether or not the game can achieve success on the marketplace. In this case, Hearthstone’s development and design team spent years creating original playing modes and rules, which assured an extremely high level of interest in the game. Nevertheless, from a legal perspective, the game’s playing modes and rules are considered to be “ideas” by nature, and thus do not fall within the scope of the term “representation” (originality) that is protected under the Copyright Law. This definition excludes playing modes and rules from copyright protection.

On the other hand, Article 2.1 of the Anti-Unfair Competition Law (also referred to as the “General Provisions”) provides that in market transactions, operators must adhere to the principles of voluntariness, equality, fairness, honesty and integrity as well as generally accepted business ethics. Furthermore, based on the characteristics of the game industry and the Self-Governing Convention formulated by the Game and Software Subcommittee of the China Software Industry Association, the overall presence of the principles of honesty and integrity as well as the basic business ethics of the game industry are illustrated: respect for another party’s intellectual labor related to game products; mutual learning and reinforcement through normal technical communications to enhance one’s own development abilities and technical expertise, pursuing one’s own interests without prejudicing the interests of others, and developing and operating game products with proprietary IP rights that are based on one’s own intellectual labor. Most of today’s “shanzhai” games, however, run counter to the special principles and general business ethics of the Self-Governing Convention. Consequently, the General Provisions of the Anti-Unfair Competition Law expand the protection of “game playing modes and rules” for the purpose of curbing unfair competition, thereby playing a more direct role in the protection of core game elements. 

  1. Controversies over the Application of the General Provision

Article 2 of the Anti-Unfair Competition Law is a general principle provision.  Chapter 2, by contrast, lists eleven types of unfair competition. An examination of these types reveals that copying a game’s playing modes and rules does not fall within the scope of any of these eleven types of unfair competition. It nevertheless is possible to define and prohibit an act that does not fall within the scope of the eleven types of unfair completion under the General Provision. A noted jurist commented that “Chinadoes not have a high-level authoritative law enforcement authority that supervises the game industry, as many foreign countries do. Considering the actual enforcement ability of Chinese law enforcement authorities, it would be unimaginable for a basic-level law enforcement department to define suspected acts of unfair competition, because any such definition must take economic realities into consideration.”

Chapter 2 of the Anti-Unfair Competition Law enumerates several acts of unfair competition. If the legislature intended legal prohibition against other acts to be acceptable, you might expect them to have included a twelfth, catch-all provision such as “other acts of unfair competition”. The fact that the provision does not include a catch-all provision reveals a very clear legislative intent that the phrase “in violation of any provisions of this Law” in the General Provision should refer to the provisions in Chapter 2 rather than some other provision.[2]

In view of this, we believe that since acts of unfair competition are beginning to appear in many forms in the wake of the rapid development of the market economy, the eleven forms enumerated in Chapter 2 no longer cover all unfair competition occurring in the market. Judging from trial practice inChina, courts have not completely adhered to the original legislative intent; instead they allow their interpretations to take precedence over settled law. In a number of cases (e.g. the unfair competition dispute between appellant Shanghai Boteli Valve Co., Ltd. and appellee Boteli Valve Group Co., Ltd.[3]; and the unfair competition dispute between plaintiffs Shandong Food Import & Export Company, Shandong Shanfu Group Co., Ltd. and Shandong Shanfu Rishui Co., Ltd. and defendant Daqing Ma and Qingdao Shengke Dacheng Trading Co., Ltd.[4]) the courts held that even if acts of unfair competition could not be thoroughly enumerated under the Anti-Unfair Competition Law, the foregoing basic principle grants a remedy for a plaintiff victimized by unlisted acts of unfair competition.

Consequently the General Provision provides abstract conditions for unfair competition; in other words, the most general conditions for identifying acts of unfair competition. This open-ended provision also allows courts to identify acts of unfair competition beyond the scope specifically enumerated under the Anti-Unfair Competition Law. Because of the abstract nature of this provision, it can be widely applied to identify new acts of unfair competition. It is also feasible and necessary to apply this provision to regulate the fast-growing online game market.

  1. Conditions for the Application of the General Provision

Item 1 of the General Provision prescribes the basic standard elements for identifying fair competition – “voluntariness, equality, fairness, honesty and integrity as well as generally accepted business ethics”, while item 2 of the General Provision sets forth the elements for determining an act of unfair competition – “where an operator violates provisions of this law, jeopardizes the legitimate rights and interests of other operators and disturbs economic order”. Nevertheless, since both the standard elements and the conduct elements are very abstract, it is very difficult to offer fixed definitions and the meaning will actually change over time. Consequently, an understanding of the general elements of an act of unfair competition, combined with a mastery of the meaning of the foregoing provisions in light of the legislative intent of the Anti-Unfair Competition Law, should clarify the standards for the identification of infringement under the General Provision.

