The Status Quo of CD Piracy in China

Issue 26,By Liu Rong, China IP,[Copyright]

Small video theatres, video shops, and CD rental stores lining the streets and lanes of China during the 1990s left an indelible impression in the Chinese people who experienced that period. Especially for those living in the relatively developed coastal areas of the country, life would be incomplete without days spent huddling in the dim video theatres, or passing by video shops blaring their deafening music, or days spent renting newly released movies and quickly running home to watch them.

But a memory is just a memory. These scenes have largely faded from our lives. Nowadays, you can only chance upon small video theatres in a few relatively backward cities and towns in China. Video shops are totally another picture of the ever prosperity, under the joint anti-piracy campaigns of copyrighters and law-enforcement officers, as well as the striking of the cold CD winds. CD rental shops have also been unable to escape their destiny. In cities where intense crack-downs have been enforced, you can hardly find any CD shops; only peddlers carrying a carton filled with pirated CDs rushing about from one residential community to another.     

You will also find that now it is far more difficult to buy a pirated CD. Optimistically, if such trends continue, pirated CDs are likely to vanish from the lives of Chinese people. However, piracy itself shows little sign of vanishing. The Business Software Alliance (BSA) is still busy reporting a high software piracy rate in China. Sharp contrast keeps going between the pointing finger at China for piracy and China’s self-defense.  So, what is the real status of piracy of China?

Peddlers: Nationwide multilevel wholesale marketing

When people in Beijing want to buy a pirated CD, they will first think of Zhongguancun, which is known as the “Silicon Valley in China” and an “electronic center boasting 80% of China’s IP outputs and transactions.” This area is always bustling with people, and you can run into pirated CD peddlers everywhere. 

In 2006, Legal Daily published an article entitled “Inside of the Five-level Wholesale Marketing Network of Pirated CDs,” disclosing the backgrounds of pirated CD peddlers roaming Beijing’s streets. According to the article, the peddler gang discovered by the police has a four-level wholesale marketing network in Beijing alone. They source their goods from Guangdong, and assign pregnant or women carrying babies to sell their products. They also hire people to stand and watch or screen for problems.  In this way, wholesale pirated CDs and pornographic CDs are distributed from the top layer down to every peddler in the Zhongguancun area.    

In this current state of “high alert,” illegal deals are frequently staged in batches using petty sums. Women peddlers, who are either pregnant or carrying a baby, are quite an obstacle to law enforcement. Meanwhile, even if a pirated CD dealing suspect is caught red-handed, he or she can usually avoid legal liability because, according to the judicial interpretation on the computation method of total value involved in a case, the value in such cases is usually too low for prosecutions. 

The article quoted the words of Hui Yuanlin, director of the Haidian Culture Commission in Beijing and director of the “Fight against Pornography, Illegal publications and Piracy” Office, who said, “The reason why street peddlers are so hard to eradicate is rooted in three difficulties: difficulty in evidence collection, difficulty in suspect treatment, and difficulty in cross-regional case handling.”

Only one person in the gang was finally prosecuted, because more than 6,700 CDs were ferreted out from him. The belongings of other people all fell short of the prosecution amount defined by law. 

As a rule, piracy peddlers are indicted for illegal business crime. The Criminal Law has stipulated three “thresholds” for this crime: the sum of illegal business transactions must be more than 50,000 Yuan or the amount of illegal gains must be more than 20,000 Yuan, or the amount of pirated CDs sold must be more than 500 copies (or boxes). This means that the total value involved in a case can be calculated either by the amount of pirated CDs or by the estimated value of those CDs.  However, if the copyrighter does not cooperate actively, it is hard to estimate the value of the CDs; the evaluation is even more difficult when pornographic CDs are involved.

Peddlers escaping prosecution will be set free when the period of detention expires. Then, in a few days, patrolling law enforcement officers will often see those familiar faces again. For peddlers, selling pirated CDs is their full-time job. Most of them come from the countryside, leaving home for a number of reasons and “panning for gold” in the cities. In such a developed city as Beijing, these migrant workers, without any academic degree or professional skills, have no other choice but to skirt the law, because they have to feed both themselves and their families.

Most peddlers referred in the above text are from Anhui, a large, less-developed agricultural province in China. It contributes about 1/10 of the 40 million trans-provincial “floating people.” Among these 40 million people, about 5.8% migrate to Beijing, and the rest mainly gather in Guangdong, Shanghai, Zhejiang, and Jiangsu Provinces. What they leave behind are the less-developed areas where more than 2/3 of total Chinese population lives.

The Haidian District police have staged a series of measures to control peddlers. One measure is “to interrogate and examine peddlers and maintain peddlers’ records, and to make their doing public to the Beijing Office of peddler’s place of domicile, by making use of their sense of shame that their old folks would know their illegal behaviors in Beijing; and to bring into play the supervisory and constraining roles of local governments and the public voice.”    

Maybe for those out of the picture, this measure seems a little bit ridiculous.

