Karaoke infringement actions lead to a discussion concerning the attribution of MTVs

     In 2003, the International Federation of the Phonographic Industry (IFPI), together with a few world-famous music companies, including Warner Music and Go East Entertainment, filed actions against Beijing Tangrenjie Food & Drink Entertainment Co., Ltd and Beijing Chunyin Song & Dance Entertainment Co., Ltd，claiming damages for the alleged infringement of three songs by the two karaoke companies. The court in Beijing finally ordered the two karaoke companies to pay RMB 8,000 to 10,000 respectively to the music companies as compensation for each of the songs.
     Having won their lawsuits in Beijing, the music companies redirected their efforts to Shanghai. Since March 2004, the law firms in Beijing and Shanghai, authorized by Warner Music, Sony Music, Go East Entertainment and other music companies, as well as IFPI, began to send lawyer's letters to the karaoke companies in Shanghai, stating generally that without due authorization from these music companies and IFPI, the karaoke companies had been engaged in the commercial use of the MTVs, MVs and the Chinese karaoke soundtracks in their karaoke business, and their actions had infringed upon the exhibition right of the music companies for the works. Threatening to start a lawsuit, the music companies claimed huge damages against the karaoke companies. 
    The alleged companies believe that tens of thousands of karaoke companies in China would lose more than RMB 1,000,000,000 to overseas music companies if royalty charges were collected for karaoke cassettes/CDs. To cope with the lawsuit, the karaoke companies in Shanghai, totaling more than 30, retained a prestigious legal team and sued the music companies and IFPI for infringement of reputation and anti-trust violations.
    This event aroused the concern of the entire society. Heated discussions extended to both the academic and business communities on the attribution of MTVs. There were generally three viewpoints. 
    One viewpoint is that of the music companies which holds that MTVs are works “created with quasi-cinematographic techniques”. According to Article 4.11 of The Regulations on the Implementation of the Copyright Law, “cinematographic works” or “works created with quasi-cinematographic techniques” means such works that are shot on a medium, consist of a series of images with or without soundtracks, and can be shown or disseminated with the help of a proper device or by other means. In the opinion of the music companies, MTVs embody the creative and original work of directing, shooting, audio-recording, clipping, and synthesizing, etc., and are works “created with quasi-cinematographic techniques”.
     However, in the opinion of the karaoke industry, MTVs are not “works created with quasi-cinematographic techniques”, but musical works with images. This view is also held by many scholars and experts in the IP field in China. In October 2004, the IP Law Research Center of East China University of Politics and Law, organized a questionnaire investigation on KTVs and karaoke consumers. More than 200 respondents were chosen randomly at such karaoke parlours in Shanghai as Cash Box (Luwan), Langsha (Xujiahui), Madison KTV and Haoledi (Huaihai Road), for an empirical analysis of which factors influence the choice of karaoke cassettes/CDs at karaoke parlors. The analysis shows that statistically the audio portion is far more effective than the video portion during karaoke singing, and “the images” have a minimum influence on singing effectiveness and the influence is even smaller than that of “lyrics and tunes”. To subject this to a philosophical analysis, the nature of a thing is determined by the principal contradiction in the thing or the principal aspect of the principal contradiction. As the principal aspect of a song is the lyrics and tunes rather than the images, karaoke cassettes/CDs must be musical works by nature. Liu Xiaomei (PhD) and Shan Xiaoguang (PhD), et al of the IP Institute of Tongji University have delved deep into the study of MTV through comparative law analysis. In On the Status of Karaoke Cassette Producers in the Copyright Law--A Research Report, they say that the consumers order “songs” instead of “movies”. A movie or video means essentially “continuous images”, and the core of a karaoke is “music” with the images as a supplementary feature. A karaoke work is characteristically different from a movie or video. Therefore, to view karaoke as “music supplemented by images” would be more compatible with the objective cognition of people and the nature of karaoke.
     There is also a third viewpoint of “case by case analysis”, i.e., “to treat different things differently”. A karaoke work whose images are characteristic of a creative work is a work “created with quasi-cinematographic techniques". If the image is not characteristic of a creative work, i.e. it is not creative or original in any way, the karaoke is a video product but not a creative work under the Copyright Law. Therefore, the Copyright Law offers no protection for it, not to mention its exhibiting rights.
