China Business Law Blog Moved

China Business Law Blog 中国商法博客 has been relocated to http://chinabusinesslawblog.com.

Click here for posts at the new site.

New Boss at the Supreme People's Court of China

After almost ten (10) years of service at the SPC, Hon. Xiao Yang is stepping down, and his replacement has been selected and confirmed by the National People’s Congress...

The rest of the post is here.

Vulnerability of Chinese Lawyers

The sudden disappearance and resurfacing of Beijing Lawyer Teng Biao captured lots of attention and generated much reporting in the media.

If you haven't listened to this (the fourth one on the list) radio program, discussing Teng Biao's experience with the Beijing Police and the challenges that Weiquan lawyers face, I strongly recommend it.

It makes me want to watch To Kill a Mockingbird again.

Common Questions about China-related Law Practice

I just received an e-mail (ABA China Committee Listserve) with a list of most-frequently-asked questions posed by students and young lawyers about China-related law practice. As a law student, with a strong interest in a China-related law practice, I thought it relevant to post, and hope that readers would provide some good responses.

Here are the questions:

(1) What are the most important skills for a US lawyer in a China practice to possess?

(2) What do your clients perceive as being the greatest advantage to having a US-trained lawyer as opposed to a Chinese lawyer for their China-related work?

(3) Specifically how does knowledge of US law add to your competitive advantage within China?

(4) Should a US lawyer entering a China practice have a specialization within the law? Or is being somewhat of a generalist acceptable (or even advantageous)?

(5) Is experience in the US necessary or desirable before working in a legal capacity in China? If so, how much experience would your recommend and why?

(6) What opportunities do you see for US-trained lawyers in China outside of the law firm setting? Outside of the law altogether?

(7) How important is knowing the Chinese language to practice in China? Is it necessary or desirable to know any dialects? If so, which ones and why? Assuming that Chinese language skills are a necessity, is comprehensive fluency necessary prior to working in a China office, or is language something that can be improved upon while working there?

(8) Would an LLM degree in Chinese Law or international law enhance a US lawyer's marketability with respect to potential employers?

(9) Would admission as a Hong Kong solicitor (lawyer) make a US lawyer more marketable if the US lawyer wants to practice in mainland China only?

(10) Do you have any other advice that you would give to a student or young lawyer interested in working in this area?

Your comments are much appreciated.

China Business Law Blog, Moving Away from Blogspot...

I have been test-driving a clone of China Business Law Blog for one week at http://www.chinabusinesslawblog.com/ via wordpress, and it's been working out ok. So, I want to let readers know that I will gradually move to the new site. During the transition, I will post at both sites concurrently.

If you are a frequent reader of CBLB, please reset your “favorite” to http://www.chinabusinesslawblog.com/. If you have kindly linked to CBLB, please extend your courtesies by adjusting your blogroll. And if you are a reader out of China, you should be able to access CBLB directly at http://www.chinabusinesslawblog.com/.

Legal Ethics, in Chinese Style

Risking shameless self-promotion, I post the highlights of my article Chinese Law on Lawyers Amended: Progress Made and to be Made, published by the China Law & Practice in February 2008.



(Somehow, the endnotes seem to be messed up in copy-and-paste process. I apologize for the mess.)

Introduction Omitted.

EXPANDED SCOPE OF THE DUTY OF CONFIDENTIALITY

Compared to its predecessor, the Amendments take a more expansive view of lawyers’ duty of confidentiality to their clients. Before the Amendments, the Lawyer’s Law required lawyers to keep confidential 1) secrets of the State, 2) commercial secrets of their clients that they come to know in the course of the representations, and 3) private affairs of their clients.[i] Article 38 of the newly amended law tracks the original provisions on confidentiality under the original Lawyer’s Law as set forth above; but, paragraph two of Article 38 inserts the difference—with respect to confidential information of clients and other third parties that lawyers come to know in the course of representation, lawyers shall not disclose such information unless exceptions apply.[ii] Obviously, protected information now includes personal privacy, commercial secrets, and any other information that clients want to keep confidential during the course of the representation. And the expanded scope of confidentiality adjusts the attorney-client relationship for better protection of clients’ interests.

In comparison with other jurisdictions, such as the United States, the duty of confidentiality imposed by the Amendments is limited if not sparse since lawyers only have to maintain secrets of current clients, and those of the State. The Amendments do advance clients’ interest in confidentiality, but the protection afforded does not seem to go beyond current representation[i] as confidentiality relative to former and prospective clients are not addressed in the Amendments. Under the American Bar Association’s Model Rules of Professional Conduct (ABA Model Rules), lawyers have the duty to keep confidential information of not only current clients, but also former and prospective clients unless such clients give informed consent or relevant exceptions apply.[ii] Furthermore, the ABA Model Rules by comparison set a low threshold for what constitutes confidential information—“information relating to the representation of a client”[iii] or “information learned in consultation”.[iv] This liberal standard on confidentiality “contributes to the trust that is the hallmark of the client-attorney relationship.”[v] It remains to be seen whether China’s All Lawyers Bar Association will adopt governing rules with as expansive a view toward confidentiality as the ABA Model Rules, following the adoption of the Amendments.

