An Action in Copyright Contract Dispute Involving Hong Kong Pei Run International Limited Company ,Zhong Ding Stock Co., Ltd. ,The People’s Government

Appellant (Defendant in the High People's Court):
Hong Kong Pei Run International Limited Company (“Pei Run International”), with business office at No.18, Peninsula square, Chongan street, Hongkan, Kowloon, Hong Kong, SAR, PRC.
Legal Representative: Xiangyong Ma, Chairman of the Board of Pei Run International.
Prepresentative: Ning Ma, Staff, Nanning Taian Property Development Co., Ltd.

Appellee (Plaintiff in the High People's Court):
Dunde Chen, Male, the Han Nationality, Date of Birth: 17 December 1943, Residence Address: No. 26, North Youai Road, Chengbei District, Nanning
Attorney: Xiangdong Zhang, Shenzheng Ya Tai Law Office.

Appellee (Plaintiff in the High People's Court):     

Beihai Zhong Ding Stock Co., Ltd. (“Zhong Ding Company”), with an office at Zhong Long apartment, Beihai Road, Beihai.

             Legal Representative: Chunlai Li, Chairman of the Board of Zhong Ding Company.
             Attorney: Xiangdong Zhang, (ibid.)

Appellee (Plaintiff in the High People's Court):
Guilin Energy Resources Development (Group) Company (“Guilin Energy”), with an office at No. 126, Anxin zone, Guilin.
Legal Representative: Zhisheng Wu, Manager of Guilin Energy.

Attorney: Xiangdong Zhang, (ibid).

            Appellee (Plaintiff in the High People's Court):
            Guangxi Farm-Industry Products Purchasing & Sale Service Center (“Service

            Center”), with an office at 38-3, Minzu Road, Nangning.

Legal Representative: Yongshang Wei, Manager of the Service Center.

Attorney: Xiangdong Zhang, (ibid).

Appellee (Plaintiff in the High People's Court):

Guanxi Old People Tourist Company (“Tourist Company”), with an office at 2-3, South Yuanhu Road, Nanning.

Legal Representative: Rangjun Liu, Manager of the Tourist Company.

Attorney: Xiangdong Zhang, (ibid).

            Appellee (Plaintiff in the High People's Court):     

Guilin Overseas Tourist Company (“Overseas Company”), with an office at 8, Zhishan Road, Guilin

Legal Representative: Cilin Yao, Manager of Overseas Company.

Attorney: Xiangdong Zhang, (ibid).

Appellee (Plaintiff in the High People's Court):

Guilin Chang Hong Trade Company (“Chang Hong Company”), with an office at 3, Kaifeng Road, Guilin.

Legal Representative: Yulun Qiu, Manager of Chang Hong Company.

Attorney: Xiangdong Zhang, (ibid.)

Appellee (Plaintiff in the High People's Court):

The People’s Government of Binyang County, with an office at the government yard, Binyang County.

Legal Representative: Haizhen Ning, the head of the county.

Attorney: Xiangdong Zhang, (ibid.)

Defendant in the High People's Court:

Nanning Taian Property Development Co., Ltd. (Taian Property Company), with an office at 38-2, National Road, Nanning.

Legal Representative: Xiangyong Ma, Chairman of the Board of Taian Property Company.

Attorney: Ning Ma, staff, Nanning Taian Property Development Co., Ltd.

This is an action in copyright license contract dispute involving Dunde Chen, Beihai Zhong Ding Stock Co., Ltd. (referred to as “Zhong Ding Company”), Guilin Energy Resources Development (Group) Company (referred to as “Guilin Energy”), Guangxi Farm-Industry Products Purchasing & Sale Service Center (referred to as “Service Center”), Guangxi Old People Tourist Company (referred to as “Tourist Company”), Guilin Overseas Tourist Company (referred to as “Overseas Company “), Guilin Chang Hong Trade Company (referred to as “Chang Hong Company”), the People’s Government of Binyang County (referred to “Binyang Government”), Hong Kong Pei Run International Co., Ltd. (referred to as “Pei Run International”), and Nanning Taian Property Development Co., Ltd. (referred to as “Taian Property Company”). The action was brought before the High People's Court (referred to as “the initial court”) of Guangxi Zhuang Autonomous Region. The initial court made the Civil Judgment No.13 Civil Case (1996) Gui Chu Zi on December 31, 1998. 

Pei Run International appealed the decision of the initial court. In accordance with the law, this court established a panel to hear the appeal, now concluded.

The initial court identified following facts. On June 22, 1995, Dunde Chen in the name of the producer of a film “Tie Xue Kunlun Guan” (referred to as the “film”), and Xuequan Yang in the name of the representative of shareholders of the film forming as Party A, entered an Assignment Contract with Party B, the Pei Run International.