First of all, acts of unfair competition must be acts of market competition. In addition to the constitutive elements for ordinary act of civil infringement, the existence of a competitive relationship should also be considered. A “competitive relationship” means a social relationship arising out of competition between equal market entities with appropriate operational qualifications. If no act of market competition occurs, it is pointless to discuss whether or not an act of unfair competition occurred. In this case, since Plaintiffs and Defendant are both game and software developers, and since Hearthstone and The Legend of Crouching Dragon are both RPG card games, they are competitors within the same industry.

Secondly, the act must violate provisions of law and principles of market competition. An act of competition is by nature an act that contends for transaction opportunities among operators. As harm coexists with competition, when determining whether or not an act of competition is unfair, the intent of the competition and the consequence of harm alone are insufficient: the key issue lies with how to determine the justifiability of the act. Justifiability can be demonstrated as follows:

  1. The act does not encroaching upon other parties’ self-interest or result in a “free ride”; it does not involve unjustifiable opportunism or obtaining benefits by force or trickery. Fair market competition must be honest competition between competitors who contribute effort, and the fruits of the competition must be derived from the diligence of the party who enjoys these fruits. The competition encouraged by modern society must be conducted on the basis of technological advancement, price reduction and quality improvement. Since the relationship between the means and consequences of competition directly influence the identification of an act of competition, a prohibition against “reaping without sowing” (or reaping disproportionately generous benefits from sowing) has become an important principle for identifying acts of unfair competition. 
  2. The act does not violate generally accepted business ethics. The principles of honesty and integrity are basic principles of civil activity, and they become principles of business ethics when they are applied to commercial activity. In contrast with the ethics that are applicable to daily (non-commercial) life, the business ethics of market competition must be defined and evaluated based on the ethical standards that are applicable in commerce and market competition. In practice, industry codes of conduct and self-governing conventions established by industry associations that are consistent with the letter of the law as well as the corresponding legislative intent can usually serve as a concentrated embodiment of commonly accepted business ethics within particular industries.
  3. The act stimulates innovation and encourages competition. Since innovation can stimulate competition and competition can in turn stimulate innovation in a positive feedback loop, competition and innovation are interdependent. Nevertheless, since conflicts often arise between innovation and competition, IP laws such as the Anti-Unfair Competition Law are designed to strike a balance between innovation and competition. Only when crucial interests lack protection can competition be restrained. The means of restriction on competition must be clearly defined and limited so as to provide the stimulation for innovation.

In this case, the Court found that (i) “The Legend of Crouching Dragon was produced in only twenty days, a period far shorter than the normal time spent by a game company on a similarly original game; the corresponding cards and interfaces of the two games are extremely similar with no significant visual differences (the only difference is that the Heroes of Warcraft are replaced with the Heroes of the Three Kingdoms); and the composition of cards, rules of use and basic battle rules of the two games are basically identical”; and (ii) “before Hearthstone entered the Chinese market, Defendant’s project staff for the game The Legend of Crouching Dragon physically accessed core data from Hearthstone’s game cards and restored the entire numerical value system; however, they could not obtain the Hearthstone testing account to produce their own sample based on Hearthstone’s player video production samples. After the game project was established, they acquired a testing account to further obtain Hearthstone game data to improve game details”.

All of the foregoing facts further establish that the core elements that defendant used to attract players were not based on its own intellectual labor; and that defendant exceeded the scope of normal technical communications, mutual learning and reasonable reference between competitors in the game industry. This clearly violated the self-governing convention of the game industry as well as generally accepted business ethics, revealing a glaringly obvious intent to take a “free ride” on Plaintiffs’ intellectual labor.

Unfair competition offends the legitimate rights and interests of other operators and disturbs economic order. The unfairness of these acts is based on the harm that they cause to market order. A proliferation of “shanzhai” games results in the homogenization of games; to a deeper extent, they both undermine the development of free and fair market competition and offend business ethics.

  1. Positive Impact of the Case 

The online game industry is a “sunrise” (emerging”) industry inChina. Healthy competition can only be developed through continuous innovation and large inputs of labor. The Court’s judgment in this case significantly influences the crackdown on “shanzhai” infringement inChina, and encourages the construction of a healthy market environment. Citing the Anti-Unfair Competition Law to protect a game’s playing modes and rules is no doubt a break from past trial practices that illustrates the supplementary IP protection function of the Anti-Unfair Competition Law as well as the ultimate goal of maintaining fair market competition.