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News LetterChina Enacts Administrative Regulations and Judicial Interpretations for New Company Law Effective July 1As we introduced in our January 2024 newsletter, China's New Company Law was amended and took effect on July 1. However, there are many cases where the investment obligations under the New Company Law are burdensome in practice, and there are some unclear aspects of the application of the New and Old Company Laws in practice, so China has enacted administrative regulations and judicial interpretation, which were promulgated in June, to ease the burden of implementing the New Company Law and partially resolve questions. 1. Administrative Regulations Related to the Investment Period As we introduced in our January 2024 newsletter, the New Company Law requires that a company's shareholders pay up their capital in full (for limited liability companies only) within five years from the date of incorporation. However, in consideration of the reality that the above amendment makes it burdensome to pay the capital in full, the “Regulations on the Implementation of the Capital Registration Management System of the Company Law” (hereinafter referred to as the “Capital Registration Regulations”) have been further enacted to establish a three-year transitional period for the above five-year investment period, the main contents of which are as follows: 1) For limited liability companies established before June 30, 2024, if the remaining contribution period exceeds five years from July 1, 2027, the company's articles of association must be amended no later than June 30, 2027 to adjust the remaining contribution period to within five years, and the shareholders must pay in full the capital within the adjusted period (joint-stock companies are omitted here as foreign-invested enterprises in China rarely take this form), 2) If the contribution deadline or registered capital of a company is significantly abnormal, the competent department may require adjustment in consideration of the company's business scope, management status, shareholders' contribution capability, main business, asset size, etc, 3) After the adjustment of shareholders' capital contribution amount, contribution method, contribution period, etc. is made, the company shall make a public announcement on the National Business Credit Data Disclosure System within 20 business days. 2. Judicial Interpretation on the Application of the Company Law The Supreme People's Court of China has issued a judicial interpretation regarding applying the New and Old Company Laws in civil and commercial dispute cases (the “Regulations on Temporal Effect Regarding the Application of the Company Law,” hereinafter referred to as the “Judicial Interpretation on the Company Law”). The Judicial Interpretation of the Company Act once again emphasized the “non-retroactive principle” of the law and stipulated cases in which the new Company Act is applied retroactively, including: 1) Cases where the legislative purpose is better served by applying the New Company Law: - A shareholder who was unable to attend the shareholders' meeting because the procedures of the shareholders' meeting prior to the enforcement of the New Company Law were not lawful may exercise his/her right to request the shareholders' meeting resolutions to be canceled. - In the event of a dispute between shareholders regarding unequal capital reduction prior to the enforcement of the New Company Law, unless agreed by all shareholders or otherwise agreed between shareholders, apply the equal capital reduction principle under the New Company Law. - In other cases where it is favorable to the company's compliance, protection of minority shareholders, principle of capital integrity, etc. 2) Cases where there is no explicit provision in the old Company Law: - Liability allocation between the transferor and transferee in the event of a transfer of shares corresponding to unpaid capital whose contribution period has no yet expired - Exercise of the right of other shareholders to purchase shares if the controlling shareholder of a limited liability company abuses the rights of shareholders and infringes on the interests of the company or other shareholders - Liability of controlling shareholders or actual controllers who are not directors in the execution of the company's affairs - Other disputes regarding the new provisions of the New Company Law 3) Cases where there are special provisions: - In principle, the Old Company Law applies to liquidations prior to the enforcement of the New Company Law, but the New Company Law applies to liquidations based on reasons that occurred within 15 days prior to the enforcement of the New Company Law. * * * LIN’s China Team provides comprehensive one-stop legal services for Korean companies entering China and doing business in China. If you have any questions regarding the above, please do not hesitate to contact our China Team at +82 02 3477 8695.2025.02.19
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MediaCopyright Law Issues and Major Dispute Cases Regarding Generative AIGenerative AI, a technology that generates text, images, music, video, and more through large-scale data learning, is advancing at a frightening pace, with amazing results in areas of creativity that were once thought to be impenetrable to AI. This has led to a number of disputes between copyright holders and businesses providing generative AI technology. Among them, the lawsuit between the New York Times, OpenAI, and Microsoft regarding LLMs in the U.S. and the lawsuit between Getty Images and Stability AI in the U.K. regarding image generation AI using a diffusion model are noteworthy. In this article, while focusing on these two cases, we will discuss the copyright law issues and implications to consider when utilizing AI. 1. LLM - The New York Times v. OpenAI 1.1 Copyright Law Issues In late 2023, the New York Times filed a lawsuit against OpenAI and Microsoft in the U.S. District Court for the Southern District of New York, alleging copyright infringement on the grounds that the defendants' GPT-based services were created by copying massive amounts of New York Times articles for training and, under certain