STRICTER PROHIBITION AGAINST CONFLICT OF INTEREST

The Amendments also widen Chinese lawyers’ duty of loyalty by imposing stricter standards on the avoidance of conflicts of interest. Under the previous version of the Lawyers’ Law, a lawyer was prohibited from simultaneously representing clients with direct conflicts, for example, opponents of the same case. Pursuant to Article 39 of the Amendments, a lawyer shall not represent clients whose interests are adverse to those of the lawyer or the lawyer’s family members, in addition to the proscription against representing clients with direct conflict. Furthermore, the Amendments specifically prohibit a lawyer from inappropriately accepting property or benefits from a party opponent or third party, and from colluding with a party opponent or third party to injure the interests of his or her client. With respect to law firms, the Amendments require them to establish a conflict checking mechanism to avoid conflicts of interests among their clients, which codifies similar mandates in the China Rules of Legal Ethics.[i] Unfortunately, the Amendments do not define what constitutes a “conflict of interests”, and for a practicing attorney in need of guidance, the answer lies in the current China Rules of Legal Ethics. Article 76 defines a conflict of interests as any situation where representing a new client might cause conflict with the representation of another existing client.[ii]

ALTERNATIVE ROUTE TO THE BAR

An alternative way to obtaining a bar license emerges in the Amendments. Previously, individuals could legally become lawyers only if they passed the national bar examination, or if they were professionals in legal research or education with special permission from the Ministry of Justice. Given a shortage of experienced lawyers in certain specialized areas, such as finance, securities, intellectual property, and international law,[i] the Amendments provide a practical measure to overcome such a critical shortage. Individuals with a bachelor’s degree and more than 15 years of working experience in the above-referenced shortage areas may obtain their law license in those specialized areas upon passing relevant tests conducted by the Ministry of Justice. And according to the Amendments, the State Council will issue regulations about the implementation of this alternative licensing program.

STATUTORY CONFLICT

Despite the many clarifications for and additions to the Lawyer’s Law, the Amendments still leave an apparent conflict between the Lawyer’s Law and the Criminal Procedure Law of the People’s Republic of China (Criminal Procedure Law). As discussed, one goal of the Amendments is to expand the scope of the duty of confidentiality. However, Article 84 of the Criminal Procedure Law imposes an all-encompassing duty on all entities and individuals to report suspected criminals or incriminating facts to law enforcement authorities.[i] Logically, lawyers have the duty to report any incriminating facts gathered in the course of representing their criminal defendants unless the Chinese Criminal Procedure Law provides them an exemption. Unfortunately, neither the Amendments nor the Chinese Criminal Procedure Law explicitly exempt lawyers from the crime-reporting duty. Paradoxically, a representative from the Ministry of Justice stated, in a press conference subsequent to the adoption of the Amendments, that the Amendments have accomplished major statutory safeguards for lawyers: better protection for lawyers’ bodily safety, exemption from liability for viewpoints expressed in professional representation, and lawyers’ right to non-disclosure of clients’ confidential information.[ii] Furthermore, these accomplishments laid a firm foundation for improving the overall professional environment for lawyers, according to the representative. Nonetheless, without an express provision of immunity from the Chinese Criminal Procedure Law,[iii] Chinese lawyers might not be able to share the same kind of optimism as expressed by the representative in the press conference mentioned above.

THE ABSENCE OF RULES ON IN-HOUSE LAWYERS

Unlike the ABA Model Rules, the Amendments do not contain any provisions on in-house lawyers. In the context of lawyers’ duties of confidentiality under Rule 1.6, ABA Model Rule 1.13 clarifies the duties and responsibilities of in-house counsel whose client is the organization itself. In the best interest of the organization, an in-house lawyer must “report up” to the management when he or she knows a corporate insider intends to act or refuse to act in a certain way which will likely injure the interests of the organization. Moreover, a lawyer for an organization may “report out” to shareholders and/or prospective investors relying on the lawyer’s previous legal opinions for the organization if “reporting up” did not resolve the relevant issues and he or she is “reasonably certain” that the organization will suffer substantial injury due to the unresolved issues. This rule provides additional guidance for in-house lawyers with respect to confidentiality, and is designed to protect the best interests of the organization as a whole. As more lawyers in China join the ranks of in-house counsel, a similar rule is warranted in China to protect organizational clients. As of yet, both the Amendments and the China Rules of Legal Ethics have no provisions or rules on in-house lawyers.

[The rest of the article is omitted.]

