Abstract: The “Race for Love” is a new musical created jointly by Beijing Huairou District and Broadway Asia International, LLC. (hereinafter referred to as “Broadway”) in 2009. This musical, with a total investment of RMB 52 million, taking movies as its theme, integrates organically the elements of world movies with the elements of Chinese movies. Being both artistic and appreciative, it is a combination of Chinese and Western culture.
The project was funded solely by Beijing Huairou State-owned Assets Management Co., Ltd. (renamed subsequently as Beijing Huairou District State-owned Capital Management Co., Ltd., hereinafter referred to as the “State-owned Company”). According to the agreement, all copyrights of the said musical shall be owned by the State-owned Company within Beijing, while in regions outside of Beijing, 70% of the copyrights of and the related interests in such musical shall be owned by the State-owned Company and 30% of the copyrights of and the related interests in such musical shall be owned by Broadway. On May 24, 2010, Beijing Kaichuang Damo Dream Film and Television Cultural Communication Co., Ltd. (renamed subsequently as Beijing Damo Huahai Ecological Agriculture Co., Ltd., hereinafter referred to as “Damo Huahai”) signed a copyright transfer contract with the State-owned Company, under which the State-owned company will transfer 50% of its share of copyright in the musical “Race for Love” to Damo Huahai at a price of RMB 20 million. In 2018, Damo Huahai filed a case with Beijing Dongcheng District People’s Court on the grounds that there were defects in the copyright of the musical “Race for Love” transferred by the State-owned Company, the State-owned Company failed to distribute profits from performances to Damo Huahai, and that the State-owned Company had committed contract fraud, petitioning the court to order a rescission of the Copyright Transfer Contract, and order the State-owned Company to return the copyright transfer price of RMB 20 million to Damo Huahai and pay liquidated damages of RMB 4 million to Damo Huahai.
Lawyer Xu Xinming represented the State-owned Company in the whole process of responding to this case. After public hearings of this case, the court of first instance made rendered a Civil Judgment numbered (2018) Jing 0101 Min Chu No.12391 on May 23, 2019, which overruled all claims of Damo Huahai. Damo Huahai did not obey the above Civil Judgment and filed an appeal with Beijing Intellectual Property Court. After hearing this case, the court of second instance made a Civil Judgment numbered (2019) Jing 73 Min Zhong No.2727 on October 27, 2020, which overruled all claims in the appeal of Damo Huahai.
I.“Race for Love”-The birth of China’s first original new Broadway musical
Beijing Huairou District not only has beautiful scenery, but also has a famous film and television base. Huairou is particularly a popular place for cultural innovation. In order to create Chinese local musicals and promote Chinese culture to go global, on April 18, 2009, Beijing Huairou Film and Television Base Management Committee (Party A, hereinafter referred to as the “Film and Television Base Management Committee”), Beijing Shanliang Culture Communication Co., Ltd. (Party B) and Broadway Asia International, LLC. (Party C, hereinafter referred to as “Broadway”) signed a Cooperation Agreement on the Foreign Consultant of Chinese Huairou Original Musical. On the same day, the Film and Television Base Management Committee (Party A) and Broadway (Party B) signed a Strategic Cooperation Agreement on Long-term Commercial Development of the First Broadway Original Musical of China Huairou. On July 12, 2009, the Film and Television Base Management Committee (Party A) and Broadway (Party B) signed a Supplementary Agreement on Clarifying the Ownership and Distribution of Copyrights to the Cooperation Agreement on the Foreign Consultant of Chinese Huairou Original Musical. Under the aforesaid agreements, the Film and Television Base Management Committee engaged Broadway to create and stage a new musical in order to realize the goal of developing Huairou into a industrial base of original stage plays of China. Broadway shall create a new musical for the Film and Television Base Management Committee, which shall take the movie subject matters as its theme, be able to integrate organically the elements of world movies with the elements of Chinese movies (with the Chinese movie subject matters accounting for about 15%), have complete story lines and drama conflicts, be artistic and appreciative, be able to enable the audience to appreciate the personalized charm of musicals, and contain the comprehensive characteristics of modern musicals in terms of dance beauty, props, dance area transformation and design organization, and therefore constitute a representive high level modern musical. Within the area of Beijing, the Film and Television Base Management Committee will own all copyrights of the new musical exclusively, as well as all benefits generated from the performances, derivative products and sponsorship of the new musical. Broadway is retained to provide professional services, creative services and management services. In any regions other than Beijing (including other cities and regions in China and other countries and regions in the world), the Film and Television Base Management Committee and Broadway jointly own the copyrights of the new musical, and the benefits generated from the performances, derivative products and sponsorship of the new musical, of which 70% shall be owned by the Film and Television Base Management Committee and 30% shall be owned by Broadway. Both parties shall respectively develop and utilize the aforesaid copyrights in different ways.
