By

Thomas Yih

Assistant President and General Counsel, Shanda Games Limited

Before we start to discuss the significance of protecting copyright in China, I think we should first get an understanding of the scale of development of China's online games sector. From the year 2005 to 2009, the compound annual growth rate of China's internet users was 36 percent, and the number of China's broadband users exceeded the entire U.S. population. By the end of 2009, the number of online game players in China reached 296 million, accounting for 70 percent of the country's total internet user base. The total revenue from the country's online game sector was 25.6 billion yuan (US$3.5 billion) in 2009, and it is expected to grow by 39 percent a year. There have been many forecasts about the growth of the online games industry, with some people saying sector revenue will reach 50 billion yuan by 2014.

But the main issue confronting Chinese online game companies is related to "private servers". These "private servers" carve out a major slice of the revenue of the legitimate copyright owners. Unofficial statistics put the annual revenue of the "private server" industry at 5 billion yuan, or 17 percent of the total revenue of the online game sector. No matter whether these numbers are credible or not, it's obvious that protection of intellectual property rights (IPR) has become imperative for online game companies.

China's IP rights system goes a long way back. The year 2010 marks both the centenary of the promulgation of China's first copyright law - the Copyright Law of the Qing Dynasty - and the 20th anniversary of the promulgation of the first copyright law after New China was founded in 1949. Article 10 of China's Copyright Law stipulates that copyright extends to the communication of information on networks. According to Article 47, anyone who is authorized to reproduce, distribute and communicate to the public on an information network a sound recording or video recording shall obtain permission from, and pay remuneration to, the copyright owner and the performer as defined by regulations. Also, anyone who commits any infringement shall bear civil liability for such remedies as ceasing the infringing act, eliminating the effects of the act, making an apology, or paying damages, depending on the circumstances'.

The revised version of Tort Liability Law went into effect in July 2010. The new version includes a new article stipulating that network users or network service providers who infringe upon the civil rights or interests of another person via a network shall assume tort liability. It also states that where a network user commits a tort through network services, the victim of the tort shall be entitled to notify the network service provider to take necessary measures such as deletion, blocking or disconnection. If, after being notified, the network service provider fails to take necessary measures in a timely manner, it shall be jointly and severally liable for any additional harm, along with the network user. The revised version of the law also provides some legal protection to Internet service providers on the premise that the content provided must conform to the Copyright Law. The Criminal Law of China also lays down some rules on the criminal responsibilities of the infringers.

In December 2000, China's Supreme Court laid down rules on Internet copyright in the form of judicial interpretations. Subsequently, a number of government departments and non-government organizations issued regulations and rules to protect Internet copyright. In 2005, the National Copyright Administration and the Ministry of Industry and Information Technology jointly promulgated the Measures for Administrative Protection of Copyright Related to the Internet, announcing the administrative and legal responsibilities of Internet service providers. In 2006, the State Council issued the Protection of the Right of Communication through Information Networks. This regulation clearly defined and broadened the concept of the right of communication through information network, including using wired and wireless networks and mobile networks. It also established preliminary protection of Internet service providers. In 2007, China acceded to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performance and Phonograms Treaty. In 2008, the State Council promulgated the Outline of National Intellectual Property Strategy, vowing to improve and intensify implementation of the legal framework of intellectual property. In 2009, the National Copyright Administration revised the Measures for Implementation of the Administrative Punishment for Copyright Infringement. The regulation strengthened the efforts made by administrative organizations to protect Internet copyright.

On the basis of laying great emphasis on the development of the legal framework of IP rights, the Chinese government has adopted various measures to enhance the protection of IP rights. For instance, on July 21, 2010, the National Copyright Administration, the Ministry of Public Security and the Ministry of Industry and Information Technology jointly launched a special campaign to crack down on Internet copyright infringement and Internet piracy. During this campaign, several major cases of copyright infringement were uncovered, some of which involved "private servers" and add-on cheats. One case involved the Shanda online game - the Tower of Eternity. These regular joint actions involving various government departments show Chinese legislators are making a serious effort to protect intellectual property rights. Also, the Copyright Protection Center of China is preparing to set up the China Online Games Property Rights Protection Union, which engages in protecting IP rights and aims at fighting against "private servers" and add-on cheats. Shanda is looking forward to joining the Union. Furthermore, the National Copyright Administration has started strategic cooperation on international copyright with other countries including the United States and Britain in an effort to raise the level of cooperation in copyright protection. This will also provide more opportunities for Chinese companies to expand in overseas online game market.