prompting, they produced outputs nearly identical to the articles used for training. The issue of infringement of reproduction rights in collecting data for training was, in fact, somewhat settled by Authors Guild v. Google, Inc. 804 F.3d 202 (2d Cir. 2015). Although this case is not related to AI learning, Google's act of scanning books and storing the scanned copies thereof for its book search service was recognized as fair use, and we believe that the same can be applied to the collection and use of data for training of generative AI. Unlike book search services, one possibility where fair use might not apply is when reproduction rights are infringed through near-exact reproduction of the learned data. OpenAI argued that the New York Times was able to output New York Times articles verbatim after numerous prompting attempts in a manner that violated its terms, and that this was merely an overfitting problem in AI technology. In other words, because GPT has a “substantial non-infringing use,” the development of, and provision to users of, GPT does not constitute aiding and abetting copyright infringement. The U.S. Supreme Court had previously held that Sony's manufacture and sale of Betamax videotape recorders did not constitute copyright infringement of motion pictures [Sony Corp. of America v. Universal City Studios, Inc. 464 U.S. 417, 456 (1984)]. 1.2 Other Issues Although not at issue in U.S. litigation, our copyright law recognizes the rights of database producers (hereafter referred to as “database rights” for convenience). The Copyright Act makes it an infringement of database rights to reproduce a substantial part of a database or to reproduce it repeatedly or systematically (Article 93 of the Copyright Act), applying mutatis mutandis fair use provisions (Article 94(1), Article 35-5 of the same Act). It is difficult to find a case law to refer to, but if the purpose of protecting databases under the Copyright Act is based on the selection, arrangement, and individual accessibility of data, it is reasonable to conclude that there is no infringement of database rights or that it constitutes fair use unless the set of collected data for learning has those characteristics. Other interesting issues in the U.S. litigation include whether GPT's so-called hallucinations, in which it describes articles not written by the New York Times as if they were written by the New York Times, constitutes trademark dilution or tarnishment, and whether reducing traffic to the New York Times website by summarizing and showing the website's content in search results constitutes unfair competition. 2. Image Generation - Getty Images v. Stability AI 2.1 Issues Among the image generation models, the diffusion model is designed to gradually add noise to an image for training and, conversely, learn to remove the noise based on a specific prompt, resulting in an image that satisfies a specific prompt from the noise. Getty Images provides a service that allows users to search for images and then license and use the images they want, so it has a large collection of high-quality images and text data detailing the content of those images. Stability AI used the image and text data obtained by crawling the Getty Images website for training and made “Stable Diffusion,” which is now one of the most widely used diffusion models for image generation. Getty Images filed a lawsuit against Stability AI in the United Kingdom in May 2023, and later filed a lawsuit in the United States when jurisdiction issues were raised. The lawsuit also deals with similar issues as the New York Times case. Whether Stability AI can claim fair use with the same logic as OpenAI and Microsoft will likely depend on the facts of the case, and the nature of the work at issue, which is images rather than text, may also have some influence. 2.2 Issues Outside the Lawsuit While not highlighted in the above lawsuits, there is a widespread distribution of modules in diffusion model communities that are either clearly infringing or highly controversial, even under fair use doctrine. In addition, the widespread use of technologies that either very specifically constrain the conditions of the image to be output (e.g. ControlNet) or use the image itself as a prompt (e.g. IPAdapter) has made the “AI generated it automatically and didn't intend to infringe” defense less viable. 3. Implications These two lawsuits are representative of the ongoing disputes between creators and AI, and their outcomes are expected to have a significant impact on the AI industry and the business operations that utilize it, warranting close attention. As the technologies that enable generative AI rapidly advance, become less expensive, and become more popular, more companies are utilizing these technologies, and they need to understand exactly what the legal issues are and what steps they need to take to avoid the associated risks. While not a legal issue, we also expect to see more social discussions on whether creating with AI can be recognized as art, and how we accept and utilize AI technology. For complete coverage, please refer to the original article below. Thank you. The Law Times View original article▼ https://www.lawtimes.co.kr/LawFirm-NewsLetter/2012962025.02.19
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News LetterDatabase Protection and Future Outlook (Case Analysis)Target judgment: Supreme Court Ruling No. 2023Do17354 Rendered on April 16, 2024 (Construction Cost Database Case) Summary • Facts: The defendant instructed his employees to develop a program that mimicked a program called 'EMS7' produced by the victim's company, while copying the database of the victim's 'EMS7' program without the victim's permission, and then sold a six-month license for the unauthorized copy of the database for 120,000 won through his company's website from January to February 2018. • Ruling: The lower court held, and the Supreme Court affirmed, that even if some individual elements in the victim's database constituted public data that anyone could access for free, the victim's database was created by systematically arranging the data separately purchased for a fee together with such public data by categorizing and compiling them into “materials” and “unit costs” items, and then subjecting them to the interpretation regarding standard specifications, and therefore the defendant's reproduction of a substantial part of the victim's database infringed the victim's right as a producer of database (reproduction right). • Evaluation: This ruling follows the same legal principles as the previous Supreme Court judgment of May 12, 2022, No. 2021Do1533. The 2022 Supreme Court ruling is understood to be a ruling that protects the investment of the producer of database while also considering the social request for information sharing required in the information society. Unlike the 2022 Supreme Court ruling, the facts of this case involved copying the victim's database and selling it for less than one-tenth of the price, thereby unfairly harming the victim's interests. This case appears to be one where the considerations of the 2022 judgment, such as information sharing and prevention of restriction of competition, were hardly found. 1. Overview of the Case The defendant instructed his employees to develop a program that imitated a program called 'EMS7' (hereinafter referred to as the 'Victim’s Program') produced by the victim's company, and then copied the database of the victim's 'EMS7' program (hereinafter referred to as the 'Victim’s Database') without the victim's permission, and sold a six-month license to use the unauthorized copy of the database for 120,000 won through his company's website from January to February 2018. In response, the prosecutor filed charges on the grounds that (1) the defendant violated the victim's rights as a producer of database (specifically, the right of reproduction) by copying the Victim's Database without authorization for commercial purposes, and (2) the defendant infringed upon the victim's copyright in computer program by creating the defendant's program with similar functions and interface as those of the Victim's Program. 2. Analysis and Reasoning for Each Issue 2.1. Infringement of Database Creator’s Rights In order to constitute an infringement of a database creator's rights, (1) the victim’s database and the victim must be a 'database' and a 'producer of database' under the Copyright Act, respectively, and (2) all or a substantial part of the victim’s database must be reproduced, distributed, broadcast, or transmitted. 2.1.1. Determination of Database and Producer of Database The victim's database is mainly composed of 'materials' and 'unit costs.’ 'Materials' refers to all material costs, labor costs, and expenses , etc. used in construction work, while 'unit costs’ refers to the remuneration and usage fees calculated by taking into account the required quantity per unit of construction of materials, labor, equipment, etc. to carry out a specific construction project, etc., time spent, and construction conditions , etc. – in a simple term, price per unit. The data in the “Materials” of the victim's database is a monthly update of three types of price information: (1) prices published by the Public Procurement Service, (2) transaction prices from the Korea Construction Association, and (3) price information from the Korea Institute of Applied Statistics, of which (2) and (3) are data obtained through paid subscriptions. To build this database, the victim hired specialized employees in each field, including architecture, civil engineering, machinery, and electricity, etc. The data in the “Unit Costs” is based on the “Standard Construction Specifications” published by the Korea Institute of Construction Technology, under the Ministry of Land, Infrastructure and Transport (MOLIT). However, it is not possible to create unit costs by copying the standard construction specifications, but requires a process of combining, interpreting, and applying those data by professional staff. The victim constructed the “Unit Costs” database by entering formulas and numbers derived from interpreting the standard specifications, along with other data collected to calculated construction costs. Considering these circumstances, the lower court held, and the Supreme Court affirmed, that the victim’s database was a compilation of tens of thousands of elements arranged or organized in a systematic manner and that individual elements could be accessed and searched through the victim’s program, thus constituting a “database,” and that the victim was a “producer of database” because it had made significant investment in both human resources and materials in the creation of the victim’s database. In particular, public data, such as prices published by the Public Procurement Service and standardized specifications, which are available to the general public, were also systematically arranged through the victim's interpretation and thus constituted components of a protected 'database' in determining whether the rights of the producer of database were infringed. 2.1.2. Reproduction of a Substantial Part of the Victim's Database The defendants admitted to copying the victim's database during the investigation. According to the evaluation of the Korea Copyright Commission, the defendant's database has “90% similarity in table names, 98.2% similarity in schema, and 90.4% similarity in data” to the victim's database, and also contains “typos, errors, duplicate entries, and data provided only to the victim's company from a certain company” in the victim's database. Given the defendant's testimony, the presence of common errors, the data similarity of over 90%, and the high similarity of table names and database schema, it appears that the defendant copied the victim's database entirely. The lower court found, and the Supreme Court affirmed, that the defendant had copied a substantial part of the victim's database, both quantitatively and qualitatively, and infringed the victim's rights as a producer of database. 