Resolving conflicts between music copyright ownership and licensing

In the field of intellectual property, conflicts frequently arise between the transfer of ownership and licensing. A common situation occurs when a rights owner, before transferring ownership, has already licensed those rights to another party for use or exploitation.

Under China’s Trademark Law, Patent Law and relevant judicial interpretations, where a transfer comes after a prior licence, the prevailing principle is that the transfer does not nullify the earlier licence. The law protects the licensee’s pre‑existing rights.

Unlike trademarks or patents however, the Copyright Law and its implementing regulations do not specify how to resolve conflicts between copyright ownership and licensing. Nor do they clarify which takes precedence in the event of a clash between the two.

In the digital era, such uncertainty has now become more pronounced. The traditional music market once relied on physical media and singular rights ownership, but today the digital music industry involves a far more complex ecosystem, encompassing streaming platforms, copyright owners, publishers and distributors.

Music copyrights are also inherently fragmented, covering publishing rights, neighbouring rights such as recording rights, and performers’ rights.

Particularly in case of transactions for vast catalogues of copyrights of digital music, the rights chain cannot be verified quickly or comprehensively, making it far easier for repeated or overlapping transfers of copyright, as well as crossover rights, to occur.

Method of acquiring rights

In the digital music industry, the main ways of acquiring rights include copyright transfers, licence grants and sub‑licensing arrangements. Copyright licences are typically classified as non‑exclusive, exclusive or sole, each defining the manner and extent of authorised use differently.

Under a non‑exclusive licence, the copyright owner may still use the work in the manner authorised by the licence – within the agreed terms and territorial scope – and grant the same licence to others.

Under an exclusive licence, the copyright owner may continue to use the work in the manner authorised by the licence, within the agreed terms and territorial scope, but not grant that same licence to any additional licensee.

Under a sole licence, apart from the licensee, neither the copyright owner nor any third party may use the work in the manner authorised by the licence within the agreed terms and territorial scope.

Resolving conflicts

In situations where a licence is granted before a subsequent transfer of ownership, the courts tend to draw on the relevant provisions governing registered trademarks and patents, applying the principle that a transfer does not invalidate a prior licence.

In other words, the assignee of a music copyright must respect and uphold the continued performance of any pre‑existing licence agreements.

Two conditions must, however, be met:

• • The earlier copyright licence must be lawful and valid; and
  • The transfer of rights must occur within the effective term of that licence.

The purpose of this principle is to safeguard the licensee’s legitimate interests following a change in copyright ownership. Yet, the licensee’s protection ultimately rests on the validity of the licensing contract itself. If the contract is declared void or revoked, the licensee loses legal basis to assert rights against the subsequent transferee.

In applying this rule, courts also adhere to the principle of registration‑based opposability: Where the licensee acts in good faith, an unregistered transfer of rights cannot be asserted against that licensee.

In cases where a non‑exclusive licence precedes a later exclusive or sole licence, the latter does not automatically take precedence. Courts usually focus on the chronological order of the agreements, rather than the relative exclusivity of the authorisations. If the non‑exclusive licence was executed earlier, and there is no evidence that the first licensee acted in bad faith, courts typically uphold the performance of that earlier licence – in line with the general principle of protecting prior rights in conflicts.

At the same time, unless the earlier non‑exclusive licence has been formally registered, the later licensee will not necessarily incur infringement liability merely for distributing, reproducing or communicating the songs, since the unregistered prior licence cannot automatically be asserted against third parties.

Practical suggestions

When acquiring or licensing music copyrights, both transferees and licensees should pay close attention to due diligence and transaction design.

These three points merit particular consideration:

1. 1. Due diligence stage. Parties should, either independently or through a third‑party service provider, verify rights ownership via official databases such as the Music Copyright Society of China and the Copyright Registration Centre. They should also require the counterparty to provide supporting documentation from upstream rights owners regarding agreements or declarations in relation to the transfer of ownership or licence from all relevant creators and related‑rights owners, including publishers and producers of recordings as well as performers.
   2. Negotiation stage. Parties are advised to make the recognition of tracks on streaming platforms a condition precedent to payment – along with supplementary authorisations from upstream rights owners where rights‑chain documentation is incomplete or missing – and ensure these conditions are matched by a corresponding right of termination in their favour.
   3. Performance stage. It is advisable to set aside a holdback payment and designate a rights observation term. If, within that term, no third party asserts infringement and no platform removes the tracks, the holdback may then be released to the rights owner.

In case of a transaction for vast catalogues of copyrights of digital music, parties may also consider establishing a substitution mechanism. Under this arrangement, the transferee or licensee may require the rights owner to replace any tracks found to have ownership defects.

Both sides may assess whether the substitute tracks offer equivalent commercial value by reference to factors such as platform sales data and artist rankings.

Zhou Le is a partner and Tian Yu is an associate at Blossom & Credit Law Firm.