Issues worth noting when licensing online music rights

In the previous column, we briefly touched upon the unprecedented increase in copyright protection, as well as the intense efforts being made to protect music copyright.

The National Copyright Administration issued the Notice Ordering Online Music Service Providers to Halt the Distribution of Unlicensed Musical Works in July. From that time to 31 July, 16 online music services that directly provide music content, including QQ, Alibaba and Baidu, reportedly took more than 2.2 million unlicensed musical works offline.

It is evident that it will be increasingly difficult to use unlicensed musical works without compensation. Eventually it will become the trend for online music services whose primary business is supplying content to secure legitimate licences for copyrights and neighbouring rights. Yet while licensing music may seem a relatively simple affair, in practice several issues require attention.

Licensing

Public domain works can be used freely without a licence. The Copyright Law imposes a term on the protection of copyrights and neighbouring rights.

The term of protection for the right to distribute music online is 50 years, ending on 31 December of the 50th year from which the music was first published. However, that work is not protected if it has not been published within the 50 years after its creation. The term of protection for the right to distribute audiovisual recordings to the public online and be remunerated is also 50 years and expires on 31 December of the 50th year after the first completion of the recording.

Once the terms of copyright and neighbouring rights protection of musical works and recordings have expired, the works enter the public domain. Online music services may use these works without compensation and without a licence.

In practice, a service provider intending to purchase licences for hundreds of thousands of works must pay close attention to each term of the musical work’s licence. They must treat those that have entered the public domain and those with only a short period remaining in their terms of protection differently from the rest when calculating the number of works and their licensing value in total.

In addition to securing the copyright holder’s permission, it may also be necessary to secure authorization from neighbouring rights holders, e.g. the producer or performer. Where an online music service offers downloads or broadcasts, they are in essence distributing music over a data network. The following authorizations must be secured in order to provide these services.

First, copyright in a musical work includes the right to communicate the work over a data network. This refers to providing music to the public via a tethered or wireless network, so that a member of the public may secure the right in the work in the time and place of their choosing.

The copyright holder of the lyrics and music of a work is generally the creator(s), i.e. the lyricist and composer. The copyright holder has the right to authorize others to distribute the work over a network and obtain remuneration. The holder also has the right to demand that infringement be ceased on websites which have not obtained authorization for distribution. An online music service is required to secure the holder’s authorization before it can offer distribution services, failing which would constitute an infringement of the holder’s right to distribute a work over a data network.

Second, musical works are regularly recorded in audio and video format for the convenience of online distribution. Recording companies and other producers invest a great quantity of intellectual labour into these recordings. The Copyright Law stipulates that producers of audio and video recordings have the right to authorize others to distribute their recordings over data networks and obtain remuneration. Therefore, in addition to the copyright of the creator, authorization from the recording producer is also required in order to lawfully distribute recorded works.

Third, music also involves the artist’s performance. The Copyright Law sets out that the artist has the right to authorize another to distribute their performance over a data network and obtain remuneration. Distributing artists’ music over a network without their authorization also constitutes infringement of performers’ rights. The artist’s authorization is thus necessary in order to avoid infringement.

Some service providers have the misconception that in practice they need only the authorization from the Music Copyright Society of China (MCSC) in order to distribute music. Yet the right granted by MCSC generally is just a licence to the copyrights for the lyrics and music and excludes licences from the neighbouring rights holders, such as holders of audio and video recording producer rights and performer rights. In failing to secure these licences, a service provider remains exposed to accusations of infringement.

Competition

Businesses with competitive advantages which secure an abundance of exclusive licences may be used to exclude competitors. The right to distribute musical works, recordings or performances may be granted to others by way of a licence. The producer of an audio or video recording may grant a service provider an exclusive right of distribution, and any distribution by another service provider without authorization would constitute infringement of the first provider’s exclusive right of distribution.

There are distributors holding exclusive licences which may refuse to sublicense the recording or which may solicit exorbitant royalties for them – all with the goal of eliminating competition. These distributors may be crossing the boundaries set out by the Antimonopoly Law, impairing the healthy development of the entire industry. Other distributors can respond by seeking to directly secure licences from record companies. They may also create and develop content in which they hold autonomous intellectual property rights or use legal weapons such as the Antimonopoly Law.

Wang Yadong is the executive partner and Lu Lei is a partner of Run Ming Law Office