China Archives - The National Law Forum

NSA Wants Industry to Disclose Details of Telecom Hacks in Light of Chinese Involvement

On November 20, 2024, the director of the National Security Agency, General Timothy Haugh, urged the private sector to take swift, collective action to share key details about breaches they have suffered at the hands of Chinese hackers who have infiltrated US telecommunications.

Gen. Haugh said he wants to provide a public “hunt guide” so cybersecurity professionals and companies can search out the hackers and eradicate them from telecommunications networks.

US authorities have confirmed Chinese hackers have infiltrated US telecommunications in what Senator Richard Blumenthal, a Connecticut Democrat, this week described as a “sprawling and catastrophic” infiltration. AT&T Inc., Verizon Communications Inc. and T-Mobile are among those targeted.

Through those intrusions, the hackers targeted communications of a “limited number” of people in politics and government, US officials have said. They include Vice President Kamala Harris’ staff, President-elect Donald Trump and Vice President-elect JD Vance, as well as staffers for Senate Majority Leader Chuck Schumer, according to Missouri Republican Senator Josh Hawley.

Representatives of the Chinese government have denied the allegations.

“The ultimate goal would be to be able to lay bare exactly what happened in ways that allow us to better posture as a nation and for our allies to be better postured,” – Gen. Tim Haugh.

Administration Action Could Unravel the De Minimis Exception for Goods From China

Many e-commerce retailers are closely monitoring increasing bipartisan criticism of the Section 321 de minimis program. This program, which provides an exemption for goods valued at $800 or less destined to a single person on a given day, allows these goods to enter the US duty and tax-free without formal entry.

While this expedited clearance process has been beneficial for many retailers, critics argue that it creates loopholes that can be exploited, particularly by foreign sellers, to bypass tariffs and import restrictions. Addressing US Congress’ inability to pass de minimis reform legislation, on September 13, the Biden-Harris Administration took decisive action to address these concerns. They announced a notice of proposed rulemaking aimed at reducing de minimis import volumes and strengthening trade enforcement through the following measures:

Limiting De Minimis Exemptions for Products Subject to Other Trade Remedies: Removal of the de minimis exemption for shipments that contain products subject to additional tariffs under Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962 (e.g., from China).
Increased Disclosure Requirements for De Minimis Shipments: Additional information would be required for de minimis shipments, including the 10-digit tariff classification and identification of the person claiming the exemption.
Compliance Requirements for the CPSC: All importers of consumer products must file Certificates of Compliance (CoC) with the US Consumer Product Safety Commission (CPSC).

It is unclear when the proposed rule will be published.

The Administration also calls on Congress to implement legislation to further reform the de minimis program. Earlier this year, the House Ways and Means Committee introduced H.R. 7979 – End China’s De Minimis Abuse Act, which would similarly limit the use of this program for products subject to Sections 201, 301, and 232 and require a 10-digit Harmonized Tariff Schedule of the United States declaration. There have been several other de minimis reform bills proposed however, Congress has struggled to pass comprehensive legislation to reform the program. This announcement may be the push Congress needs to pass legislation during the lame duck session, but we will see…

Although these measures are primarily aimed at restricting Chinese e-commerce giants like Shein and Temu, these government actions could have long-term implications for direct-to-consumer sales. Any changes to the program will impact other US retailers that benefit from Section 321, small start-up companies, as well as consumers who might experience longer wait times and higher costs for their online orders due to these changes.

What’s the Problem?

Over the past decade, the rise of online shopping has led to a sevenfold increase in the number of shipments that enter the United States through the de minimis exemption. The US Department of Homeland Security (DHS) has reported that nearly 4 million de minimis shipments enter the United States per day. This volume makes it impossible for the government to properly screen the shipments for import violations. The government is concerned because contraband, including drugs, counterfeit goods, goods violating the Uyghur Forced Labor Prevention Act (UFLPA), and undervalued shipments are allegedly entering the United States through this program. DHS reported that as of July 30, 89% of cargo seizures in fiscal year 2024 originated as de minimis shipments. We have previously reported on proposed legislation and government actions aimed at addressing the alleged misuse of this program to import contraband or improperly declare shipments, particularly those originating from China.

A Focus on China

Most of these shipments are sold on e-commerce platforms and originate in China. As a result, many of these shipments would normally be subject to additional duties under the Section 232, 301, or 201 programs. According to the Administration’s announcement, Section 301 tariffs apply to 40% of US imports, including 70% of textile and apparel goods from China. The Administration’s proposed rule would significantly limit the scope of goods eligible for the Section 321 de minimis program.

Enhancing Transparency in De Minimis Shipments

To assist in targeting problematic shipments and expediting the clearance of lawful shipments, the Administration will also solicit comments on a proposed rule that would require submission of more detailed information in order to use the de minimis exemption. Currently, these shipments can be entered through informal entries by providing the bill of lading or a manifest that outlines the shipment’s origin, the consignee, and details about the merchandise’s quantity, weight, and value. The additional data points required would include the tariff classification number and the identity of the individual claiming the exemption. The Administration asserts that these requirements will protect US business from unfair competition against imported goods that would otherwise be subject to duties and will facilitate US Customs and Border Protection’s (CBP) ability to detect the illicit goods at the border.

Protecting Consumers From De Minimis Shipments

The Administration also announced that the CPSC plans to propose a final rule that would require importers of consumer products to electronically file CoC with CBP and CPSC upon entry, including de minimis shipments. This action is intended to prevent foreign companies from exploiting the de minimis exemption to circumvent consumer protection testing and certification requirements.

Focus on Textiles

The Administration has committed to prioritizing enforcement efforts to prevent importation of illicit shipments of textile and apparel imports through increased targeting of de minimis shipment, more customs audits and verification, as well as the expansion of the UFLPA Entity List.

The Administration’s focus on the textile and apparel industry follows DHS’s enforcement initiative to curb illicit trade to support American textile jobs. Since the DHS announcement in April, we have seen a notable increase in enforcement actions such as CBP requests for information, risk assessment questionnaires, and detentions under the UFLPA.

Potential Legislative Implications

The Administration has also advocated for further legislative action by Congress including:

Exclusion of import-sensitive products such as textiles from the de minimis exemption, the exclusion of shipments containing products covered by certain trade enforcement actions, and the passage of previously proposed de minimis reforms.
Legislation that would expedite the process of excluding products covered by Sections 301, 201, and 232 from the de minimis exemption.
Reforms in the previously introduced Detect and Defeat Counter-Fentanyl Proposal, which would require more data from shippers under the de minimis program and strengthen the CBP’s ability to detect and seize illicit drugs and raw materials.

What This Means for Retailers and How We Can Help

The Administration’s notice of proposed rulemaking suggests that changes to the de minimis program are on the horizon. For e-commerce retailers, these changes could mean a shift in how they manage their imports. Stricter eligibility criteria and enhanced enforcement may require more diligent documentation and compliance efforts. Retailers should stay informed about these proposed changes and prepare to adapt their operations accordingly.

USTR Finalizes New Section 301 Tariffs

The United States Trade Representative (USTR) published a Federal Register notice detailing its final modifications to the Section 301 tariffs on China-origin products. USTR has largely retained the proposed list of products subject to Section 301 tariffs announced in the May 2024 Federal Register notice (see our previous alert here) with a few modifications, including adjusting the rates and implementation dates for a number of tariff categories and expanding or limiting certain machinery and solar manufacturing equipment exclusions. USTR also proposes to impose new Section 301 tariff increases on certain tungsten products, polysilicon, and doped wafers.

