Evaluating New Copyright Reforms in the Mandarin Music Market: Assessing How Collective Management and the Licensing Systems Afford Economic Incentives for Artists by Chien-Chih Lu Doctor of the Science of Law (J.S.D.) in the School of Law of the University of California, Berkeley School of Law Committee in charge: Professor Robert P. Merges Professor Robert C. Berring, Jr. Professor Thomas B. Gold Spring 2019 Evaluating New Copyright Reforms in the Mandarin Music Market: Assessing How Collective Management and the Licensing Systems Afford Economic Incentives for Artists © 2019 by Chien-Chih Lu Abstract Evaluating New Copyright Reforms in the Mandarin Music Market: Assessing How Collective Management and the Licensing Systems Afford Economic Incentives for Artists by Chien-Chih Lu Doctor of Juridical Science University of California, Berkeley Professor Robert P. Merges, Chair China’s music copyright collecting society (the Music Copyright Society of China (MCSC)) and its new music platforms (e.g. Tencent, NetEase, Alibaba’s Xiami Music, Baidu Music and QQ Music), find points of commonality through constructing more efficient and profitable systems, so as to generate more users and greater income. These new perspectives can provide artists in the Mandarin music market with a more flexible and profitable pathway to construct their licensing infrastructure. It can also be observed how technology facilitates this breakthrough. In the relevant scholarly literature, articles on music licensing have mostly focused on music licensing issues within a single jurisdiction, or new approaches to music licensing issues discovered by concentrating on international norms. This research advocates the notion that the new licensing models and regulations in the U.S. and Europe deserve closer examination. By undertaking a comparison of the various copyright regulations, cases and statistics, this research aims to contribute to academic science by extracting frameworks and solutions from the U.S. and European licensing models, and examining them in context of the Mandarin music market. 1 2 TABLE OF CONTENTS I. INTRODUCTION ............................................................................................................1 A. Economic Freedom: The Ability to Participate in a Market ...........................................3 B. Incentive Theory: Motivation for Producing Valuable Artistic Works............................5 C. Applying Incentive Theory: The Music Industry in Statistics ........................................9 1. Economic Incentives ....................................................................................... 9 2. Technological Development ......................................................................... 12 3. Musical Works and Compulsory License ..................................................... 17 D. New Global Involvement of the Mandarin Music Market ............................................34 1. Building Active Communication through Music Streaming community ..... 38 2. New Future: Open and Diverse Internet World ............................................ 39 II. METHODOLOGY ........................................................................................................45 A. Comparative Research ..................................................................................................45 B. Empirical Research .......................................................................................................47 C. Significance of Research Outcome ...............................................................................48 III. THE HISTORY OF THE MANDARIN MUSIC INDUSTRY ..................................53 A. Confucian Ideology and Music Creativity ....................................................................53 B. The Establishment of the Modern Music Industry ........................................................54 C. Civil War and Governmental Censorship ......................................................................55 D. International Treaties and Globalization .......................................................................56 E. Collective Management System ....................................................................................57 F. Modern Implications: Innovative Technology and Legal Reform .................................66 IV.CRITICAL CHALLENGES IN COPYRIGHT AND MUSIC LICENSING ..............71 A. Monopolies and Competitive Markets ..........................................................................71 1. Legal System and Tradition .......................................................................... 71 2. Legal Design of Monopoly Position ............................................................. 72 i 3. Regulation of Monopoly Abuses .................................................................. 73 4. Due Process on Price Setting: Seeking Transparency and Accountability ... 75 B. Civil Law Tradition: Questions of Juridical Standing to File Lawsuits ........................76 C. Potential for Massive Lawsuits Affect the Karaoke Industry .......................................79 D. Expansion of the Compulsory Licensing Arrangement ................................................82 E. Database and Coding System: Benefits and Challenges ...............................................83 V. POSSIBLE ANSWERS ................................................................................................87 A. Adopt Antitrust Law System ........................................................................................87 1. Specialized Supervision ................................................................................ 87 2. Antitrust Law Approach ................................................................................ 88 3. Consent Decree ............................................................................................. 90 B. Standing to File the Lawsuit..........................................................................................91 C. Extended Collective License .........................................................................................92 1.Promising Responses to Massive Lawsuits ................................................... 93 2. Malformation of Compulsory License .......................................................... 95 D. New Approaches from the Music Modernization Act ..................................................96 1. Availability and Scope of Compulsory Licenses .......................................... 99 2. The New Operation of Compulsory License .............................................. 101 3. Drawbacks of Compulsory Licensing ......................................................... 103 E. Interoperability: Mechanical Licensing Collective .....................................................108 1.New Music Works Database ......................................................................... 111 2. Digital License Coordinator .........................................................................114 F. Continuing Modernization Progress in China ............................................................. 115 1.The First Amendment ...................................................................................115 2. The Second Draft Amendment .....................................................................118 3. The Third Draft Amendment and Further Developments ............................119 VI. SUBSEQUENT CONTROVERSIES IN MANDARIN MUSIC MARKET ............123 A. New Developments of Chinese CMOs .......................................................................123 ii B. A New Topic of Fair Opportunities: Chinese Online Music Services .........................125 1. Abuse of Dominant Position ....................................................................... 129 2. Absence of Diverse and Vast Related Market Power .................................. 129 C. Appropriation Art as a Cornerstone of Modern Music ................................................131 1. Vague Standards Exist for Appropriating Existing Music .......................... 133 2. High Transactional Costs Inhibit Use Cases ............................................... 135 3. Dangers of Settlements ............................................................................... 135 4. Non-Visual Product Placement as The Next Wave of Music Monetization 136 5. Possible New Approaches to Reforming the Licensing Ecosystem ........... 140 D. Advanced Licensing Mechanism ................................................................................144 1. Avoid Anti-Competitive Concerns .............................................................. 145 2.PeculiarExtended Collective Licenses in China .......................................... 155 E. Exterior Incentives and Boundaries.............................................................................158 1. Taiwan’s Impacts: Cultural Modernity and Soft Power.............................. 158 2. International Treaties: Berne Convention’s Three-Step Test ...................... 171 3. Moral Rights System in Mandarin Music Market ...................................... 175 4. Modernization under External and Internal Pressure .................................. 176 VII. CONCLUSION ........................................................................................................181 A. Reforms of Collective Management System ..............................................................181