On December 26, 2019, the Guangzhou High Court upheld at the court the decision of the first instance on Guangzhou Huaduo Network Technology Co.’s (Huaduo) infringement of Guangzhou Netease Computer System Co.’s (Netease) copyright in its MMORPG (massively multiplayer online role-playing game) Fantasy Westward Journey Online with compensation in amount of Rmb20 million (US$3.1 million).

Case background

On November 24, 2014, Netease initiated a lawsuit at the Guangzhou Intellectual Property Court against Huaduo’s copyright infringement and unfair competition as a result of its live streaming and recorded broadcast of Fantasy Westward Journey Online via YY Game Live Streaming (currently named Huya Live Streaming) or YY Voice Client App and claimed Huaduo to cease infringement, make apology and compensate Rmb100 million (US$15.5 million). Netease claimed that it has computer software copyright of Fantasy Westward Journey Online II and has the right to the continuous pictures demonstrated in the process of the game running, which shall be deemed works created by a process analogous to cinematography, whilst Huaduo defended that Netease is not the copyright claimant and the live streaming pictures are resulted from gameplayers’ real-time operation during the game and that the live streaming shall be regarded as fair use by individuals for personal study and appreciation.

The Guangzhou Intellectual Property Court ruled on October 24, 2017, for the first instance. The court believed that, although the continuous pictures of the game are outcome of users’ participations in interactions, the entire pictures may still be deemed works created by a process analogous to cinematography, copyright in which shall remain the property of Netease. Evidence such as profit-sharing mechanism and program parade of live streaming and ranking, remarks and recommendations of streamers have certified that the live streaming of Fantasy Westward Journey Online on the platforms operated by Huaduo are not only the users’ utilization of the platform but also Huaduo’s setup of live streaming windows and organization of streamers to live stream the game. Huaduo thus has infringed Netease’s right to the game pictures protectable as works created by a process analogous to cinematography. Netease’s claim on unfair competition, computer software copyright infringement and other copyright infringement were not reviewed by the court since its claim on copyright infringement of works created by a process analogous to cinematography has been upheld. By reference to Huaduo’s profit from the live streaming and prevalence state of the game, the court decided that Huaduo shall compensate Rmb20 million to Netease.

Both parties appealed the decision. Netease appealed that Huaduo shall publicize an apology to Netease and eliminate the affect so caused taking into consideration Huaduo’s egregious infringement and believed that the compensation in amount of Rmb100 million claimed by Netease shall be fully upheld, whilst Huaduo appealed to revoke the first instance decision and turn down Netease’s entire claims or retrial and believed that the court of the first instance did not consider the facilitation of the game brought by live streaming and the actual profit based on which the ruled compensation was calculated is not accurate. The Guangzhou High Court, which is the court of the second and final instance, was live broadcasting the court hearing on December 26, 2019, and upheld the decision made in the first instance and confirmed that the continuous motion pictures of Fantasy Westward Journey Online are protectable by copyright as works created by a process analogous to cinematography and that Huaduo’s live streaming shall not be deemed fair use and were not the service solely concerning network technology given its unauthorized organization of streamer to live stream the game and share profit therefrom. Netease’s claim for Huaduo to make apology were not supported due to lack of reason and evidence. The amount of compensation remains the same as the first instance taking into consideration the type of the game and its fame, the infringement and severity, market states of licensing of game live streaming, contribution by the game in profitability of the live streaming platform and the cost associated with the enforcement.

General comments

Netease’s cause of action covered:

1. Copyright infringement of:
   1. Computer software;
   2. Characters, scenes and props of the game as artistic works;
   3. Music in the game as musical works;
   4. Plot design, interpretation, activity schemes of the game as literal works; and
   5. Continuous pictures in running the game as works created by a process analogous to cinematography; and
2. Unfair competition on the grounds of Huaduo’s exploration of Netease’s competitive advantage in the market regarding the game.

The case discussed the subject of protection (aka type of works), attribution of rights, infringement, unfair competition and legal liabilities.

The court confirmed the original idea of the game developer represented by the game’s abundant plot, vivid characters, scene and unique style, which are reproduceable in tangible form and share the same pattern of manifestation as cinematographic work.

