Zhang 2016

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Introducing the Open Clause to improve

copyright flexibility in cyberspace? Analysis and
commentary on the proposed two-step test in
the Third Amendment to the Copyright Law of
the PRC, in comparison with the EU and the US
Chenguo Zhang *
Centre of European Law and Economics, University of Bremen, Germany
A B S T R A C T
Keywords: The so called three-step test, that the limitations and exceptions of copyright shall be allowed
Three-step test in certain special cases, provided that they do not conflict with a normal exploitation of
Fair use doctrine the work and do not unreasonably prejudice the legitimate interests of the author, grants
Chinese copyright law copyright flexibilities to balance the interests of all stakeholders, especially within the Eu-
Third amendment ropean system of circumscribed limitations and exceptions. This is essential for the domain
Open clause of computer law, confronted by rapid and unpredictable global technological develop-
Limitation and exception rules ments, and is, thus, enshrined in the most important international intellectual property (IP)
WTO Panel Report treaties. Through the proposed third amendment to the Copyright Law of the PRC, the leg-
Munich Declaration on a Balanced islature intends to adopt this test while also introducing an open-ended list of limitations
Interpretation and exceptions that constitutes a China-specific two-step test. This contravenes prima facie
the thesis endorsed by the WTO Panel in the case concerning Section 110(5) of the US Copy-
right Act in 2000. In contrast, court decisions in China frequently apply the fair use doctrine
of US copyright law, neglecting to consider its peculiar context of the US common law tra-
dition and, thus, unduly expanding the Chinese courts discretionary power.
This paper summarizes the case law in China and takes a comparative approach to address
the divergence between the judicial application of cyber copyright law and the existing leg-
islation. It suggests revising the proposed Article 43 of the Copyright Law of the PRC to capture
the due interpretation of the three-step test, thereby finessing the delineation between rights
protection and free use with the compensation of remuneration under the principle of pro-
portionality. It argues that transplanting the US fair use doctrine into Chinese copyright law
is feasible, but with the preconditions of endeavouring to strengthen judicial reform to in-
tegrate the IP adjudication systems, enhancing the coherence and efficiency of copyright
enforcement, and facilitating consistent dialogues between scholars, practitioners, and
lawmakers.
2016 Chenguo Zhang. Published by Elsevier Ltd. All rights reserved.
* Centre of European Law and Economics, University of Bremen, Germany.

E-mail addresses: czhang@uni-bremen.de; zhangcg25@gmail.com.
http://dx.doi.org/10.1016/j.clsr.2016.11.008
0267-3649/ 2016 Chenguo Zhang. Published by Elsevier Ltd. All rights reserved.
Please cite this article in press as: Chenguo Zhang, Introducing the Open Clause to improve copyright flexibility in cyberspace? Analysis and commentary on the proposed
two-step test in the Third Amendment to the Copyright Law of the PRC, in comparison with the EU and the US, Computer Law & Security Review: The International
Journal of Technology Law and Practice (2016), doi: 10.1016/j.clsr.2016.11.008
ARTICLE IN PRESS
2 computer law & security review (2016)
ity over the course of the past century.5 There appear to be good
1. Introduction: technological development, reasons and ample opportunity to introduce a measure of flex-
need for copyright openness and third ibility into the copyright system of the Europe-continental law
amendment to the copyright law of the PRC family (to which China is, essentially, a member), where fair
use is often regarded as a taboo in the classic authors rights
In our era, the contemporary information society of highly doctrine.6 Whereas other legal doctrines such as freedom of
dynamic and unpredictable change, has exacerbated the huge expression and right of information, and abuse of right may
problem of copyright piracy in cyberspace. As the Peoples Re- occasionally provide first aid, academics tend to believe that
public of Chinas (PRC) enduring reputation as a copycat the copyright system should offer an integral measure of flex-
increasingly approaches a watershed and the focus of the ibility. Maintaining a closed list of copyright exceptions is
Chinese economy shifts from heavy investment to service and increasingly problematic in a world of rapid and unpredict-
consumption, the need for more balanced delineation of copy- able technological development. However, does this imply the
right in cyberspace, together with the necessity of efficient and necessity to introduce into the existing system an American-
proportionate copyright enforcement, is attracting increasing style general fair use provision? There are drawbacks to and
attention from scholars, policymakers, and all stakeholders.1 risks associated with establishing a completely open norm into
Accompanying the popularly perceived rampant copyright copyright systems that, like those of the authors rights tra-
piracy in and emanating from China, the development of new dition in most EU Member States, traditionally provide for
business models exploiting copyright in cyberspace is booming, circumscribed limitations and exceptions that offer consider-
propelled by the accelerating pace of Internet and computer able predictability and legal security. This seems also to be the
technology change in the 21st century.2 In this context, one conundrum for legislators formulating the Third Amendment.
question arises: how to enhance the openness of copyright law The third draft of the proposed Third Amendment was re-
in cyberspace while reconciling the generally recognized need leased by the PRCs National Copyright Administration on
to create technologically neutral copyright norms. October 30, 2012. In contrast to the two preceding drafts,7 which
Like the equivalent regimes of most modern countries, were released for public consultation, the text of this third draft
Chinese copyright law is also intended to further the follow- is not available to the public.8 The State Council (the PRCs chief
ing two equally, if not more, important alternative ends: administrative authority) will, in due course, approve this draft
and submit it to the Standing Committee of the National Peo-
(1) to recognize and encourage the intellectual creation of ples Congress for its first reading.
authors; and The PRCs copyright system is largely compliant with the
(2) to promote public interest in the progress and dissemi- European droit dauteur system.9 China has adopted a specific
nation of science and knowledge.3
Awareness of these dual purposes of copyright law is par- 5

Bernt Hugenholtz and Martin R.F. Senftleben, Fair Use in Europe:
ticularly crucial in cyberspace, where the international In Search of Flexibilities (November 14, 2011) 4, http://ssrn.com/
community has not yet achieved a final consensus on the ap- abstract=1959554 or http://dx.doi.org/10.2139/ssrn.1959554. [Ac-
cessed 10 August 2016].
propriate level of copyright protection.4 As the proposed third 6
Ibid.
amendment to the Copyright Law of the PRC (the Third Amend- 7
The first draft of the third amendment Copyright Law of the
ment) will come into force in the near future, this paper PRC was issued March 31, 2012, the Chinese version of which is
discusses how China should reframe and enforce its copy- available on the website of National Copyright Administration of
right limitation and exception mechanisms to build a more the Peoples Republic of China (hereinafter NCAC), http://www.ncac
balanced copyright system in cyberspace, taming new Inter- .gov.cn/chinacopyright/contents/483/17745.html. [Accessed 16 July
net technologies to thereby maximize the welfare, not only of 2015], (hereinafter the first draft); the second draft of the third
amendment was issued July 6, 2012, in Chinese, available on the
individual authors, but also of society as a whole.
NCACs website, http://www.ncac.gov.cn/chinacopyright/contents/
It is widely acknowledged that the civil law jurisdiction of 483/17753.html. [Accessed July 16, 2015] (hereinafter the second
Europe, which the Chinese copyright system has followed and draft).
taken lessons from historically, has lost much of its flexibil- 8
David S. W. Ma, Right to Integrity and Proposed Resale Royalty
Right and Notification Right in the PRC Copyright Law (2013) 49
STAN. J. INTL L. 477, 478; Yong Wan, Copyright Damages in China
(2014) 61 J. COPYRIGHT SOCY USA 518, 541. The writer thanks Prof.
1
Shaun Rein, The End of Copycat China the Rise of Creativity, Cre- Dr. Yong Wan, Kaiyuan Law School of Shanghai Jiaotong Univer-
ation and Innovation in Asia (Wiley 2014). sity for forwarding of a copy of the third draft of this proposed third
2
See iResearch, China Online Search Annual Research Report amendment (hereinafter the third draft). This paper will refer-
(2007). ence the language of the third draft based on this copy.
3 9
Jiarui Liu, The Tough Reality of Copyright Piracy: A Case Study Heidi Hansen Kalscheur, About Face: Using Moral Rights to In-
of the Music Industry in China (January 1, 2010). Cardozo Arts & crease Copyright Enforcement in China (2011) HASTINGS CONST.
Entertainment Law Journal, Vol. 27, p. 621, January 2010, Available LQ 513, 525; Zhiwen Liang, Between Freedom of Commerce and
at SSRN: http://ssrn.com/abstract=1869361. [Last visited 24 May 2016]. Protection of Moral Rights: the Chinese Experience of Moral Rights:
4
Legislative instruments reflecting the controversies on the level the Chinese Experiences and Comparative Analysis (2010) 57 J.
of copyright enforcement in international fora include, e.g., the COPYRIGHT SOCY 602, 605; Chenguo Zhang, Die Revision des
second chapter of the Anti-Counterfeiting Trade Agreement (ACTA), chinesischen Urheberrechtsgesetzes unter dem Eindruck der
and the Trans-Pacific Partnership (TPP), which address IPR protec- internationalen Debatte um adquate Schutzstandards (2015)
tion as a vital component in multinational negotiations. Zeitschrift fr Urheber- und Medienrecht 3/2015 185, 186.