The Assignment Contract provided that Party A would assign the distribution right of the film, the by-products of the film and all of the related rights to Party B. The transfer fee was RMB 13 million. Party B was obligated to remit the distribution revenue of RMB 13 million to the accounts designated by Xuequan Yang within one year upon the effective of the contract. Party B was required to mortgage the 2^nd, 3^rd and 4^th floors of Taian Mansion to Party A before its sufficient remittance of the transfer fee in the due time. The mortgage was totally up to 3,792.52 square meters and valued as RMB 14,521,104. Party B was entitled to a limited distribution right at home and abroad based on the contract. The domestic distribution right was effective subject to the clear direction of the Film Bureau, Ministry of Broadcast, Film and Television Administration of the PRC. The period of the entitled distribution right was two years. If there were any distribution revenue generated from the third and fourth year, it would be shared according to the agreed terms by the parties. The distribution time at home and broad of the film would be calculated from the premiere day. No parties were allowed to modify or revoke or terminate the contract without due cause. Should any party breach the contract, the other party was empowered to claim compensation and seek legal protection. The contract also provided on the matters of supplying film material, promotional material and modifying film captions, etc. The parties obtained contract notarization as agreed after the signature. 

After the establishment of the contract, Pei Run International authorized Dunde Chen to go abroad to handle distribution matters. The plaintiff urged Party B to pay transfer fee in June 1996, while Xiangyong Ma, who was the Chairman of the Board of the defendant, wrote back to Dunde Chen and Xuequan Yang on June 6. Xiangyong Ma claimed that it had been nearly a year since the entering of the contract, it was an impractical desirability for the parties to perform the Assignment Contract. He suggested the parties not be bound by the contract. Dunde Chen and the like replied in written on June 16 demanding the parties perform the contract strictly. Then, because Pei Run International did not pay, the plaintiff raised a lawsuit to the High People’s Court of Guangxi Zhuang Autonomous Region.

The initial court also identified following facts. Guangxi Film Production Studio (referred to as “Guangxi Film Studio”) entered with Dunde Chen an Agreement on Independent Production of the Feature Film “Tie Xue Kunlun Guan” (referred to as the “Agreement on Independent Production”) on February 27, 1993. Under the agreement, Dunde Chen acting as the producer of the film shall organize a preparatory team, which shall be responsible to recruit sponsors to finance the film production in money and equipment, to select actors and to amend the scenario, etc. Dunde Chen shall pay RMB 300,000 as the management fees to Guangxi Film Studio. Guangxi Film Studio shall grant two-year distribution right of the film to Dunde Chen upon the completion of the production subject to the distribution approval of the Film Bureau. Dunde Chen shall be solely responsible for the distribution copies as well as distribution profits and losses. If there was distribution revenue remained between the third and the fourth years, the parties shall share the profit equally. Guangxi Film Studio shall recall the distribution right after four years. Dunde Chen shall invest the by-products of the film while Guangxi Film Studio shall be assigned 40% of the profit generated.

On March 5, 1994, Dunde Chen entered the Agreement on Raising Funds as Shares to Produce the Feature Film “Tie Xue Kunlun Guan” (refer to as “Agreement on Raising Funds”) in the name of production unit with plaintiffs, Zhong Ding Company, Guilin Energy, Service Center, Tourist Company, Overseas Company, Chang Hong Company, the People’s Government of Binyang County and Guangxi Liuzhou Communication School. Under the agreement, the film shall be jointly invested by the above eight legal entities with a total amount of RBM 10 million. After the signature of the agreement, except Liuzhou Communication School, seven of the above mentioned entities had invested RMB 10.3 million to the production. After the film was completed, it got showing license on December 1, 1994 permitting distribution at home and abroad. On February 27, 1995, the Film Bureau of Ministry of Broadcast, Film and Television Administration changed the distribution scope and limited it to only overseas distribution. No premiere has been held.

Pursuant to Article 85, Article 94 of the General Principle of the Civil Law of the PRC, Article 10, Article 15 of the Copyright Law of the PRC, and Article 16 of the Film Administration Regulations promulgated by the State Council, the initial court determined that:

1. Cancel the Assignment Contract entered between Dunde Chen, Xunquan Yang, the latter of whom represented the shareholders of the film, and Pei Run International.

2. Pei Run International shall compensate the plaintiff for economic losses RMB 6.5 million and the interest (The interest shall be calculated from June 22 of 1996, and shall be the lending rate of the same kind in the corresponding period published by the People’s Bank of China.). The payment shall be made within one month of the execution of the judgment.