The dispute concerning the legal attribution of karaoke cassettes/CDs is terribly heated. As far as this author can see, objectively speaking, a karaoke cassette/CD has both the attributes of a musical work and those of a cinematographic work. In a philosophical view, it is like a mule which has both the property of a horse and of a donkey. If a thing has both the property of A and of B, it is inappropriate to categorize it as either A or B, but rather as a new thing C. A famous artist in Shanghai created a new art form called “photographic painting”. Loaded with doubts, the visitors asked the artist whether it was a photograph or a painting. Without hesitation, the artist said that it was neither a photograph nor a painting, but a new type of art called “photographic painting”. Similarly, in this author’s opinion, the karaoke cassette/CD should be considered as a new and independent type of art.
     However, the sticking point here is that the attribution of the karaoke cassette/CD is not clearly regulated and the provisions on works “created with quasi-cinematographic techniques” are not sufficiently detailed. In the United States, the music transmitted by a radio or television station is treated as musical work according to the Fairness in Music Licensing Act 1998. Also, other countries have "audiovisual works", but China does not. Karaoke cassettes/CDs can compete for Grammy Awards or other music awards, but would undoubtedly be denied access to the “Oscar” or “Golden Globe” awards. This is also true in China, as MTVs can only participate in competitions for music, but not for movies. Surely such world-famous movie directors as Zhang Yimou or Chen Kaige would never regard a MTV director as one of their circle. Therefore, it is urgent that the NPC Standing Committee legislate to define the legal attribution of the karaoke cassette/CD. Only legislation can end the dispute in academic and karaoke circles. The Culture and Entertainment Trade Society of Shanghai has submitted to NPC and the State Council a request to clarify the legal attribution of the karaoke cassette/CD as soon as is practicable. Further, the Supreme People’s Court has started a survey for judicial interpretations on music copyrights. Unfortunately, these judicial interpretations remain at the stage of soliciting opinions.
     Moreover, it is also necessary to probe into the motive of the music companies in initiating such a wide spread, carpet bombing-like campaign to protect their rights. As we can see, the campaign began in 2003 and soon swept across the entire country. As karaoke had become very popular as early as the end of 1990, why did the music companies wait until 2003 to take any action? Indeed, the Copyright Law was amended in 2001 by adding to Article 3 a paragraph providing for “the works created with quasi-cinematographic techniques”. After that, the Regulations on the Implementation of the Copyright Law 2002 provided only an ambiguous definition for the works “created with quasi-cinematographic techniques”. The amendment spurred the hope of the music companies that under the existing indefinite legal framework, karaoke cassettes/CDs could be recognized as works “created with quasi-cinematographic techniques” for which royalty charges could be collected. It led directly to the campaign of the music companies afterwards and the dispute on the attribution of karaoke cassettes/CDs in the academic and business communities. The claiming of royalties by the music companies is apparently a post factum (an after-act) to gain benefits without doing any further work. Moreover, karaoke cassettes/CDs are launched on the market for various reasons as they sell not only for karaoke use but mostly to promote CDs and song records. With the karaoke cassettes, consumers are expected to come to karaoke parlors to sing and then buy more CDs and records. In copyright lawsuits, the use of karaoke cassettes/CDs in marketing was also acknowledged by the lawyers representing the music companies. Then, should the karaoke parlors be blamed for the above legislative transition? In this author’s opinion, the answer is “No.”
In the academic and business circles, the heated discussions on the attribution of MTVs and karaoke as well as the infringement dispute between the music companies and karaoke businesses are still under way.
    The law courts in Shanghai, Nanjing, Suzhou, Beijing, Shenzhen, and other cities found that an absolute majority of MTVs are works “created with quasi-cinematographic techniques” as provided in the Copyright Law and the exhibiting right is reserved for the music companies, so awarded the karaoke companies compensation in various amounts to the music companies.
