ETS and GMAC v. Beijing New Oriental Language School(1)

The Beijing High Court on December 27, 2004 has held in favour of the US-based Graduate Management Admission Council[2] (GMAC) and Educational Testing Service[3] (ETS) for copyright infringement and ordered Beijing New Oriental Language School[4] to pay compensation of RMB6.4 million Yuan (US$ 774,000) in damages and to destroy all of its infringing course materials. New Oriental was also ordered to publish a public apology in the Chinese newspaper, Legal Daily.[5] The case is the first intellectual property cases to be litigated in China since China’s admission to the World Trade Organization[6] and has been closely watched as an indicator of the extent to which intellectual property rights will be enforced in China.[7]

 

New Oriental is an extremely popular private overseas examinations training school in China. Thousands of students come to New Oriental for special training every year mainly because they can get the examination papers originated from ETS and GMAC, which are not available elsewhere in China.[8] New Oriental’s publications concerning infringing examination papers are not limited to books. Audio-tapes and CDs are also in the scope of their distribution. Internet surfers are able to access the test questions by logging onto the Oriental website.[9] New Oriental has more than ten branches across China. It is said that about 450,000 peoples were trained at its schools in 2003 according to its website.[10] GMAC based in Virginia administers the Graduate Management Admission Test[11] which is used by business schools. ETS, based in Princeton, New Jersey, administers the Test of English as a Foreign Language[12] and Graduate Record Examination[13]. The three exams are widely regarded as “a stepping stone” by Chinese students to enter American universities, which are essential to the success of any application for admission to or a scholarship at a US university. Both ETS and GMAC publish collection of past tests for the use by potential test-takers in preparing for the tests and also issue publishing rights for its materials in many other countries, such as Japan, Canada and the United States, but not in China.

 

The lengthy lawsuit was started in January 2002 when ETS and GMAC claimed New Oriental, without authorization, had copied a mass of exam papers for TOEFL, GRE and GMAT.[14] Some materials published by New Oriental had been confidential and had not been issued elsewhere in the world. ETS and GMAC alleged that trademark and copyright were infringed against New Oriental for having reproduced, distributed and made available on the Internet the copyrighted materials of TOEFL, GRE and GMAT test questions for the commercial purpose. In view of the fact that TOFEL, GRE, GMAT have been registered as trademarks in China in particular.[15] New Oriental argued that the materials were used solely for teaching and training purpose and the validity of copyright in the test questions which had been in the public domain used by students worldwide was contestable. Therefore, the test papers are not within the range of protection according to the Copyright Law of the People’s Republic of China.[16] The argument was rejected and the first-instance judgement was made by the Beijing No. 1 Intermediate People’s Court in September, 2003 after a trial lasting more than a year ordering New Oriental to pay compensation of RMB10 million Yuan (US$1.2 million) for copyright and trademark infringement,[17] stop the infringement immediately, submit all infringing materials as well as printing plates for destruction to the court and make a public apology.[18] New Oriental refused to accept the judgement and instituted an appeal to the Beijing High People’s Court, the second and final judgement was handed down by the High People’s Court and the penalty was reduced because there had been no violation of the US trademarks but as the school still violated copyright by copying examination materials.[19]

 

The decision is of great significance, which is a victory not only for the GMAC and ETS, but also for all foreign organizations that have business in China.[20] Therefore, it is necessary to do a further research concerning the issue of copyright protection in China under the Berne Convention for the Protection of Literary and Artistic Works,[21] The Sino-US Memorandum concerning the Protection of Intellectual Property, Chinese Copyright Law, Chinese Trademark Law and the commitments made by Chinese government before China’s admission to World Trade Organization to protect intellectual property. 

 

 

The Berne Convention is the earliest multilateral treaty in the protection of copyright in the international community. Both China and the United States are signatory states of the Berne Convention,[22] and they have international obligation to protect works of the Union authors’. Since the official diplomatic relations established in 1971, the United States and the People’s Republic of China concluded a trade agreement in 1979 to satisfy the requirements of the 1974 Trade Act for pacts with socialist nations. Section 2435 of the 1974 Trade Act establishes the criteria that must be satisfied before the “[P]resident may authorize the entry into force of bilateral commercial agreements providing non-discriminatory treatment to the products of countries heretofore denied such treatment.” At that time, both China and the US were not the signatories of the Berne Convention, so a bilateral agreement in regards to the protection for intellectual property is very needed.[23] Section 2435 requires that the agreement “provide rights for United States nationals with respect to patents…and copyrights in such country not less than the rights” specified in relevant international conventions. Article VI of the US and People’s Republic of China Trade Agreement of 1979[24] actually is the central point to commit China to protect American intellectual property, which enable citizens of one nation to secure rights in the other, regardless of where works are first published.[25]