The notice, published on September 18, 2024, clarifies that tariff increases will take effect on September 27, 2024, and subsequently on January 1, 2025 and January 1, 2026 (Annex A). The final modifications to Section 301 tariffs will apply across the following strategic sectors:

Steel and aluminum products – increase from 0-7.5% to 25%
Electric vehicles (EVs) – increase from 25% to 100%
Batteries
- Lithium-ion EV batteries – increase from 7.5% to 25%
- Battery parts (non-lithium-ion batteries) – increase from 7.5% to 25%
- Certain critical minerals – increase from 0% to 25%
- Lithium-ion non-EV batteries – increase from 7.5% to 25% on January 1, 2026
- Natural graphite – increase from 0% to 25% on January 1, 2026
Permanent magnets – increase from 0% to 25% on January 1, 2026,
Solar cells (whether or not assembled into modules) – increase from 25% to 50%
Ship-to-shore cranes – increase from 0% to 25% (with certain exclusions)
Medical products
- Syringes and needles (excluding enteral syringes) – increase from 0% to 100%
- Enteral syringes – increase from 0% to 100% on January 1, 2026
- Surgical and non-surgical respirators and facemasks (other than disposable):
  - increase from 0-7.5% to 25%; increase from 25% to 50% on January 1, 2026
- Disposable textile facemasks
  - January 1, 2025, increase from 5% to 25%; increase from 25% to 50% on January 1, 2026
- Rubber medical or surgical gloves:
  - increase from 7.5% to 50% on January 1, 2025; increase from 50% to 100% on January 1, 2026
- Semiconductors – increase from 25% to 50% on January 1, 2025

USTR adopted 14 exclusions to temporarily exclude solar wafer and cell manufacturing equipment from Section 301 tariffs (Annex B), while rejecting five exclusions for solar module manufacturing equipment proposed in the May 2024 notice. The exclusions are retroactive and applicable to products entered for consumption or withdrawn from warehouse for consumption on or after January 1, 2024, and through May 31, 2025. USTR also granted a temporary exclusion for ship-to-shore gantry cranes imported under contracts executed before May 14, 2024, and delivered prior to May 14, 2026. To use this exclusion, the applicable importers must complete and file the certification (Annex D).

With respect to machinery exclusion, USTR added five additional subheadings to the proposed 312 subheadings to be eligible for consideration of temporary exclusions. USTR did not add subheadings outside of Chapters 84 and 85 or subheadings that include only parts, accessories, consumables, or general equipment that cannot physically change a good. USTR will likely issue additional guidance to seek exclusions of products under these eligible subheadings.

Importers should assess the (i) table of the tariff increases for the specified product groups (Annex A), (ii) temporary exclusions for solar manufacturing equipment (Annex B), (iii) the Harmonized Tariff Schedule of the United States (HTSUS) modifications to impose additional duties, to increase rates of additional duties, and to exclude certain solar manufacturing equipment from additional duties (Annex C), (iv) Importer Certification for ship-to-shore cranes entering under the exclusion (Annex D), and (v) HTSUS subheadings eligible for consideration of temporary exclusion under the machinery exclusion process (Annex E). The descriptions set forth in Annex A are informal summary descriptions, and importers should refer to the HTSUS modifications contained in Annex C for the purposes of assessing Section 301 duties and exclusions.

Importers should also carefully review the final list of products subject to the increased Section 301 tariff, with their supply chains, to identify products subject to increases in tariff rates as a result of the recent of USTR and consider appropriate mitigation strategies.

BIOSECURE Act: Anticipated Movement, Key Provisions, and Likely Impact

Last night, the House of Representatives passed the BIOSECURE Act (BIOSECURE or the Act) by a bipartisan vote of 306 to 81.

The BIOSECURE Act prohibits federal agencies from procuring or obtaining any biotechnology equipment or service produced or provided by a biotechnology company of concern. Subject to some exceptions, it also prohibits federal agencies from contracting with a company that uses equipment or services produced or provided by a biotechnology company of concern. Further, the Act prohibits recipients of a loan or grant from a federal agency from using federal funds to purchase equipment or services from a biotechnology company of concern.

The Senate version of BIOSECURE, sponsored by Sens. Gary Peters (D-MI) and Bill Hagerty (R-TN), was voted out of the Senate Committee on Homeland Security and Governmental affairs with bipartisan support in March 2024. Given its passage in the House last night, the BIOSECURE Act is likely to be signed into law by the end of the year. The House version of BIOSECURE is likely to be the version that becomes law. President Biden is unlikely to veto the Act given its bipartisan support, his previous executive actions to support domestic biotechnology development, and his Administration’s approach towards competition with China.

The Act defines “biotechnology company of concern” as any entity that:

is subject to the jurisdiction, direction, control, or operates on behalf of the government of a foreign adversary (defined as China, Cuba, Iran, North Korea, and Russia);
is involved in the manufacturing, distribution, provision, or procurement of a biotechnology equipment or service; and
poses a risk to U.S. national security based on:
- engaging in joint research with, being supported by, or being affiliated with a foreign adversary’s military, internal security forces, or intelligence agencies;
- providing multiomic data obtained via biotechnology equipment or services to the government of a foreign adversary; or
- obtaining human multiomic data via the biotechnology equipment or services without express and informed consent.

Somewhat unusually, the Act names specific Chinese companies as automatically qualifying as “biotechnology companies of concern”:

BGI (formerly known as the Beijing Genomics Institute);
MGI;
Complete Genomics;
WuXi AppTec; and
WuXi Biologics.

Both categories include any subsidiary, parent, affiliate, or successor entities of biotechnology companies of concern.

The Act also has very broad definitions of “biotechnology equipment or service.” The definition of equipment encompasses any machine, device, or subcomponent, including software that is “designed for use in the research, development, production, or analysis of biological materials.” The definition of services is similarly broad.

The BIOSECURE Act also requires the Office of Management and Budget (OMB) to publish a list of additional biotechnology companies of concern. The list is prepared by the Secretary of Defense in coordination with the Secretaries of the Departments of Health and Human Services, Justice, Commerce, Homeland Security, and State, as well as the Director of National Intelligence and National Cyber Director. This list of companies must be published by OMB within one year of BIOSECURE’s enactment and reviewed annually by OMB in consultation with the other Departments.

Guidance and Regulatory Authorities

OMB is also tasked with developing guidance and has 120 days from enactment of the statute to do so for the named companies. For the list of biotechnology companies of concern, OMB’s guidance must be established within 180 days after the development of the list.

Beyond OMB, the Act requires the Federal Acquisition Regulatory Council to revise the Federal Acquisition Regulation (FAR) to incorporate its prohibitions. The FAR regulations must be issued within one year of when OMB establishes its guidance.

For named companies the Act’s prohibitions are effective 60 days after the issuance of the FAR regulations. For companies placed on the biotechnology company of concern list, the effective date for the Act’s prohibitions is 80 days after the issuance of FAR regulations.

Impact on Existing Business Relationships

In response to stakeholder concerns about disrupting existing commercial relationships and triggering delays in drug development, the House version of the BIOSECURE Act provides a five-year unwinding period for contracts and agreements entered into before the Act’s effective dates. Contracts entered into after the Act’s effective dates do not qualify for the five year unwinding period.