    Similar cases also arose in Taiwan previously, but the request of the music company was not upheld by the court. In the opinion of Taiwan court, the main consumer group for MTV specials or karaoke CDs is not the ordinary consumers, but the karaoke companies. As karaoke cassettes/CDs sell at TW Dollar 2,000 or above, an ordinary consumer would never purchase such an expensive product simply for personal or family enjoyment (the music companies are also aware of this). Therefore, the royalty has already in fact been included in the selling price of karaoke cassettes/CDs. Moreover, the music companies have never been open and aboveboard. Take American movies as an example, at the very beginning we would see a warning like “Miranda Warnings” – given by FBI on copyright offences. However, we never see any reminder or warning of the same kind in karaoke cassettes/CDs. Because the royalty has already been included in the selling price, the copyright holder does not have the right to demand further payment from karaoke companies afterwards; otherwise, it would be an apparent double charge. On account of the above, the Taiwan court decided that by selling karaoke cassettes/CDs, the music company had agreed implicitly that karaoke companies could play them in public.
    Although the karaoke companies lost the cases, the music companies did not really prevail. They have not brought any new copyright actions since 2004. The dispute on karaoke royalty charges will endure despite the completion of the lawsuit in Taiwan.

Disputes aroused by the newly promulgated stipulations on karaoke royalty

     On November 9, NCAC released the Standard of Royalty Charges for Karaoke Business (“Standard”), which again caused a great disturbance in the business community. All karaoke companies call into question the agent, standard and procedure for the collection of royalty charges.
     Firstly, who is to collect the royalties? According to the Standard, the China Audio & Visual Copyright Administration (CAVCA) (under construction) shall collect the royalties. However, as CAVCA has not been registered and entered in the records as a society legal person, the Standard provides that China Audio & Video Association (CAVA) in lieu of CAVCA for the moment shall exercise the right that the copyright holders are to entrust to CAVCA in order to protect the legal rights of the copyright holders. In the opinion of the business community, CAVCA (under construction) is an organization which has not yet been established, so it has no definitive duties and responsibilities as well as status as a legal entity. As it does not have legal status, how can it be royalty collection agency? It is like granting civil rights to a fetus, a meaningless move in nature. Therefore, the karaoke companies will not pay royalty to a non-existent collection unit.
     As a matter of fact, Shanghai Culture and Entertainment Trade Association and Music Copyright Society of China (MCSC) have concluded an Agreement on the Collection of Music Copyright Charges, which is still effective today, by which the karaoke companies in Shanghai may pay royalty to MCSC via Shanghai Culture and Entertainment Trade Association.
     Secondly, how is the standard for royalty charge to be determined? According to the Standard, a karaoke company shall pay RMB 12 per booth per day for both the music and MTV works as royalty by the number of booths at the business location. In the opinion of the business community, it is somewhat inappropriate to collect the charge on a per-booth basis and the basic charge of RMB 12 per booth is on the high end. As stated above, the IP Research Center of East China University of Politics and Law has, through an empirical investigation, concluded that the audio portion is far more important than the visual portion in a karaoke song and the audio portion is the principal aspect of the the karaoke work. Therefore, given the historical continuity or the intelligence and creative work of the author, even if a royalty is charged for the visual portion, it should not exceed the amount for the audio portion provided by MCSC. Otherwise, it not only injures the interests of the karaoke businesses and the consumers, but also is disrespect for the composers and authors.
     Thirdly, there is an issue of collection procedure. The Standard was drafted by the China Audio & Video Association and after being submitted to NCAC to be entered in its records, was published by the National Copyright Administration for soliciting opinions. NCAC, as an executive agency, did not participate in drafting the Standard, but acted only as its publisher. Therefore, it can be concluded that the China Audio & Video Association actually prepared the Standard unilaterally on behalf of the copyright holders. It took on the administrative role to set its own name right. In fact, the licensing of copyright involves a civil relationship or a civil contract between licensor and licensee. For this civil relationship, the principles of freedom of contract, free will and equality, which have been the golden rules of civil relationship since ancient times, should be enforced in the collection of royalty.
     For the sake of freedom and equality, a negotiating mechanism must be introduced to define the civil relationship between the parties. However, we see no negotiation in the release and draft of the Standard, rather it was formulated unilaterally by one interested party. This is the fundamental reason why the Standard has been questioned incessantly throughout the country and even opposed publicly by the karaoke companies in Guangzhou, Shanghai, and in other locations. Now that the karaoke royalty charge on the Chinese Mainland is nearly the same as that demanded by the music companies two years ago, it has satisfied the music companies. However, this possibly too high or even exorbitant charge for karaoke businesses was promulgated without referring to the opinions of karaoke businesses when the Standard was drafted. Taiwan has a “Copyright Review and Settlement Committee” whose members are officers of IP administration from the Ministry of Economy, scholars, experts and social representatives. In case of a deadlock concerning royalty charges between a music company and a karaoke business, the committee would review and mediate the case and decide the standard charge. Although it may not be satisfactory to all, the decision, as a compromise, must be acceptable to all the parties.