ARTICLE IN PRESS
computer law & security review (2016) 3
mode of copyright legislation, comprising a rather generally jurisprudence of accepted and consistent official practice by
worded copyright law,10 administrative provisions of the State judges of different court levels to increase the degree of legal
Council, and guidelines on how to interpret the law, which are certainty in the judicial system as a whole.
issued by the Supreme Peoples Court (SPC) and binding for all
the courts in China.11 First promulgated on September 7, 1990,
the Copyright Law of the PRC was amended on October 27,
200112 and February 26, 2010. The first amendment was intro-
duced to fulfil the preconditions of PRCs entry into the World 2. The legislative proposal to introduce the
Trade Organization (WTO), followed by revision of the subsid- Fair use Open Clause in the Third Amendment
iary judicial and administrative rules.13 The second, rather
smaller, amendment in 2010, was made in compliance with The current Chinese copyright law adheres to the European
the WTO panels finding that Section 4 of the Copyright Law concept of circumscribed copyright exception and limitation
of the PRC, which denied copyright to forbidden works, con- rules.14 The Copyright Law of the PRC currently in force15
travened Article 5.2 of the Berne Convention. Instead of the more recognizes (Chapter 2, Section 4) two categories of copyright
common approach of marking up the existing statute, the exceptions and limitations, which together are exhaustive.
prospective Third Amendment represents a major overhaul of First, Article 22 sets forth 12 types of specific copyright
the present legislative framework and displaces the number- exceptions where a work may be used without the permis-
ing of most of the existing articles. sion of and payment of remuneration to the copyright owner,
This paper discusses one of the most significant propos- including, for example: use for scientific purposes,16 use for
als in the Third Amendment, namely to introduce a China- purposes of criticism and factual reporting of news and
specific, fair use doctrine (two-step test) as an open clause current events,17 use for educational purposes,18 use by gov-
in the Copyright Law of the PRC (Part 2). It examines how the ernment agencies,19 public access to information and culture,20
peoples courts inconsistently interpret the copyright limita- and adaptation to meet the needs of minorities and disad-
tion and exception rules, applying the present three-step test vantaged persons.21 Second, Article 23 provides for the
which is also (partly erroneously) called fair use doctrine in compulsory license required for the compilation and publica-
several judgments (Part 3), and outlines the problems with the tion of textbooks, for which the exploiter does not need
Chinese judiciarys approach when resorting to general, permission from the copyright owner but has to pay them
overarching principles for more flexible and sequential adequate remuneration.22 A similar concept of the exhaus-
solutions (Part 4). The paper then compares the proposed two- tive list of exception and limitation rules is found in
step test in Chinese copyright law to its counterpart three- Chinas Regulation on the Protection of the Right of Communica-
step test in international treaties applying different approaches tion through the Information Network (RPRCIN), or the Internet
to interpretation (Part 5), in addition to its feasibility and com- Regulations.23
patibility with the current Chinese copyright enforcement These administrative regulations were enacted to fulfil the
system (Part 6). international obligation to implement the World Intellectual
To improve the internal mechanisms of copyright law, bal- Property Organization (WIPO) Internet Treaties, namely the WIPO
ancing the interests of all stakeholders to thereby secure Copyright Treaty (WCT) and the WIPO Performances and
international confidence in Chinas legal system, this paper sug- Phonograms Treaty (WPPT). Pursuant to Rule 21 of the
gests (1) revising the proposed Article 43 of the Copyright Law
of the PRC (the third draft of the Third Amendment) in a more
precise way, to capture the due interpretation of the three-
step test; (2) introducing the mechanism of legal limitation
14
compensated by payment of remuneration due to the right Zhang (n 9) 196202.
15
The Copyright Law of the PRC, in Chinese zhong hua ren min
holders, as a useful means for fine-tuning the balance between
gong he guo zhu zuo quan fa, promulgated by the Standing Com-
protection and free use, instead of the current all or nothing mittee of the National Peoples Congress, February 26, 2010, effective
solution; (3) re-examining the feasibility of adopting the US fair April 2010 (hereinafter, the Copyright Law of the PRC 2010), the
use doctrine, carefully taking into account Chinas national and English version of which is available on the WIPO website,
local judicial structure and (4) enhancing and integrating the http://www.wipo.int/wipolex/en/details.jsp?id=6062. [Accessed 1 De-
cember 2015].
16
Article 22(1), No. 1, Copyright Law of the PRC 2010.
17
Article 22(1), No. 2, 3, 4, and 5, Copyright Law of the PRC 2010.
18
Article 22(1), No. 6, Copyright Law of the PRC 2010.
10 19
The English version of the current version of the Chinese Copy- Article 22(1), No. 7, Copyright Law of the PRC 2010.
20
right Act (de lege lata) is available at http://www.wipo.int/wipolex/en/ Article 22(1), No. 8, 9, and 10, Copyright Law of the PRC 2010.
21
details.jsp?id=6062. [Accessed 10 July 2015]. Article 22(1), No. 11 and 12, Copyright Law of the PRC 2010.
11 22
For a detailed list of the copyright-related administrative pro- Peter Ganea, Chapter 8: China, in: Lewenski (ed.), Copyright
visions and guidelines of the SPC, see Zhang (n 9) 185, 187188. Throughout the World, 822.
12 23
The Copyright Act of the PRC 2001 (hereinafter the Copyright Art. 69 RPRCIN (in Chinese: xin xi wang luo chuan bo quan
Law of the PRC), published in the Gazette of the State Council 33/ bao hu tiao li. hereinafter RPRCIN or the Internet Regula-
2001, 10: English translation in China Patents & Trademarks 1/2002, tions), issued May 18, 2006, entered into force July 1, 2010. English
83. version available from: http://www.wipo.int/wipolex/en/details
13
Peter Ganea, Thomas Pattloch, and Christopher Heath, Intellec- .jsp?id=6471. [Accessed 15 December 2015]. See also the transla-
tual Property Law in China (Kluwer Law International 2005) 211. tion in 86 CHINA PAT. & TRADEMARKS 90 (2006).
ARTICLE IN PRESS
Copyright Implementing Regulations,24 which were promul- step test,29 with its open-ended wording, serves to strike a
gated soon after Chinas entry into the WTO, the balance in Chinese copyright law. Traditionally, the civil law
aforementioned statutory privileged uses have to meet the and common law systems have adopted prominently differ-
second and third steps of three-step test: they shall . . . neither ent approaches regarding limitations and exceptions in the area
affect the normal work exploitation nor unduly prejudice the of copyright and related rights. Whereas the civil law system,
legitimate interests of the copyright owner. The introduction reflecting the laws of continental European countries, favours
of the three-step test in these regulations has been deemed, enumerative and conclusive catalogues of limitations,30 US copy-
in Chinese literature on the subject, as the outcome of legis- right law contains an open fair use clause that is applied on
lative endeavour to align Chinese copyright law with the a case-by-case basis by the courts.31 To date, Chinese copy-
provisions of the Trade-Related Aspects of Intellectual Prop- right law follows the approach of the civil law system, adopting
erty Rights Agreement (TRIPS).25 a closed, enumerative catalogue of limitations and excep-
In the international copyright regime, the three-step test tions to copyright. The three-step test, enshrined in Rule 21
was first adopted to restrict the ability of states to introduce of the PRC Copyright Implementing Regulations, serves rather
and maintain exceptions to the exclusive rights of authors and as an additional and final interpretative guideline (for the courts
other right holders. Under the test, exceptions are only per- and tribunals) on how to apply the enumerative exception and
mitted: (1) in certain special cases; (2) which do not conflict with limitation rules set forth in the Copyright Law of the PRC and
the normal exploitation of a work; and (3) which do not un- the Internet Regulations. However, the second draft of the Third
reasonably prejudice the legitimate interests of the author or Amendment to the Copyright Law of the PRC envisages the in-
other right holders. Originating from the 1967 Stockholm Con- troduction of a third model: the current exhaustive catalogue
ference revision of the Berne Convention, this test is now of limitations and exceptions would be enhanced by a China-
enshrined in the most important international intellectual prop- specific fair use catch-all clause,32 which would allow privileged
erty treaties.26 use of copyrighted work under other, unspecific circum-
Despite the use of the Mandarin term he li shi yong (liter- stances, provided that the privileged use does not affect the
ally translated as fair use) in textbooks and other legal normal work exploitation and not unduly prejudice the legiti-
literature, no provisions of fair use or fair dealing compa- mate interests of the copyright owner.33 This provision refers
rable to those of the US or British models are explicitly only to the second and third steps of the three-step test en-
contained in Chinese copyright legislation.27 shrined in international treaties.34 It seems doubtful whether
It is noteworthy that fair dealing in many Common- the criterion of the first step certain special cases can be
wealth countries is drastically different from fair use under satisfied, since the clause refers to unspecified circumstances
US law. For instance, in the UK, fair dealing is allowed in re- and constitutes a China-specific two-step test. This Chinese
lation to a copyright work. While fair use is an open-ended model apparently aims to combine features of both the civil
exemption that may theoretically be applicable to any fact pat- and common law approaches. In addition to many detailed ex-
terns, fair dealing is traditionally limited to certain special ceptions, it also includes several rather broad provisions
cases for the purposes of research or private study, criti- reflecting the US fair use formula. In all probability, this model
cisms, review and reporting current events.28 Instead, the three- will ultimately become law, provided it remains intact in the
third draft after the scrutiny of the public consultation on the
precedent drafts.