3.  Pei Run International shall return all the promotional materials of the film delivered by the plaintiff.

The court acceptance fee was RMB 85,723, property preservation fee was RMB 70,520, totally amounting to RMB 156,243. The plaintiff shall bear RMB 78,121.50. Pei Run International shall bear RMB 78,121.50.

1. The Assignment Contract entered by Dunde Chen and the appellant was invalid. It was short of legal basis for the initial court to affirm Dunde Chen as the “independent film producer”. A natural person was incapable of being a legal “film producer”. Neither Dunde Chen was the copyright owner of the film, nor did he have any legal power of agency. So, Dunde Chen did not have the right to enter the Assignment Contract. Other contract parties were not qualified to make film transaction. It was not a valid provision in the Assignment Contract to agree Dunde Chen to sell the “entire investment shares” of the film, as he was not the actual investor. The actual investors did not have any legal relationship with Guangxi Film Studio who was the copyright owner of the film. Therefore, the plaintiff did not hold any investment share. It was inconsistent with the facts for the initial court to refuse to determine the appellees fraudulent.

2. It was wrong for the initial court to find that the appellant should bear fault liability because it did not hold premiere when it was granted the overseas distribution right, and did not actually distributed the film. Dunde Chen did not obtain imports & exports right. Thus he was disqualified for entering any foreign related contract. He could not guarantee the film to be shown and distributed legally and effectively. So Dunde Chen shall bear the non-distribution liability of the film.

3. No revenue had been generated from film showing. The appellant was not liable to any payment even though referring to Article 2 of the Assignment Contract.

4. As the Assignment Contract was entered before the Film Administration Regulations taking into effect, it was wrong for the initial court to apply the Regulations to judge the case.

5. When Chinese film was distributed overseas, the revenue generated would be no more than 10% of its domestic distribution revenue. It was short of factual and legal basis for the initial court to order appellant to compensate for RMB 6.5 million and the interest.

The appellant requested to vacate the initial judgment and amend it in accordance with the law.

1.   Dunde Chen was the producer of the film, or could be called as the “independent producer of the film”.

2.   The copyright owner of the film was Guangxi Film Studio. As the independent producer of the film, Dunde Chen obtained authorization from the Guangxi Film Studio, and entered the Assignment Contract with the appellant within authorization scope. Guangxi Film Studio affirmed the Contract afterwards. Therefore, Dunde Chen was qualified for entering the Assignment Contract. The Contract was the real intention expressed by the parties. Dunde Chen was not fraudulent. Guangxi Film Studio had the right to distribute the film overseas by itself. The notary office notarized the Assignment Contract, and the parties had performed the Contract actually. So, the Contract was legal and effective.

3.   According to Article 2.2 of the Assignment Contract, the appellant was obliged to pay RMB 13 million.

This Court ascertains that the facts determined in the initial trial were basically correct, a determination not objected by the parties. This Court also ascertains that:

 Under Article 28 of the Agreement on Raising Funds, the four-year distribution right of the film at which period were self-managed shall belong to the production unit, i.e., belong to the entire investors. Besides the agreed sharing provision provided under the Agreement on Independent Production, the showing revenue shall be shared on the basis of investment proportion. The parties shall share the profits and losses together. The Article also provided that the showing avenue should be shared among investors firstly in investment proportion. The producer shall only participate in the sharing when the production cost was recouped.

Under Article 5.3 of the Agreement on Raising Funds, upon the requirement of Party B, Party A was obliged to send personnel carrying the film (or video tape) to other countries and areas to negotiate distribution matters. The expenses shall be borne by Party B. Dunde Chen declared that he had delivered the copy of the film and promotional materials to the appellant following the provision of this Agreement. Section 4 of the initial judgment also ordered the appellant to return the copy and promotional materials to the appellee. The appellant did not object to it. This Court affirms this fact.

1. The validity of the Assignment Contract

In the context of copyright law, the “producer” of a film means the copyright owner. In this case the producer of the film is Guangxi Film Studio. The concept of “independent producer” in the Agreement on Independent Production between Guangxi Film Studio and Dunde Chen is not the same concept of “producer of film” in copyright law, but a common saying in the reform progress when investment manner of film production has evolved into an integrated diversity. It means the investment of the film and the specific organizer of film production. There is no legal means of the common saying. Therefore, it lacked legal basis for the initial trial to determine that Dunde Chen was the independent producer of the film.