 

Works protected are enumerated in article 2 (1) of the Berne Convention:

“The expression ‘literary and artistic works’ shall include every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression, such as books, pamphlets and other writings…”[26]

Literary works refer to written or printed composition irrespective of the quality or style is high or not.[27] “[A]s well as works embodying the fruits of considerable creative or intellectual endeavour, copyright has been allowed in such mundane compilations of information as…examination papers…”[28] Examination paper is obviously a work in the category of writings. All writings, of whatever kind or merit, are to be protected under the Berne Convention regardless of their artistic merit.[29] Examination papers are the results imply the presence of some element of creativity and include the result of some creative or intellectual activity. The quality and style of the element of intellectual creation is quite irrelevant for the purpose of protection under the Berne Convention. Therefore the courts are relieved of any obligation to make aesthetic judgements about the work that are to be protected.

 

Examination papers are also protected under Chinese Copyright Law. The works protected as defined in article 3 include: “…works of literature, art, natural science, social science, engineering technology and the like which are expressed in the following forms...”[30] Examination papers as a category of written works fall into the scope of works of literature. “Written works are those expressed in written form, such as novels, poems, essays and theses…”[31] Although the Implementing Regulations does not directly mention examination papers as a subject matter protected under the Chinese Copyright Law, written works includes a number of items, the enumeration is not exhaustive. It is reported that New Oriental compiled the examination papers in copyright as books to distribute for students’ use. Such books are protected under the condition that works embodying the fruits of considerable creative endeavour not taking accounting of the quality, the style and the literary finish. Copyright has been allowed in the compilation of examination papers like a timetable index, trade catalogues, street directories, football fixture lists, a racing information service and the listing of programmes to be broadcast and the like. The precondition is that they are original and some minimal standard of effort is input in creating the aforesaid works.[32]

 

The prerequisite for copyright protection accorded to examination papers is that the examination papers are original which bringing out one characteristic of the requirements of “skill, labour and judgement” expended by authors in the course of creation. This requirement means the examination papers are not copied from an existing work.[33] Obviously papers of TOEFL, GRE and GMAT developed by ETS and GMAC are the results of creative intellectual activity that are protected under both the Berne Convention and Chinese Copyright Law. ETS and GMAC became entitled to the copyright. The New Oriental has made “thousands of illegal copies of ETS and GMAC test papers” since 1997.[34] These materials are “original” from ETS and GMAC and sold to Chinese students without any adaptation, change and new arrangement in the content and form. The New Oriental gained huge profits from using and selling the infringing materials.

 

As far as the requirement of “originality” concerned, Chinese Copyright Law does not give a definition. However, in legal practice, the definition in the copyright sense has been accepted as the work must not be copied from another work—that it must originate from the author.[35] “Originality” stresses on the expression of the idea rather than the idea itself. That is to say Chinese Copyright Law protects the expressions of not only an original or inventive thought but also a non-original or non-inventive thought. The infringing works made by New Oriental, which are expressions neither of its own inventive thought nor of its non-original idea, are obviously out of the protection scope.

 

 

New Oriental once argued that it used the materials solely for teaching and training purposes and challenged the validity of copyright in the test questions that were used by students worldwide.[36] “Teaching and training” are categories of fair use. Actually the Berne Convention poses some limitations on an author’s rights in particular cases. Articles 9(2), 10(1)(2) of the Berne Convention are regarded with the issue of “fair use”. Copyright protected materials used “for teaching and training purposes” must satisfy such requirements—not for commercial purpose and without unreasonable violation of authors’ rights. Article 10(1) provides that:

“[I]t shall be permissible to make quotations from a work which has already been lawfully made available to the public, provided that their making is compatible with fair practice, and their extent does not exceed that justified by the purpose...”[37]

Quotation is an integral part of many kinds of intellectual activity. The work in question must be “lawfully made available to the public” and be made in any means. Article 10(1) contains no limitation on the kinds of work that may be quoted. So in order to be for a specific purpose or for a special reason, all works falling within provisions of Article 2 of the Berne Convention can be quoted, for example, examination papers. The making of the quotation must be “compatible with fair practice.” “Fair practice” or “fair use” concerns a very important matter that is the quoted “length” of a certain work. In this respect, the Berne Convention leaves it to national legislations. Stipulations in various member states are of little differences.[38] The relevant explanation in the Chinese Copyright Trial Regulations Implementing Rules may give a clue as to some of the common criteria. The appropriate quotation or excerpts are limited to:

