Monthly Archives: June 2014

intellectual property

A model copyright infringement case–“A Bite of China”

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A Bite of China (rts CCTV International)
A Bite of China (© CCTV International)

The blogpost below was kindly provided by a former Chinese judge, Jianwei “Jerry” Fang, who practices with a New York-based law firm in Hong Kong.

The Bite of China case

As announced in a press conference on 30 April 2014, the Supreme People’s Court (the Court) has started to issue model cases（典型案例) on a monthly basis to guide the lower courts. On June 23, 2014, the Court issued five model cases decided by lower courts, which included one criminal, two civil and two administrative cases. Among those, the civil case concerning copyright infringement, CCTV International vs. Shanghai TuDou Network Technology Co., Ltd. (news report linked here and case description here), has been closely watched by and is of particular interest to practitioners, especially  intellectual property lawyers.

Facts:

A Bite of China (舌尖上的中国) is a documentary series on Chinese food produced by China Central Television Station (“CCTV”) that is very famous in China. The series was first broadcast in May 2012 and became a very popular and well-known show in China. CCTV granted the copyright of the documentary series to CCTV International Network Co. Ltd. (“CCTV International”). However, it was found that within a week of the original broadcasting, the show had appeared on the website of TuDou.com, the famous video portal operated by Shanghai TuDou Network Technology Co., Ltd. (“TuDou Network”). After securing the evidence with help from the notary office, CCTV International sued TuDou Network for damages and reasonable costs of RMB 850,000.

Issues:

Is TuDou Network liable for providing storage of the copyrighted video on its site, and if so, how should damages be determined?

Courts:

First instance case heard by Shanghai Minhang District People’s Court; Appeal case heard by Shanghai First Intermediate People’s Court.

Ruling:

The defendant is liable and ordered to pay damages of RMB 240,000 and reasonable costs of RMB 8,000.

Reasoning:

The documentary series is in the category of cinematographic works and works created by a process analogous to cinematography, and is therefore protected by the PRC Copyright Law. The defendant provided an online on-demand link to the show without proper authorization from the copyright owner, which is a typical infringement of copyright though internet broadcasting and therefore he bears liability for infringement. While the defendant argued that the video was uploaded by an internet user, the courts found that the defendant failed to provide evidence to support its argument. The courts reasoned that because that the portal is required to control and manage the information and identity of the uploader, the website has the burden of proof. Since the defendant had deleted the original uploading information on its own, it should bear the adverse legal consequences.

Of note:

This case is a typical copyright infringement through internet sharing. In assessing the damages, the courts considered the copyright type, social recognition of the video, the nature of the infringement action, as well as the internet portal’s operational size, business model and influences, among other factors. The damages of RMB 240,000 can help to compensate the copyright owner, and force internet video portal operators to discipline themselves and manage their business. This case shows the trends of increased protection of intellectual properties, and serves as a warning to other internet video copyright infringers.

Comments:

As the Supreme People’s Court Observer has noted in earlier blogposts, the Court has recently started to publish more systematically model cases as an important supplement to legislation, judicial interpretations and guiding cases （指导案例, but long before this, had been publishing model cases in the Gazette of the Supreme People’s Court (最高人民法院公报).

While model cases are not binding on judges deciding subsequent cases, they will likely influence the decision of judges considering cases of similar type and with similar facts. Most Chinese judges I know would agree with this view. Back in 2006 when I was a junior judge at a trial court in Zhejiang, I wrote an article discussing the possibility of judicial precedent in China in the Chinese academic journal Public Administration & Law (2006-1). In my view, since I left the court to study and to work in private practice, the Chinese judiciary has made a lot of improvement and progress, which I applaud.

Taiwan

Supreme People’s Court update on the last 5 years of cross-straits judicial assistance (with 15 model cases)

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2009-2014 cross-straits judicial assistance (from chinacourt.org website)
2009-2014 cross-straits judicial assistance (from chinacourt.org website)

On 20 June, the Supreme People’s Court  issued a report on the past 5 years of judicial assistance with Taiwan, featuring three bar charts, a table and 15 model cases, linked here.  Judicial assistance between the mainland and Taiwan in 2013 was the subject of a blogpost earlier this year.  The execution of two brothers in Taiwan, on the basis of testimony from witnesses on the mainland who were not made available for cross-examination, illustrate vividly some of the Issues related to judicial assistance, as further described here.

Most of the judicial assistance has been in the form of requests for delivery on the mainland of judicial documents from Taiwan (almost 30,000 in the past 5 years), but has also included recognition and enforcement of Taiwan court judgments (270 in the past 5 years), requests for obtaining evidence on the mainland (610).