Process for Designating Companies

BIOSECURE specifies the process for designating a biotechnology company of concern. Critically, the Act does not require OMB to notify a company prior to the Department of Defense making the designation. Rather, a company will receive notice that it is being designated and placed on the biotechnology company of concern list. Moreover, the criteria for listing will only be provided “to the extent consistent with national security and law enforcement interests.” Thus, companies may face a circumstance where they are not provided the evidence supporting their designation.

Once a company receives the notice, it will have 90 days to submit information and arguments opposing the listing. The Act does not require a hearing or any formal administrative process. If practicable, the notice may also include steps the company could take to avoid being listed, but it is not required.

Safe Harbor, Waivers and Exceptions

The Act only has one safe harbor for biotechnology equipment or services that were formerly but no longer provided or produced by a biotechnology company of concern. This safe harbor seems intended to allow a biotechnology company of concern to sell their ownership of a product or service to another company without prohibitions applying to the new owner.

Agency heads may waive the Act’s prohibitions on a case-by-case basis, but only with the approval of OMB acting “in coordination with the Secretary of Defense.” Waivers must be reported to Congress within 30 days of being granted. The waiver may last for up to a year with an additional “one time” extension of 180 days allowed if an agency head determines it is “in the national security interests of the United States.” The 180-day extension must be approved by OMB and the agency head must notify and submit a justification to Congress within 10 days of the waiver being granted.

The Act has only two exceptions. First, its prohibitions do not apply to intelligence activities. Second, the prohibitions do not apply to health care services provided to federal employees, members of the armed services, and government contractors who are stationed in a foreign country or on official foreign travel.

Impact and Considerations for Clients

1. Increased Risk of Partnerships with Chinese Companies and Researchers:

Pharmaceutical and biotechnology companies that receive federal funding or contract with federal agencies should be prepared to wind down business ties to biotechnology companies in China. Impacted companies need to begin evaluating the risk to their supply chains, manufacturing capacity, and R&D pipelines in the event a business partner is listed.

Universities in the United States and other research institutes that receive federal funding will also need to undertake a similar assessment of their research partners and collaborators based in China.

2. Loss of CDMO capacity:

Wuxi App Tec is a large, global provider of contract development and manufacturing (CDMO) services to the life sciences industry. According to the New York Times “[b]y one estimate Wuxi has been involved in developing one-fourth of the drugs used in the United States.” BIOSECURE would effectively ban Wuxi from conducting business in the United States, and if passed, risks causing delays, shortages, and cost increases as companies seek to transition to other CDMOs. It will likely take years for competitors to replace the lost CDMO capacity.

3. Fate of Wuxi U.S. Facilities:

Wuxi has a large presence in the United States. It operates 12 facilities and employs almost 2,000 people. Normally, Wuxi would be expected to sell its U.S.-based facilities. However, based on Tiktok’s experience, it is unclear if the Government of China will permit Wuxi to sell its facilities as opposed to dismantling and/or relocating facilities outside of the United States.

4. OMB’s Management of Biotechnology Companies of Concern List

OMB does not typically manage processes like the one envisioned by BIOSECURE. How OMB interprets the broad criteria for listing companies will be critical. Which Departments, beyond the Department of Defense, will have the greatest influence on OMB’s decision making and how open OMB is to evidence from companies seeking to avoid listing will also need to be watched closely. Until OMB starts preparing its guidance and the FAR regulations are proposed, it is hard to anticipate the rate at which new companies will be added to the list. How the process established by BIOSECURE will interact with or leverage existing entity lists will be another development to closely monitor.

5. Retaliation by China

BIOSECURE’s passage is likely to trigger a response from the Government of China. Responses could range from imposing its own export controls to using the country’s sweeping national security laws to harass United States businesses and their employees. Companies doing business in China, particularly those in the pharmaceutical or biotech industries need to be prepared.

15% Discount on Chinese Patent Annuities for Open Licensing

Per a slightly ambiguous notice from the Ministry of Finance and the National Development and Reform Commission released July 24, 2024 (财政部国家发展改革委关于调整优化专利收费政策的通知), annuity fees will be reduced by 15% for Chinese patents for participating in China’s open licensing system. As of the time of writing, there were over 2,000 open licenses published on China’s Intellectual Property Administration’s (CNIPA) online publication system.

15% Discount on Chinese Patent

Specifically, section 2 reads:

A 15% reduction in annual patent fees during the implementation period of patent open licensing. If other patent fee reduction policies are also applicable, the most favorable policy can be selected, but it cannot be enjoyed repeatedly.

However, it is unclear if this requires an actual license or simply having an offer to license published on CNIPA’s open license system.

In addition, there appears to be an additional annuity fee due for patents that receive patent term compensation (presumably for both patent term extensions for pharmaceutical patents and patent term adjustment for CNIPA delay in patent examination). It is unclear if this additional annuity is due for the entire patent term or just for the added patent term.

Specifically, section 1 reads, in part:

A patent owner who files a request for patent term compensation shall pay a patent term compensation request fee.

If a request for patent term compensation is found to meet the conditions for term compensation upon review, an annual patent compensation fee shall be paid…

CNIPA earlier this month also released additional information about open licensing system including royalty rates.

The full text of the Notice if available here (Chinese only).

China’s Supreme People’s Court Releases Two Recent Patent-Related Typical Anti-Monopoly Cases

On June 24, 2024, China’s Supreme People’s Court (SPC) released five recent typical anti-monopoly cases, two of which relate to patents. The SPC stated that the cases were released so that Courts can “correctly apply the revised Anti-Monopoly Law and accurately understand the new judicial interpretation of anti-monopoly civil litigation issued today, fairly and efficiently hear monopoly cases, ensure the correct implementation of the Anti-Monopoly Law, and maintain fair competition in the market.”

Explanations from the SPC regarding the two cases follows:

Case No.:【案号】（2020）最高法知民终1140号

[Basic facts of the case] Yang XX Pharmaceutical Group Co., Ltd. and its subsidiaries (collectively referred to as Yang) are the manufacturers of the anti-allergic drug desloratadine citrate tablets with the trade name “Beixue.” Hefei Yi XX Pharmaceutical Co., Ltd. owns the relevant patents for desloratadine citrate. The company and its subsidiaries and affiliated companies (collectively referred to as Yi) are the only suppliers of the desloratadine citrate API required for the production of “Beixue”. In addition to producing desloratadine citrate API, Yi also produces desloratadine citrate hard capsules. Yi and Yang are both the supply and demand parties of the desloratadine citrate API involved in the case, and are also competitors in desloratadine citrate preparations. Yang believed that Yi used its dominant position in the market of desloratadine citrate API to restrict Yang to only purchase the API involved in the case from it, significantly raised the price of the API involved in the case, and threatened to stop supplying the API involved in the case to force Yang to accept other commercial arrangements unrelated to the API transaction involved, causing huge losses to Yang and therefore constituting an abuse of market dominance. Yang requested that Yi stop abusing its market dominance and compensate Yang for losses and reasonable expenses of 100 million RMB. The court of first instance found that Yi had abused its market dominance by restricting transactions, setting unfair high prices, and attaching unreasonable transaction conditions, and ordered it to immediately stop the above-mentioned behaviors and compensate Yang more than 68 million RMB. Both parties were dissatisfied and appealed to the Supreme People’s Court.