Disregarding whether the fair use doctrine, per se, is com-
24
The PRC Copyright Implementing Regulations, in Chinese zhu patible with the international law of the three-step test,35 this
zuo quan fa shi shi tiao li, promulgated on August 2, 2002, first gives rise to the following crucial questions in the context of
amended in 2011, and then consolidated in 2013: see Chenguo China:
Zhang, Peoples Republic of China: 2. Revision of the Copyright
Implementation Rules (2013) GRUR Int. 5/2013 431. English version
(1) Is the Chinese model of open-ended exception and limi-
of the PRC Copyright Implementation Rules available from:
http://www.wipo.int/wipolex/en/details.jsp?id=13428. [Accessed 13
tation rules the two-step test omitting the first criteria
December 2015].
25
See Y Guan, Development of the Intellectual Property Regime
29
of China under the Background of Globalization China Social Rule 21 of the PRC Copyright Implementing Regulations (n 24).
30
Science Academy Working Paper, http://www.iolaw.org.cn/ H Cohen Jehoram, Some Principles of Exceptions to Copy-
showArticle.aspx?id=2774. [Accessed 15 July 2015]. right in Peter Ganea (ed.), Urheberrecht Gestern-Heute-Morgen, Festschrift
26
Article 9 of the Berne Convention, Article 13 of TRIPS, Article fr Adolf Dietz (Mnchen 2001) 382, 386.
31
10 of the WCT, Article 16.2 of the WPPT, Article 13.2 of the Beijing Most recently considered in the doctoral thesis of Manuel
Treaty on Audiovisual Performances (hereinafter the Beijing Treaty), Kleinemenk, Fair Use im deutschen und europischen Urheberrecht?
and Article 11 of the Marrakesh Treaty to Facilitate Access to Pub- (Baden-Baden 2013).
32
lished Works for Persons Who Are Blind, Visually Impaired or Art. 43 (1) No. 13, draft Third Amendment.
33
Otherwise Print Disabled (hereinafter the Marrakesh Treaty). Art. 43 (2), draft Third Amendment, the wording of which is iden-
27
Guobin Cui, Copyright Law: Theories and Cases (zhu zuo quan fa: tical to Rule 21 of the PRC Copyright Implementing Regulations.
34
yuan li yu an li) (Beijing University Publishing House 2014) 580; Q See list of international provisions listed in n 26).
35
Wang, Copyright Law (zhu zuo quan fa) (China Renmin University Pub- Annette Kur, Of Oceans, Islands and Inland Water How Much
lishing House) 319; H Wu, Copyright Fair Use Research (zhu zuo quan Room for Exceptions and Limitations under the Three-Step Test?
he li shi yong) (Beijing, China University for Politics and Law Pub- (2008) Max Planck Institute for Intellectual Property, Competition
lishing House 2005) 130. & Tax Law Research Paper Series No. 08-04, 34, http://ssrn.com/
28
David I. Bainbridge, Intellectual Property (Pearson 2009) 205. abstract=1317707. [Accessed 19 December 2015].
ARTICLE IN PRESS
of certain special cases, compliant with the interna- It may be observed that despite the wording of the court
tional law? decision on fair use, the court actually found with respect to
(2) To what extent would such a court-led, case-by-case, the three-step test, although not sequentially: (1) education is
interest-balancing mechanism be feasible and compat- recognized as an exception rule to copyright; (2) the infringe-
ible with the current Chinese judicial system, which does ment interfered with the normal exploitation of the work; and
not traditionally recognize the development of binding (3) it unreasonably prejudiced the legitimate interests of the
precedent, without causing unreasonable conflict and author. It was the third step, in particular, on which this in-
confusion between different jurisdictions? fringement failed the test.
(3) Would Chinese judges trained in a civil law tradition be In the more recent case of Julia Banner Alexander v. Beijing
capable of dealing with common-law style flexible, open- Haidian District Longman Schools, et al. (Alexander),38 the Beijing
ended exception and limitation copyright rules? Higher Peoples Court considered whether the unauthorized
exploitation of the in-copyright English textbooks of an online
video language course run by a for-profit teaching institution
constituted copyright infringement. The court considered
whether the exploitation by the defendant could be covered
3. Inconsistency of court decisions: a review by Article 22(1), No. 6 of the Copyright Law of the PRC and Rule
of illustrative cases 6, No. 3 of the RPRCIN. Pursuant to the latter provision, works
published online may be reproduced and made available in
As will be discussed below, the judicial interpretation of the small numbers for teaching and research purposes. The court
three-step test and the fair use doctrine lacks a unitary ap- first evaluated the addressees to which the above statutory ex-
proach and is treated differently by different courts in China. ceptions appear to be constrained (i.e., researchers and teachers)
In the decision of Educational Testing Service (ETS) v. New Ori- as too narrow. Thus, the court did not rely on this provision
ental School (Educational Testing Service),36 the Beijing First in order to secure balance in its findings but rather employed
Intermediate Peoples Court adopted the three-step test to in- an alternative approach: it referred to a four-factor test that
terpret the scope and fact of the copyright exception as use approximates the fair use doctrine enshrined in Section 17
for educational purposes.37 The case concerned a commer- of the US Code, 107, outside the closed statutory catalogue
cial language training school that copied and distributed both of copyright exceptions and limitations. It found, inter alia, that
paper-based and electronic learning materials and test ques- the amount and substantiality of the portion of in-copyright
tions of the Test of English as a Foreign Language (TOEFL), under works used in the online videos were beyond the limit of fair
the registered copyright of the ETS in the US. The court con- use. Consequently, it held that the unauthorized reciting and
sidered whether these activities fell within the detailed terms the display of a large number of excerpts from in-copyright text-
of the statutory exception of use for educational purposes books online, could endanger or even substitute the normal
set out in Article 22(1), No. 6 of the Copyright Law of the PRC, exploitation and potential market of the right holders. In
which allows teachers and researchers to reproduce and trans- summary, the activities of the defendant were found not to be
late published works for school education and research covered by any copyright exceptions.
purposes, provided that the number of copies is limited and In a series of cases recently brought against the Guang-
that no copies are published or distributed. dong University of Education (Guangdong University), further
The court determined that the original application of the examples of the three-step test being applied in a restrictive
statutory exception to researchers and teachers, did not pre- manner were provided by the Guangzhou District Court of
clude the legitimacy of the for-profit training institutions Haizhu.39 One of these proceedings was brought by Thunder-
activities. Rather, although it did not explicitly consider of the bolt Network Technology Co. Ltd, who obtained the exclusive
three steps in turn, it held that Article 22(1), No. 6 of the Copy- right of Internet dissemination of the film work: Guan Yun
right Law of the PRC allows reproduction and translation of Chang.40 The defendant owned and operated a campus In-
published works for school education and research pur- tranet on its official university website, via which enrolled
poses, as long as the exploitation of copyright does not unduly students could up- and download many types of materials, in-
or unreasonably encroach upon the authors rights. The court cluding audio-visual documents, using a semi-open forum
found that these activities should be limited to a reasonable named Self-Service Video System. The in-copyright work of
amount and scale which do not affect the normal exploita- the plaintiff was file-shared via this Intranet system. The de-
tion of the copyrighted work. However, the defendants fendant relied, inter alia, upon the statutory limitation for
distribution and making available via the Internet of these works teaching and educational purposes in Article 22(1), No. 6 of the
was held to be for the purpose of profit, targeting a non-
specific mass of people who were (or might be) customers of
the school. It was thus held to unreasonably endanger the po-
tential (digital) commercialization market of the right holders. 38
Beijing Higher Peoples Court (2008), Decision No. Gao Min Zhong
This was deemed beyond the scope of fair use and, there- Zi 185.
39
fore, a copyright infringement. First Instance Decision (2014), Decision No. Hui Hai Fa Zhi Min
Chu Zi No. 359; First Instance Decision (2014), Decision No. Hui Hai
Fa Zhi Min Chu Zi No. 363; First Instance Decision (2014), Deci-
36
Beijing First Intermediate Court (2001), Decision No. Yi Zhong sion No. Hui Hai Fa Zhi Min Chu Zi No. 358.
40
Zhi Chu Zi 35. First Instance Decision (2013), Decision No. Hui Hai Fa Zhi Min
37
Art. 22 (1), No. 6, Copyright Law of the PRC; Rule 6, No. 3, RPRCIN. Chu Zi No. 920.