(1)      no more than 2,500 characters or 10 per cent of the quoted non-poetic work (prose), or in the maximum 10,000 characters if the quotes from the same work have to be repeated;

(2)      no more than 40 lines or 25 per cent of the quoted poetic work (verse), except poetry in the classical style;

(3)      the overall proviso that the quoted portion does not exceed 10 per cent of the user’s work, except for commentaries on special topics and poetry in classical style.[39]

To compare the two aforesaid stipulations, the similarity in usage is only short proportion is allowed. In this circumstance, the person who quoted need not get permissions from the author of the used work, nor pay any royalty. Unfortunately, New Oriental “quoted” the whole sets of examination papers or the whole test books illegally.[40] Therefore, “fair use” or “fair practice” must “not conflict with a normal exploitation of the work and unreasonably prejudice the legitimate interests of the author.”^[41] A portion of a set of examination paper used, generally speaking, may be suitable while the use of whole or most part of it is excluded under the Berne Convention. The extent of the quotation must “not exceed that justified by the purpose.” A range of “the purpose” is “quotations for ‘scientific, critical, informatory or educational purposes’ within the scope of the Article 10(1).”^[42] So “fair use” is absolutely not free use.

 

Article 9 (2) of the Berne Convention provides:

“It shall be a matter for legislation in the countries of the Union[43] to permit the reproduction of such works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author”.[44]

“In certain special cases” indicates that the reproduction must be for a specific reason, such as for teaching in class or for a private study, or due to the public policy.[45] “Normal exploitation of a work” refers to the ways in which an author might reasonably expect to exploit his work in the normal course of events. Obviously any exception to the right of reproduction shall inevitably prejudice the author’s “legitimate interests”—economic rights and moral rights. So an adjective “unreasonable” is needed. If a rather large number of copies for commercial purposes and an equitable remuneration are not paid to the author. This is “unreasonably prejudice the legitimate interests of the author.” From the aforesaid analyses and facts, New Oriental made “thousands of illegal copies of ETS and GMAC test papers” since 1990’s without any authorization from ETS and GMAC and gained huge profits from using and selling the reproduced infringing material.[46] So what it did “unreasonably prejudice the legitimate interests of the author”.[47]

 

The use of works for teaching purposes is a matter for legislation in the countries of the Union or for special agreements between member states. Article 10(2) provides as follows:

“[I]t shall be a matter for legislation in the countries of the Union, and for special agreements existing or to be concluded between them, to permit the utilization, to the extent justified by the purpose, of literary or artistic works by way of illustration in publications, broadcasts or sound or visual recordings for teaching, provided that such utilization is compatible with fair practice.”

The word “utilization” is for references to special purpose and fair practice, which are the same as those in Article 10(1). The phrase “by way of illustration” imposes some limitation, not absolute limitation, on how much a work could be used for “teaching purpose”. The papers of TOEFL, GMAT and GRE could be introduced for the teaching use in classes. That is to say “the use of an entire work might be allowed within Article 10(2)”.^[48] As to the range of utilizations included in Article 10(2) applies to all works protected by the Berne Convention, namely every production in the literary, scientific and artistic domain stipulated under Article 2(1) could be used as teaching materials, unfortunately, ETS’s and GMAC’s examination papers were used for the purpose of not only teaching but also commerce by New Oriental.

 

On appeal, the Beijing High Court accepted New Oriental’s argument that no trademark infringement could exist since the use of ETS’ and GMAC’s trademark on their public and cassettes were for descriptive purposes. More specifically, the use of “TOEFL”, “GRE” and “GMAT” was used solely for the purpose showing that the relevant materials related to the official tests. Using the trademarks in a descriptive sense allowed consumers to know the main contents of examination papers. Furthermore, the Beijing High Court presumed that since the use of the trademarks was in a descriptive sense, consumers would not be confused as to whether the contents of examination papers published by New Oriental were affiliated with or published by ETS and GMAC.

 

The explanation in the final judgement to some extent is not convincible. On the contrary, the decision by the court of the first instance is reasonable. The Beijing No.1 Intermediate People’s Court had concluded that since ETS had registered “TOEFL”, “GRE” and GMAC had registered “GMAT” as its trademark in specific categories of goods, such as books, journal and the like, under Chinese Trademark Law. New Oriental had printed and distributed on covers of their training materials with “TOEFL”, “GRE” and “GMAT”, such as “GRE Series Textbooks”, “GMAT Logic”, and “TOEFL Grammar”. According to the Beijing Intermediate Court, the use of the marks by New Oriental constituted trademark infringement since not only did ETS and GMAC register the marks but also the use of the marks in New Oriental’s publications fell in a particular class of goods which ETS and GMAC had registered for protection. Therefore, it is necessary to do further research from the function of trademark, the nature of the trademark right and define what is “descriptive sense” and what is the use of trademark.