Government: Fish escape from the dense net of the law

“I believe that every citizen can see our efforts and achievements these years in cracking down on illegal publications,” said the spokesman of Beijing’s Cultural Law Enforcement Agency.

Illegal publication is an official term. It generally refers to all publications including pirated and pornographic CDs that are unauthorized by the national press publishing departments. Pirated and pornographic CDs are usually sold together, but the former is controlled by the culture departments, whereas the latter is controlled by the public security organs. Furthermore, the illegal publication and illegal business operations attributed to pirated and pornographic CDs may also require the participation of press publishing departments, industry and commerce administration authorities, copyright bureaus, customs, education departments, and urban management and control departments.

To improve these duplicative law enforcement conditions, the Beijing Cultural Law Enforcement Agency was established in 2005 to take charge of cleaning out bookstores, video shops, and cultural markets of illegal publications.  Peddlers are under the control of public security organs and urban management and control departments. The Beijing Cultural Law Enforcement Agency (Beijing Working Group Office for Elimination Pornography and Illegal Publications) periodically cooperates with the public security organs, state departments for industry and commerce and municipal administrations to jointly launch specialized campaigns to crack down on illegal publications in the market. These campaigns reached their peak before the Beijing Olympic Games. 

“Since the end of March, we have initiated a crack-down action called the ‘Operation Hurricane’ jointly with the public security organs, particularly in Beijing’s passenger stations and consignment shipment stations,” said the spokesman for Beijing’s Cultural Law Enforcement Agency.

The Operation aims at preventing pirated CDs from spreading into the markets by blocking their Beijing-bound routes. Through the use of surprise inspections of vehicles arriving at midnight at Beijing’s passenger stations and consignment shipment stations, law-enforcement officers have ferreted out a large number of illegal CDs hidden in containers.

Other measures carried out by the Agency include routine inspection and the “Project Moat” in which law-enforcement officers patrol around the cultural markets, bookstores and video shops in Beijing, and confiscate illegal publications. There are also nearly 800 volunteers doing the same thing. If any citizen finds that a publication they purchased is pirated, they may report it to the Agency indicated on the purchase invoice. With the implementation of “Project Moat,” Beijing cooperates with the surrounding 7 provinces and cities to guarantee the interception of illegal publications in Hebei, Tianjin, or other areas before they get to the capital.

All of these measures focus on transportation because almost all pirated CDs in Beijing are from other places in the country. Surely, this is not only the situation in Beijing. Many other places must deal with pirated CD’s produced in other parts of the country; there are only a few areas that actually produce the pirated CDs.

 “In the last three years since its establishment, the Beijing Cultural Law Enforcement Agency has made great achievements in rectifying the cultural market, especially during the Olympic period.” The spokesman’s voice on the phone sounds pleasant and confident.

Just as she said, the Olympic Games did promote the well performance of many law enforcement campaigns, because it was so influential and important that no one dared risk the neglect. Areas that used to be major areas for piracy sales, such as Gulou, were much better controlled during this period. However, this was just the “Beijing” Olympic Games, and the organization of the “Cultural Law Enforcement Agency” is just in its experimental period, and has only been implemented in nine provinces and cities at the moment.

When asked about the possibility of its nationwide implementation in light of its success, the spokesman said, “In Beijing, cultural law enforcement has become a long-term and effective project. But it is not large-scale yet, and we can only share experiences with a few experimental provinces and cities.”

The Olympic Games have greatly purified Beijing’s cultural market, but even with the most rigorous law enforcement efforts, there are those escaping the arm of the law.

When this journalist made secret inquiries into a video shop near the Art Gallery, she saw a rack filled with movie DVDs – almost like a World Film and Video Library. All the commodities had a common publisher never heard of before, and each was sold for 15 Yuan. The salesman claimed with a stiffening tone that all of them were authentic, just in a sort of “convenience package.”   

Thinking about reporting the incident using the invoice information as recommended by the Agency, the journalist bought a DVD of the movie, The Sun Also Rises, and asked for an invoice.

 “Used up,” came the reply.

Source: Internet becomes the “Catspaw”

Common people only have a kind of perceptual knowledge of the changes in the piracy market. But customs officers in charge of this field are more rational and fact-based. “The past decade has seen a sharp decrease of such cases,” said Ge Lei, head of Regulation Department of Guangdong Sub-administration of China Customs.   

The “such cases” mentioned by Ge Lei is a reference to the case of the joint production of illegal CDs (including pirated CDs) by merchants in Guangdong and Hong Kong in the name of “consigned processing.” In the late 1990s, both Guangdong and HK Custom’s officials established a combined law enforcement system. By timely exchanging information about the manufacturers and processors in both places, the two Customs offices successfully uncovered many “consigned processing” frauds. After more than ten combined law enforcement activities, together with the National Copyright Administration of China (NCAC)’s tough policy against CD manufacturing in China and the implementation of the Security Identifiers (SID)code system, “such cases” are now nearly vanquished.    

“Consigned processing” cases arise when CD production lines shift across the border. As a result of the intense crackdown on piracy initiated in the late 1990s, most domestic manufacturers had to flee to the other side of the border. However, in order to cut costs, they tried to return again as the shell of another company. During this time, the customs offices became heroes. 