ARTICLE IN PRESS
Copyright Law of the PRC, arguing that the Intranet was ini- copies from the authors right of prohibition without giving him
tiated and operated for the students to share learning materials. a right to a fee appropriate for this method of use of the work.42
The court concluded that the defendants activities were
not covered by the statutory limitation for the following reasons. The plaintiff, Professor Chen, was awarded damages of 80,000
First, the uploaded film for electronic communication (down- RMB (11,680 EUR) and injunctive relief by the court.
loading) on the Intranet was proved to have been illegally In an earlier case, Yin Zhiqiang v. Jinlin Library (Jinlin Library),
sourced, in conflict with the normal exploitation of the work heard by the Jiangsu Higher Peoples Court, the court under-
(the second step). Second, the defendant could not invoke the lined the public interest in unhindered access to information
privilege of universities to make available online cultural and in its decision concerning the Librarys practice of copying and
teaching materials since, in addition to students, external users dispatching scientific articles on request by individuals from
could, de facto, through illegal channels, purchase access to the China National Knowledge Infrastructure (CNKI).43 CNKI is the
Intranet to download the film work for entertainment for an most well-known electronic database for academic books, jour-
annual fee of 400 RMB; therefore, the scale and impact of the nals, masters theses, and dissertations in China. The Jinlin
unauthorized use of the copyrighted work was out of control, Library owns a license to access and use CNKI, within which
constituting an unreasonable encroachment on the legiti- three of the plaintiffs articles had been scanned, indexed, and
mate interests of the right holders (the third step). In summary, made available online. The legal basis of this practice was the
the court found that the normal exploitation of the right holders statutory exception for personal/private use in Article 22(1), No.1
had been unduly endangered and their legitimate interests were of the Copyright Law of the PRC, which permits the personal/
unreasonably prejudiced by the defendants actions. private use of works for the purposes of study, research, and
Interpretation of the copyright exception and limitation rules appreciation. According to this provision, the authorized user
within the PRC judicial system is treated inconsistently between does not necessarily need to produce the copy themselves, but
the different courts. This inconsistency in judicial practice has is free to ask a third party to create the reproduction on their
been intensively reflected in the following four cases regard- behalf. The plaintiff claimed that the dispatch of copies closely
ing public libraries and electronic databases of scientific books resembled the activities of a publisher. The court, however, re-
and journals. frained from prohibiting the librarys practice as conflicting with
In the case of Chen Xinliang v. China Digital Library (China a works normal exploitation.
Digital Library),41 a professor of law brought a claim against Applying the three-step test, the court did not find an ob-
the state-owned enterprise responsible for the operation of a ligation to pay equitable remuneration to the author, holding
digital library as a subdivision of the National Library of China. that no compensation shall be paid to the copyright owner since
The defendant was incorporated as a limited company with his right of distribution was not infringed. This decision of the
the approval of the State Council. Within the electronic data- Jiangsu Higher Peoples Court is not, upon closer observa-
base of books and journals under its operation, three of the tion, as proportionate as the approach of the German Federal
plaintiffs copyrighted books had been digitally scanned and Court of Justice in the similar case Re the Supply of Photocopies
sent to users on request for a fee. The defendant neither ob- of Newspaper Articles by a Public Library,44 in which the activi-
tained approval from the author nor paid remuneration to him. ties of the Hannover Technical Information Library were also
The plaintiff claimed that the librarys activities infringed his found to be permissible under the statutory exception of
rights of reproduction, distribution, and network dissemina- personal/private use. In spite of that specific finding, the German
tion. The defendant argued that, according to the statutory Federal Court of Justice placed explicit reliance on the three-
exception set out in Article 22(1), No. 8 of the Copyright Law step test set out in Article 9(2) of the Berne Convention and
of the PRC, libraries, archives, memorial halls, museums, art Article 13 of TRIPS, holding that authors are entitled to rea-
galleries, and similar institutions are permitted to reproduce sonable compensation for a librarys activities, according to a
works that are part of their collections for the specific pur- prudent interpretation of national copyright law and in com-
poses of display and preservation. In its findings, the court patibility with the third step of the test.
adopted although not explicitly the three-step test as a A more recent decision by the Shanghai Higher Peoples
context-sensitive inquiry to balance the public interest and the Court in the case of Fan Yunwu v. Tsinghua Tongfang Co. Ltd, et al
right of the author. The court stated, inter alia: (Fan Yunwu)45 adopted a different approach to balance the in-
terests of authors and users, which is more similar to the
. . . given the circumstances which previously prevailed, the tech- solution of implied consent applied by the German Federal
nical facilities of a library were far more limited than nowadays. Court of Justice in the decision in the case regarding Googles
In view of that, supplying copies did not have the importance it
now has as a means of supplying end users with copies of even
the very latest periodical publications within the shortest pos-
sible time. Under the previous conditions, the impact of the operation 42
Translated by the author from the court decision made in
of a library on the exploitation right of authors was so limited Chinese: Gazette of the Supreme Peoples Court, 2003, Vol. 2.
43
that the activities at/by the public libraries could be covered by Second Instance Decision of the Jiangsu Higher Peoples Court
(2005), Decision No. Su Min San Zhong Zi 0096.
the exemption set out in Article 22(1), No. 8, Copyright Law of 44
Case I ZR 118/96, decided by the Bundesgerichtshof (German
the PRC. But now, it is unjustifiable to exempt the supply of digital
Federal High Court of Justice), February 15, 1999, 1000 with case
comment by H. Schack.
45
Second Instance Decision of the Shanghai Higher Peoples Court
41
See Gazette of the Supreme Peoples Court, 2003, Vol. 2. (2006), Decision No. Hu Gao Min San (Zhi) Zhong Zi 53.
ARTICLE IN PRESS
thumbnail images (Google Thumbnails).46 The plaintiff was the in the electronic form, via the Internet, does not infringe copy-
author of twenty-one academic articles that were published right when a proper remuneration has been paid and the source
and distributed by several paper-based journals. The defen- of the information has been indicated, unless the author
dants owned and operated CNKI, which was facilitated by the precludes any such exploitation explicitly at the time of
National News Publication Bureau, developed by the Tsinghua publication.
University, and distributed by the CNKI Co., Ltd. under the ap- Perhaps the best-known example of adopting a flexible stan-
proval of the State Council Information Office. The defendants dard, outside the closed catalogue of copyright legislation, is
had signed collective agreements with numerous editorial provided by the decision of the First Intermediate Court of
boards and publishing houses of newspapers and journals, pur- Beijing in the case of Wang Xin v. Google Inc., et al (Google)
suant to which CNKI digitally scanned, indexed, and made (2011).49 In this case, the author of the novel Acid Lover sued
available online millions of in-copyright articles from 6600 sci- Google for copyright infringement regarding, inter alia, the right
entific periodicals, including works owned by the plaintiff. Every of reproduction50 and right of network dissemination.51 The
day, it collected fees for each download from millions of com- claim resulted from the Google Book Project, within which
mercial, public, and private clients. The plaintiff claimed that the plaintiffs work had been digitally scanned by Google Inc.
these activities were conducted without his permission or into its electronic database of books and made available for
payment of remuneration to him, and thus infringed his rights online searching by Google.cn (the joint defendant). Google did
of reproduction, distribution, and network dissemination. At not obtain permission from the copyright holder to use her
first instance, the court held that the defendant was ex- work. Googles defence of fair use was partly supported but
empted by the exception rule of statutory license set out in eventually rejected by the Court, which held that while the
Article 33(2) of the Copyright Law of the PRC, according to which action of making a copy of the work available for online search-
the reprinting and adaptation of works that have been pub- ing was a fair use (first finding), digitally reproducing the work
lished in newspapers does not infringe copyright, given that and maintaining a copy on its servers constituted copyright
proper remuneration has been paid, unless the author pre- infringement (second finding). This decision is remarkable in
cludes such exploitation explicitly at the time of publication. its interpretation of the three-step test and fair use, holding
One of the previous decisions of the SPC had even empha- that:
sized in this regard that:
. . . in general, when the unauthorized exploitation of a copy-
. . . in certain cases of the (exploitation) activity in the form of first righted work neither affects the normal work exploitation nor
use and then pay, users of the works could be exempted from unduly prejudices the legitimate interests of the copyright owner,
the authors authority if their right of remuneration has been it shall be deemed as fair use.52
respected.47
The court held that the three-step test not only regulates
The first instance decision was challenged by the plain- the scope of the existing statutory exceptions, but also func-
tiff, who argued that this exception rule referred merely to tions to impose boundaries on a right holders exclusive rights.
paper-based newspapers and journals, while the subject matter Although the court denied the arguments of the defendant that
of this dispute concerned an electronic medium. He also the US copyright law should be applied, it substantially relied
claimed that the agreements between the periodicals and CNKI upon the four factors of the US fair use doctrine set out in
should not be binding for authors who had not participated Section 17 of the US Code, 107, namely: (1) the purpose and
in the collective agreement negotiations. The Court of Appeal character of the use (transformative use affirmed); (2) the nature
upheld the first instance decision, holding that the activities of the copyrighted work; (3) the amount and substantiality of
of CNKI and the periodical publishers involved were covered the portion used in relation to the copyrighted work as a whole;
by the aforementioned statutory exception. The court did not and (4) the effect of the use upon the potential market of the
place explicit reliance on the three-step test or the fair use doc- copyrighted work. This demonstrates the application of the four
trine, but instead imposed an extensive interpretation of the factors of the fair use doctrine as a tool for interpreting the
rule of statutory license by analogy. It referred to the Pro- three-step test embedded in Chinese copyright law. This in-
visions of the Supreme Peoples Court on Several Issues terpretative solution closely resembles the liberal approach of
concerning the Application of Law in Hearing Civil Dispute the Barcelona Court of Appeal in its decision in the Google-
Cases Involving Infringement of the Right of Dissemination on caching case, Google Inc v. Copiepresse SCRL.53
Information Networks,48 holding that the reprinting and ad-
aptation of works that have been published in newspapers, etc.
49
First Instance Decision of the Beijing First Intermediate Court
(2011), Decision No. Yi Zhong Min Chu Zi 1321.