[i] See Zhonghua Renmin Gongheguo Xingshi Susongfa (1996 Xiuzheng) [Criminal Procedure Law of the People’s Republic of China (1996 Amendments)] (amended by the National People’s Congress, March 17 1996, effective January 1 1997), available in Chinese at: http://vip.chinalawinfo.com/NewLaw2002/SLC/SLC.asp?Db=chl&Gid=13912 (last visited January 2 2008) hereinafter Chinese Criminal Procedure Law].
[ii] See Ministry of Justice Press Conference Question and Answers Regarding the Revised Lawyer’s Law, available in Chinese at: http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=374005&pdmc=1541 (last visited January 2 2008).
[iii] The Chinese Criminal Procedure Law is currently undergoing intense debate before its next round of amendments. See Amendments to the Criminal Procedure Law: from Divergent Ideas to Common Understanding, available in Chinese at: http://www.legaldaily.com.cn/2007fxy/2007-11/18/content_743015.htm (last visited November 18 2007) (one area of concerns in the debates involves coordinating the Criminal Procedure with the Lawyer’s Law to protect lawyer’s rights to keep clients’ confidential information).
[i] See Law Revised to Solve Three Difficulties in the Legal Profession, available in Chinese at: http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=374001&pdmc=1541 (last visited January 2 2008).
[i] See China Rules of Legal Ethics, supra note 4, Articles 39, 44, 77-83.
[ii] See id., Article 76.
[i] The Amendments do not contain any provision as to protecting former clients’ confidential information. However, Article 59 of the China Rules of Legal Ethics does provide such protection for former clients. Whether the China All Lawyers Association will revise the China Rules of Legal Ethics to address confidentiality relative to prospective clients is uncertain.
[ii] See American Bar Association Model Rules of Professional Conduct, Rules 1.6, 1.9(c)(1), 1.18 (2006) (Hereinafter ABA Model Rules).
[iii] See id., 1.6(a).
[iv] See id., 1.18(a).
[v] See id., 1.6, comment [2].
[i] See Zhonghua Renmin Gongheguo Liushifa (2001 Xiuzheng) [Law on Lawyers of the People’s Republic of China (2001 Amendments) ] (amended by the National People’s Congress, December 29 2001, effective January 1 2002), available in Chinese at: http://www.law-lib.com/law/law_view.asp?id=16820 (last visited January 2 2008) [hereinafter Lawyer’s Law 2001 Amendments]., Article 33.[ii] The added provision in effect codifies relevant requirements in the current version of the Rules of Professional Ethics and Conduct (Provisional) (2004), available in Chinese at: http://www.law-lib.com/law/law_view.asp?id=82747, (last visited January 2 2008)[hereinafter China Rules of Legal Ethics], Article 56.

Enforcement of Judgments in China: Pretty Good in Urban Areas

Contrary to the popular view that enforcement of judgments is poor in China, Professor Randall Peerenboom stated in his recent article that:

While enforcement is often portrayed as difficult in China, recent studies have found significant improvements in urban areas, where more than half of creditor-plaintiffs receive 100 per cent of the amount owed, and three quarters are able to receive partial enforcement, a situation explored in more detail [citation omitted]. Moreover, the main reason for non-enforcement is that defendants are judgment proof: they are insolvent or their assets are encumbered. No legal system is able to enforce judgments in such circumstances.

Although cross-country comparisons can be misleading, it would appear that enforcement in China may be less problematic than in many jurisdictions, including in rich countries such as the United States, the United Kingdom, or Russia [citation omitted]. In the World Bank’s ‘Doing Business 2008’ survey, China ranked twentieth out of 178 economies in enforcement of contracts. The survey measures the time, cost, and number of procedures involved from the moment a suit is filed until payment is made.

Looking into the reasons behind the improvement in enforcement of judgments, Peerenboom found that:

The main reasons for the improvement in enforcement are changes in the nature of the economy; general judicial reforms aiming at institution building and increasing the professionalism of the judiciary; and specific measures to strengthen enforcement (citation omitted). The economy in many urban areas is now more diversified, with the private sector playing a dominant role. The fate of a single company is less important to the local government, which has a broader interest in protecting its reputation as an attractive investment environment. As a result, the incentive for governments to engage in local protectionism has diminished (citation omitted).

According to Peerenboom, enforcement in less developed areas, i.e. rural China, remains a dire problem for a host of reasons. Competency and quality of judges are still less than satisfactory. Local economy still depend on a few sources; thus, the incentive for non enforcement of judicial judgments remain.

Improving enforcement of judgments in rural areas is likely to be a difficult task as it is not simply a judicial problem. Lax enforcement, as can be inferred from the experience of urban areas, is a complicated institutional issue, linked to economic development, availability of well-educated, professional judges, and very significantly a thriving private business sector. Given the reality in the vast rural areas, better enforcement in these areas probably won’t come any time soon, short of drastic changes to local conditions.

Importers of Poisonous Chinese Toothpaste Indicted

Four exectives of of two Californian import companies have been indicted by the city of Los Angeles, reported by the NY Times.

The Los Angeles city attorney, Rocky Delgadillo, working with the Food and Drug Administration, filed a criminal complaint against two Los Angeles-based importers, Vernon Sales Inc. and the Selective Imports Corporation.

At Selective, Frahad Nazarian, the president, and Yones Ghermezi, the vice president, were charged with two counts of receiving, selling and delivering the tainted products.At Vernon Sales, Kamyab Toofer, the president, and Pejman Mossayi, the vice president, were charged with 14 counts of receiving, selling and delivering an adulterated drug.

The case is the first instance of criminal charges being filed in the United States against any party in the toothpaste scare and comes after a suit filed in Missouri against an American company that had imported tainted ingredients used in pet food.

This is not the first instance of criminal indictment, and it won’t be the last one either. Importing from China has become a little more costly to some who have not been practicing due diligence and caution. An investigative trip to Chinese exporters is a lot more pleasant than being charged with a crime.