The Supreme People’s Court held in the second instance that Yi has a dominant market position in the desloratadine citrate API market in China, but its dominant market position has been weakened to a certain extent due to the strong indirect competition constraints from the downstream second-generation antihistamine preparation market. Based on the existing evidence, it is difficult to determine that it has abused its dominant market position. First, desloratadine citrate falls within the scope of protection of Yi’s patent rights. The time and scope of Yi’s restriction that Yang can only purchase the patented API involved in the case from it do not exceed the scope of the legitimate exercise of patent rights, and the resulting market blocking effect does not exceed the statutory exclusive scope of patent rights, so it does not constitute a restricted transaction behavior that abuses the dominant market position. Second, considering the internal rate of return after the price increase and the matching degree of price and economic value, it is more likely that the initial price of the patented API involved in the case is a promotional price, and the subsequent large price increase is likely to be a reasonable adjustment from the promotional price to the normal price. The fact that the price increase is significantly higher than the cost increase is not enough to determine that there is an unfair high-price behavior that abuses the dominant market position. Third, the existing evidence is insufficient to prove that Yi has explicitly or implicitly bundled the sales of the patented API involved in the case with unrelated products, so it is difficult to determine that there is an act of attaching unreasonable transaction conditions. Therefore, the judgment was revoked and the first-instance judgment was changed to dismiss Yang’s lawsuit request.

[Typical Significance] This case is the first monopoly civil lawsuit in China involving raw material pharmaceuticals. The judgment clarified the consideration of indirect competition constraints from the downstream market when judging the market dominance of intermediate input operators, the relationship between the market blocking effect of limited trading behavior and the statutory exclusive scope of patent rights, and the basic ideas and specific methods for judging unfair high prices. It has positive significance for promoting the accurate application of the Anti-Monopoly Law and effectively maintaining fair competition in the pharmaceutical market.

【案号】（2021）最高法知民终1482号

[Basic facts of the case] Ningbo XX Magnetics Co., Ltd. is an enterprise engaged in the production of sintered NdFeB materials in Ningbo, Zhejiang Province. A Japanese metal company has more than 600 sintered NdFeB patents in the field of rare earth materials worldwide. After licensing eight companies in China to implement its patented technology, it decided not to add new licensees. From March 2014 to March 2015, Ningbo XX Magnetics Co., Ltd. repeatedly requested a license from the Japanese metal company but was rejected. Therefore, it filed a lawsuit in December 2014, requesting that the Japanese metal company stop the abuse of market dominance such as refusal to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 7 million RMB. The court of first instance determined that the Japanese metal company had a dominant position in the patent licensing market for essential patents for sintered NdFeB and that its refusal to trade had no legitimate reason. Therefore, it ordered the Japanese metal company to stop abusing its market dominance by refusing to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 4.9 million RMB. The Japanese metal company was dissatisfied with the decision and filed an appeal.

The Supreme People’s Court held in the second instance that the evidence in this case was insufficient to prove that the sintered NdFeB patent of a Japanese metal company was irreplaceable, nor was it sufficient to prove that there was an independent licensing market for patents necessary for the production of sintered NdFeB. Therefore, it was difficult to determine that the relevant market in this case was the patent licensing market for patents necessary for the production of sintered NdFeB owned by the Japanese metal company. In this case, based on the demand substitution of sintered NdFeB material production technology, the relevant market in this case should be defined as the global sintered NdFeB material production technology market, including patented technologies and non-patented technologies with close substitution. Given that sintered NdFeB material production technology is used to produce sintered NdFeB materials, and the market share of sintered NdFeB materials (products) and other conditions can more accurately and conveniently reflect the market conditions of sintered NdFeB production technology, the market power of the technology owner in the relevant market involved in the case can be evaluated through the market share of the sintered NdFeB material market. Taking into account the evidence in the case, the Japanese metal company does not have a dominant position in the global sintered NdFeB material production technology market. Therefore, the court ruled to revoke the first-instance judgment and dismiss the lawsuit filed by the Ningbo magnetic company.

[Typical Significance] This case is a typical case in which intellectual property rights and antitrust are intertwined, and has received widespread attention. The second-instance judgment properly handled the relationship between the exercise of patent rights and antitrust, and through scientific and reasonable definition of the relevant market, revised the judgment in accordance with the law to determine that the foreign right holder’s refusal to license the patent involved did not constitute monopoly behavior. The judgment in this case demonstrates the judicial concept of Chinese courts to equally protect the legitimate rights and interests of Chinese and foreign parties and the trial ideas of antitrust cases involving intellectual property abuse in accordance with the law, and actively responded to the concerns of the industry at home and abroad.

The original text including three additional cases is available here (Chinese only).

Conviction Under China’s Version of the Economic Espionage Act for Theft of Trade Secrets

On April 26, 2024, the Shanghai Pudong Court released the “Typical cases of intellectual property judicial services provided by the Shanghai Pudong New Area People’s Court to ensure high-quality development of new productivity” (上海市浦东新区人民法院知识产权司法服务保障新质生产力高质量发展典型案例), which included a criminal case involving a newer provision of the Chinese Criminal Law that is somewhat analogous to the U.S. Economic Espionage Act. This is believed to be the first case in Shanghai under this provision and may be related to last year’s police raids on Bain and/or Capvision although the Court did not release information identifying the entities involved.

As explained by the Shanghai Pudong Court:

Case 12

Determination of the elements of the crime of illegally providing trade secrets to foreign countries – the first case of spying and illegally providing trade secrets to foreign countries in Shanghai

Judgment Summary

Article 219-1 of the Criminal Law states that “the crime of spying on and illegally providing commercial secrets for foreign countries” should be determined based on the following elements: first, the object of the perpetrator’s infringement is a commercial secret protected by China’s criminal law; second, the perpetrator objectively carried out the act of spying on and illegally providing commercial secrets; third, the commercial secrets were spied on and provided to foreign institutions, organizations, and personnel, and the perpetrator knew it. Among them, foreign institutions and organizations include not only institutions and organizations established in other countries or regions abroad, but also their branch (representative) institutions and branch organizations established in China, as well as institutions and organizations in Hong Kong, Macao and Taiwan. If the perpetrator is not clearly informed that the commercial secrets are spied on and provided to foreign countries, but subjectively should know and takes a laissez-faire attitude, it constitutes knowing.

Basic facts

From August 2017 to 2020, the defendant Zheng worked as a thin film equipment engineer in a storage company. He signed the “Employment Contract” and “Secrecy Commitment Letter on Resignation” and promised to keep the company’s trade secrets confidential. In August 2021, the defendant Zheng accepted the invitation of an information company and became the company’s industry expert consultant. From October 2021 to the time of the incident, the defendant Zheng violated the confidentiality agreement with the storage company where he originally worked, used the information he had mastered and spied on the employees of the storage company, and accepted the arrangement of the information company many times in the name of an expert of the storage company to provide paid consulting services to companies with similar or competitive businesses to the storage company. Among them, Zheng accepted a telephone interview with the consulting company (whose shareholders are foreign companies) in February 2022. Knowing that the actual consulting party was an overseas organization, he still illegally provided the trade secrets of the storage company that he had spied on and learned to overseas organizations and personnel through the information company, and illegally made a profit of 2,062.40 RMB. On September 17, 2022, the defendant Zheng was detained and summoned by the Shanghai National Security Bureau. After being brought to justice, he truthfully confessed the main facts of the crime and, with the help of his family, surrendered the illegal gains of 2,062.40 RMB.