As the copyright owner of the film, it is valid for the Guangxi Film Studio to assign the distribution right and other related rights that were kinds of property rights without breaking laws and regulations. On January 28, 1995, the Film Bureau of the former Ministry of Broadcast, Film and Television Administration promulgated the Temporary Regulation on Film Transaction (referred to as the “Temporary Regulation”). Although the Temporary Regulation prescribed the qualification requirement for dealing with film transaction, the condition attached in the provision of domestic distribution in the Assignment Contract was ineffective due to the unsatisfactory of the condition. The Guangxi Film Studio conducted the overseas distribution by itself and had sought approval firstly. Moreover, the Temporary Regulation was a kind of administrative provision. It is inappropriate to be applied as the basis to determine the validity of the Assignment Contract. Therefore, this Court rejects the appellant’s claim for invalidating the Assignment Contract.

 As the investors’ representative, Dunde Chen entered the Agreement on Independent Production with Guangxi Film Studio and was entitled to the distribution right for a period of time based on the agreement. Dunde Chen was rightful to enter the Assignment Contract with the appellant and establish civil legal relations on the matters of distributing the film as well as sharing the showing revenue. The appellant claimed that Dunde Chen lacked qualification to enter the Assignment Contract according to the Temporary Regulation is dismissed by this Court for the same reason mentioned above.

2. The liability of breaching the Assignment Contract

The Assignment Contract provided that the appellees was obliged to assist the appellant dealing with distribution matters only when Party B had such requirement and paid the expenses related. The export of film falls in the scope of special license administration in the country. It has no direct relation with the administration of imports and exports trade of goods. There is also no internal and inevitable relationship between whether Dunde Chen maintaining imports and exports right and whether the film being showed and distributed overseas. Therefore, it is correct for the initial trial to determine the appellant had fault for not actually distributed the film after it got the overseas distribution right. The appellant’s claim for Dunde Chen’s liability is rejected.

 In fact, the Assignment Contract is a non-gratuitous assignment for distribution right and other related rights. The Contract provided clearly that the transfer fee was RMB 13 million. The appellant claimed that having distribution revenue was the precondition for its payment obligation. Neither did the claim meet the provision of the Assignment Contract, nor did it comply with the rights and obligations in general non-gratuitous assignment contract. This appeal reason is rejected.

 According to the conditional provision for domestic distribution in the Assignment Contract, the distribution right assignment was divided into two parts, which included the assignment of domestic distribution right and the assignment of overseas distribution right. The domestic distribution appointment was ineffective due to the disapproval of government. The overseas distribution appointment was effective upon the establishment of the Assignment Contract. Dunde Chen had delivered the copy of the film and promotional materials to the appellant, which meant that the overseas distribution assignment had been performed. Based on the provision of the assignment deadline in the Assignment Contract, and the showing license issued by the Film Bureau, the former Ministry of Broadcast, Film and Television Administration on February 27, 1995, Dunde Chen was entitled to overseas distribution right until February 27, 1999. It is correct for the initial court to determine that Pei Run International was unnecessary to perform the Assignment Contract and the Contract should be cancelled. As the distribution right of the film has returned to Guangxi Film Studio at present, the object of the Assignment Contract has been no longer existed. The Assignment Contract has been expired naturally. The appellant declared that the overseas distribution revenue of films in our country was no more than 10% of its domestic distribution revenue. However, it did not provide evidence. Moreover, Dunde Chen and other appellees had no any other profit and had suffered great losses during the term of the Assignment Contract, because their rights had been assigned to the appellant. Therefore, it was reasonable for the initial court to order the appellant to compensate RMB 6.5 million. The appellant’s reason not to accept the initial compensation lacked sufficient factual basis, and is rejected by this Court.

The State Council promulgated the Film Administration Regulations on June 19, 1996. The Assignment Contract was entered on June 22, 1995. It is wrong for the initial court to apply the articles in the Film Administration Regulations in this case, and shall be corrected.

 In summary, the appellant’s reasons are untenable, except the one claiming the initial court applied laws inappropriately. This Court dismisses the appeal claim. The appellees required amending the compensation in the initial judgment to RMB 13 million and interest in their response. Because the appellees did not appeal for the initial judgment, this Court will not hear it. The initial court was basically clear in conclusion the facts. Although there was some inappropriate application of laws, it did not affect the material judgment for the case. Pursuant to Item 1.1 of Article 153 of the Civil Procedure Law of the PRC, this Court judges as follows:

1.                          The initial judgment is affirmed. The appeal is rejected.

2.                          The court acceptance fee is RMB 85,723, which shall be borne by the Hong Kong Pei Run International Company Limited.

This judgment is final.

 

Chief judge: Zhipei Jiang

 Judge:     Tianping Dong

Judge:      Hui Zhang