Debunking the Myths about Doing Business in China

Debunking the Myths about Doing Business in China

Business Week came out with an article titled, China: Debunking the Myths. The authors, Charles Bien and Brian Renwick, lay out eight common myths, and shed light on them. Very interest stuff.


MYTH ONE: "Western companies should view the rapid development of the Chinese economy as a competitive threat to which they are vulnerable."

[As globalization increasingly link all nations and markets, i.e. U.S. subprime problems, this view seems quite simplisti. But, in an election year in the U.S., this view might generate good will among some voters.]

MYTH TWO: "The position of Asian superpower can be won by either China or India, not both."

[A Chinese saying has it that “there can be only one tiger in a mountain.” Will that be a self fulfilling prophesy?]
MYTH THREE: "China is a huge, single market with weak local competition."
[If investors get beyond the big first-tier cities, this myth will probably disappear real quick.]

MYTH FOUR: "China has a consistent management culture, which is ripe for introducing human-resource best practices."

MYTH FIVE: "Multinationals wishing to establish operations in China should hire Chinese 'returnees' who have valuable international experience, a non-Chinese perspective, and non-Chinese business education."

[Not all “sea-turtles” d/b/a “returnees” are born equal. An Asian appearance does not make you Chinese, I guess.]

MYTH SIX: "The 'war for talent' is a Western phenomenon. No such war for talent exists in China where supply of talent outstrips demand among leading firms."

[What kind of talent are ye talkin’ about? So, it depends.]

MYTH SEVEN: "Since the reunification of Hong Kong and the People's Republic of China, the administrative and business relationships are seamless."

MYTH EIGHT: "China is a low-cost manufacturer, not a platform for product and service innovation and the development of its own intellectual property."

[Change the “is” into “was.”]

Read the full article here.

Chinese Water Pollution Law Amended for Good

China faces many problems in its modernization. Income gap, aging population, air pollution, inadequate housing, social security/retirement, and the lack of affordable healthcare, to name just a few. But, none is more urgent and worrying than water pollution. Many readers are already familiar with media coverage of extensive pollution in major Chinese waterways and fresh water sources, and it is unnecessary to list them one by one. But, I do want to make an exception, the pollution of the Hanjiang River, as reported in the last few days, because it has touched a personal nerve.

I grew up by the Hanjiang River, along its upper stretches, close to its origin, so I have some emotional attachment to this nurturing, and at times mighty river. About a fifteen- minutes walk away from my home, as a kid, I used to swim and fish in it, search for rocks along its southern bank, graze our family water buffalo by it, and even drink from it. It was not so special while I was there, passing by it thousands of times. But it is when I have left my home that I realized how important a river like that is in shaping who I am today. So, upon hearing that pollution turned the water in the lower stretches of the river, I lament for its suffering. Even more so, I am deeply concerned for the people who live by the river because they rely on it for its life sustaining water, one of the most precious yet underappreciated natural resources on earth.

With that said, I am glad to hear that the Water Pollution Prevention and Control has been amended to abate the almost out-of-control pollution situation in China.

According to this report:

China's top legislature on Thursday passed an amended water pollution law that toughens punishment of company officials through hefty fines.

The Water Pollution Prevention and Control Law, to take effect on June 1, was passed at the 32nd session of the Standing Committee of the National People's Congress (NPC), which concluded in Beijing on Thursday.

"Enterprise heads directly responsible for causing severe water pollution incidents and others with direct responsibility would be fined up to half of their income in the previous year," said the law.

Previously, corporate executives faced only administrative penalties.

Water pollution is among the top environmental concerns of the Chinese government and the public.

A 2006 survey found that surface water generally was classified as containing intermediate levels of pollution, but one third of the 744 samples tested were graded at the worst pollution rating.

Yes, I have my doubts about how effective these amendments will be in the come days and years in alleviating the vast pollution problem facing the Chinese. I cannot help but question: how will monetary fines against executives of polluting companies effectively reduce and curb pollution (does deterrence really work?)? How strictly will this law be enforced? What viable measures and policies are in place to cure the impact of water pollution? Besides administrative penalties, civil fines, can individuals be given a private right of action for injuries due to pollution? If the current anti pollution legal structures are not effective, what solutions, legislative, administrative, or non-government related, could be adopted to abruptly abate pollution and jump start cleaning up process? Answers to some of the questions probably lie in a quick research, which I will do soon; but some questions are beyond my limited scope of knowledge.

The first required book in law school, which is not a casebook, was A Civil Action. It’s an enthralling book about a lawyer taking on two large corporations (W.R. Grace and Beatrice Foods) that allegedly polluted underground water. It is such a powerful book. (I digressed.)

Notwithstanding the questions I have about the amended Water Law, I welcome any step forward by the Chinese government (legislature) to address pollution.

What do you think?

G2000 v. 2000: Do Fear the Domino Effect

In my previous post, I indicated that G2000 has a much bigger problem ahead. Here is why.

