AI explained: AI regulations and PRC court decisions in China

Reed Smith lawyers Cheryl Yu (Hong Kong) and Barbara Li (Beijing) explore the latest developments in AI regulation and litigation in China. They discuss key compliance requirements and challenges for AI service providers and users, as well as the emerging case law on copyright protection and liability of AI-generated content. They also share tips and insights on how to navigate the complex and evolving AI legal landscape in China. Tune in to learn more about China’s distinct approach to issues involving AI, data and the law. 

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Transcript: 

Intro: Hello and welcome to Tech Law Talks, a podcast brought to you by Reed Smith's Emerging Technologies Group. In each episode of this podcast, we will discuss cutting-edge issues on technology, data, and the law. We will provide practical observations on a wide variety of technology and data topics to give you quick and actionable tips to address the issues you are dealing with every day.

Cheryl: Welcome to our Tech Law Talks and new series on artificial intelligence. Over the months, we have been exploring the key challenges and opportunities within the rapidly involving AI landscape. Today, we will focus on AI regulations in China and the relevant PRC court decisions. My name is Cheryl Yu, a partner in the Hong Kong office at Reed Smith, and I'm speaking today with Barbara Li, who is a partner based in our Beijing office. Barbara and I are going to focus on the major legal regulations on AI in China and also some court decisions relating to AI tours to see how China's legal landscape is evolving to keep up with the technological advancements. Barbara, can you first give us an overview about China's AI regulatory developments?

Barbara: Sure. Thank you, Cheryl. Very happy to do that. In the past few years, the regulatory landscape governing AI in China has been evolving at a very fast pace. Although China does not have a comprehensive AI as a EU AI act, China has been leading the way in rolling out multiple AI regulations governing generative AI, debate technologies, and algorithms. In July 2023, China issued the Generative AI Measures, which becomes one of the first countries in the world to regulate generative AI technologies. These measures apply to generative AI services offered to the public in China, regardless of whether the service provider is based in China or outside China. And international investors are allowed to set up local entities in China to develop and offer AI services in China. In relation to the legal obligation, the measures lay down a wide range of legal requirements in performing and using generative AI services. Including content screening, protection of personal data and privacy, and safeguarding IPR and trade secrets, and also taking effective measures to prevent discrimination, when the company's design algorithm chooses a training data or creates a large language model.

Cheryl: Many thanks, Barbara. These are the very important compliance obligations that business should not neglect when engaging in development of AI technologies, products, and services. I understand that one of the biggest concerns in AI is how to avoid hallucination and misinformation. I wonder if China has adopted any regulations to address these issues?

Barbara: Oh, yes, definitely, Cheryl. China has adopted multiple regulations and guidelines to address these concerns. For example, the Deep Synthesis Rule, which became effective from January 2023, and this regulation aims to have a governance over the use of deep-fake technologies in generating or changing digital content. And when we talk about digital content, the regulation refers to a wide range of digital media, including video, voices, text, and images. And the deep synthesis service providers, they must refrain from using deep synthesis of services to produce or disseminate illegal information. And also, the companies are required to establish and improve proper compliance or risk management systems. Such as having the user registration system, doing the ethics review of the algorithm, and also protecting personal information, and also taking measures to protect IT and also prevent misinformation and fraud, and also, last but not least, setting up a response to the data breach. In addition, China's National Data and Cybersecurity Regulator, which is CAC, have issued a wide range of rules on algorithm fighting. And also, these algorithm fighting requirements have become effective from June 2024. According to this 2024 regulation, if a company uses algorithms in its online services with the functions of blogs, chat rooms, public accounts, short videos, or online streaming, So these staff functions are required of being capable of influencing public opinion or driving social engagement. And then the service provider is required to file its algorithm with the CAC, the regulator, within 10 working days after the launch of the service. So in order to finish the algorithm filing, the company is required to put together a comprehensive information documentation. Those information and documentation include the algorithm assessment report, security monitoring policy, data breach response plan, and also some technical documentation to explain the function of the algorithm. And also, the CAC has periodically published a list of filed algorithms, and also up to 30th of June 2024, we have seen over 1,400 AI algorithms which have been developed by more than 450 companies, and those algorithms have been successfully filed by the CAC. So you can see this large number of AI algorithm findings indeed have highlighted the rapid development of AI technologies in China. And also, we should remember that the large volume of data is a backbone of AI technologies. So we should not forget about the importance of data protection and privacy obligations when you develop and use AI technologies. Over the years, China has built up a comprehensive data and privacy regime with the three pillars of national laws. Those laws include the Personal Information Protection Law, normally in short name PIPL, and also the Cybersecurity Law and Data Security Law. So the data protection and cybersecurity compliance requirements got to be properly addressed when companies develop AI technologies, products, and services in China. And indeed, there are some very complicated data requirements and issues under the Chinese data and cybersecurity laws. For example, how to address the cross-border data transfer. So it's very important to remember those requirements. China data requirement and the legal regime is very complex. So given the time constraints, probably we can find another time to specifically talk about the data issues under the Chinese.