Judgement

After trial, the Pudong Court held that the commercial information of the relevant products accused by the public prosecution agency was the result of a storage company’s creative labor and embodied the wisdom of many R&D personnel. The above-mentioned trade secrets have an important impact on the company’s competitiveness and future development in the international and domestic industries. The company has never publicly released it, and the defendant Zheng also confirmed that the above-mentioned information belongs to the company’s undisclosed information. Therefore, this information is not generally known and not easily accessible to relevant personnel in the field. The storage company has taken reasonable confidentiality measures for the commercial information involved by formulating the “Confidential Information Protection Policy Text” and signing the “Employment Contract” and “Resignation Confidentiality Commitment Letter” with the defendant Zheng. Therefore, the commercial information involved is the company’s trade secrets. After the defendant Zheng resigned, he violated the agreement on keeping trade secrets with the storage company and the company’s confidentiality system. Knowing that the consulting party was an overseas organization, he still provided the trade secrets involved in the case that he illegally discovered from his former colleagues, together with the trade secrets he possessed, to the consulting party. His behavior has constituted the crime of overseas espionage and illegal provision of trade secrets. Based on this, the court sentenced the defendant Zheng to two years and six months in prison and a fine of RMB 10,000 for the crime of spying and illegally providing trade secrets abroad; the illegal gains were confiscated.

After the first-instance judgment, the defendant Zheng did not appeal and the public prosecution agency did not file a protest, and the judgment is now effective.

Typical significance

This case is the first case accepted by the Shanghai court for the newly added crime of “stealing, spying, buying, and illegally providing trade secrets for foreign countries” since the implementation of the Criminal Law Amendment (XI). It involves former employees of key enterprises in China’s high-tech field, who, in the name of expert consultation, leaked important trade secrets they spied on and learned to foreign organizations through consulting companies and made profits, causing serious harm to the development and economic interests of the enterprises. The judgment in this case strictly grasps the constituent elements of the crime, severely cracks down on commercial espionage crimes of foreign organizations against key high-tech enterprises in China, protects the independent intellectual property rights of Chinese enterprises in accordance with the law, helps to enhance international competitiveness, and safeguards China’s national security and national interests.

The original text (with 14 other typical case summaries) is available here (Chinese only).

U.S. House of Representatives Passes Bill to Ban TikTok Unless Divested from ByteDance

Yesterday, with broad bipartisan support, the U.S. House of Representatives voted overwhelmingly (352-65) to support the Protecting Americans from Foreign Adversary Controlled Applications Act, designed to begin the process of banning TikTok’s use in the United States. This is music to my ears. See a previous blog post on this subject.

The Act would penalize app stores and web hosting services that host TikTok while it is owned by Chinese-based ByteDance. However, if the app is divested from ByteDance, the Act will allow use of TikTok in the U.S.

National security experts have warned legislators and the public about downloading and using TikTok as a national security threat. This threat manifests because the owner of ByteDance is required by Chinese law to share users’ data with the Chinese Communist government. When downloading the app, TikTok obtains access to users’ microphones, cameras, and location services, which is essentially spyware on over 170 million Americans’ every move, (dance or not).

Lawmakers are concerned about the detailed sharing of Americans’ data with one of its top adversaries and the ability of TikTok’s algorithms to influence and launch disinformation campaigns against the American people. The Act will make its way through the Senate, and if passed, President Biden has indicated that he will sign it. This is a big win for privacy and national security.

For more news on Social Media Legislation, visit the NLR Communications, Media & Internet section.

Top Risks for Businesses in 2024

Just weeks into 2024, it is already clear that uncertainty will be the watchword. Will the economic soft landing of 2023 persist into 2024? Will labor unrest, strong in 2023, settle down as inflation cools? Will inflation remain tamed? Will the U.S. elections bring continuity or a new administration with very different views on the role of the U.S. in the world and in regulating business?

Uncertainty is also fueling a complex risk environment that will require monitoring global developments more so than in the past. As outlined below, geopolitical risks are present, multiple, interconnected and high impact. International relations have traditionally fallen outside the mandate of most C-Suites, but how the U.S. government responds to geopolitical challenges will impact business operations. Beyond additional disruptions to global trade, businesses in 2024 will face risks associated with expanding protectionist economic policies, climate change impacts, and AI-driven disruptors.

Geopolitical Tensions Disrupting Global Trade

The guardrails are coming off the international system that enshrines the ideals of preserving peace and security through diplomatic engagement, respecting international borders (not changing them through military might) and ensuring the free flow of global trade. In 2022, the world was shocked by Russia’s invasion of Ukraine, but it has taken time for the full impact to reverberate through the international system. While political analysts write on a “spillover of conflict,” the more insidious impact is that more leaders of countries and non-state groups are acting outside the guardrails because they are no longer deterred from using military force to achieve political goals, making 2024 ripe for new military conflicts disrupting global trade beyond the ongoing war in Europe.

In October 2023, Hamas launched a war from Gaza against Israel. Thus far, fighting has spread to the West Bank, between Israel and Lebanese Hezbollah in the north, and to the Red Sea, with Iranian-backed Houthis attacking shipping through the strategic Bab al Mandab strait. Container ships and oil tankers, to avoid the risks, are re-routing to the Cape of Good Hope, adding two weeks of extra sailing time, with the associated costs. Insurance premiums for cargo ships sailing in the eastern Mediterranean have skyrocketed, with some no longer servicing Israeli ports. Companies and retailers with tight delivery schedules are switching to airfreight, which is expected to drive up airfreight rates.

Iran, emboldened by its blossoming relationship with Russia as one of Moscow’s new arms suppliers, is activating its proxy armies in Yemen, Iraq, Syria and Lebanon to attack Western targets. In a two-day period in January 2024, the Iran Revolutionary Guards directly launched strikes in Syria, Iraq and Pakistan. Nuclear-armed Pakistan retaliated with a cross border strike in Iran. While there are many nuances to these incidents, it is evident that deterrence against cross-border military conflict is eroding in a region with deep, festering grievances among neighbors. Iran is in an escalatory mode and could resume harassing shipping in the Persian Gulf and the strategic Strait of Hormuz, where about a fifth of the volume of the world’s total oil consumption passes through on a daily basis.

In East Asia, North Korea is also emboldened by the changing geopolitical environment. Pyongyang, too, has become a major supplier of weaponry to Moscow for use in Ukraine. While Russia (and China) in the past have constructively contained North Korean predilection for aggression against its neighbors, Supreme Leader Kim Jong Un may believe the time is ripe to change the status quo. Ominously, in a Jan. 15 speech before the Supreme People’s Assembly (North Korea’s parliament), Kim rejected the policy of reunification with South Korea and proposed incorporating the country into North Korea “in the event of war.” While North Korean leaders frequently revert to brinksmanship and aggressive language, Kim’s speech reflects confidence of a nuclear power, aligned with Russia against a shared adversary – South Korea, which is firmly aligned with the G7 consensus on Russia. A war in the Korean peninsula would be felt around the world because East Asia is central to global shipping and manufacturing, disrupting supply chains, as well as the regional economy.

China is also waiting for the right moment to “unite” Taiwan with the mainland. Beijing has seen the impact of Western sanctions on Russia over Ukraine and has been deterred from aiding the Russian war effort. In many ways, China has benefited from these sanctions and the reorientation of global trade. Also, Russia, with its far weaker economy, has proven surprisingly resilient to sanctions, another lesson for China. Meanwhile, the Taiwanese people voted in January and returned for a third time the ruling party that strongly rejects Chinese territorial claims. Tensions are high, with the Chinese military once again harassing Taiwanese defenses. For Beijing, the “right moment” could fall this year should conflict break out on the Korean peninsula, which would tie the U.S. down because of the Mutual Defense Treaty.