Only one issue might be on appeal at the Zhejiang Higher People’s Court --the 20 million Yuan in damages for Plaintiff. No matter how the Court decides, Defendant G2000 will desperately want another bite at the apple regarding the validity of Plaintiff’s “2000 ” mark, but that is just a fanciful wish. In Chinese trademark litigations, as well as other civil trials, parties only get one appeal, which already occurred at the Beijing Higher People’s Court. Second, Beijing 1st Intermediate People’s Court and the Beijing Higher People’s Court have the exclusive jurisdiction on administrative trademark cases, which renders Defendant’s fanciful wish even more distant from reality. In short, Plaintiff’s “2000 ” mark is valid for the goods/services registered for, and that is written in the stone as of now, unless Plaintiff somehow forfeits it at a later date. But that is not the concern here.

So, what do all these mean to G2000, the big Hong Kong fashion company, the successful and expanding international franchisor?

IT IS ALL BAD NEWS for a number of reasons!

First, obviously, G2000 will be ordered to cease the use of the “G2000” mark on its ties, socks, belts, and scarves. Well, relatively speaking, this is no big deal since what franchisees can do to G2000 is a tremendous headache. Since trademark, in most cases, is the core of a franchise system, uncertainty in the trademark casts a very long shadow on the franchise system itself. If the G2000 mark violates the rights of another with respect to the types of goods complained of, G2000’s franchise system suffers a major loss in its family of trademarks, and that translates into a major loss in revenues.

Second, Chinese franchisees can sue G2000 for violating the Chinese franchise regulations. Pursuant to the Regulations on the Administration of Commercial Franchise, a franchisor must disclose to prospective franchisees the status of its intellectual property, and its disclosures must be complete, accurate, and truthful. See Arts. 22-23. If in the unfortunate event that G2000 did not disclaim or disclose the status of its litigations on the “G2000” mark, it could find itself in a heap of trouble with the Chinese franchise regulators (AICs, and the Ministry of Commerce). The administrative penalties for violation of these Regulations can be substantial. See id., Art. 24-29. What is worse, franchisees could sue G2000 for breach of contract, fraud, and repudiation of the contract because of the failure to disclose. See id.

Third, as part of the domino effect (if number 2, above, occurs), G2000’s entire franchise system in China will be in jeopardy. It will have to deal with possible lawsuits from its some 436 franchisees. In addition, the named co-defendants won’t want to share the blame for the joint and several liability in the original law suit. Furthermore, G2000’s image, no matter how bright and attractive, will have been tarnished not only among its consumers, but more importantly among prospective franchisees. Growth and expansion in China through franchising, the fastest growing method of product distribution in China, will suffer at the minimum a slow down.

As one can see, one big mistake, especially in a company’s overall IP strategies in China, could have far-reaching impact on its bottom line. In this age of globalization and commercialization, intellectual property, trademark in this case, is of utter importance. Without a comprehensive, proactive, and sound IP strategy, franchisors march into China at their own peril.

G2000 v. 2000: Is 20 Million Yuan Enough for Trademark Infringement?

I thought I have blogged about almost everything interesting on Chinese Trademark Law. But, I was wrong. In the case of G2000 v. 2000, the Hangzhou Intermediate People’s Court showed Chinese Trademark Law is still more interesting than the Leifeng Pagoda in Hangzhou, and the Hong Kong star sex scandal.

(Disclaimer: After a reasonable search, I have not been able to locate the actual opinion of the Court. The content of this post is based on multiple news sources, here and here. Surprisingly, the Hangzhou Intermediate Court does not have a website while other intermediate courts of lesser importance in Zhejiang Province have.)

First, this is a somewhat complicated trademark infringement case involving one plaintiff and multiple defendants. And the defendants have appealed the decision to the Zhejiang Higher People’s Court; therefore, the outcome of the case as laid down below could change, depending upon the Court’s prospective decision.

The Parties:
Plaintiff is an individual, Mr. Zhao Hua, in the business of manufacturing and selling socks, ties, and scarves. He acquired by assignment and still owns the trademark “2000” (Registration # 1094814), which was first registered by the original owner in 1997. And it was registered for Class 25 Goods (Clothing, footwear, headgear), including the following categories: socks, gloves, scarves, ties, belts, sashes, and veils.

Defendants:
Defendant is G2000 (纵横二千集团), a Hong Kong company, in the fashion/clothing business with corporate and franchised units scattered in many Asian countries/regions. It manufactures and sells its full lines of products including casual, formal and informal clothing and accessories for men and women. In addition, it also franchises its business concepts internationally.

In 1992, Defendant registered the “G2000” mark in China for use covering clothing, shoes and headwear. (carefully note the different types of goods registered for as compared to those registered for by the Plaintiff under its 2000 mark.)

In 1997, Defendant registered the same G2000 mark for handbags, shopping bags, and straps (手袋、购物袋、背带等).

In 2002, Defendant registered the G2 mark for clothing, neckties, socks, scarves, belts, etc. (服装、领带、袜、围巾、腰带等)

In May 2002, Defendant filed an action in the China Trademark Office to cancel plaintiff’s trademark (2000), then it unsuccessfully appealed to the China Trademark Review and Adjudication Board (the “TRAB”). Finally, it brought an administrative action pursuant to Article 33 of Chinese Trademark Law 2001 in the Beijing First Intermediate People’s Court, challenging the TRAB’s decision, but to no avail. On final appeal in 2005, the Beijing Higher People’s Court affirmed the administrative decision, holding that Plaintiff’s mark is valid for the types of goods so registered under Nice 25 Class.