 

Chinese Trademark Law does not give the definition of trademark directly. A trademark is a sign which may consist of any word, design, letters of an alphabet, numerals, three-dimensional symbol, combinations of colors, and their combination which are capable of distinguishing the goods or service of one natural person, legal entity or any other organization from that of others.[49] Generally speaking, trademarks may have four functions:

(a)   the indication of origin function;

(b)   the product differentiation function;

(c)   the quality guarantee function;

(d)   the advertising function.

The origin function indicates the examination papers bearing “TOEFL”, “GRE” and “GMAT” are only from GMAC and ETS or a licensee. These trademarks have been registered in both China and the US. Anyone cannot use them on examination papers or text books without permission from the rightholders. The product differentiation function indicates that the marks are only used on books, journals test papers not on cars, tables, bowls, watches and the like. These marks guarantee the quality bearing the inference that the level of test papers is for the requirement of students to read postgraduate degree in universities in the US not as that of baby English. And simultaneously the use of these marks means such test papers are for students’ advance English examination. New Oriental not only used these marks but also used in the categories of products registered by ETS and GMAC for protection in China.[50] Chinese Trademark Law states that

“…to use a registered trademark on identical or similar commodities or using a sign that is identical or similar to the registered trademark of other people as the name of commodity or as the decoration of commodity so that the general public is misled is an act of infringing upon the exclusive right of registered trademarks.”[51]

 

Trademark registration confers an exclusive right, the trademark is used to differentiate a product from others. The only right is to prevent others from using in trade of an identical or similar sign as a trademark for specific category of goods or service for the purposes of the registration of marks under the Nice Agreement. A trademark is endowed with a attribute of property. It can be allocated a monetary value. The American business magazine Financial World concluded in its 1993 survey of brand names that COCA-COLA worth $33.4 billion and INTEL worth $17.8 billion.[52] The valuation of brands is used as a means of fending off an illegal exploitation. All test papers used by New Oriental consisted of original test papers from ETS and GMAC through illegal routes and imitation test papers that are compilation with considerable amount of exercises from original test papers. Both categories of papers are bearing “TOEFL”, “GRE” and “GMAT” respectively as mentioned above. What New Oriental did is to show students that these papers are original test papers from ETS and GMAC or their imitation test papers share the same quality or level as that of  “TOEFL”, “GRE” and “GMAT” desperately. Those marks used by New Oriental were for the purpose of advertising and attracting more students to make more benefits. That is the real reason that New Oriental does not use “TTK”, “AAA”, or “DDT” on covers of their training materials. Imaginably, if New Oriental does not use “TOEFL”, “GRE” and “GMAT” or if students do not know these test papers are original, who will spend so much training fees to take part in such training? Actually students from almost all over China join such training in New Oriental just concentred on the “original” papers from “ETS” and “GMAC” and such training is helpful of them to pass the American examinations.

 

Here there is a question the Beijing high Court may not answer, that is what is the definition of “descriptive use”. “Descriptive use” is a description for the purpose to make people to understand, or to introduce the function, form, structure of the item in question. For example, the following descriptions are treated as “descriptive use”,

(1)   “TOEFL” is an trademark registered in China and the US, the rightholder, “ETS”, enjoys the exclusive rights;

(2)   “TOEFL” is the abbreviation of “Test of English as Foreign Language”;

(3)   “TOEFL” is an English examination for students who will enter the postgraduate study in American Universities.

A presumption may well be made here that the view of non-infringing trademark in the final decision is acceptable. It is possible that the mark of  “COCA-COLA” could be used in the design of Chinese beverage “FeiChang-COLA” as “COCA-COLA’s taste—FeiChang COLA”. If such a legal action is taken by COCA-COLA company, any court is afraid not to make a non-infringing decision with a reason that the use is just to be descriptive of the taste of FeiChang COLA being like, similar, or identical to that of COCA-COLA. The only purpose of the New Oriental using these trademarks is to express that those test papers from “ETS” and “GMAC”. Therefore, the decision made by Beijing High Court that “TOEFL”, “GRE” and “GMAT” used by the New Oriental on its publications only as the names of the tests rather than business brands is contestable.

 

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