46 50
BGH I ZR 69/08, http://lexetius.com/2010,1136. [Accessed 1 Article 10(1), No. 5, Copyright Law of the PRC.
51
October 2015]. Article 10(1), No. 12, Copyright Law of the PRC.
47 52
See the decision of Supreme Peoples Court in Guangdong Risk This quotation has been translated by the author from Chinese:
Culture Communication co., Ltd v. Hong Ruding (2008), Decision No. Min Decision No. Yi Zhong Min Chu Zi 1321.
53
Ti Zi 51 (translated by the author from Chinese). See Jonathan Griffiths, The Three-Step Test in European Copy-
48
See Rule 3 of this Interpretation of the Supreme Peoples Court, right Law Problems and Solutions (2009) Queen Mary School of
issued December 17, 2012, http://www.lawinfochina.com/ Law Legal Studies Research Paper No. 31/2009, 5, http://ssrn.com/
display.aspx?lib=law&id=13240&CGid=. [Accessed 1 January 2015]. abstract=1476968. [Accessed 20 January 2016], 9; Kur (n 35) 34.
ARTICLE IN PRESS
The decision of the First Intermediate Court of Beijing was China Digital Library),58 and in part adopted a rather open, flex-
upheld by the Beijing Higher Peoples Court in 2013,54 which ible approach, assimilated to the US fair use doctrine
held that stricter standards shall be applied when the court (exemplified by Alexander and Google). These differences derive,
identifies exempted unauthorized exploitation outside the enu- to some degree, from the nature of Chinese copyright law as
merative catalogue set out in the copyright legislation. Googles a hybrid of European and common law principles.59 Overall,
appeal was eventually denied on the following ground: the perceived trend is that the peoples courts increasingly
prefer a more flexible approach to identify exempted unau-
. . . with regard to the fairness of the activity in digital scanning thorized copyright exploitation on a case-by-case basis.
of the copyrighted work, Google shall bear the burden of proof to
indicate that this activity fell into the terms of copyright excep-
4.1. Application of the first step
tion of fair use. Google failed to provide reasonable evidence to
prove that the four criteria of fair-use doctrine are fulfilled. Thus,
In Educational Testing Service and Alexander, the courts applied
its fair use defense is denied by the court.55
the three-step test as a flexible standard to cautiously expand
the statutory exception use for educational purposes set out
The Court of Appeal has introduced another general prin-
in Article 22(1), No. 6 of the Copyright Law of the PRC and Rule
ciple rooted in the procedural jurisprudence of the civil law
6, No. 3 of the RPRCIN. They first assessed the legislatively
family, the burden of proof, to restrict the scope of exemp-
defined addressees (researchers and teachers) as too narrow,
tions for unauthorized exploitation outside the legislative closed
then applied an extended interpretation to increase the scope
catalogue. The burden of proof originally adopted by the Chinese
of application of the provisions. Although the activities in both
civil procedure jurisprudence was that of Germany.56 The
cases were eventually found not to be covered by the above
Chinese courts interpretation and application of the German
statutory exception, it is worth noting, regarding the issue of
concept of the burden of proof has been criticized as fre-
identifying the scope of the limitation rules, that the courts
quently misreading and discretionally misinterpreting in
do not allow an exception in national law to fail the first step
balancing the interests in suits between the plaintiff and the
(certain special cases) for purely quantitative reasons. Instead,
defendant; in effect, this approach interferes with the power
they proceeded in both cases to analyse the economic conse-
of the legislature, thereby causing constitutional concern.57
quence together with the interest-balancing assessment,
The highlight of the decisions lies in its understanding of
considering all the stakeholders involved. The courts rejec-
the essence, function, and structure of the three-step test: the
tion of the respective defences resulted from the overall judicial
courts of both instances did not draw a particular distinction
assessment, taking into account both authors and users in-
between the three-step test and the fair use doctrine. Instead,
terests. The notion of the special case in the first step of the
they adopted the four-factor test of the US fair use doctrine
three-step test was considered here by the court to mean having
to interpret the three-step test, comprehending the two tests/
a special purpose, as specifically legislatively defined and limited
doctrines as parallel to each other. Both decisions assumed that
in scope.60
the application of the fair use doctrine, as a flexible standard
outside the legislative, enumerative catalogue of copyright ex-
ceptions, is not only permissible under the three-step test, but 4.2. Application of the second step
also (in essence) both integral to and harmonized with it.
Regarding the second steps normal exploitation of the work,
no unified rationale seems to exist for the decisions dis-
cussed above, for avoiding a one-sided approach. Educational
4. Problems presented by the illustrative
Testing Service, Alexander, and China Digital Library illustrated the
cases of judicial practice in interest balancing
courts adoption of a relatively broad and loose reading of
normal exploitation, taking into account both the current gains
The cases discussed above exemplify divergent approaches to and the share of the potential market of the right holders.
the judicial application of the interest-balancing clause of copy- However, no quantitative assessments regarding the current
right exception and limitation rules in China. In general, the gains of the authors and their potential endangered market
peoples courts have in part applied the three-step test to re- were specified; nor did the judges take into account the in-
inforce the traditionally narrow interpretative approach taken fluence these impacts might have on the right holders incentive
to exceptions in some jurisdictions of the civil law family (il- to produce future work. Pursuing this understanding in judi-
lustrated by Educational Testing Service, Guangdong University, and
58
Griffiths (n 53) 4, 6.
54 59
Second Distance Decision of Beijing Higher Peoples Court (2013), Zhiwen Liang, (n 9) 608, 612; Xiaobai Shen, A Paradox Chinese
Decision No. Gao Min Zhong Zi 1221. Characteristics of Imitating Western Intellectual Property Regime
55
Ibid. (2014) working paper circulated at the annual conference of ISHITIP
56
Leo Rosenberg, Die Beweislast (in English, the Burden of Proof) 2014 in Uppsala, Sweden. For a brief introduction to the history of
(C.H. Beck, 3. Aufl., 1953). This book has been translated into Chinese, Chinese copyright law, see Cui, (n 27) 1227.
60
see Leo Rosenberg (author), Jinghua Zhuang (translator), Burden of The latter view was adopted by the WTO Dispute-Settlement
Proof (China Jurisprudence Publishing House 2002). Panel, as will be detailed in Part 6; the former view had been de-
57
Yulin Fu, Chinese Civil Procedure System in Transformation fended by Professor Sam Ricketson, See Sam Ricketson and Jane
in Hongjun Gao (ed.), Tsinghua Jurisprudence Lunheng (Issue 6) C. Ginsburg, International Copyright and Neighbouring Rights: The Berne
(Tsinghua Publishing House, 2005), 85. Convention and Beyond (Vol. 1, Oxford Univ. Press, 2006) 764.
ARTICLE IN PRESS
cial practice could lead to the show-stopper effect of the inherent feature of the WTO/TRIPS system,67 and advocated
second step of the test for any extension of exceptions and limi- by many European scholars.68 The principle of proportional-
tations in the digital environment, as witnessed in the decision ity is often applied to settle conflicts between fundamental
of the French Supreme Court in the case of Mulholland Drive.61 rights, providing that a limitation is admissible where the same
Regarding the normalcy of exploitation in the second step, policy objective could not be achieved by lesser means.69 Un-
it has been argued that a restrictive approach to this notion fortunately, the court decisions above failed to recognize and
should be adopted to help national legislators and judges to adopt the proportionality principle in fine-tuning the interest-
strike a proper balance between copyright protection and com- balancing mechanism of copyright infringement disputes.
peting social, cultural, and economic needs.62 Specifically, as
Professor Kur has suggested,63 the analysis should consider both
extremes, namely: (1) to what extent the limitation restricts 4.4. The overlap between the fair use doctrine and the
exploitation (of actual and potential markets), but also (2) three-step test
whether it still leaves sufficient incentives for right holders to
invest in innovative and creative activities, to thereby prevent In Fan Yunwu and Google, the courts adopted the enabling and
market failure. In this sense, the interpretation of the peo- restrictive effects of the three-step test to assess the inter-
ples courts in Educational Testing Service, Alexander, and China ests of all the right holders beyond the enumerative list of
Digital Library could be deemed a one-sided approach that leaves exceptions and limitations legislated in the Copyright Law of
room for improvement, in view of a more nuanced interpre- the PRC and the Internet Regulations.70 Although copyright lit-
tation of the second step. erature in China partly indicates that the three-step test
represents the transposition of international law, which should
function as an additional control mechanism imposed on the
4.3. Application of the third step national exception and limitation rules,71 the peoples courts
seem instead to have interpreted the test as a flexible instru-
The third step, seen by some as the most important, requires ment, fundamentally modifying its operation.72 In Fan Yunwu
examination of the justification underlying exceptions and limi- and Google, the courts opened a back door to the closed cata-
tations. Through the third step, copyright exceptions and logue of copyright exceptions and limitations, instead of denying
limitations must be prevented from causing an unreasonable the legitimacy of the exploitation activities simply on the ground
prejudice to the legitimate interests of the right holders.64 As that no applicable legislative exception rule could be relied upon
Jinlin Library, Fan Yunwu, and (to some extent) Google exempli- in the new context. Rather, they took into account policy aspects
fied, the peoples courts understand the language of the third on which the exception rules are founded, including, inter alia,
step to mean that right holders are not intended to have the the public interest to facilitate research and education, and
power to control all uses of their works: the public interest in adopted general principles to balance the interests of all the
promoting the progress of science and useful arts consid- stakeholders, following a rather utilitarian philosophy.
ered fundamental constitutional rights in Germany and Europe65 It should be noted that in Alexander, Fan Yunwu, and Google,
and one of the fundamental purposes of copyright in the US66 the three-step test served as a single analytical whole to
are deemed by the peoples courts as either superior to or reach the ultimate goal of striking an appropriate balance,
balanced against the legitimate interests of the right holders. whereby the four factors of Section 17 of the US Code, 107,
However, in none of the above-reviewed cases have the peo- were adopted to analyse the second and third steps. Indeed,
ples courts adopted a proportionality test, as suggested by the in the case of Guangdong Risk Culture Communication Co. Ltd v.