Co-defendants are Shanghai Heyuan Clothing, Ltd. (上海和缘服装有限公司) and Guangzhou Qianying Clothing, Ltd. (广州千盈服装有限公司), and Zhejiang Yintai Department Store, Ltd. (浙江银泰百货有限公司), all of which are Defendant’s franchisees in China (or they might be area developers, or sub-franchisors. The exact legal relationship between co-defendants and the defendant is not clear to me.).

Brief Facts:

Facts of this legal saga lasting more than eight years are complicated. Back in 2000, Plaintiff sent a demand letter (cease & desist letter) to Defendant and co-defendant Shanghai Heyuan Clothing, Ltd., alleging trademark infringement with respect to the use of G2000 in connection with their sale of socks, gloves, ties and scarves. Between 2000 and 2006, Plaintiff also sought redress by filing multiple complaints with local Administration Industry and Commerce (“AIC”) in Beijing, Guangzhou, and other cities, but apparently achieved little (Doesn’t this make you think twice about the efficacy of AICs?). And to gather evidence, in the span of 10 months from May 2005 to March 2006, Plaintiff purchased allegedly infringing goods at various stores and locations sold by Defendant’s/co-defendants’ G2000 specialty units in Beijing, Shanghai, Hangzhou, Ningbo, and other places.

Plaintiff, I assume, filed this action soon after the Beijing Higher People’s Court handed down its decision against G2000 in 2005. The timing was pretty good on the part of the Plaintiff since the Beijing Court’s decision eliminated some uncertainty as to the validity of his trademark rights in 2000 for the goods registered for.

Additionally, it is important to note that Defendant operates a widespread network of company-owned and franchised units (reportedly 436 units in China), selling goods under the G2000 trademark. Of course, “goods” as referred to include those types that Plaintiff was seeking for relief.

Issue:

Whether Defendants’ use of the G2000 trademark for ties, socks, belts, and scarves (领带、袜子、腰带、围巾) caused confusion with Plaintiff’s goods bearing the 2000 mark among consumers?

Holding:
The Court held that Defendants infringed on Plaintiff’s rights, but for lack of access, no detailed analysis is available (Chinese courts, as do many courts in civil law jurisdictions, do not provide detailed analysis for their decisions, unlike their counterparts in common law jurisdictions. Exceptions, like the Starbucks v. Shanghai Copycat, do exist.).

My Thoughts & Reactions:

The court’s award of damages in this case is intriguing. Plaintiff pleaded for damages totaling 20,000,000 Yuan (that is right, 20 million). And the Court ordered the Defendants to turn over the figures for total sales, profits, etc. for the goods complained of in the relevant period of time, but the Defendant failed to do so. Generally, Chinese courts award damages to a plaintiff in an IP infringement case to the extent of a defendant’s illegal profits as proven, rather than losses sustained by the plaintiff. See Kate C. Hunter, Here There Be Pirates: How China is Meeting Its IP Enforcement Obligations Under TRIPS, 8 San Diego Int’l L. J. 523, 547. In addition, if the illegal profits or plaintiff’s losses cannot be accurately ascertained, the statutory maximum award of damages is 500,000 Yuan. See Chinese Trademark Law, Art. 56. Therefore, in an act rarely seen in Chinese courts, the Court awarded a whopping 20 million Yuan to the Plaintiff. Further, given the intertwined relationships among the Defendants, the Court held them jointly and severally liable. (for more discussion on awarding damages, please visit China Law Blog's post here.)

Obtaining sufficient damages in IP infringement cases is of paramount importance, if not the paramount one. After all, without proper compensation, a plaintiff’s glorious victory in the people’s courts can only be a “feel-good” occurrence, without much substance. (However, that is not to say that winning is not important.) Perspective and purpose affect one’s reactions to a major score in the courts. If a plaintiff’s main goal is to make a statement to actual and prospective infringers, and to enjoin current infringements, a win deserves much celebration. However, if a plaintiff’s main goal is to seek redress and obtain monetary and equitable relief, a win unsupported with lost profits waters down sweetness.

On appeal, the bone of contention, as I expect, would be that award of 20 million in damages to plaintiff. Of course, Defendants will try to set aside that amount, citing that it exceeds the statutory maximum; whereas, the plaintiff might argue that the 20 million award is appropriate given the scope and extent of violations, in addition to their failure to turn over documents within their control to ascertain the exact amount of damages.

Insofar as infringement is considered, it is a classic example of reverse confusion issue. According to Joel R. Feldman,

[i]n reverse confusion cases, a junior user (defendant) adopts a mark already in use by the senior user (plaintiff). However, the junior user dwarfs the senior user through advertising and other expenditures used to promote the mark. While the senior user has a “property” interest in protecting the mark, the public may benefit more from the junior user’s adoption of the mark because they only identify the mark with the junior user and are not confused by the dual uses of the mark.