In December 2009, Huairou's first Broadway original musical “Race for Love” was performed at Huairou Theater: a huge wealthy kingdom, fiercely competitions between the twin sister and brother, competitions for winning the inheritance right, a journey full of suspense, from London to Paris, from Hannibal to Hollywood ……… the elder sister Jill and the younger brother Jack came to China after many hardships and met on the magnificent Great Wall ……
By skillfully integrating clips of both Hollywood movies and Chinese movies, the musical tells a touching story of a pair of twin sister and brother who set out from New York according to their father's instruction, traveled around the world in the east direction and the west direction respectively and competed with each other, and finally met and reunited in China. All the actors in the musical are from Broadway, who are artists with great accomplishments. The first round of performance of the musical was a huge success, which accumulated valuable experience for the development of the Chinese original musical culture.
In order to better operate the musical, Beijing Huairou Film and Television Base Management Committee transferred its share of copyrights of the musical “Race for Love” to the State-owned Company with the approval of Huairou District Government on January 18, 2010.
II.In their offorts of striving for excellence, all parties concerned decided to revise the musical “Race for Love”, and to perform the musical abroad.
On February 26, 2010, Beijing Huairou District Business Convention and Exhibition Promotion Center (Party A, hereinafter referred to as the “Business Convention and Exhibition Center”), the State-owned Company (Party B) and Broadway (Party C) signed a Cooperation Agreement on the Foreign Consultant of Chinese Huairou Original Musical-Phase II (“Phase II Agreement”), which stipulates that the parties agree to make revisions and new productions in 2010, hold the second round of technical rehearsals in Huairou, hold the second round of performances in Huairou Theater in June 2010, and make the international debut of the musical in the Edinburgh International Festival in August 2010. In order to ensure the smooth progress of various tasks, this agreement makes provisions on the following matters: the revision, production and repeformance of the musical, going to the UK to attend the Edinburgh International Festival, preparation of projection equipment needed for the production and performance of the musical, theater use, payment of funds and other matters as well as the responsibilities and rights of the parties.
Party A, the Business Convention and Exhibition Center, being the musical production management entity authorized by Huairou District Government, shall be mainly responsible for the overall planning, design, supervision and implementation of this project.
Party B, the State-owned Company, being the holder of Huairou District's share of copyrights of the new musical authorized by Huairou District Government, shall be responsible for handling the formalities and remittance of all funds payable by Party A and Party B to Party C according to the provisions of the Phase II Agreement, and paying the funds according to the budget and the payment time agreed by the parties in the annex to the Phase II Agreement.
Party C, Broadway, being the partner of making and executing the script and production of the new original musical in Phase II, is engaged by Party A and Party B to complete the modifications and production, reperformance, second-round performances, and the international debut of the musical in Edinburgh.
III.Beijing Kaichuang Damo Dream Film and Television Cultural Communication Co., Ltd. purchased 50% of the State-owned Company’s share of copyrights of the musical for a consideration of RMB 20 million, with a view to jointly conducting commercial operations and maximizing the commercial benefits of the musical
The musical “Race for Love” is the first original Broadway musical in China, which is a milestone and naturally attracts the attention of many investors. After taking various factors into consideration, Huairou District finally chose to cooperate with Beijing Kaichuang Damo Dream Film and Television Cultural Communication Co., Ltd. (hereinafter referred to as “Kaichuang Film and Television Culture”). On May 24, 2010, Party A, the State-owned Company, and Party B, Kaichuang Film and Television Culture, signed a Copyright Transfer Contract for Huairou Broadway Original Musical “Race for Love” (hereinafter referred to as the “Copyright Transfer Contract”).