Hong Ruding (2008), the SPC interpreted the test as an overall
assessment tool that serves the purpose of striking an appro-
priate balance. For example, the prima facie unreasonableness
61
Decision issued by Cass. 1st Civil Division, February 28, 2006, of prejudice to right holders was found to be negated by
(2006) 37 IIC, 760. For discussion, see Christophe Geiger, The Three-
Step Test: a Threat to a Balanced Copyright Law? (2006) 37 IIC 683.
67
In this case, the court simply stopped their analysis through the Kur (n 35) 3540.
68
test after concluding abstractly that a private copy of a DVD con- Martin Senftleben, Copyright, Limitation and the Three-step Test:
flicts with the normal exploitation of the work and, thus, violates An Analysis of the Three Step Test in International and EC Copyright Law
the second step. (Hague/London/New York, Kluwer Law International 2004) 226;
62
Andre Lucas, For a Reasonable Interpretation of the Three- Christophe Geiger, The Three-Step test, a Threat to a Balanced Copy-
Step Test, (2000) EIPR 278; Griffiths (n 53) 13. right Law? (2006) 37 International Review of Intellectual Property
63
Kur (n 35) 41. and Competition Law 683, 696.
64 69
Some scholar revisited the authoritative French version of the Kur (n 35) 41.
70
Berne Convention and indicated that the term unreasonable would Geiger, Gervais, and Senftleben (n 64) 618.
71
have to be read as unjustified in the original context: see Qian Wang, Copyright Law (zhu zuo quan fa), (China Renmin Uni-
Christophe Geiger, Daniel Gervais, and Martin Senftleben, The versity Publishing House) 322.
72
Three-Step Test Revisited: How to Use the Text Flexibility in Na- For a more detailed discussion regarding the transposition of
tional Copyright Law (2013) 29 AM. U. INTL L. REV. 3, 583, 587. the three-step test from international treaties to national legisla-
65
See the School Book decision by the Federal Constitutional Court tion, see Christophe Geiger, From Berne to National Law, via the
of Germany (BVerfG) on July 7, 1971, GRUR 1972, 481. Copyright Directive: The Dangerous Mutations of the Three-Step
66
See the Google Book Decision by Judge Chin at the U.S. Dis- Test (2007) European Intellectual Property Review 486; For the per-
trict Court Southern District of New York, November 14, 2013, 05 spective of Chinese scholars supporting a more utilitarian
Civ. 8136 (DC) 16. interpretation of the test see Cui (n 27) 580.
ARTICLE IN PRESS
equitable compensation.73 This interpretation of the three- transition period incorporating open-ended fair use by sys-
step test raises a number of factors that need to be considered tematizing and integrating court decisions wherever this
by the judge, based on the model of the US fair use doctrine, doctrine is applied. Thus, the fair use doctrine is being devel-
which has been followed in many decisions by the peoples oped in these traditionally civil-law jurisdictions through
courts in the past decades.74 Disregarding the question of integration of judicial practices that develop this doctrine with
whether the US courts application of fair use meets the re- detailed elements and conditions being gradually legislated,
quirements of international law,75 it is questionable whether which every court within the jurisdiction is required to follow
the judicial practice in China, as such, complies with the three- in the future.78 To tackle the problem regarding the function-
step test in the national legislation, in addition to that in ing of fair use in civil law regimes the crucial question here
international law. As will be detailed below, a restrictive in- which Chinese law must answer as a first priority, regards
terpretation of the three-step test casts doubt upon the the possibility of a conflict between this approach and the three-
compliance therewith of the Chinese flexible judicial prac- step test: inter alia, the structure and the first step of the test
tice exemplified in Alexander, Fan Yunwu, and Google. must be examined closely in light of the standards of inter-
national law.
5. China-specific two-step test 5.1. Certain special cases in the World Trade
Organization (WTO) Panel Report
Despite the entrenched position of the three-step test in in- Apparently, both the flexible approach increasingly preferred
ternational copyright law, its detailed requirements remain by the peoples courts and the proposed two-step test in Article
fundamentally uncertain.76 As exemplified by the divergent ap- 43(2) of the third draft of the Third Amendment contravene the
proaches ranging between flexible and restrictive in the
thesis endorsed by the WTO Panel in the case concerning
decisions of the peoples courts outlined above, the applica-
Section 110(5) of the US Copyright Act (the Section 110(5) Case)
tion of the test in Chinese judicial practice can, at best, be
considering how to interpret and apply the three-step test. The
described as guesswork, and, at worst, be characterized simply
WTO Panel Report indicates that all three steps are separate
as reverse reasoning disguising predetermined policy prefer-
from each other and must be proceeded through cumula-
ences. As discussed in Part 2, when applying the flexible
tively and in strict order.79 This restrictive interpretation of the
standards of the US fair use doctrine to respond to the chal- WTO Panel Report casts general doubt upon the compliance
lenges presented by shifting commercial and technological with the test of open-ended national doctrines such as the US-
contexts, the peoples courts have expanded their discretion- style fair use, the more open and flexible version of fair dealing,
ary power, thereby unduly interfering with the power of the and the proposal in the Third Amendment. It has been as-
legislature and provoking constitutional concern.77 serted that the open fair use or fair dealing system does not
The courts have increasingly adopted, de facto, the mecha-
meet the requirements of certain special cases.
nism to delineate exclusive rights with a back door or even
Regarding the first step, the Panel Report emphasized that,
open clause: in essence, the court determines case-by-
in order to comply with this requirement, the limitation at stake
case, based on a set of factors or principles. Therefore, the
must be narrow. It also indicated that the term certain related
proposed China-specific two-step test de lege ferenda (as dis-
to legal certainty, i.e., that it must have a narrow scope as well
cussed in Parts 2 and 3) is merely an ex post (retrospective)
as [an] exceptional or distinctive objective. Another fre-
legislative acknowledgement of this approach. Fair use was
quently quoted argument defending the sequential process of
widely considered unique in the US when the US Copyright
the three steps is found in the WIPO records concerning the
Act first codified the doctrine in 1976. However, some East Asian
interpretation of Article 9(2) of the Berne Convention.80 The
countries of civil law jurisdiction, such as South Korea and notion of special case, if considered as a directive to na-
Taiwan, have since borrowed this doctrine. The current re- tional legislators, means that a rule concerning an exception
search indicates that these countries are experiencing a difficult must be special, which one could define as limited in scope,
or as having a special purpose. The test is, thus, intended to
73
See the decision of the SPC in the case Guangdong Risk Culture judge the exception as a rule, not its application in a specific
Communication co., Ltd v. Hong Ruding (2008), Decision No. Min Ti Zi case to a given author, work, and user. If this interpretation
51. should be binding upon all member states of TRIPS and the
74
For further decisions following this approach, see Yang Luoshu
v. China Pictorial Publishing House, Shandong Higher Peoples Court
78
2007, Decision No. Lu Min San Zhong Zi 94; Beijing Sound and Video Chenguo Zhang, The Misreading and Reinterpretation of the
Recording Co. Ltd. v. Beijing Film Academy, Beijing First Intermediate Three-Step Test and the Fair-Use Doctrine in Chinese Copy-
Court 1995, Decision No. Zhi Zhong Zi 19, see 1 Gazette of the right Law a Comparative Analysis of Judicial Practices of China,
Supreme Peoples Court (1996); He Ping v. National Education Exami- U.S. and Germany on the Google Book Project Cases(2016) 5 Global
nations Authority (NEEA), Beijing Haidian District Court 2007, Decision Law Review 1.
79
No. Hai Min Chu Zi 26273. WTO Document WT/DS 160/R, issued in 2000. See, e.g., from the
75
For authors who support this statement, see, in particular, Panel Report: the three conditions ally on a cumulative basis, each
Senftleben (n 68) 162. being a separate and independent requirement that must be sat-
76
Robert Burrell and Alison Coleman, Copyright Exceptions: the Digital isfied.
80
Impact (CUP 2005) 298. See WIPOs Records of the Intellectual Property Conference of
77
See the analysis of a series of decisions of the Chinese courts Stockholm June 11 to July 14, 1967, Geneva: WIPO, Report on the Work
in this regard in Part 4. of Main Committee (1971) 1, 11451146.