The uncertainty here is not that there are global tensions, but how the U.S. will respond as they develop and how U.S. businesses can navigate external shocks. Will the U.S. be drawn into a new war in the Middle East? Can the U.S. manage multiple conflicts, already deeply involved in supporting Ukraine? Is the U.S. economy resilient enough to withstand trade disruptions? How can businesses strengthen their own resiliency?

Economic Protectionism Increasing Costs and Risks

Geopolitical tensions, the global pandemic and the unequal benefits of globalization are impacting economic policies of the U.S. and the political discourse around the merits of unrestrained free trade. Protectionist economic policies are creeping in, under the nomenclature of “secure supply chains,” “friend-shoring” and “home-shoring.” The U.S. has imposed tariffs on countries (even allies) accused of unfair trade practices and has foreclosed access to certain technologies by unfriendly countries, namely China.

While the response to some of these trade restrictions are new trade agreements with “friends” to regulate access under preferred terms, in essence creating multiple “friends” trade blocs for specific sectors, other responses are retaliatory, including counter tariffs and export restrictions or outright bans. In 2024, the U.S. economy will see the impact of these trade fragmentation policies in acute ways, with upside risks of new business opportunities and downside risks of supply chain disruptions, critical resource competition, increased input costs, compliance risks and increased reputational risks.

Trade with China, which remains significant and important to the stability of the U.S. economy, will pose new risks in 2024. While Washington and Beijing have agreed to some political and security guardrails to manage the relationship, economic competition is unrestrained and stability in the bilateral relations is not guaranteed. The December 2023 bipartisan report by the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, with its 150 recommendations on fundamentally resetting economic and technological competition with China, if even partially adopted, risks reigniting the trade war.

2024 is a presidential election year for the U.S. A change of control of the executive branch could result in many economic and regulatory policy reversals. The definition of “friend” could shift or narrow. Restrictions on trade with China could accelerate.

Impacts of Climate Change and Sustainability Policies

2023 was the hottest year on record, and El Niño conditions are expected to further boost the warming trend. Many regions experienced record-breaking wildfire activity in 2023, including Canada where 18 million hectares of land burned. Extreme storms caused life-threatening flooding in Europe, Asia and the Americas. 2024 is expected to bring even more climate hazards. The impacts will be physical and financial, including growing insurance losses and adverse impacts on operations and value chain. Analysts expect that in 2024, the economic and financial costs of adverse health impacts from climate change will increase, with risks related to the spread of infectious disease, insufficient access to clean water, and physical harm to the elderly and vulnerable. The direct economic effect will be on health systems, but also loss of productivity due to extreme weather incidents and effects of epidemics.

Energy transition to low-carbon emissions is underway in the U.S., but it is uneven and still uncertain. The financial market is investing in an impressive number of startups and large-scale projects revolving around cleantech. Still, there is hesitancy on the opportunity and risks of sustainability. Thus far, progress towards sustainability goals has been private sector-led and government-enabled. There is a risk that government incentive programs encouraging the transition to low-carbon energy could be reversed or curtailed under a new administration.

In 2024, some companies will face more climate disclosure compliance requirements. The Securities and Exchange Commission (SEC) is expected to release its final rule on climate change disclosures. The final action has been delayed several times because of pushback by public companies on some of the requirements, including Scope 3 greenhouse gas emission disclosures (those linked to supply chains and end users). California has not waited for the SEC’s final rule: In October 2023, Gov. Gavin Newsom signed into law legislation that will require large companies to disclose greenhouse gas emissions. The California climate laws go into effect in 2026, but companies will need to start much earlier to build the capabilities to plan, track and report their carbon footprint. For U.S. companies doing business in the European Union, they will need to comply with the EU Corporate Sustainability Reporting Directive, with the rules coming into force mid-2024.

Disruptive Technology

In 2023, generative AI was the talk of the town; in 2024, it will be the walk. Companies are popping up with new tools for every imaginable sector, to increase efficiency, task automation, customization, personalization and cost reduction. Business leaders are scrambling to integrate AI to gain a competitive edge, while navigating the everyday risks related to privacy, liability and security. While there are concerns that AI will displace humans, there is a growing consensus that while some jobs will disappear, people will focus on higher value work. That said, new rounds of labor disruptions linked to workforce transition are likely in 2024.

2024 will also bring AI-generated misinformation and disinformation. Bad actors will spread “synthetic” content, such as sophisticated voice cloning, doctored images and counterfeit websites, seeking to manipulate people, damage companies and economies, and foment dissent.

In 2024, around 2 billion people in more than 50 countries will vote in elections at risk of manipulation by misinformation and disinformation, which could destabilize the real and perceived legitimacy of newly elected governments, risking political unrest, violence, terrorism and erosion of democratic processes. Large democracies will hold elections in 2024, including the U.S., the EU, Mexico, South Korea, India, Pakistan, Indonesia and South Africa. Synthetic content can be very difficult to detect, while easy to produce with AI tools.

This is not a theoretical threat; synthetic content is already being disseminated in the U.S., targeting New Hampshire voters with robocalls that share fake recorded messages from President Biden encouraging people not to vote in the primary election. The U.S. is already polarized with citizens distrustful of the government and media, a ready vulnerability. Businesses are not immune. Notably, CEOs have stood apart, with higher ratings for trustworthiness and risk being called upon to vouch for “truth” (and becoming collateral damage in the fray).

AI-powered malware will make 2023 cyber risks look like child’s play. Attackers can use AI algorithms to find and exploit software vulnerabilities, making attacks precise and effective. AI can help hackers quickly identify security measures and evade them. AI-created phishing attacks will be more sophisticated and difficult to detect because the algorithms can assess larger amounts of piecemeal information and craft messages that mimic communication styles.

The role of states backing cyber armies to spread disinformation or steal information is growing and is part and parcel of the erosion of the existing international order. States face little deterrence from digital cross-border attacks because there are yet to be established mechanisms to impose real costs.

China’s Supreme People’s Court Releases Typical Cases on Film Intellectual Property Protection

On November 3, 2023, China’s Supreme People’s Court (SPC) released the Typical Cases of Film Intellectual Property Protection by the People’s Courts (人民法院电影知识产权保护典型案例). The SPC stated, “In order to strengthen the publicity of the rule of law in the film field, further stimulate the innovation and creativity of the film industry, and promote the prosperity of socialist culture, the Supreme People’s Court issued typical cases on the protection of film intellectual property rights. Typical cases include both criminal cases and civil cases, involving pirated recordings and dissemination of theatrical movies, protection of the integrity rights of works, adaptation rights, information network dissemination rights, reasonable use of copyrights, protection of trade secrets, etc., which are important for promoting the rule of law. It is of positive significance to speed up the construction of a powerful film country.”

8 Typical Cases as explained by the SPC follow:

1. Copyright infringement cases involving Ma XX, Ma YY and others [Criminal Judgment of Yangzhou Intermediate People’s Court of Jiangsu Province （2020）苏10刑初11号]

[Basic case facts] From June 2016 to February 2019, the defendants Ma XX, Ma YY, Wen Jie, and Lu collaborated with others for the purpose of profit, colluded with theater staff to illegally obtain movie masters and keys, and then copied hundreds of movies such as “The Wandering Earth” and “Crazy Alien” with high-definition equipment, and sold the pirated and copied movies to “movie bar” operators to gain illegal profits.