The main contents of the Copyright Transfer Contract are as follows:
Article 3Proportion of Copyrights Transfered, Geographical Scope, and Types of Rights
Party A transfers 50% of all its share in the copyrights of the musical “Race for Love” owned and controlled by Party A to Party B. After the signing of the Copyright Transfer Contract, in the overall copyright structure of the musical work, Party B will own 50% of the copyrights of the musical work in Beijing, and 35% of the copyrights of the musical work in regions other than Beijing (other cities and regions in China and other countries and regions in the world).
The transferred copyrights include the rights stipulated in Item 5 to Item 17 of Paragraph 1 of Article 10 of the Copyright Law of the People’s Republic of China.
Article 4 Copyright Transfer and Operating Expenses
The total transfer price is RMB 20 million (tax included). Except the above expenses, Party B will not pay any expenses.
Article 6 Rights and Responsibilities of Party and Party B
(I) Rights and Responsibilities of Party A (the State-owned Company): 1. Party A warrants that there are copyrights in the musical “Race for Love”. 2. Party A warrants that it owns the copyrights of the musical “Race for Love” to be transferred under the Contract and has the full legal qualification and right to sign this Contract. The copyrights to be transferred under this Contract do not contain any content that infringes upon the copyrights and other rights and interests of others. 3. Party A warrants that it has not created any encumbrance (including but not limited to guarantee, mortgage, pledge, lien and right of offset on things) on the musical “Race for Love” existing as of the signing date of this Contract. 4. Party A warrants that there is no previous transfer, license, option transaction or other transaction of the rights transferred under this Contract that may conflict with the rights granted under this Contract, and that it will not transfer or grant the copyrights to be transferred to Party B under this Contract to any third party again within the term of this Contract. 5. Party A warrants that the musical work is the original work of the author, except for the contents which have entered the public domain, and the musical work does not and will not infringe upon the rights of any others or otherwise violate laws or cause the obligation to pay royalties or any amount to others. 6. Party A warrants that the producer agrees with the decisions and obligations made and borne by Party A in this Contract. 7. Party A will provide Party B with relevant operation information of the musical “Race for Love” on time and in full. 8. Party A has the responsibility to use its best endeavors to develop copyright interests, so that the Parties can get more benefits. 9.Party A shall have the right to legally obtain the copyright transfer price. 10. Party A shall have the right to request Party B to jointly protect the copyright of the original musical “Race for Love” against infringement. 11. Party A shall have the right to request Party B to comply with internationally accepted copyright protection regulations in using any audio and video materials involved in the copyright for publicity. 12. Party A shall have the right to use Party B's name and logo to produce publicity materials in relation to the musical work with the written consent of Party B. 13. The representations, undertakings and warrants made by Party A with respect to the existence of the copyrights of the musical work under this Contract and Party A’s ownership of the copyrights of the musical work transferred by Party A to Party B shall be attached to this Contract as annex and constitute an integral part of this Contract. If Party A breaches the above representations, undertakings and warrants, or the copyright of the musical work under this Contract does not exist for any reason, Party A shall bear the default liabilities to Party B in accordance with the provisions of Article 11 of this Contract.
(II) Rights and Responsibilities of Party B (Kaichuang Film and Television Culture): 1. Party B warrants that it will pay the copyright transfer price and operating expenses of each installment according to the payment time agreed in this Contract. 2. Party B undertakes that it will not sign any contract that conflicts with the rights and interests under this Contract during the term of this Contract. 3. When Party B conducts the copyright publicity and commercial development of the musical “Race for Love”, it shall work together with Party A. 4. Party B warrants that it will work with Party A to protect the copyright of the musical “Race for Love” against infringement during the publicity and performance of the musical “Race for Love”. 5. After this Contract is signed, Party B shall promptly authorize and permit Party A to use its company name, logo and the accurate name of the main representative recognized by Party B, which will appear in the relevant publicity materials of the musical. 6. Party B shall use its best endeavors to jointly publicize the musical with Party A, and constantly promote and expand the performance market. 7. Party B shall have the right to use the relevant text and video materials of the musical “Race for Love” for independent publicity; however, Party B shall ensure that it shall produce publicity materials on the premise of not harming the interests of the original copyright owner. 8. Party B shall have the right to obtain the relevant operation information on the musical and participate in various activities to be held for the operation and publicity of the musical.
