On August 1, 2010, China's Ministry of Culture
("MOC") issued a comprehensive new
regulation governing online games entitled the Provisional
Administrative Measures on Online Games (the
"Measures"). The Measures aim to
bring greater regulation to China's rapidly growing online game
business by formalizing and enhancing many existing restrictions
and requirements on the industry.
Several important provisions address the use of virtual currency. In 2009, the MOC and the Ministry of Commerce jointly issued a notice placing various restrictions on virtual currency in online games. The Measures strengthen such restrictions by preventing players from using virtual currency to purchase or convert to any products or services that are not provided by qualified online game enterprises. Online game companies are required to maintain records of players' virtual currency trading information for at least 180 days and file information on the type, price and total amount of issued virtual currency with the applicable provincial branch of the MOC. In addition, online game companies are prohibited from offering or providing lottery or other gambling activities in games that would induce players to spend Renminbi or virtual currency.
The Measures also contain provisions designed to protect children under 18 years of age from Internet addiction and adult content. For example, online games designed for minors may not contain any content that may induce them to engage in immoral behavior or illegal actions. The Measures further provide that online games targeted to minors cannot contain content involving horror or cruelty, which may harm their psychological health. Minors can play games that include virtual currency, but the functionality of these games will be limited as virtual currency transaction service providers are forbidden from engaging in such services with minors. Game developers are also required to set limits on the amount of time minors can play online games. These rules will be enforced, in part, by continuing to require players to register using their legal names and identification numbers (as provided in valid identity documents, such as Chinese ID cards or passports). The Measures state that online game companies are required to maintain copies of players' registration information, a pratice that is already followed by several online game companies.
Certain politically or culturally sensitive topics are prohibited from being included in all online games. The Measures state that online game companies are required to establish self-censorship mechanisms, including establishing departments and personnel dedicated to screening such content. Online game companies are also prohibited from setting up compulsory "personal kill" battles between players without the players' prior consents to such battles.
Initial versions of and material changes to imported games must be reviewed by the MOC before they are made available online to players. The Measures provide, however, that if a game has been approved by other relevant authorities (a reference to the General Administration of Press and Publications--China's other online game regulator), then the MOC will not conduct further approval and the game may be made available on the Internet. Domestically produced games only need to be registered with the MOC 30 days before they go online or undergo substantial updates. The terms "imported" and "domestically produced" are not formally defined under Chinese law. This provides the relevant authorities and their local branches with a great deal of discretion, and "imported games" has generally included games produced by foreign invested entities under internal MOC policies.
Online game companies that violate any provisions in the Measures may be subject to administrative fines up to RMB 30,000, revocation of the license required to operate an online game business, and criminal liability in extreme cases.
Although many online game companies are likely to be in general compliance with the Measures, this first national regulation may serve as a signal that the online game industry will be subject to increased scrutiny going forward, and companies may wish to conduct a review of their operations.
O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.
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