[Judgment Result] The Intermediate People’s Court of Yangzhou City, Jiangsu Province held that the defendants Ma XX, Ma YY, Wen Jie, and Lu copied and distributed other people’s film works without the permission of the copyright owner for the purpose of profit, and jointly implemented the production The act of selling pirated films, with huge illegal gains and other particularly serious circumstances, constitutes a crime of copyright infringement. The four defendants were sentenced to fixed-term imprisonment of four to six years, and fined from RMB 600,000 to RMB 5.5 million, and their illegal gains were recovered. After the verdict was announced, the parties did not appeal or protest, and the first-instance judgment has become legally effective.

[Typical Significance] This case is a typical case in which the act of stealing and distributing theater movies constitutes a crime of copyright infringement. The people’s courts perform their intellectual property trial duties in accordance with the law and severely crack down on illegal and criminal acts of infringement and piracy in the film field, which is of great significance to strengthening the copyright protection of theatrical films and promoting the healthy development of the film and television industry.

2. Liang XX’s copyright infringement case [Criminal Judgement of the Shanghai No. 3 Intermediate People’s Court (2021）沪03刑初101号]

[Basic Case Facts] Since 2018, the defendant Liang XX has instructed Wang YY and others to develop and operate the “Renren Film and Television Subtitle Group” website and Android, IOS, Windows, MacOSX, TV and other clients, and instructed Xie ZZ and others to download unauthorized film and television works from overseas websites, translate, produce and upload them to relevant servers, and provide users with online viewing and downloading through the “Renren Film and Television Subtitle Group” website and related clients operated by them. There are 32,824 unauthorized film and television works on the “Renren Film and Television Subtitle Group” website and related clients, with a total of about 6.83 million members and an illegal business amount of more than 12 million RMB.

[Judgment Result] The Shanghai No. 3 Intermediate People’s Court held after trial that the defendant Liang XX copied and distributed other people’s works without the permission of the copyright owner for the purpose of profit, and there were other particularly serious circumstances, which constituted the crime of copyright infringement. Liang was sentenced to three years and six months in prison and fined RMB 1.5 million, and his illegal gains were recovered. After the verdict was announced, the parties did not appeal or protest, and the first-instance judgment has become legally effective.

[Typical Significance] There are many film and television works in this case and the rights holders are dispersed. The judgment clarified the legal application issues such as the crime of copyright infringement and the determination of the number of infringing film and television works. The criminal liability of the organizers and main participants shall be investigated in accordance with the law, and severe crackdowns shall be carried out for serious infringement of film copyright.

3. Copyright infringement dispute case between Shanghai Art Film Studio Co., Ltd. and Chongqing Yun Media Information Technology Co., Ltd. [Chongqing Fifth Intermediate People’s Court （2019）渝05民初3828号Civil Judgment]

[Basic facts of the case] Shanghai Art Film Studio Co., Ltd. owns the copyrights to the film works of the cartoons “Calabash Brothers” and “Calabash Little King Kong,” as well as the copyright to the character modeling art works of “Calabash Brothers” and “Calabash Little King Kong.” Chongqing Yun Media Information Technology Co., Ltd. (hereinafter referred to as Yun Media Technology Company) and others based on the story clips of the characters such as Seven Calabash Babies and Calabash King Kong in the cartoon, replaced the Mandarin carried by the audio data of the characters in the original work with Sichuan and Chongqing dialects, changed the dialogue content of the characters in the original work, produced multiple short videos of “Calabash Dialect Version,” and uploaded them to websites and public accounts for dissemination. Shanghai Animation Film Studio Co., Ltd. filed a lawsuit in court on the grounds that the above-mentioned actions carried out by Yun Media Technology Company and others constituted copyright infringement.

[Judgment Result] The Fifth Intermediate People’s Court of Chongqing held after trial that Yun Media Technology Company and others jointly produced the short video involved in the case, deliberately exaggerated the use of vulgar, negative, dark and uncivilized terms in dialects, changed the dialogue content of the characters in the original work, and vilified the original work. The character image in the work was uploaded to the Internet platform for wide dissemination, which conflicts with the core socialist values, damages the legitimate rights and interests of the copyright owner, and constitutes copyright infringement. It was ruled that Yun Media Technology Company and others should immediately stop the infringement, jointly publish a statement to eliminate the impact, and jointly compensate for economic losses. After the first-instance judgment, none of the parties appealed.

[Typical Significance] The judgment of this case emphasizes that the derivative use of other people’s film works must not deface the characters in the film works, and must not include cultural dross. It must vigorously promote the core socialist values, which plays a positive guiding role in establishing healthy and civilized rule of law in the film industry.

4. Copyright ownership and infringement dispute case between Yu Mouzhu and Zhejiang Dongyang Meila Media Co., Ltd. [Chengdu Intermediate People’s Court of Sichuan Province （2018）川01民初1122号 Civil Judgment]

[Basic facts of the case] Yu Mouzhu published his novel “Wild Lily in Bloom” (盛开的野百合) on the website under the pseudonym Yu Mou, and adapted the novel into a script of the same name and sent it to Emei Film Group Co., Ltd. Since then, Zhejiang Dongyang Meila Media Co., Ltd. commissioned others to write the “Youth” movie script, and the film of the same name jointly produced with Huayi Brothers Film Co., Ltd. and others was released. Yu Mouzhu believes that the plot setting, character relationships, lines, and song and dance combinations of the “Youth” movie are highly overlapped with its novel and script, constituting substantial similarities, exceeding the boundaries of reasonable reference, and constituting an infringement of its rights to adapt and film and believes Zhejiang Dongyang Meila Media Co., Ltd., as the producer of the film “Youth” and other parties, jointly committed infringement.

[Judgment Result] The Intermediate People’s Court of Chengdu City, Sichuan Province held that there are obvious differences in the specific subject matter, story line, and theme between the “Youth” movie and Yu Mouzhu’s works. As far as the plot of the work is concerned, the multiple similar plots claimed by Yu Mouzhu are objective facts and limited expressions were not original and should not be protected. The plot of the disputed book and the character relationships advocated by Yu are obviously different from the movie “Youth.” Readers and audiences will not believe them to be similar and they do not have substantial similarities. Therefore, the all claims are dismissed. Yu Mouzhu was dissatisfied and appealed. The second-instance judgment of the Sichuan Provincial Higher People’s Court rejected the appeal and upheld the original judgment.

[Typical Significance] The judgment in this case clarified that objective facts and limited expressions are not original and are not protected by copyright law, and should be filtered when comparing infringements. The judgment also clarifies the correct comparison content and comparison method when determining whether a film work is infringing, protects the legitimate rights and interests of film copyright owners in accordance with the law, maintains a fair market competition order, and has positive significance for the prosperity of film creation.

5. Dispute case between Beijing iQiyi Technology Co., Ltd. and Shanghai Qiaojiaren Culture Media Co., Ltd. for infringement of the right to disseminate work information online [Beijing Intellectual Property Court (2021）京73民终2496号 Civil Judgment]

[Basic facts of the case] Beijing iQiyi Technology Co., Ltd. was authorized to obtain the exclusive information network dissemination rights and rights protection rights for the movie “I am not Madame Bovary.” The APP operated by Shanghai Qiaojiaren Culture Media Co., Ltd. (hereinafter referred to as Qiaojiaren Company) provides online playback of the complete content of the film involved and added corresponding dubbing, sign language translation, and source subtitles on the basis of the pictures and sound effects of the video involved in this case, but no identification/prevention mechanism to limit viewership to those with dyslexia was used. Beijing iQiyi Technology Co., Ltd. believes that the APP provides online playback services for the accessible version of the movie “I Am Not Madame Bovary” to unspecified members of the public, infringing on its right to information network dissemination, and filed a lawsuit in court, requesting an order against Qiaojiaren Company to stop the infringement and compensate for economic losses and reasonable expenses.