Article 7Income Distribution: 1. For the purpose of this Contract, the income refers to the net profits obtained from the commercial performances of all parties after the copyright transfer less the costs of transportation, wear, etc. of personnel, clothing and props. The income from the performances shall be distributed between the parties in proportion to their shares of copyright ownership, that is, Party A and Party B will respectively obtain 50% of the income from commercial performances in Beijing, and 35% of the income from commercial performances in regions other than Beijing (other cities and regions in China and other countries and regions in the world). The parties will, according to the progress of the work, separately sign a financial co-management agreement on performance income as an effective annex to this Contract. 2. The performance organizer shall be responsible for the new investment involved in the expansion of publicity of performances, the revision of the play, the production of new costumes and props, etc. 3. Any loss caused by commercial performances shall be handled according to the specific commercial performance contract. 4. Party A and Party B must use their efforts to jointly promote the commercial operation of developing the performances of the musical.
Article 11Liabilities for Breach of Contract: If Party A breaches its undertakings and warranties made under this Contract, Party A shall return all the amounts received to Party B and pay the liquidated damages amounting to 20% of all the amounts to Party B, and Party B shall have the right to unilaterally rescind this Contract.
The Cooperation Agreement on the Foreign Consultant of Chinese Huairou Original Musical signed by Party A and Broadway on April 18, 2009, the Supplementary Agreement on Clarifying the Ownership and Distribution of Copyrights to the Cooperation Agreement on the Foreign Consultant of Chinese Huairou Original Musical signed on July 12, 2009, and the future long-term business development strategic cooperation agreement are described in the annex to this Contract.
IV.Disputes occurred during the performance of the contract, the copyright transferee filed a lawsuit, and the State-owned Company retained a lawyer to actively respond to the lawsuit
After the signing of the contract involved, Kaichuang Film and Television Culture paid a contract amount of RMB 20 million.
From June 6 to 19, 2010, the musical “Race for Love” was performed in Huairou District for the second round. In August 2010, the musical “Race for Love” was performed in Edinburgh, England.
Since then, no commercial performance of the musical involved has been organized.
On March 12, 2014, Beijing Kaichuang Damo Dream Film and Television Cultural Communication Co., Ltd. was renamed as Beijing Damo Huahai Ecological Agriculture Co., Ltd. (hereinafter referred to as “Damo Huahai”).
On April 27, 2018, Damo Huahai filed a lawsuit with Beijing Dongcheng District People's Court (hereinafter referred to as “Dongcheng Court”), requesting the court to order the Defendant State-owned Company to return the copyright transfer price of RMB 20 million and pay the liquidated damages of RMB 4 million.
The Plaintiff, Damo Huahai, filed the lawsuit mainly based on the following grounds: the Defendant, the State-owned Company, did not fulfill its copyright transfer obligation; the Defendant did not share the income from the performances of the musical “Race for Love” with the Plaintiff as agreed; the Defendant did not provide the relevant operation information on the musical “Race for Love” to Damo Huahai on time and in full; the Defendant did not use its best efforts to develop copyright interests to enable the parties to obtain more benefits.; and the Defendant did not fulfill the preliminary commercial development plan for the first ten years of the musical “Race for Love” according to the relevant provisions of Annex 2 to the Contract.
After receiving the notice of responding to the lawsuit served by the court, the State-owned Company attached great importance to this case and immediately began to choose a lawyer to respond to the lawsuit. After investigating a number of law firms, the State-owned Company finally decided to engaged Xu Xinming, the chief lawyer from China Intellectual Property Lawyers Network to represent this case.
After a preliminary study on the circumstances of this case, lawyer Xu Xinming held that since the Plaintiff, Damo Huahai, requested the court to order the State-owned Company to return all the copyright transfer price of RMB 20 million, the Plaintiff should request a rescission of the contract, although this was not stated in the claims. Further, lawyer Xu Xinming held that the acts of the State-owned Company did not constitute a fundamental breach of contract, and the conditions for rescission agreed in the contract had not been fulfilled; therefore, the Plaintiff did not have the right to rescind the contract as agreed or the right to rescind the contract according to law, and therefore had no right to rescind the contract at all. In view of this, lawyer Xu Xinming decided to accept the engagement by the State-owned Company to represent this case during the whole litigation process.