Like any trademark infringement case, the key for Plaintiff is to establish confusion. Here, the fact is that the Defendant registered the G2000 before Plaintiff (his predecessor) registered the “2000” mark, but Defendant’s mistake was not to register its mark to cover more types of goods, specifically ties, socks, belts, and scarves. Instead, it only registered it for clothing, shoes and headwear. It is very easy to see what happened here. As Defendants’ business grew and expanded in China, it wanted to use the mark for ties, socks, belts and so forth, but found out, albeit regrettably, that it was too late to register. However, it was too lucrative not to go ahead with the expansion into more products with the coveted and profitable “G2000” mark. The fact it filed an objection/cancellation action with the Trademark Office speaks for itself. Although one might contend that plaintiff might have had ulterior motives when it registered the “2000” for the categories of goods under Class 25, plaintiff (or its predecessor) did so within the bounds of the Chinese Trademark Law at that time. And it did so because Defendant had failed to obtain trademark rights large and extensive enough to exclude others like the plaintiff from using the “2000 ” mark for any reason. And it did so, arguably, on account of Defendant’s failure to develop a comprehensive IP strategy before G2000 became highly profitable.

On the topic of a comprehensive IP strategy, G2000, I think, failed miserably. In addition to what I discussed above, it relied too heavily on the legal approach for its overall IP enforcement/strategy. Once its opposition/cancellation action failed through the entire legal process, it should not have pretended that “2000” problem does not exist. (This is simply for the sake of argument since I am assuming that Defendants did not attempt to buy out Plaintiff.) Should it have employed other means and strategies to make this headache go away? Should it have reached some kind of settlement agreement with respect to damages, or the use of the “2000” / “G2000” mark?

I think it should have done something more proactive to avoid a much, much bigger problem that is waiting for G2000. And if the appeal gets affirmed, or vacated on the issue of damages (assuming that is the only issue on appeal), the legal standing of Defendant’s “G2000” mark is still in doubt with respect to the categories of goods in question, thus jeopardizing its entire franchise system in China.

Next post will discuss the impact of this case on G2000’s franchise system.

The Supreme People's Court's 2-18-08 Judicial Explanation on Trademarks, Enterprise Names, and Other Prior Existing Rights

(The following is my attempt at translating the SPC's latest Judicial Explanation regarding the issues/conflicts between registered trademarks, enterprise names and other prior existing rights. If I have mis-interpreted any part of the Judicial Explanation, please kindly point out in your comments. Thanks! In addition, I will write a following post on the impact of this Judicial Interpretation.)


People's Republic of China The Supreme People's Court Notice
Law Explanation (Fashi)(2008)(3) Provisions on Several Issues in Hearing Cases Regarding the Conflict between Prior Existing Civil Rights and Registered Trademarks & Enterprise Names adopted on February 18, 2008 by the Supreme People's Court Judicial Committee meeting No. 1444. It is hereby announced that it will go into effect on March 1, 2008.

February 20, 2008中华人民共和国
最高人民法院公告
法释〔2008〕3号

《最高人民法院关于审理注册商标、企业名称与在先权利冲突的民事纠纷案件若干问题的规定》已于2008年2月18日由最高人民法院审判委员会第1444次会议通过。现予公布，自2008年3月1日起施行。

二○○八年二月十八日

To correctly resolve civil disputes involving the conflict between registered trademarks & business names and prior existing civil rights, these provisions are hereby instituted in accordance with the PRC Civil Procedure Law, General Principles of Civil Law, the PRC Trademark Law and the PRC Anti-Unfair Competition Law, as well as trial practices.

为正确审理注册商标、企业名称与在先权利冲突的民事纠纷案件，根据《中华人民共和国民事诉讼法》、《中华人民共和国民法通则》、《中华人民共和国商标法》和《中华人民共和国反不正当竞争法》等法律的规定,结合审判实践，制定本规定。

Article One Provided that requirements under Article 108 of the PRC Civil Procedure Law are met, People’s Court should accept cases filed by plaintiffs on the basis that defendants’ use of letters, graphics in defendants’ registered mark violated Plaintiffs’ existing copyright, patent right in packaging design, rights in business names, etc.

Where Plaintiff brings a lawsuit on the ground that another’s registered mark used in approved categories goods/services are similar or identical to her mark, People’s court should refer plaintiff to relevant administrative bodies for resolution, in accordance with Article 111 (3). However, where plaintiff bring a lawsuit on the grounds that another’s use of its registered mark is beyond the categories of goods/services registered for, or where another uses a registered mark by transforming its distinctive features, disassembling it or re-configuring it, the people’s court shall accept such cases.


第一条 原告以他人注册商标使用的文字、图形等侵犯其著作权、外观设计专利权、企业名称权等在先权利为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

　　原告以他人使用在核定商品上的注册商标与其在先的注册商标相同或者近似为由提起诉讼的，人民法院应当根据民事诉讼法第一百一十一条第（三）项的规定，告知原告向有关行政主管机关申请解决。但原告以他人超出核定商品的范围或者以改变显著特征、拆分、组合等方式使用的注册商标，与其注册商标相同或者近似为由提起诉讼的，人民法院应当受理。

Article Two Where Plaintiff brings lawsuits, pursuant to PRC Anti Unfair Competition Law Article 5 (3), on the ground that another’s use of a business name is same or similar to her prior existing business name, which use is sufficient to cause consumer confusion as to the source of the goods/service, the people’s courts should accept such cases.

