This authentic criminal copyright case was listed as one of the Top 10 National Infringement Piracy Cases of Sword Net 2022 by the National Copyright Administration of China (NCAC)国家版权局. The actual controller of the piracy operation is Yunshang Media Group (replaced alias for confidentiality), a cultural enterprise engaged in short drama copyright production and online distribution. To conceal its direct illegal piracy operation, Yunshang Media registered three anonymous low-asset shell limited liability companies under the names of distant relatives and part-time administrative clerks with no actual decision-making power: Aike Network Co., Ltd., Mianyang Culture Media Co., Ltd., and Ruida Information Technology Co., Ltd. Between March 2021 and August 2022, Yunshang Media’s core operation team independently developed crawler software, illegally captured more than 5,200 original short drama works from mainstream domestic short video platforms, and uploaded all pirated short dramas to a self-built illegal streaming website operated in the names of the three shell companies. All advertising revenue, member recharge income generated by the pirated website was uniformly transferred from the shell companies’ corporate bank accounts to Yunshang Media’s exclusive corporate settlement account, while the shell companies only retained less than RMB 2,000 monthly nominal administrative costs to maintain their business registration status. When copyright owners filed civil lawsuits against the three shell companies for infringement, the legal representatives of the shell companies claimed they had no knowledge of any piracy operation and refused to bear compensation liability, attempting to use the independent legal person status of shell companies to evade Yunshang Media’s actual infringement liability. After joint investigation by copyright law enforcement agencies, public security organs and procuratorates, the court finally pierced the corporate veil and held Yunshang Media, its actual controllers and the three shell companies jointly and severally liable for criminal copyright infringement. Five core binding legal norms govern this case:
1. Article 54 of the Copyright Law of the People’s Republic of China: Any person who commits copyright infringement shall bear civil liabilities such as cessation of infringement, elimination of impact, apology and compensation for losses; where the act harms public interests, the competent copyright department may impose administrative penalties; if the circumstances are serious enough to constitute a crime, criminal liability shall be pursued in accordance with the law.
2. Article 20 of the Company Law of the People’s Republic of China (Veil-Piercing Rule): Where a shareholder of a company abuses the independent legal person status of the company and the limited liability of shareholders to evade debts and seriously harm the interests of the company’s creditors, the shareholder shall bear joint and several liability for the company’s debts.
3. Article 217 of the Criminal Law of the People’s Republic of China: Whoever, for the purpose of profit, reproduces and distributes copyrighted works without the permission of the copyright owner, if the amount of illegal gains is relatively large or there are other serious circumstances, shall be sentenced to fixed-term imprisonment or criminal detention, and may also be fined; if the amount of illegal gains is huge or there are other especially serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years, and shall also be fined.
4. Article 1168 of the Civil Code of the People’s Republic of China: Where two or more persons jointly commit an infringement and cause damage to others, they shall bear joint and several liability.
5. Evidential Standards for Identifying Beneficial Owners of Shell Companies (Supreme People’s Procuratorate Guiding Cases): Comprehensive evidential chains including capital flow records, internal operation emails, staffing dispatch documents, revenue settlement records and actual business decision-making minutes shall be adopted to identify the actual controlling beneficial owner behind nominal shell companies, regardless of registered legal representatives or shareholders.
Judicial organs obtained complete evidential materials through bank account investigation, server data forensics, internal corporate email retrieval and interrogation of relevant personnel, fully verifying that the three shell companies were only nominal paper carriers controlled entirely by Yunshang Media Group: First, all capital investment for the illegal pirated website operation was fully remitted from Yunshang Media’s public bank account to the three shell companies’ accounts; the shell companies themselves had no independent operating capital, no independent investment channels and no independent revenue sources other than the pirated website’s illegal income. All illegal profits generated by the pirated website were transferred to Yunshang Media’s settlement account within 7 working days after the funds entered the shell companies’ accounts, with the shell companies retaining only trivial monthly administrative expenses. Second, all core personnel engaged in crawler development, short drama uploading, website operation and customer service for the illegal pirated website were formal employees signed under labor contracts with Yunshang Media Group; the three shell companies did not sign any independent labor contracts with operation staff, nor did they bear any employee salary, social insurance and welfare costs. Internal enterprise email archives showed that all daily operation orders, website content update plans and profit distribution decisions were issued by Yunshang Media’s senior management team, and the shell companies’ registered legal representatives never participated in any business decision-making work. Third, all filing procedures for the three shell companies’ industrial and commercial registration, website domain name filing, server hosting service contracts and advertising platform cooperation agreements were uniformly handled by Yunshang Media’s administrative department; the shell companies’ registered legal representatives only provided identity documents for registration and never signed any business cooperation contracts or participated in any commercial negotiation activities on behalf of the shell companies. Fourth, when multiple copyright owners issued lawyer’s letters and filed civil infringement lawsuits against the three shell companies in 2022, the shell companies’ legal representatives all submitted identical written statements to the court claiming ignorance of the piracy operation, and refused to provide any internal operation materials and capital flow records; after procuratorial organs intervened in criminal investigation and ordered full disclosure of corporate financial data, the complete capital flow evidential chain directly exposed Yunshang Media’s actual control relationship behind the shell companies.