ARTICLE IN PRESS
Berne Convention, the understanding and application of the public interest at the expense of the right holders interests,
test by the Chinese judiciary, as illustrated above, would not or that the overall assessment proposed by the Declaration is
comply with these requirements of international standards. contrary to both the wording and history of the test.85 Never-
theless, at least four elements must be considered in this
5.2. The Munich Declaration on a Balanced context. First, the three-step test is, per se, an open-ended norm
Interpretation that establishes a set of abstract criteria, as reflected in Section
107 of the US Copyright Act. In fact, the second step of the test,
The interpretation chosen by the WTO Panel in the Section as a prohibition of conflict with normal exploitation, paral-
110(5) Case in 2000 was, however, criticized for not taking suf- lels the fourth factor of the US fair use doctrine, concerning
ficiently into account the diverse social, economic, and cultural the effects of the use upon the potential market for, or value
policy objectives of WTO members.81 In response to concerns of, the copyrighted works.86 Second, we should bear in mind
about the role that the three-step test should play, the Max that at the Stockholm Conference 1967, the test was origi-
Planck Institute for Innovation and Competition, jointly with nally proposed by the UK delegation, which itself had a fair
Queen Mary University of London, brought together a group dealing open clause in its national law.87 The characteristic of
of European scholars who collaborated to produce a declara- this proposal lay in its abstract formula, rather than a de-
tion aimed at securing a balanced interpretation of the three- tailed list of specific exceptions. The test could be understood,
step test in copyright law (hereinafter the Declaration).82 in this sense, as an important link between the European and
Subsequently translated and published in a series of coun- Anglo-American copyright systems rather than a prohibition
tries including China, the aim of this Declaration was to restore of domestic, open-ended exceptions. Third, the WTO Panel
the three-step test to its original role as a relatively flexible stan- Report on Section 110(5) of the US Copyright Act did not hold
dard, precluding clearly unreasonable encroachments upon an that the fair use doctrine was, by definition, incompatible with
authors rights, without interfering unduly with the ability of the requirement of the certain special cases.88 Finally, but
legislators and courts to respond to the challenges repre- nonetheless important, a more policy-based normative inter-
sented by shifting commercial and technological contexts in pretation of the three-step test complies with the context of
a fair and balanced manner.83 both TRIPS and the WIPO Internet Treaties.
Regarding the structure of the three-step test, Article 1 of Article 7 of TRIPS establishes a principle of balance between
the Declaration suggests that the three steps constitute an in- rights and obligations, and emphasizes that this agreements
divisible entirety and should be considered together and as a objective is to foster not only economic development, but also
whole in a comprehensive overall assessment. For the first step, social welfare. Article 8 of TRIPS allows member states to adopt
Article 3 of the Declaration clarifies that certain special cases measures for the promotion of the public interest in sectors
does not prevent legislators from introducing open-ended ex- of vital importance to their social-economic and technologi-
ceptions and limitations, provided the scope of such exceptions cal development. Further, the preamble to TRIPS not only refers
and limitations is reasonably foreseeable. In this regard, the ju- to the objective of promoting adequate protection mecha-
dicial practice outlined in Part 4 and criticized in Part 5 above nisms, but also recognizes the underlying public policy
should be re-examined according to the more liberal, flexible objectives of national systems. According to Henning Grosse
standards of the three-step test elucidated by the Declara- Ruse-Khan,89 this means that when interpreting the provi-
tion. On that basis, the application of the test as an overall sions of TRIPS, a pure economic perspective should not be
assessment, parallel to the four-factor test of the US fair use followed to the exclusion of other values and objectives. Rather,
doctrine and as shown in Alexander, Fan Yunwu, Google, and other the principle of proportionality in international trade law has
decisions of the peoples courts,84 would arguably be compat- to be respected while interpreting TRIPS. This approach is re-
ible with the international standards. affirmed by Article 31(1) of the Vienna Convention on the Law
This could be subject to critiques, such as the challenge that of Treaties, which states, a treaty shall be interpreted in good
this interpretative approach would give excessive weight to the faith in accordance with the ordinary meaning to be given to
the terms of the treaty in their context and in the light of its
81
Sam Ricketson and Jane C Ginsburg, International Copyright and
Neighboring Rights The Berne Convention and Beyond (2nd ed., Oxford
85
University Press, 2006) 13.21. Lucas (n 62) 277, 278.
82 86
Christophe Geiger, Jonathan Griffiths, Reto M. Hilty, and Uma Geiger, Gervais, and Senftleben (n 64) 614.
87
Suthersanen, Declaration on a balanced interpretation of the Three- See WIPOs Records of the Intellectual Property Conference of
step Test in Copyright Law (2008) International Review of Intellectual Stockholm June 11 to July 14, 1967, Geneva: WIPO, Doc. S/1 (1971)
Property and Competition Law 707; see also Christophe Geiger, Jona- 81 for a discussion of the breathing space offered by the three-
than Griffiths and Reto M Hilty, Towards a Balanced Interpretation step test.
88
of the Three-step Test in Copyright Law (2008) 4 European Intel- The panel adopted a cautious approach, stating, However, there
lectual Property Review 489. is no need to identify explicitly each and every possible situation
83
Ibid., 489. to which the exception is known and particularized. This guaran-
84
See Yang Luoshu v. China Pictorial Publishing House, Shandong tees a sufficient degree of legal certainty. See WIPO Document WT/
Higher Peoples Court 2007, Decision No. Lu Min San Zhong Zi 94; DS160/R. See also Daniel Gervais, The TRIPS Agreement: Drafting History
Beijing Sound and Video Recording Co. Ltd. vs. Beijing Film Academy, and Analysis (4th ed., London, Sweet & Maxwell 2012) 280, 283.
89
Beijing First Intermediate Court 1995, Decision No. Zhi Zhong Zi Henning Grosse Ruse-Khan, Proportionality and Balancing within
19, see 1 Gazette of the Supreme Peoples Court (1996); He Ping v. the Objective for Intellectual Property Protection in Paul Torremans
National Education Examinations Authority (NEEA), Beijing Haidian Dis- (ed.), Intellectual Property and Human Rights (Austin/Boston/Chicago/
trict Court 2007, Decision No. Hai Min Chu Zi 26273. New York/the Netherlands, Kluwer Law International 2008) 161.
ARTICLE IN PRESS
object and purpose.90 Moreover, a mechanical, sequential ap- 6.1. China-specific binding precedent to reduce legal
proach is also difficult to reconcile with the Agreed Statements uncertainty
concerning the WCT and the WPPT of 1996, if the second step
is used as a showstopper for any extension of the excep- Nevertheless, it should not be overlooked that in the US,
tions and limitations in the digital environment. It has been common law rules ensure the binding power of precedents in
argued that the adoption, with changes, of the text in the Agreed general, providing for a certain degree of legal certainty. Not-
Statement Concerning Article 10 of the WCT suggests that a withstanding that the suggestion of formulating certain bright
more flexible approach is desirable. line rules is constantly rejected, the US courts do apply the
In light of the alternative interpretation of the three-step approach of the four factors of Section 17 of the US Code, 107
test, as suggested by the Declaration, breathing space has been consistently with the ways it has been explored and devel-
left for national legislators to provide for open-ended excep- oped in the leading cases.93 This offers a relatively stable basis
tions and limitations, as proposed in the Third Amendment. for parties to plead their cases and structure their argu-
Chinese legislators can also allow their courts to make case- ments. Furthermore, Section 17 of the US Code, 107 is
by-case determinations. As highlighted by the Declaration, it complemented in practice by a number of guidelines, in ad-
should be noted that, in view of the task that the three-step dition to specific and rather detailed statutes in particular
test has to fulfil, it is definitely inappropriate for a purely quan- cases.94
titative assessment to become the sole parameter for deciding In contrast, there are no equivalent procedural rules safe-
on the admissibility of an exception. Rather than determin- guarding the consistency of decisions in similar cases through
ing that a rule is limited in an absolute sense, consideration binding precedent in the copyright enforcement system in
should be given to how it is limited (i.e., to what its limita- China. The latest reform measures launched by the SPC, such
tions are). In light of the further elements in the second and as the construction of the special IP Courts in Beijing, Shang-
third steps, the crucial question should be considered of hai, and Guangzhou,95 and the mechanisms of guiding cases
whether an exception is sufficiently limited in view of its aim to integrate the various judicial enforcement systems of
purpose and potential impact. China, to thereby reduce unpredictability and legal uncer-
This leads to the further essential questions, the compre- tainty, while enhancing the efficiency of the overall judicial
hensive answers to which are possibly beyond the limited length system. The SPC has introduced the following rules concern-
of this paper: whether the proposed fair use open clause is com- ing guiding cases:
patible with the current Chinese copyright judicial enforcement
system, and to what extent such an approach in China could (1) they are selected by the Supreme Court;
guarantee a sufficient degree of legal certainty. (2) they shall be referred to in similar cases;
(3) they shall be cited as reasoning, not as factual or legal
authorities;
(4) the case number and elements of the judgment shall be
quoted; and
6. Is the fair use open clause compatible with (5) they will lack a guiding effect when they conflict with
the Chinese copyright judicial enforcement new laws, regulations or judicial interpretations, or when
system? they are replaced by a new guiding case.96
The proposed China-specific fair use catch-all clause,91 which However, it remains an open question whether the tenta-
would allow privileged use of copyrighted work under other, tively proposed move towards the fair use open clause in
unspecific circumstances, is, as discussed above, an ex post leg- Chinese copyright law will, correspondingly with these new pro-
islative acknowledgement of the existent judicial practice of cedural rules, bring a higher degree of flexibility regarding
the peoples courts. The rationale of the Chinese policymakers copyright limitations and exceptions, appropriately extended
underlying the open clause approach is reasonable: instead of to the digital environment.
forcing courts to seek solutions outside the proper legisla-
tion, the legislative enumerative catalogues to date should be
93
complemented by a clause allowing for more copyright flex- See Sony Corp. of America v. United City Studios, Inc., 464 U.S. 417
ibility, thereby bringing the Chinese system closer to the (1984); Harper & Row Publishers Inc. v. Nation Enterprises, 471 US 539
American approach.92 (1984); Luther R. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).