Cheryl: Thanks, Barbara. Indeed, there are some quite significant AI and data issues which would warrant more time for a deeper dive. Barbara, can you also give us some update on the AI enforcement status in China and share with us your views on the best practice that companies can take in mitigating those risks?

Barbara: Yes, thanks, Cheryl. Indeed, Chinese AI regulations do have keys. For example, the violation of the algorithm fighting requirement can result in fines up to RMB 100,000. And also the failure to comply with those compliance requirements in developing and using technologies can also trigger the legal liability under the Chinese PIPL, which is Personal Information Protection Law, and also the cyber security law and the data security law. And under those laws, a company can be imposed a monetary fine up to RMB 15 million or 5% of its last year turnover. In addition, the senior executives of the company can be personally subject to liability, such as a penalty up to a fine up to 1 million RMB, and also the senior executives can be barred from taking senior roles for a period of time. In the worst scenario, criminal liability can be pursued. So, in the first and second quarters of this year, 2024, we have seen some companies have been caught by the Chinese regulators for failing to comply with the AI requirements, ranging from failure to monitor the AI-generated content or neglecting the AI algorithm-finding requirements. Noncompliance has resulted in the suspension of their mobile apps pending ratification. As you can see, that noncompliance risk is indeed real, so it's very important for the businesses to pay close attention to the relevant compliance requirements. So to just give our audience a few quick takeaways in terms of how to address the AI regulatory and legal risk in China, we would say probably the companies can consider three most important compliance steps. The first is that with the faster development of AI in China, it's crucial to closely monitor the legislative and enforcement development in AI, data protection, and cybersecurity. security. While the Chinese AI and data laws share some similarities with the laws in other countries, for example, the EU AIF and the European GDPR, Chinese AI and data laws and regulations indeed have its unique characteristics and requirements. So it's extremely important for businesses to understand the Chinese AI and data laws, conduct proper analysis of the key business implications. And also take appropriate compliance action. So that is number one. And the second one, I would say, in terms of your specific AI technologies, products and services rolling out in the China market, it's very important to do the required impact assessment to ensure compliance with accountability, bias, and also accessibility requirements, and also build up a proper system for content monitoring. If your algorithm falls within the scope subject to fighting requirements, you definitely need to prepare the required documents and finish the algorithm fighting as soon as possible to avoid the potential penalties and compliance rates. And the third one is that you should definitely prepare the China AI policies, the AI terms of use, and build up your AI governance and compliance mechanism in line with the evolving Chinese AI regulation, and also train your team on the use of AI for compliance in their day-to-day work. So it's also very important, very interesting to note that in the past month, Chinese schools have given some landmark rulings in trials in relation to AI technology. Those rulings cover various AI issues, ranging from copyright protection of AI-generated content, data scraping, and privacy. Cheryl, can you give us an overview about those cases and what takeaways we can get from those rulings?