Copyrightability of continuous motion pictures in a game

The process of creating the game included planners’ integrated design of the plot and the game rules, art designers’ design of the materials like original painting, scenes and characters and programmers’ coding based on the functions to be archived which is similar to the means of creation of works created by a process analogous to cinematography which is defined by the Implementation Regulations for the Copyright Law of China as aggregate of visual images embodied in a form which can be shown as a moving picture with or without a soundtrack associated with such visual images. Creation of the motion pictures by players are not protectable from copyright perspective because the characters, scenes, music, deduction of plot and relationship of characters were pre-set by the game developer and the motion pictures are merely the results from operation or selection of the game by different users.

Infringement, fair use and unfair competition

The live streaming windows mainly show the continuous pictures of the game, certain function settings and streamers’ icon. The real-time broadcasting of the continuous pictures through users’ operation of the game made available to the viewers infringes Netease’s copyright in the game protectable as works created by a process analogous to cinematography.

The Chinese Copyright Law provides that copyright includes rights such as reproduction right, distribution right and other rights enjoyed by a copyright claimant, amongst which “information network transmission right” is defined as right to provide a work to the public through cable or wireless method so that the public may have access to the work at their individually selected time and venue. However, such real-time transmission of the continuous pictures of the game does not allow the public to access the work at their selected time and thus shall be categorized as other rights enjoyed by a copyright claimant.  Protection of developer’s right to MMORPG encourages creation of new works.

The restrictions of rights as provided under the Chinese Copyright Law include but are not limited to use of a work for personal learning, research and appreciation. Live streaming of the game and sharing of profit gained from the streaming apparently exceed the restriction set forth by fair use and affected copyright claimant’s right to license the game pictures and damages the potential market of the game.

On a separate note, in a preceding case between Shanghai Yaoyu and Guangzhou Douyu, Douyu live streamed an e-sports tournament, the Asian DOTA2 Invitational Competition, on its live streaming platform without authorization. The Shanghai Intellectual Property Court did not regard pure competition pictures of a game as copyrightable works due to randomness and lack of reproducibility and did not uphold defendant’s claim of the right of transmission through information network as protectable under the Chinese Copyright Law. This case was finally decided on grounds of unfair competition based on the plaintiff and the defendant’s competitive relationship as both parties are game live streaming platforms and the defendant’s damage to the plaintiff’s competitive advantage in the market (aka exclusive right to live streaming the tournament in dispute) and to the regular industrial order.

Compensation

The claim of unfair competition and right to computer software, artistic works, literal works and musical works were not reviewed by the court given they are competing with the right to the works created by a process analogous to cinematography that has protected Netease’s rights and interests claimed in this case. Huaduo’s liability is restricted to infringement of copyright of works created by a process analogous to cinematography. No evidence certifies that Huaduo’s infringement depreciates Netease’s fame or adverse social influence that may entitle Netease to request apology from Huaduo or elimination of influence by Huaduo.

The Chinese Copyright Law provides that, in the case of infringement of copyright or copyright-related rights, the infringer shall make compensation based on the actual losses of the rights holder; where it is difficult to compute the actual losses, compensation shall be made based on the illegal income of the infringer. The court awarded damage in amount of Rmb20 million, although Netease claimed Rmb100 million as compensation. The awarded compensation was calculated based on:

1. An estimation of Huaduo’s revenue of its live streaming business;
2. An estimation of Huaduo’s revenue of its broadcasting of the game in dispute;
3. An estimate of income of Huaduo’s streamers; and
4. Taking into consideration the work type of the game in dispute, the categories of rights concerned and continuation, size and subject intent of Huaduo’s infringement and also enforcement cost incurred by Netease.

To note, the financial documents in connection with profit sharing of streamers, special audit and conclusion on revenue submitted by Huaduo were not admissible by the court due to lack of corroborative evidence and significant deviation from the above estimation based on which the awarded compensation was computed.

Conclusion

Intellectual property protection in terms of online games, mobile games and e-sports are new and challengeable issues that entails consideration from various perspectives, including but not limited to copyright in game software, patent in algorithm of game software, right to plot and even original author of plot or original version of its story, music and artistic pieces in game, license of right to merchandize, right to live stream play or e-sports of game which is probably extendable to streamers’ right to oral works, players’ related right of performer, players’ right to their names, portrait, unfair competition as a result of taking advantage of game developers’, streamers’, players’, teams’ and leagues’ reputation.

The right claimant standing for a different position in the industry shall not only obey the business norm but also keep a watchful eye on new trends on the legal regime concerning protection of own rights and precaution of infringement of third-party rights.