After hearing the case, the local intermediate people’s court made a binding criminal judgment in December 2022, with core rulings as follows: First, it was confirmed that Yunshang Media Group, as the actual controlling entity behind the three nominal shell companies, implemented all core illegal piracy acts including crawler data capture, pirated short drama storage, illegal website operation and profit collection, and fully satisfied the constitutive elements of criminal copyright infringement under Article 217 of the Criminal Law. The total illegal income of the whole case reached RMB 12.68 million, which constituted “especially serious circumstances” as stipulated in judicial interpretations. Second, the court applied the corporate veil-piercing rule under Article 20 of the Company Law and held Yunshang Media Group, its two actual controlling shareholders, and the three shell companies (Aike Network, Mianyang Culture Media, Ruida Information Technology) jointly and severally liable for all criminal liabilities and civil infringement compensation damages. The nominal legal representatives of the three shell companies, who only provided identity documents without participating in any illegal operation, were exempted from criminal liability after confirming their lack of subjective intent and actual participation. Third, criminal penalties were imposed on Yunshang Media’s actual controllers and core operation executives: the two controlling shareholders were sentenced to fixed-term imprisonment of 5 years and 4 years respectively, with fines of RMB 3 million and RMB 2.2 million; the technical director responsible for crawler development and the operation supervisor of the pirated website were sentenced to fixed-term imprisonment of 3 years and 2 years respectively, with corresponding fines. The court ordered all illegal gains of RMB 12.68 million to be fully confiscated, and all servers, crawler software and pirated short drama digital files used for illegal infringement to be sealed and destroyed. Fourth, in the attached civil incidental infringement judgment, the court ordered Yunshang Media and the three shell companies to jointly pay cumulative compensation of RMB 8.75 million to all short drama copyright owners, permanently cease all illegal reproduction, distribution and online streaming of the involved short drama works, and issue public apologies on national mainstream video platforms to eliminate the adverse impact of the infringement.
This 2022 Sword Net guiding case issued by the National Copyright Administration of China provides three core compliance warnings for domestic copyright production and distribution enterprises:
1. Enterprises shall not register anonymous low-asset shell companies under the names of unrelated third parties to separate nominal corporate liability from actual control entities for the purpose of evading copyright infringement civil compensation and criminal liability. Judicial organs will comprehensively adopt capital flow, staffing, internal management and operation decision-making evidential chains to identify actual beneficial controllers and pierce the corporate veil to impose joint liability.
2. Any profit-oriented reproduction and distribution of copyrighted works without copyright owner permission will constitute copyright infringement; if the illegal gain amount reaches the statutory threshold, the enterprise’s actual controllers and core operation personnel will bear severe criminal penalties, and the enterprise shall face full confiscation of all illegal gains and mandatory destruction of all illegal infringement equipment and data.
3. The independent legal person limited liability status of shell companies cannot serve as a legal shield for actual controlling enterprises to conduct illegal copyright piracy activities. The Civil Code, Company Law, Copyright Law and Criminal Law form a complete multi-layer liability system covering civil compensation, administrative penalties and criminal sanctions to restrain acts of concealing actual control through shell companies to evade copyright legal liabilities.
1. National Copyright Administration of China Official Website – Full Text of Sword Net 2022 Top 10 Infringement Piracy Model Cases (including this shell companycopyrightpiracycase): https://www.ncac.gov.cn/xxfb/ztzl/2023bqxcz/qwfb/202302/t20230228_863198.html
2. China Judgments Online (Supreme People’s Court Official Judgment Database) – Full criminal judgment text of this 2022 short drama piracy case: http://wenshu.court.gov.cn
3. Supreme People’s Procuratorate Official Website – Guiding Case Interpretation on Identifying Actual Controlling Beneficial Owners of Infringement Shell Companies: https://www.spp.gov.cn/spp/zdgz/
4. WIPO WIPOLEX Global Intellectual Property Legal Database – Consolidated Full Text of China’s Copyright Law, Company Law and Civil Code IP-related Provisions: https://www.wipo.int/wipolex/en/legislation/details/20112