Regarding measures to combat pirated CDs, the customs office mainly performs its duties by recording the copyrights that have applied for protection and patrolling the sea to crack down on boat smuggling. According to Ge Lei, due to the short life cycle of products and the time and money spent as part of the application, only a few copyright owners will do this. The same is true for cases ferreting out pirated CD. There are few boats smuggling pirated CDs. In fact, pirated CDs are usually mixed secretly with other common commodities. They are not much in quantity, and it is difficult to estimate the value involved.  

“It is hard to identify piracy, because we have to ask for help from the relevant copyright administration. And if it a cross-border issue, then an offshore certificate must be provided.” Ge Lei said.

Cross-border pirated software sales became a controversy in a criminal case involving serious, high quality software piracy heard in the Shenzhen Futian Court this September where the total value involved was nearly 1 million Yuan. In the case, the source of the pirated software was outside China, whereas disc making and pirate recordings were carried out inside China. Then the finished products were sold outside China. This is possibly one of the most criticized situations in the world: China was simply a big consumer of pirated CDs before, but now it has grown into a big exporter.     

Although the case involved cross-border activities, the customs office did not get involved. This is because either the import nature of the program source code or the export nature of the pirated CDs, the case was traditionally beyond the control of customs. Program source code can easily be carried by a tourist to a country. It is even easier to do so via the Internet. Additionally, CD pirates have already used EMS and other international mailing services for their cross-border illegal transactions. 

On one hand, Ge Lei emphasized that piracy sales have been greatly decreased due to crackdowns over the past years. On the other hand, he admitted that the Internet has changed the way piracy presents itself.

“When the Internet comes up, the CD is not the only media for the piracy market,” he said, “what’s more, piracy merchants have to take certain economic risks for disc compacting, not to mention unknown sales conditions. But with the Internet, it is totally another story.”

The advantages of piracy via the Internet are that any person in any place can download pirated programs onto a disc, without long-distance transportation, which saves the risk of confiscation or a crackdown. Furthermore, it is also a truth that legal restraints on piracy via the Internet are far less than traditional piracy. Piracy that utilizes the Internet is almost a “zero-risk” venture if the copyright owner does not complain and is less likely to attract the attention of the law enforcement departments.      

An official from BSA told the journalist that for public resources suspected of copyright infringement, BSA will usually send an email to the Internet Service Provider (ISP), asking for its removal and deletion. According to statistics, there were a total of 470,000 of these emails sent in the first half of 2007. However, during the same period in 2008, the number increased to 780,000. And among them, emails concerning Bit Torrent (BT) resources were already excluded!  

Reality: Who is in charge of the piracy world?

For a common Chinese citizen, the situation now is that pirated CDs are not widespread as ten years ago when there was almost no room for copyrighted ones. Today, it is not at all difficult to buy one.

Here, geographic location is the thing that matters. If you live in a city with a developed network, then you can usually get what you want via the Internet –  up-to-date discs and movies from all over the world, or recently launched software. You can totally forget those piracy peddlers. However, if you are in a remote area, then peddlers wandering the streets or hiding in small video shops may be an important window for you to keep pace with the outside world. 

What is the actual production scale of piracy merchants? The professional criminal gang of software piracy in the Shenzhen case referred to above produced pirated CDs in 11 languages and sold them in 36 countries. The losses caused by their actions were almost USD 2 billion according to the official “conservative estimate” given by the Microsoft Corporation. Microsoft’s Associate General Counsel David Finn told the journalist that “the scale of their duplication line is bigger than the total of Microsoft’s software production capacities in Europe, the Middle East, and Africa.”    

In addition to the production line, piracy merchants also have transportation lines, peddlers distributed at every corner of the streets, and a constant flow of program sources from the Internet or other channels. Therefore, the work of governments and copyright owners is still tough and long-lasting.

In a strange way, the complementation of pirated CDs and the Internet balances the needs of the Chinese people who have a variety of different incomes, backgrounds, and living conditions, while there is little difference in their taste for electronic entertainment products. However, such a balance is based on the absolute disrespect of copyrights.    

An official who did not want to be named told this journalist that the tremendous vitality of piracy is rooted in the big gap between the price of copyrighted CDs and what common citizens can afford. Evidence of this is the fact that people with higher incomes have become copyright pursuers. 

The official also said that it is not necessary to eradicate the piracy conditions. Pirated CDs are now actually fading from our lives due to the natural elimination of the low technology. He believes that like the replacement of video cassette recorders by optical disk recorders, pirated CD are now gradually being replaced by Internet piracy. This is a natural result of technological innovation.

“Radical elimination of piracy must rely on an increase of national income levels and a decrease in the price of copyrighted software. But before this, no matter how hard the government is working at law-enforcement, the high price margin will by all means seduce people away from law abidance. The piracy situation can only be improved, but never be eradicated.” The anonymous official said.      

(Translated by Hu Xiaoying)

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