The China Angle: Lawyers And IPOs

In Gamasutra's latest China Angle column, Pacific Epoch's Shang Koo examines the increasingly lawsuit-prone Chinese online game market, with publisher 9you and developer T3 Entertainment clashing over smash hit music title Audition, and a Romance of the Three Kingdoms battle sparking another suit. Audition Love Triangle July was supposed to be a month of celebration for Chinese casual game operator Nineyou International Limited (9you). Two years after launching its first licensed online dancing game O2Jam, 9you was ready to list on the Osaka stock exchange on July 12. 9you has a monopoly on online music games in China, with around 900,000 combined peak concurrent users for its portfolio of four music games O2Jam, Audition, Super Dancer Online, and Burst a Fever. Unfortunately for 9you, almost 800,000 of those peak concurrent users were recorded in one game - Audition, licensed from Korea's T3 Entertainment. 9you and T3 have been squabbling over Audition for more than a year. The feud started when 9you decided to develop its own music games to compete directly against Audition, but was aggravated by 9you actively promoting its in-house developed games to overseas markets. T3 struck back in July, blindsiding 9you a week before its initial public offering. T3 publicly announced that 9you has not paid full royalties fees for Audition and that T3 will pursue options to revoke 9you's license before the contract ends in 2008. 9you had no choice but to suspend its IPO. Then things got ugly. Along with 9you’s IPO, July was also the month for full implementation of China’s government mandated fatigue system for online games. Under the system, game companies must monitor and limit online playing time for gamers under 18. Without help from T3, 9you could not meet the new requirements. On July 19, 9you announced that it paid US$4 million to T3 Entertainment for development of Audition’s fatigue system. 9you vice president Wu Jun also complained that T3 stopped updating Audition and tried to blackmail Nineyou after it learned about 9you’s IPO plans. 9You, T3's Legal Battles Intensify Despite T3’s complete control of Audition’s source code, 9you still believes it has some bargaining power. 9you claims it owns the Chinese trademarks to Audition’s name in China and Taiwan – “Jin Wu Tuan”. The company plans to sue T3 for trademark infringement in Taiwan. Nineyou claims it registered "Jing Wu Tuan" as an exclusive trademark in Taiwan in December 2005 and received 10-year approval in December 2006. T3 Entertainment and exclusive Audition distributor Yedang Online, however, licensed the game under its Chinese title to Taiwan online game operator Insrea.com.tw. Nineyou plans to sue for more than US$10 million in compensation. 9You vice president Wu Jun also threatened that 9you will release a new online game similar to Audition if T3 Entertainment ends its partnership with 9you, according to Chinese newspaper 21st Century Business Herald. The game will use the same Chinese name as Audition and all Audition gamers will be transferred to the new game. The new game was developed by Audition developers that have left T3, according to an insider quoted by the newspaper. On Monday, China’s World of Warcraft operator The9 signed a licensing deal with T3 for Audition starting on August 1, 2008. The deal guarantees T3 US$35 million minimum and includes a US$8 million licensing fee plus a royalty of 30 percent. The deal came as no surprise as The9 already announced its deal for Audition2 in May. The9 said on July 31 that it is applying for the Chinese trademark "Jing Wu Tuan" in China and claims that no company in China has successfully registered the Chinese trademark for the game. Another IPO, Another Trademark Dispute Beijing based online gaming company Perfect World Company Limited listed on Nasdaq last Thursday under the symbol "PWRD". The IPO priced at US$16, and quickly climbed to US$20.4 by the end of the day. Unlike 9you, Perfect World develops its own online games and has no licensing problems. But the 9you-T3 soup opera already had the lawyers excited. Chinese game operator Tianchang Tech, recently acquired by Hong Kong-based Finet Group Limited, announced that another unnamed game developer has infringed on the copyright to its game Chibi. Chibi is the name of a decisive battle in the Chinese classic Romance of the Three Kingdoms, and is also the name for Perfect World’s upcoming game, scheduled to launch before the end of 2007. Tianchang said it has asked the offending company to stop the infringement and that it reserves the right to take legal action to protect its copyrights. Tianchang's Chibi is scheduled to start alpha testing in August. [Shang Koo is an editor at Shanghai-based Pacific Epoch, and oversees research and daily news content on China's new media industries, with a concentration in online games. Pacific Epoch itself provides investment and trade news and publishes a number of subscription products regarding the Chinese technology market. Readers wanting to contact him can e-mail [email protected].]