Shanda has developed a stable intellectual property rights protection system. Usually, the success of an internal project relies on the support of the executive team of the company. Shanda's Legal Department spares no effort in managing the company's IP rights. One of the main reasons why the management team is able to give all-out support is because obtaining and managing the IP rights of games is a key business segment in Shanda. Besides independent R&D, Shanda also obtains IP rights of games by investing in other game development studios and companies, or winning game licenses from third-parties. When I say managing IP rights of online games, I mean that Shanda only selects partners that have the legal right to operate games in each country. When Shanda operates domestic games, it often cooperates with overseas game operators. As an administrator of online games IP rights, Shanda's reputation is always at stake, making it of great significance to prevent IP rights violations. When signing a contract, Shanda is often required to concede claims to protection and compensation to the other party for potential IP rights infringement. Therefore, Shanda's reputation as an administrator of IP rights contains risks, which is similar to the risks of a balance sheet.

This project consists of five segments. Firstly, all employees must sign labor contracts and non-competition agreements with the company before being hired. Secondly, employees receive training in copyright protection. Thirdly, the company has a management system that protects not only its own IP rights, but also the property rights it authorizes to third parties. Given the fact that Shanda currently operates nearly 40 games, some people may guess that our Legal Department is swamped with copyright protection issues. Also, Shanda has invested in over 50 projects in different game development studios. We at the Legal Department do not participate in the management of these copyrights. However, Shanda, as an investor, still pays great attention to the IP rights of the companies it invests in. Therefore, protecting IP rights is not just the job of the Legal Department. It requires all departments to work together, which also enhances employees' understanding of the importance of IP rights protection. Fourth, Shanda encourages innovation. Besides the mandatory compensation clauses in their labor contracts, Shanda also offers cash prizes to employees that are innovative. Last but not the least, Shanda takes an active stand on protecting its IP rights. The implementation of IP rights protection requires all parties to cooperate. As I said before, government departments are the most important factor and are the primary and most important force helping Shanda protect IP rights. The participation of business partners and telecom carriers is also vital. Shanda also turns to law firms for some major issues. Sometimes, game players can be important information providers, too. For example, players can provide useful information when the company is trying to demonstrate that infringements such as add-on cheats have an adverse effect on the quality of the games. Due to our efforts, over 100 disputes have been solved through negotiations, in which Shanda received several million yuan in compensation. The company also assisted the police in shutting down hundreds of infringing Websites and arresting over 100 people.

What are my views concerning future developments? Because of the Copyright Law and the Tort Liability Law, some newly developed destructive technologies emerged, exploiting such technologies as wireless networks, and raising concerns among copyright owners. Many private servers and add-on cheats have gone overseas. Little response is received when Shanda tries to negotiate with private servers because they don't believe that Shanda has any way to deal with overseas servers. Therefore we were happy to find out that the National Copyright Administration has reached strategic cooperation agreements on copyright with other countries, and we believe that more positive results will be achieved when we join hands with overseas copyright authorities in the future. The online game sector is changing with each passing day. We've witnessed the emergence of micro games Websites, social networks and mobile Websites in the past few years. Every new type of game brings new issues of copyright protection. Many games can be easily copied from other Websites or even from overseas Websites. There may be still other types of infringement regarding mobile games and social networks. More joint initiatives by government departments are needed to safeguard the rights of copyright owners.

To sum up, China's history of protecting the intellectual property rights of online games is a fairly short one. But the Chinese government is making great efforts to develop relevant laws and policies. At a time when online games are developing by leaps and bounds, Shanda expects to make an even greater contribution by acting in coordination with the Chinese government to protect IP rights and improve the legal framework.

Thank you!