V.Case hearing process
On September 4, 2018, Dongcheng People's Court held a public hearing to hear this case. The Plaintiff engaged a lawyer to appear before the court, and Xu Xinming's lawyer team (hereinafter referred to as the “Defendant's Lawyer”) represented the Defendant to participate in the court hearing. During the court hearing, upon explanation by the collegiate bench, the Plaintiff's lawyer requested an additional claim of “ rescission of the Copyright Transfer Contract for Huairou Broadway Original Musical “Race for Love” signed by the Plaintiff and the Defendant on May 24, 2010". In order to rebut the Plaintiff's claim, lawyer Xu Xinming submitted a large amount of evidence to the court on behalf of the Defendant. The dispute of this case focuses on the following three aspects: (1) whether the Plaintiff has the right to rescind the contract involved according to the provisions of Article 11 of the contract involved; (2) whether the Plaintiff has the right to rescind the contract involved according to the provisions of Article 94 of the Contract Law; and (3) whether the Plaintiff has the right to request the Defendant to return the contract price of RMB 20 million and pay the liquidated damages of RMB 4 million.
(I) Whether the Plaintiff has the right to rescind the contract involved according to the provisions of Article 11 of the contract involved
Article 11 of Part 4 of the contract involved stipulates that: “If Party A breaches its undertakings and warranties made under this Contract, Party A shall return all the amounts received to Party B and pay the liquidated damages amounting to 20% of all the amounts to Party B, and Party B shall have the right to unilaterally rescind this Contract.”
The above clause is a provision on the liabilities for breach of contract of Party A (Defendant). The Plaintiff's lawyer holds that this provision should be applicable to all the Defendant’s acts of breaching contract.
In this regard, the Defendant's Lawyer holds that the above liabilities for breach of contract of the Defendant is very heavy, and such liabilities clearly correspond to the Defendant’s breach of the "undertakings" and "warrants" made under this contract. Therefore, the above provision only applies to the contents of the contract involved clearly using the words "undertakings" or "warrants", that is, the warrant obligations of Party A (Defendant) for the right defects in the musical involved as stipulated in Item 1-6 of Paragraph 1 of Article 6 of the contract. Except for the above warrant obligations, the provisions of Article 11 of the contract involved shall not apply to Party A's other breaches of contract. In addition, Item 13 of Paragraph 1 of Article 6 of the Contract clearly stipulates that: “The representations, undertakings and warrants made by Party A with respect to the existence of the copyrights of the musical work under this Contract and Party A’s ownership of the copyrights of the musical work transferred by Party A to Party B shall be attached to this Contract as annex and constitute an integral part of this Contract. If Party A breaches the above representations, undertakings and warrants, or the copyrights of the musical work under this Contract do not exist for any reason, Party A shall bear the liabilities for breach of contract to Party B in accordance with the provisions of Article 11 of this Contract.”The above provision and the provision of Article 11 corroborate each other, clearly limiting the application of the provisions under Article 11 on the Defendant's liabilities for breach of contract to the Defendant's obligation only to ensure the authenticity, integrity and cleanliness of the copyrights of the musical involved.
In order to prove that the musical involved really exists and that the Defendant has the corresponding copyrights of the musical, the Defendant's Lawyers submitted a series of evidence to the court to prove the facts that the musical was planned in the early stage, Broadway was entrusted to create until the musical was performed successfully, and the State-owned Company invested a total of RMB 52 million for the creation and modifications of the musical involved. According to China's laws and regulations, copyrights originate as of the day when the creation of a work has been completed, that is, the work is automatically protected by law as of the day when the creation of the work has been completed. The musical involved does exist, and the Defendant has a corresponding share of copyrights of the musical involved. From the effective date of the Copyright Transfer Contract, the corresponding copyright share in the musical involved has been transferred to the Plaintiff. The Plaintiff's claims are inconsistent with the facts.
(II) Whether the Plaintiff has the right to rescind the contract involved according to the provisions of Article 94 of the Contract Law
Article 94 of the Contract Law stipulates that: “A party to a contract can rescind the contract under any of the following circumstances: ……… (4) the other party delays performance of its obligations, or breaches the contract in other manners, which frustrates the purposes of the contract; ……”
According to the above legal provisions, the Plaintiff claimed that the Defendant's acts constituted a fundamental breach of contract and requested rescission of the contract.