2.2. Infringement of Copyright in Computer Program This part of the indictment states that “the defendant copied the victim's program by creating the defendant's program by providing the same or similar functions as the victim's program and configuring the user interface to give users the same or similar impression as the victim's program in general,” but does not state that the defendant copied the source code of the victim's program. The lower court acquitted the defendant of this part of the indictment, finding that although it was admitted that the defendant's program was similar to the victim's program in terms of functions and screen configuration, the construction price program is a program that calculates by entering data such as standard specifications in accordance with the Public Procurement Service's integrated construction price calculation program and manual, so it cannot be said that there is creativity in the functions, menu configuration, interface, etc. of the victim's program. The prosecutor did not appeal this acquittal, so there is no Supreme Court decision on this point. 3. Flow of EU’s Database Protection Policy The rights of a producer of database under the Copyright Act was introduced in 2003 referencing the EU's 1996 Database Protection Directive. The purpose of protecting rights of a producer of database is to encourage investment in the database industry by providing exclusive rights even to database lacking creativity. The EU Commission conducted evaluations of the Database Protection Directive twice, in 2005 and 2018, both of which concluded that there is no clear evidence that the Directive has contributed to the growth of the European database industry or an increase in database production, but that the current balance of stakeholders' interests does not favor repealing or amending the Directive. In this situation, the EU enacted the Data Act (effective January 11, 2024) to secure users' rights to access data and share data with third parties, and partially restricted the rights of database producers. Article 43 of the EU Data Act stipulates that the 1996 Database Protection Directive does not apply to data acquired or generated from a connected product or related service. This is to ensure service users' access to data generated by sensors and machines in the course of using services in IoT environments and rights to share it with third parties (mainly aftermarket operators who are SMEs). In addition, the Court of Justice of the European Union (CJEU) has issued a ruling that increased the burden for rights holders in proving database infringement (CV Online Latvia v. Melons, Case C-762/19, June 3, 2021). In this case, the CJEU held that database infringement through extraction and re-utilization is established only when such infringing activity deprives the database producer of economic benefits that would allow it to recover its investment. According to this ruling, the plaintiff (database producer) must further prove that the defendant's infringement deprives the plaintiff of the economic interest of recovering its investment. This ruling strongly suggests that the rights of the database producer must be properly balanced with the rights of users and third parties (competitors) to access and use the data. It seems to be a trend in EU database policy that, regarding the rights of database producers, such competition law perspectives should be taken into account in order to avoid possible data monopolies. 4. Significance of the Ruling The follows the same legal principles as the Supreme Court's judgment of May 12, 2022, No. 2021Do1533. However, the 2022 ruling stated that (1) the information collected by the defendant from the API server of the victim company was part of the database related to the victim company's accommodation facilities. (2) The information was already well known, and it seems unlikely that it would have taken significant cost or effort to collect it, or it was already publicly available and could have been obtained through the app in this case, and there is no data on, inter alia, updating the database. (3) The court concluded differently from the ruling of this case by denying infringement of the database producer's right (reproduction right) on the grounds that the defendant's reproduction of the database was not considered to be in conflict with the victim company's normal use of the database or to unduly harm the victim's interests. The above 2022 ruling is understood to be a ruling that protects the investment of the database producer while also considering the social request for information sharing required in the information society. It can also be considered to be in line with the recent EU database policy in that it mentions information sharing and prevention of restriction of competition. In order to find the significance of this ruling, it is necessary to comparatively examine the reasons for the acquittal in the 2022 ruling. This case also involved the use of public data, so there are similarities with the case of the 2022 ruling, which involved the collection of publicly available accommodation information, and from a competition law perspective, the defendant, a later market entrant, collected data of the victim, a first mover in the competitive market, on a large scale. However, in this case, the defendant copied and sold almost all of the “materials” and “unit costs” parts of the victim's database, which are the core of the victim's database; although there appears to be a significant amount of public data in the victim's database, there was a significant investment in both human and material resources in building the database, including the work of professional staff to compile, interpret, and apply the data after its collection, and the purchase and updating of some data for a fee; and the defendant in the case of the 2022 ruling appears to have collected the victims' data to develop his own sales strategy and did not resell, or provide to services, such data as is, whereas the defendant in this case copied the victims' database and sold them for less than one-tenth of the price. Therefore, it should be viewed as particularly prejudicial to the victims' interests, which differentiates this case from the case of the 2022 ruling. This case appears to be one where the considerations of the 2022 judgment, such as information sharing and prevention of restriction of competition, were hardly found. * * * If you would like to learn more about this newsletter or have any other questions, please contact Eung Jun JEON of LIN's IP Team at ejjeon@law-lin.com.2025.02.10
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