94
Kenneth D Crews, The Law of Fair Use and the Illusion of Fair
Use Guidelines (2001) 62 OHIO ST. L. J. 599.
95
Regulations of October 27, 2014, of the Supreme Peoples Court
on the Jurisdiction over cases of the Intellectual Property Courts
in Beijing, Shanghai and Guangzhou, promulgated by Order No. 12
90
Susy Frankel, WTO Application of the Customary Rules of In- of the Supreme Peoples Court of October 31, 2014. English version
terpretation of Public International Law to Intellectual Property available from: http://www.wipo.int/wipolex/en/details.jsp?id=15433.
(2006) 46 VA J. INTL L. 365. [Accessed 16 February 2016].
91 96
Article 43(1), No. 13, Third Amendment draft. Regulation on the Guiding Cases of the Supreme Peoples Court,
92
Mingde. Li, Yuyin. Guan, and Guangliang Tang, Explanation to the promulgated November 26, 2010 by Order No. Fa Fa (2010) 51; The
Proposals of the Third Amendment of Copyright Act, (in Chinese: zhu Implementation Rules of the Regulation on the Guiding Cases of
zuo quan fa zhuan jia jian yi gao shuo ming) (Law Press China 2012) Supreme Peoples Court, issued June 2, 2015 by Order No. Fa (2015)
243, 245, 247. 130.
ARTICLE IN PRESS
6.2. Certain special cases determined by the peoples because they concern an option for revenues that, for factual
courts reasons, has not, or has only scarcely, been used to date.98
In the third step, the conflicting interests of the affected
To date, the jurisprudence in China does not follow the prin- groups of right holders, third parties, and the public99 are iden-
ciple of stare decisis (the doctrine of precedent). In a traditional tified and evaluated in light of the policies on which these
common law regime with an open clause system, such as fair interests are based. To secure a truly balanced form of protec-
use in the US or fair dealing in the UK, the judge is required tion in accordance with the primary objective of TRIPS, such
to balance abstract criteria and apply them to specific cases. an exercise is mandatory in the field of copyright. In my opinion,
Some might argue that in such systems, exception and limi- the critical factor of the third step whether the prejudice of
tation rules can be better adapted to new and online uses, while right holders legitimate interests is reasonable is the appli-
in the Chinese judicial systems, which do not traditionally cation of the proportionality principle.100 This principle, an
follow the principle of stare decisis, unspecific open clauses inherent feature of GATT/TRIPS, commands that in the overall
could cause more unpredictability, at the expense of both right assessment, a limitation must be ruled admissible where the
holders and users. However, in all legal systems, the role of de- same policy objective could not be achieved by lesser means,
fining and implementing legal norms is divided between provided it does not result in discrimination or otherwise entail
legislators and judges. In European countries with a closed- unacceptable effects.101 First, in all the areas concerned, it must
list system, such as Germany, judicial interpretation and be considered whether the prejudice eventually caused by the
implementation also occurs. limitation is unreasonable; second, the interests protected
As the decision of the Federal Court of Germany in the case must be considered legitimate.
of Google Thumbnails has illustrated, the efforts of the legal dog-
matic school to specify every single exception rule, to completely
eliminate ambiguity, would cause severe difficulties for judges
7. Concluding remarks
when applying an exception rule to a new specific case re-
sulting from the development of information technology and
new Internet industry models.97 Conversely, no exception rule The proposed China-specific fair use catch-all clause102 in the
in Chinese copyright law is drafted so specifically that inter- Third Amendment suggests a third model alternative to the
pretation is unnecessary in every type of case. The breathing open-clause and closed-list systems, which aims to combine
space to interpret and judicially develop the law exists even features of both the civil and common law approaches. With
without an explicit open clause in copyright law. A well- the peoples courts increasingly applying a mechanism to de-
applied and reasonably interpreted open clause in the Copyright lineate exclusive rights with a back door or even open clause,
Law of the PRC is positively correlated to the endeavours of based on a set of factors or principles, the proposal for a catch-
the peoples courts to reduce legal uncertainty and enhance all open clause in the Third Amendment is merely an ex post
the ratio of achieving justice in concrete cases, when delin- legislative acknowledgement of this approach. Its intention is
eating exclusive copyright and its exemptions. to avoid forcing the courts to seek solutions outside the proper
Although China does not recognize the development of legislation, thereby causing constitutional concerns over the
binding precedent, jurisprudence in the form of accepted and challenge posed to the national legislature by the interfer-
repeated official practice by judges or administrators can ence of the self-expanded, judicial, discretionary power.
become known and help to increase the degree of legal cer- However, this approach should comply with the standards of
tainty in the system overall. At best, with every court decision, international treaties under a legitimate, balanced, and pro-
a further special case becomes known, particularized, and portionate interpretation. As analysed above, the WTO panels
thus certain in the sense of the three-step test. approach to interpreting the three-step test in the Section 110(5)
Case is considered dissatisfactory and one-sided. The Decla-
ration produced by the joint project between the Max Planck
6.3. Application of the second and third steps Institute for Innovation and Competition and Queen Mary Uni-
versity of London offers balanced guidelines for the functioning
For the Chinese courts, the central task of the second step is of the test in international copyright law. It is a flexible bal-
to determine what constitutes a conflict with the normal ex- ancing tool, providing Chinese legislators with breathing space
ploitation of the disputed copyright. The key issue here is the to create an appropriate system, such as the China-specific,
definition of normal exploitation. Normal, in its ordinary sense, open-ended exception and limitation rules.103 According to these
has two connotations, one being empirical and the other of a standards, China (a member state of the Berne Convention,
somewhat more normative, if not dynamic character. While the
empirical approach basically involves evaluating the current 98
Kur (n 35) 2729.
practice, the normative element ensures that limitations cannot 99
Geiger, Griffiths, Hilty, and Suthersanen (n 82).
100
escape the charge of interfering with normal exploitation simply Zhang (n 78).
101
Henning Groe Ruse-Khan, A Comparative Analysis of Policy
Space in the WTO (2008) Max Planck Institute for Intellectual Prop-
erty, Competition & Tax Law Research Paper Series 08-02,
97
Google Thumbnails, Decision of the Federal Court of Germany http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1309526. [Ac-
(BGH) on April 29, 2010, BGH I ZR 69/08, the German version is avail- cessed 24 October 2016].
102
able from: http://lexetius.com/2010,1136. [Accessed 16 November Article 43(1), No. 13, Third Amendment draft.
103
2015]. See Part 3.2.2.
ARTICLE IN PRESS
TRIPS, the WIPO Internet Treaties, the Beijing Treaty, and the of such exceptions and limitations is reasonably foreseeable.
Marrakesh Treaty) enjoys the freedom of enabling bespoke so- Second, the adoption of the US fair use doctrine requires closer
lutions at the national level. analysis of the local judicial structure, in addition to the greater
In addition, the introduction of the proposed copyright open integration of the judicial systems in China, both to reduce un-
clause into Chinas national judicial enforcement system is fea- certainty and unpredictability and to enhance the efficiency
sible, but only under certain preconditions. The long-running of enforcement in judicial practice. Although precedent is not
divergent approaches in the judicial application of the copy- binding in China, jurisprudence in the form of consistent of-
right limitation and exception rules have derived, to some ficial practice by judges or administrators can become known
degree, from the characteristic of Chinese copyright law as a and help to increase the degree of legal certainty throughout
hybrid of European and common law principles.104 Should the the overall system. Through a steady process of accommodat-
proposed open clause become law (which seems increasingly ing conflicting interests in judicial practice and reform, which
likely), to avoid unreasonable conflicts and confusion between endeavours to integrate the whole judicial system of the peo-
different jurisdictions in China, certain actions need to be taken. ples courts, one would expect that a coherent set of more
First, the Chinese legislature should add a limitation to Article transparent principles, in line with international standards,
43(2) of the third draft of the Third Amendment: other, un- should be developed to underlie the whole.
specific cases should instead be worded other specific
occasions. As even the certain special cases requirement does
not prevent legislators from introducing open-ended excep- Acknowledgement
tions and limitations, the Declaration requires that the scope
This paper acknowledges the support of Zukunftsprinzip der
104
Liang (n 9) 608, 612; Shen, (n 59); for a brief introduction to the Universitaet Bremen, Exzellenzinitiative des Bundes und der
history of Chinese copyright law, see Cui (n 27) 1227. Lnder) (ABPZuK-07/2013).

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Introducing the Open Clause to improve

* Centre of European Law and Economics, University of Bremen, Germany.

Awareness of these dual purposes of copyright law is par- 5

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