The model cases summarize the requests made and the assistance provided, rather than the original judgments or rulings in these cases.  (Prior blogposts on the topic of model cases are linked here and Mark Cohen’s analysis is found here).

The statistics reflect the closer interactions between the two sides of the Taiwan straits, including the flood of Taiwan investment into the mainland, and cross-straits personal interactions (including cross-straits marriages and crimes committed by Taiwanese on the mainland). I look forward to comments and further analysis from Taiwan lawyers, scholars and others on the significance of these statistics and other related issues.

Commercial law, foreign investment law

Report from the Supreme People’s Court courtroom on hearing in foreign-court appointed liquidator case

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422775
On June 11, the 4th Civil Chamber of the Supreme People’s Court (Court) held a public hearing in the case of Sino-Environment Technology Group vs. Thumb Environmental Technology Group (Thumb Env-Tech). Nils Pelzer [seen in the audience in the photo below], research fellow at the Max Planck Institute Luxembourg and visiting scholar at the KoGuan Law School of Shanghai Jiaotong University, attended the hearing. The Supreme People’s Court Observer made it possible. A slightly amended version of his report follows.

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The litigious PRC subsidiary

This hearing was the latest of a series of lawsuits between the parties.  The earlier blogpost on this case (linked here) concerned a related lawsuit between the parties but the Fujian Higher Court decision in the current case was not available on-line.

Summary of the facts

Thumb Env-Tech is a Chinese wholly-owned subsidiary of Sino-Environment Tech, a company registered in Singapore (now in liquidation). The Singaporean liquidator (the former judicial manager) had dismissed the former management board of Thumb Env-Tech and appointed the insolvency firm’s own managing partner as the new chairman of the board of directors (and legal representative). The liquidator had also decided to reduce the registered capital of Thumb Env-Tech. However, because Thumb Env-Tech’s old management did not comply with the directives of new management, these measures were not registered with the local Administration of Industry and Commerce (AIC) Bureau.

Thumb Env-Tech’s original management – on behalf of Thumb Env-Tech – sued the parent company in the Fujian Higher People’s Court to pay a capital contribution of RMB 45 million (approximately USD 7.23 million), ignoring both their own removal and the order to implement the capital reduction and challenged the right of the judicial manager (later the liquidator), appointed by the Singapore High Court, to remove the original legal representative and directors. Thumb Env-Tech alleged that the judicial manager had no right to remove the directors and legal representative. Thumb’s new legal representative, on the other hand, filed a motion to withdraw the lawsuit.  Sino-Environment Tech put forward the argument because of the lack of power of representation, filing the lawsuit was not the “real declaration of intention” of Thumb Env-Tech.

Surprisingly in the first instance, the Fujian Higher People’s Court decided in favor of Thumb, ordering Sino-Environment Tech to pay the full sum of RMB 45 million. The court reasoned that Sino-Environment Tech was unable to prove that the old management board, which was still officially registered and had used the official company stamp, had no power of representation.

The decision of the Court

On appeal by Sino-Environment Tech, the Court (unanimously) rejected this argument in the second and final instance. The Court decided that while the registration with the AIC was sufficient to file a lawsuit on behalf of the company, things have to be treated differently when it comes to the substantial claim of the subsidiary against its parent company. The aim of the AIC registry is to protect third parties acting in good faith, but this does not apply to the internal relationship between a company and its shareholders. There, the real situation overrides the good-faith protection of the registry.

Even more importantly, the Court expressly recognized the power of the Singaporean liquidator to represent the parent company in liquidation. As far as the foreign liquidator’s powers are concerned, the Court ruled that the law of the place of the registered office of the relevant company is applicable.

Evaluation

This outcome had been expected by both Chinese and foreign legal experts. Not only does it clarify that just possessing a chop and an official registration does not always come along with absolute authority, but it is also a step towards to insolvency rules in China consistent with uniform international insolvency rules in China. Further, if the Court had upheld the ruling of the first instance, this would have basically meant that parent companies might completely lose control over their Chinese subsidiaries. From this point of view, the ruling strengthened the investment environment in China.

From a political perspective, this case might mark the beginning of a more open attitude to grant access to court hearings to foreigners. As reported by Chinese newspapers, this was the first hearing of the Court that foreign diplomats were explicitly invited to attend.

Lastly, the similarities of a hearing of the Court and of Western supreme courts were striking (at least in this case). The proceedings were skilfully led by Judge Luo Dongchuan [chief judge of the 4th Civil Chamber], and the quality of the debate between the Court and the lawyers of both parties was generally very high. It is not only for this reason that the 4th Civil Chamber will probably submit the case as a suggestion for a new guiding case.

