Changes in secondary remuneration rights for phonogram producers

The newly amended Copyright Law will come into effect on 1 June 2021, article 45 of which adds that producers of phonograms shall have the right to secondary remuneration for public dissemination and broadcasting of phonograms. This amendment shows that China’s Copyright Law is gradually getting in line with international treaties, and on par with the international level of protection for producers of phonograms.

The Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations, concluded in 1961, provided for the first time that performers and producers of phonograms have the right to be paid for broadcasting and public dissemination of phonograms, and article 15 of the World Intellectual Property Organisation’s Performances and Phonograms Treaty (WPPT), concluded in 1996 and acceded to by China in 2006, also has the same provisions.

In addition, article 8 of European Council Directive 92/100/EEC, concluded in 1992 (later incorporated into the Directive of the European Parliament and of the Council on the Lease Right, Lending Right and Other Rights of Copyright in the Field of Intellectual Property (No. 2006/115/EC)), also clearly provides that member states should ensure that if a phonograph published for commercial purpose, or a reproduction of such phonogram, is used for any communication to the public, the phonograph producers should be paid.

Many international treaties provide on the right to remuneration for producers of phonograms, the basic logic behind which is to recognise that phonograms contain the fruits of labour, even creative labour, of producers of phonograms. In the modern record industry, producers of phonograms (record companies in most cases) are in the core position. They are responsible for organising and investing in arrangement, recording, mixing, mastering and other post production of songs, which can directly determine the overall quality, style and tonality of records. In addition, as producers of phonograms, record companies are also responsible for the follow-up announcement and promotion of records, which further increases the commercial value of phonograms.

The 2020 Amendment of Copyright Law this time has given producers of phonograms the right to receive remuneration in the following ways: (1) play songs in public places by using sound transmission technology and equipment, which is generally called “public mechanical performance”, the application scenarios generally being background music in restaurants, bars or shopping malls, etc.; (2) playing songs through non-interactive transmission channels such as TV and radio stations, internet radio stations and live webcasts.

What is to be considered is that, if the phonograms have been embedded in movies or other audio-visual works, is remuneration to the right holders of the phonograms for public dissemination of audio-visual works containing the phonograms still required?

A preliminary judgment made by the Court of Justice of the European Union (CJEU) on 18 November 2020 is worthy of reference. In the dispute, pitting IPR management entity AGEDI and performing artists management entity AIE against Spanish media group Atresmedia over the payment of royalties for phonograms, the collective management organisation of copyright advocated that the media group should pay the producers of phonograms for the dissemination of phonograms in non-live television programmes.

The CJEU held that, whether in the provisions of the Rome Convention or the WPPT, phonograms refer to products formed by the exclusive aural fixation of sound and performance. Therefore, if phonograms became a part of movies or other audio-visual works, they would lose their status as “phonograms”, and TV broadcasters would not be obliged to pay the producers of phonograms for publicly disseminating audio-visual works or movies containing commercially published phonograms, or reproductions.

Article 10 of the Regulations for the Implementation of Copyright Law provides that phonograms refer to the original recording of any sounds, and the root of this provision comes from the relevant provisions of the WPPT, to which China has acceded.

If the definition of phonograms is limited according to the interpretation of the CJEU, it may make the application of the right to remuneration provided in article 45 of the 2020 Amendment of Copyright Law in TV broadcasting and non-interactive and non-live network communication extremely limited. That is to say, as long as the phonograms are broadcast and disseminated as a part of audio-visual works, the right holders of phonograms cannot enjoy the right to secondary remuneration.

The amended Copyright Law only generally provides the right to remuneration for producers of phonograms. While in accordance with article 8 of the amended Copyright Law, the standard of the specific royalty price of phonograms needs to be further determined through consultation between collective management organisations and user representatives.

The process surrounding legislation of the US Digital Performance Right in Sound Recordings Act of 1995 may give some enlightenment to the negotiation of licensing and pricing of phonograms in China. At that time, the American record industry was worried that if it claimed that the right holder of phonograms could get the right to remuneration in broadcasting, non-subscribed digital broadcasting and other channels, the radio and television organisations might deduct the corresponding part from the original royalties of the lyrics, and the musical composition of a song, to make up for the loss they suffered from paying the corresponding royalties of phonograms.

At that time, radio stations were an important channel for the release of songs, and American radio and television groups had a greater political voice. In view of various commercial or political factors, the record industry in the US has only won the performance rights in digital environment and the right to fixed remuneration for compulsory license in non-interactive subscribed digital transmission of phonograms, and has not won the related rights in traditional broadcasting and public mechanical performance.

In the context of China’s record industry, there is also competing interests between the broadcasting group and the record industry. In the future, when collective management organisations negotiate pricing with radio and television groups, they may also encounter the above-mentioned difficulties. It remains to be seen whether the newly added right to remuneration for producers of phonograms in the Copyright Law can really help record companies increase their income from licensing fees.

Wang Yaxi is a partner and Zhu Mengxuan is an associate at Yuanhe Partners