[Judgment Result] The Beijing Intellectual Property Court held that the “accessible means that can be perceived by people with dyslexia” stipulated in the Copyright Law should include special restrictions on this “accessible means”, that is, it should be limited to meeting the requirements of and exclusive use of people with dyslexia. The alleged infringement of Qiaojiaren Company is open to the unspecified public and does not meet the above conditions. It does not belong to statutory fair use and constitutes infringement. Considering that the original intention of Qiaojiaren Company was to make films accessible to people with disabilities and that the video involved had few clicks, the Court awarded economic losses of 10,000 RMB.

[Typical Significance] This case is the country’s first dispute involving an accessible version of a movie that infringes on the right to disseminate work information online. The judgment clarified that “providing published works to people with dyslexia in an accessible manner that they can perceive” is limited to the exclusive use of people with dyslexia. As a “fair use,” an effective verification mechanism for “people with dyslexia” should be adopted and exclude those who do not meet the criteria. The judgment in this case is conducive to the accurate implementation of the relevant international treaties that our country has joined (the “Marrakesh Treaty”), to the comprehensive protection of the rights of copyright owners, and to the regulation of the production and distribution of accessible versions of movies.

6. Zhejiang Shenghe Network Technology Co., Ltd. and Legend IP Co., Ltd. Confirmation of Non-infringement of Copyright Dispute Case [Hangzhou Internet Court（2021）浙0192民初10369号 Civil Judgment]

[Basic Case Facts] The Korean game “Legend of Mir 2” was launched in China in 2001. The rights holder, Legend IP Co., Ltd. (hereinafter referred to as “Legend IP”), after learning that the movie “Blue Moon” was about to be broadcast exclusively on the platform, believed that the movie infringed on the game’s copyright and sent a letter to the platform requesting to stop distributing the movie. The film producer sent a letter of reminder to Legend IP to enforce their IP, but Legend IP neither withdrew the warning nor sued. After the movie was released, Zhejiang Shenghe Network Technology Co., Ltd., as the copyright owner of the movie, sued for a declaratory judgement that the movie did not infringe the above-mentioned game copyright.

[Judgment Result] The Hangzhou Internet Court held that the overall picture of the game involved in the case is completely different from that of the movie in terms of picture composition, picture smoothness, lens experience, and audio-visual effects, and that the specific creative elements in the selection and arrangement of the audio-visual pictures are very different. There is a substantial difference, and the judgment confirms that there is no infringement. Legend IP was dissatisfied and filed an appeal. The second-instance judgment of the Intermediate People’s Court of Hangzhou City, Zhejiang Province rejected the appeal and upheld the original judgment.

[Typical Significance] The judgment of this case clarifies the thoughts of comparing whether the overall picture of the game and the film works are infringing, and points out that a work created later does not constitute infringement if it only refers to the theme or conception of the prior work, but specifically expresses that it has been separated from or differs from the prior work. The judgment of this case is conducive to guiding the development and prosperity of multi-style cultural innovation and promoting the high quality integrated development of the cultural industry.

7. Dispute over trade secret infringement between Xinli Media Group Co., Ltd. and Beijing Paihua Culture Media Co., Ltd. [Beijing Chaoyang District People’s Court(2017）京0105民初68514号 Civil Judgment]

[Basic facts of the case] Xinli Media Group Co., Ltd. (hereinafter referred to as Xinli Company) is the copyright holder of the movie “The Legend of Wukong.” It entrusted Beijing Paihua Culture Media Co., Ltd. (hereinafter referred to as Paihua Company) with the audio post-production of the film. Both parties signed a contract and agreed on a confidentiality clause. During the performance of the contract, Paihua Company violated the confidentiality agreement by outsourcing some of the work to outsiders for actual completion, and transmitted the film materials to the outsiders under the title “WKZ” (the first letters of the transliteration of the film title) through Baidu Cloud. While the film material was being stored on Baidu Cloud, it was hacked by criminals, causing the film involved to be leaked through the Internet before it was released. Xinli Company sued, requesting Paihua Company to stop the unfair competition behavior of disclosing the trade secrets of the film involved, make a public statement to eliminate the impact, and compensate for economic losses.

[Judgment Result] The Beijing Chaoyang District People’s Court held after trial that Paihua Company violated the confidentiality agreement by disclosing the film material involved to a party outside the case, and uploaded the material to Baidu Cloud, which ultimately caused the material to be leaked on the Internet. Both of these acts constituted Infringement of trade secrets. It was ruled that Paihua Company should compensate Xinli Company for economic losses of 3 million RMB and rights protection expenses of more than 300,000 RMB, and make a public statement to eliminate the impact. After the first-instance judgment, none of the parties appealed.

[Typical Significance] This case is a typical case of protecting materials as trade secrets during the film production process. Film materials are trade secrets, and there are many subjects involved in the film production process. All parties involved in film production have strict confidentiality obligations in all aspects of film production. Any violation of confidentiality obligations shall bear corresponding legal liability. The judgment in this case is conducive to promoting the standardization and legalization of the film production process, is conducive to protecting the rights of relevant rights holders involved in film production, and is conducive to promoting the prosperity and development of the film industry.

8. Unfair competition dispute case between Xinghui Overseas Co., Ltd. and Guangzhou Zhengkai Cultural Communication Co., Ltd. [Guangzhou Intellectual Property Court（2020）粤73民终2289号 Civil Judgment]

[Basic Case Facts] The Hong Kong movie “The King of Comedy” has a high reputation and the relevant public attention is high. Guangzhou Zhengkai Culture Communication Co., Ltd. (hereinafter referred to as Zhengkai Company) and Li XX promoted the accused infringing TV series “The King of Comedy 2018” on Weibo and WeChat official accounts in 2018 as the “series #King of Comedy” , and claimed in media promotions that it was adapted from “The King of Comedy” and so on. Hong Kong film copyright owner Xinghui Overseas Co., Ltd. filed a lawsuit in court, claiming that Zhengkai Company and Li XX were unfair competing.

[Judgment Result] After a hearing, the Guangzhou Intellectual Property Court held that by taking into account the box office receipts of the movie involved during the theatrical release in Hong Kong, the publicity efforts conducted before and during theatrical release, the number of films played on authorized video websites, the degree of continuous media coverage of the movie, and the involvement of the relevant public in the evaluation of the movie, among other factors, it could be fully proved that the titles of the movie involved had a certain degree of influence. The acts of Zhengkai Company and Li XX constituted the act of imitating and confusing the film name and false publicity with a certain degree of influence, and Zhengkai Company and Li XX shall bear the legal liabilities for unfair competition according to law.

[Typical Significance] In this case, the Anti-Unfair Competition Law is applied to protect the names of movies screened in Hong Kong in accordance with the law, and in light of the dissemination characteristics of film works, the essential requirements and considerations for determining the names of audiovisual works “having a certain impact” as prescribed in Article 6 of the Anti-Unfair Competition Law are clarified, which are of positive significance in strengthening the protection of film works, and are conducive to creating a sound market environment for the development and prosperity of the film industry.

The original announcement is available here (Chinese only).

Tag: China

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