Communist Party and the Courts, Court Operations

Secrecy and the Chinese courts

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Party meeting on secrecy
Court Party meeting on secrecy

On 9 June, the Supreme People’s Court’s Party Committee held a meeting to transmit the latest Party policy on secrecy in the courts, as reported here.  It is intended to implement General Secretary Xi Jinping’s policy statement on secrecy and security, within the court system.  It appears to be linked to policy issued earlier this spring at the meeting of the National Security Commission (official report here and analyzed here).

President Zhou Qiang stressed the following issues:

  • maintaining state secrecy and advancing judicial openness, to implement “justice under sunshine” and promote justice and fairness for the people;
  • dealing with the relationship between secret and non-classified materials, so that secrecy standards are applied properly;
  • secrecy education and punishment, putting preventative training in place and strict punishment;
  • the relationship between software and hardware, stressing preventative measures as well as hardware controls.

It does not appear that new secrecy regulations are in the works.  Judicial personnel have secrecy obligations under secrecy regulations applicable to the courts (which apparently have not been made public) (but an English translation is found here), as well as set forth in the Judges Law and other sources.  Judging by the large number of articles on court websites on this topic, in the age of smartphones (whether iPhones or Xiaomis), it appears increasing difficult for those restrictions to be effectively implemented.

Commercial law, foreign investment law, Uncategorized

Power of foreign court appointed liquidator of overseas listed company to take over Chinese subsidiary comes before the Supreme People’s Court

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Sino-environment hearing notice
Sino-environment hearing notice

HEALTH WARNING: PLEASE SEE THIS BLOGPOST FOR THE MOST RECENT DEVELOPMENTS.

On 11 June 2014, the Supreme People’s Court will hear a shareholders dispute.  The facts of the case (described below) are familiar to the Hong Kong and Singapore legal and investment community. They touch on the power of overseas insolvency/bankruptcy professionals to take over assets in China.

The parties to the case are Sino-Environment Technology Group Limited (Sino-Environment Tech) (a company originally listed in on the main board in Singapore (but now in liquidation) and one of its wholly owned subsidiaries, Thumb Env-Tech Group (Fujian) Co., Ltd (Thumb Env-Tech).

The case has all the elements of a China deal gone very, very bad.

What we know

The case was originally brought in the Fuzhou Intermediate Court by Thumb Env-Tech (i.e., the original management group).  It challenged the right of the judicial manager (later the liquidator) (appointed by the Singapore High Court) to remove the original legal representative and directors.  Thumb Env-Tech alleged that the judicial manager had no right to  remove the directors and legal representative and it was arbitrarily implementing an order of a Singapore court, violating China’s judicial sovereignty.  The Fuzhou Intermediate Court rejected Thumb Env-Tech’s claim, determining that it was not a proper party.Thumb Env-Tech appealed to the Fujian Higher People’s Court.  The decision can be found here, on the court’s website. The Fujian Higher People’s Court rejected Thumb Env-Tech’s appeal, stating that the case is not a simple matter of private rights but involves issues of public policy, and that Article 119 of the Civil Procedure Law did not permit Thumb Env-Tech to bring the case. Thumb Env-Tech has brought a petition to have the case reviewed by the Court. (summary from the Fujian Higher Court decision)

Sino-Environment Technology Group Limited was a listed Singapore company that was principally engaged in the provision of environmental protection and waste recovery through its subsidiaries in PRC with over SG$165 million debt. Its liquidators investigated SG$84 million worth of suspicious transactions undertaken by the group, taking steps to secure control over the company’s PRC subsidiaries by removing all existing legal representatives and directors of the PRC subsidiaries and commencing legal proceedings against them, securing the company’s cash held with a PRC bank and assessing and defending legal proceedings. (from the liquidator’s website)

Morgan Stanley sold $US 109 million in Sino-Environment Technology Group Limited convertible bonds. The company defaulted on repayment of the bonds. (from a first press report and a second press report.)

Related litigation in the Hong Kong courts can be found here.

What will the outcome be?

We will wait the outcome of this case in the Court.  It is a “typical case” in its own way, because there are many cases in which foreign companies with Chinese subsidiaries, some of them listed, get into financial difficulties.  It is part of international insolvency practice that  bankruptcy trustees/judicial managers/administrators/liquidators appointed by foreign courts will take over control of subsidiaries in China.  Chinese law and practice do not make this an easy process.  This a classic example of why Chinese legal experts, as well foreign governments, Taiwan, and Hong Kong need to persuade the Chinese government  that it is important for China that it become an active part of the international legal framework governing bankruptcy (insolvency) proceedings.