Cheryl: Yes, thanks, Barbara. As mentioned by Barbara, with the emerging laws in China, there have been a lot of questions relating to AI technologies which are interacted with copyright law. The most commonly discussed questions include if users instruct an AI tour to produce an image, who is the author of the work, the AI tour, or the person giving instructions to the AI tour. And if the AI tour generates a work that bears a strong resemblance to another work already published, would that constitute an infringement of copyright? Before 2019, the position in China was that works generated by AI machines generally were not subject to copyright protection. For a work to be copyrightable, the courts will generally consider whether the work is created by natural persons and whether the work is original. Subsequently, there has been a shift in the Chinese court's position, in which the courts are more inclined to protect the copyrights of AI-generated content. For example, the Nanshan District Court of Shenzhen handed down a decision, Shenzhen Tencent versus Shanghai Yinsheng, in 2019. The court held that the plaintiff, Shenzhen Tencent, should be regarded as the author of an article, which was generated by an AI system at the supervision of the plaintiff. The court further held that the intellectual contribution of the plaintiff's staff, including inputting data, setting prompts, selecting the template, and the layout of the article, played a direct role in shaping the specific expression of the article. Hence, the article demonstrated sufficient originality and creativity to warrant copyright protection. Similarly, the Beijing Internet Court reached the same decision in Li Yunkai v. Liu Yuanchun in 2023, and the court held that AI-generated content can be subject to copyright protection if the human user has contributed substantially to the creation of the work. In its judgment, the court ruled that an AI machine cannot be an author of the work, since it is not human. And the plaintiff is entitled to the copyright of the photo generated by the AI machine on the grounds that the plaintiff personally chose and arranged the order of prompts, set the parameters, and detected the style of the output, which warrants a sufficient level of originality in the work. As you may note, in both cases, for work to be copyrightable in China, the courts no longer required it to be created entirely by a human being. Rather, the courts focused on whether there was an element of original intellectual achievement. Interestingly, there's another case handed down by the Hangzhou Internet Court in 2023, which has been widely criticized in China. This court decided that the AI was not an author, not because it was non-human, but because it was a weak AI and did not possess the relevant capability for intellectual creation. And this case has created some uncertainty as to what is the legal status of the AI if it is stronger and has the intellectual capability to generate original works, and the questions such as, would such an AI be qualified as an author and be entitled to copyright over its works? Those issues remain to be seen as the technology and law develops.

Barbara: Thank you, Cheryl. We now understand the position in relation to the authorship under the Chinese law. What about the plaintiffs? What about the platforms which provide generative AI tools? I understand that they also face the question of whether there will be secondary level for infringement of AI generated content output. Have the Chinese courts issued any case on this topic?

Cheryl: Many thanks, Barbara. Yes, there's some new development on this issue in China in early 2024. And the Guangzhou Internet Court published a decision on this issue, which is the first decision in China regarding the secondary liability of AI platform providers. And the plaintiff in this case has exclusive rights to a Japanese cartoon image, the Ultraman, including various rights such as reproduction, adaptation, etc. And the defendant was an undisclosed AI company that operates a website with AI conversation function and AI image generation function. These functions were provided using an unnamed third-party provider's AI model, which was connected to the defendant's website. The defendant allowed visitors to their website to use this AI model to generate images, but it hadn't created the AI model themselves. The plaintiff eventually discovered that if one input prompts related to Ultraman, the the generative AI tool would produce images highly similar to Ultraman. Then the plaintiff eventually brought an action of copyright infringement against the defendant. And the court held that, in this case, the defendant platform has breached a duty of care to take appropriate measures to ensure that outputs do not contribute any copyright law and the relevant AI regulations in China. And the output that the AI generative tool created has infringed on the copyright of the other protected works. So this Ultraman case serves a timely reminder to Chinese AI platform providers that it is of utmost importance to comply with the relevant laws and regulations in China. And another interesting point of law is the potential liability of AI developers in the scenario that copyright materials are used to train the AI tour. So far, there haven't been any decisions relating to this issue in China, and it remains to be seen whether AI model developers would be liable for infringement of copyright in the process of training their AI models with copyrightable materials, and if so, whether there are any defenses available to them. We shall continue to follow up and keep everyone posted in this regard.

Barbara: Yes, indeed Cheryl those are all very interesting developments. So to conclude for our podcast today, with the advancement of AI technology, it's almost inevitable that more legal challenges will emerge related to the training and application of a generative AI system. To this course, we have been expected to develop innovative legal interpretations to strike a balance between safeguarding copyright and promoting the technology innovation and growth. So our team, Reed Smith in Greater China, will bring all the updates to you on the development. So please do stay tuned. Thank you.

Outro: Tech Law Talks is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's emerging technologies practice, please email [email protected]. You can find our podcasts on Spotify, Apple Podcasts, Google Podcasts, reedsmith.com, and our social media accounts. 

Disclaimer: This podcast is provided for educational purposes. It does not constitute legal advice and is not is not intended to establish an attorney-client relationship, nor is it intended to suggest or establish standards of care applicable to particular lawyers in any given situation. Prior results do not guarantee a similar outcome. Any views, opinions, or comments made by any external guest speaker are not to be attributed to Reed Smith LLP or its individual lawyers. 

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