1.The Plaintiff claims that the Defendant has not obtained the copyrights of the musical involved or the license to import and perform cultural products. As for the copyrights of the musical involved, as mentioned above, the Defendant has a corresponding share of the copyrights of the musical involved beyond any doubt, so the Defendant's claim is untenable.
The Plaintiff's claim that no cultural import license has been obtained for the copyrights involved is quite absurd, because the musical involved is a work completed by Broadway in China based on the entrustment of the Defendant, which does not involve import. All the performances of the musicals involved were approved by the relevant government authorities, and the Defendant also submitted relevant evidence to the court, so the Plaintiff's claim is also untenable.
The Plaintiff's above claims are inconsistent with the facts, so the Plaintiff does not have the right to rescind the contract.
2. The Plaintiff claims that the Defendant didn't distribute the net profits from commercial performances to the Plaintiff, which breaches the provisions of Article 7 of Part 4 of the contract involved, and constitutes a fundamental breach of contract, so the Plaintiff requests rescission of the contract accordingly.
The Plaintiff and the Defendant unanimously agree that after the signing of the contract, the musical involved was only performed in the second stage, and only includes two performances, namely, the second-round performance in Huairou and the performance in Edinburgh, England. The income and expenditure from and of the second-round performance of the musical in Huairou and the performance of the musical in Edinburgh, England shall be calculated in a unified way.
The Plaintiff did not provide any evidence on the income and expenditure in connection with the two performances. The Defendant submitted a lot of evidence on the income and expenditure in connection with the two performances. In order to confirm the fact that the Defendant suffered losses in the two performances, the Defendant's Lawyer wrote a statement of facts, revealing the mutual corroboration relationship among the relevant evidence, and respectively making explanations as follows: the Defendant's payment obligation for the second stage performance of the musical “Race for Love” based on the provisions of the Cooperation Agreement on the Foreign Consultant-Phase II; the expenses paid by the Defendant for the second stage performance of musical “Race for Love” based on Annex E to the Cooperation Agreement on the Foreign Consultant-Phase II; the operating expenses paid by the Defendant for the second stage performance of musical “Race for Love”; the performance license fees and consulting fees paid by the Defendant for the second stage performance of musical “Race for Love”; and the Defendant's income from the second stage performance of the musical “Race for Love”. Finally, it is concluded that the Defendant's paid expenses for the second stage performance of the musical Race for Love” far exceed the income from the performances of the musical Race for Love”, and the performances as a whole are at losses.
Due to the losses from the performances as a whole, the Plaintiff's claim that the Defendant did not distribute profits to the Plaintiff has no factual basis, so the Plaintiff has no right to request rescission of the contract.
(III) Whether the Plaintiff has the right to request the Defendant to return the contract price and pay the liquidated damages.
As mentioned above, since the applicable conditions under Article 11 of the contract involved have not been fulfilled, the Plaintiff has no right to request the Defendant to return the contract price of RMB 20 million and pay the liquidated damages of RMB 4 million according to the provisions of the said Article 11, or to request rescission of the contract involved.
To sum up, on May 23, 2019, Dongcheng Court rendered the civil judgment numbered (2018) Jing 0101 Min Chu No.12391, which overruled the claims of the Plaintiff, Beijing Damo Huahai Ecological Agriculture Co., Ltd.
Damo Huahai did not obey the first-instance judgment and filed an appeal with Beijing Intellectual Property Court. After hearing this case, Beijing Intellectual Property Court made rendered the civil judgment numbered (2019) Jing 73 Min zhong No.2727 on October 27, 2020, which overruled the appeal and upheld the first-instance judgment.
VI.Conclusion
The musical involved is a new thing, and its successful operation would have been impossible without the joint efforts of the Plaintiff and the Defendant. The profits generated by the operation of the musical shall be shared by both parties according to their shares in the copyrights as agreed, and correspondingly, the losses incurred therefrom shall also be jointly borne by both parties. After purchasing the copyright share in the musical involved, the Plaintiff did not actively promote the commercial operation of the musical. Under the circumstance that there is no defect in the rights in the musical involved, the Plaintiff’s efforts of unilaterally rescinding the contract and restoring the contract to the original state are against the spirit of encouraging market transactions according to law, therefore the Plaintiff’s claims are doomed to be overruled by the court.
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