     Therefore, as to any stipulation on karaoke royalty charge, the opinions of the general public, and particularly the consumers should be heard. In the case of China, the nightclub and wholesale KTV are two forums of karaoke consumption with the latter being more popular among the general public. The consumers of wholesale KTV are mostly students and other young people who have little or even no income (especially students). If the standard royalty charge were prepared and decided without consideration given to the consumption power of the major consumer group, it will ultimately injure the interests of consumers because they are ultimate payers of royalty.
When the Standard was promulgated, music companies stated that the current charging standard follows the steps of Japanese charging regulations. However, in this author’s opinion, the comparison should be done horizontally and vertically, i.e., on the absolute and the relative value. Take Japan as an example. In 2002, Japan collected 1,597,230,000 yen (about RMB 105,500,000) as royalty from karaoke businesses. The amount is high at first sight, but accounted for only 1.15 percent of the total royalty charges in that year which was 137,815,690,000 yen (RMB 9,103,100,000). In Japan and other countries, royalty is collected mostly from airports, hotels, and from television and radio stations.
     In the disturbance caused by the collection of royalty in China, the Regulations on Collective Management of Copyrights  (“RCMC”) is the sticking point. According to Article 22 of RCMC, “a foreigner or a person whose nationality is absent may, via a foreign copyright collective which has concluded a reciprocal representation agreement with a copyright collective in China, authorize such copyright collective in China to exercise on his or her behalf the copyright or copyright-related rights which he or she enjoys in the territory of China.” Also according to Article 26, “in case two or more copyright collectives are to collect royalty against the same user, these copyright collectives may negotiate first to determine which one of them will be responsible”. Note the word “may” in these two articles. It means these provisions are authorizing norms.
 
     In this author's opinion, it would be more appropriate here to use compulsory norms, i.e. “these copyright collectives shall negotiate”. The compulsory norm prevents karaoke businesses from having to pay royalty charges to CAVCA after it has already paid them to MCSC. According to international practices, royalty is paid once to one copyright collective authorized by the music company via a foreign copyright collective which has had a reciprocal representation agreement with the domestic copyright collective. Wherever there are Chinese people around the world, there are Chinese songs. Chinatowns also have karaoke businesses, which are comparable to “Cash Box” in China. However, we only hear of foreign music companies claim their rights against Chinese karaoke companies, but do not hear Chinese music companies do the same against foreign karaoke businesses. The reason may be that royalty has been better dealt with by means of reciprocal representation agreements between copyright collectives.
    As to the international practice, the United States has the Copyright Act and the Fairness in Music Licensing Act, and all music works are managed by the American Society of Composers, Authors and Publishers (ASCAP), the Broadcast Music Incorporated (BMI) and the Society of European Stage Authors and Composers (SESAC). In France and Taiwan, music works are managed by national or local music copyright societies, such as, the Music Copyright Association of Taiwan or the Music Copyright Intermediary Society of Taiwan. Several organizations should compete for the position of royalty collection agency. However, China has the only one dominating agency, and it cannot keep impartial. As karaoke companies have to pay royalty and composers, authors and music companies have to authorize its collection, this must lead to the non-neutrality of the collection organization.
    In fact, karaoke companies in China never really intended to oppose the charge of royalty because the existing Standard should be negotiated in regard to both the procedure and the standard. The business community is openly in favor of charge of royalty and the karaoke companies in Shanghai have always been paying royalty to MCSC and have always supported the protection of copyrights. The business community is against any unilateral or rash move on royalty charge before the collection agent has been established and the standard charges have been rationalized. It is agreed that the unsettled legal issues, including the agent, standard and procedure to collect royalty, should be dealt with first through negotiation with the music company’s agent – the copyright collective, before a collection scheme, and a fair and equitable solution can be found.