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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