原告以他人企业名称与其在先的企业名称相同或者近似，足以使相关公众对其商品的来源产生混淆，违反反不正当竞争法第五条第（三）项的规定为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

Article Three The people's court shall, in accordance with the plaintiff's claim and the nature of controversial legal relationship under civil law, and in accordance with the Civil Causes of Action (Provisional), ascertain the cause of the conflict in civil disputes between registered trademarks or enterprises and prior existing civil rights, and apply appropriate law accordingly.


第三条 人民法院应当根据原告的诉讼请求和争议民事法律关系的性质，按照《民事案件案由规定（试行）》，确定注册商标或者企业名称与在先权利冲突的民事纠纷案件的案由，并适用相应的法律。

Article Four Where the use enterprise name complained of infringe on the exclusive right of registered marks, or constitute unfair competition, the people's court, in accordance with the plaintiff's petition and specific circumstances of the case, may assign civil liabilities, such as enjoining defendant from using such name, correcting such use, etc.

第四条 被诉企业名称侵犯注册商标专用权或者构成不正当竞争的，人民法院可以根据原告的诉讼请求和案件具体情况，确定被告承担停止使用、规范使用等民事责任。



　　

Smart China Exit Strategy: Leave but Don’t Burn Your Bridges

China Law Blog (the “CLB”) has just come out with an excellent post regarding how investors should deal with the changing investment circumstances/environment in China. Most fittingly, CLB titled its post as “China Changes. Don't Over-React. Don't Under-React.”

To substantiate its argument, CLB borrows some pearls of wisdom from the China Business Blog, which recently posits the following on how one should respond to changes occurring in China:

1) Don’t over-react
The recent changes in China are not a death knell for global business. What is happening here are just the normal growing pains of a developing economy showing signs of budding maturity and the problems that go along with it.

2) Don’t under-react
China IS going to be a growing consuming market and it WILL suck up a lot of raw material and energy resources. And this WILL have an impact on other nations and economies by making these resources more expensive. It is a reality. It is happening. Sitting and complaining about it is NOT going to help. What emergency plans do you have that address potential future scenarios involving a growing China?

3) Don’t over or under-react, but DO REACT
Many a fortune cookie tells us, in some form, that in the midst of great chaos one may find great opportunity. Well, now seems a time of – if not GREAT chaos – then of some modicum of chaos in global markets. So how can you react and take advantage of it?

4) Look at all of your options
The lesson here is that companies should certainly consider their growth possibilities in China. It is (and will remain for some time) the most compelling market in the world. However, companies should not look at China at the cost of ignoring other markets. If the changes in China are motivating companies to consider all of their options, then I think this is possibly a good thing and is healthier for everyone involved.

In pure simplicity and brevity, CLB translates the above into—“use your head” when dealing with a changing China.

CLB’s advice is most poignant and relevant in light of the way some Korean companies are handling recent changes in China. Reportedly, some Korean companies decided to withdraw from the China, thus causing a pretty noticeable exodus. Nothing wrong with leaving, but it is problematic when they leave illegally (Chinese only). Some “escaped” in the middle of the night, and apparently the problem is so severe that the Korean Foreign Ministry has stepped in to help the exiting companies leave legally.

True, the cost of doing business in China has risen due to a host of economic and legal factors. Inflation keeps rising; labor costs are getting higher accordingly; tax breaks are disappearing; land control is getting tighter; and then there is the “cursed” labor contract law. For some, a quick exit might be the right and appropriate reaction to the changing investing environment; for others, it might not. But, before jumping onto the exodus wagon, it is crucial to analyze the appropriate measures to take, with professional help if necessary. Examine the motives, methods, reasons, and options for exiting.

It is bad enough to leave China illegally, presumably for not settling accounts with supplies, employees, and not paying taxes. It is worse to find out afterwards that China is actually still the place to be, and that you have already burned your bridges in China.

To end, I quote CLB—“Use your head.”

Low-Budget, High-Yield Legal Aid in Xi’an

After I enrolled in law school, I began to notice what amazing services that legal aid offices in American cities offer to the indigents. They operate on a small budget, yet manage to give their all to their clients’ causes. As the good folks at the Dallas Bar Association put it, Pro Bono work is like “billable hours for your soul.”

It turns out that lawyers in my home turf of Shaanxi Province are doing the same, providing much needed legal representations to migrant workers who would otherwise not be able to afford lawyers. As I wrote in one of my previous posts, affordable and easy access to the justice system in a country is essential to the establishment of the rule of law. And what China Digital Times reported does shine a gleam of hope for many, including the disenfranchised Chinese workers and those of us who care about China’s legal system.

In its post titled Why Migrant Workers Praise the Law, CDT states:

The Shanghai Daily News reports that migrant workers have some hope to resolve their woes with free legal assistance in the northwestern city of Xi’an in Shaanxi Province.

Running with a budget of less than 7,000 yuan (US$972) per month, the Xi’an legal-aid station is hailed as a “beacon” for migrant workers by local media which have tracked the station since its formation last year. It is a joint effort by the United Nations Development Program and the All China Lawyers’ Association.

Migrant workers who number up to 200 million in China usually complain that employers pay them late or not at all, and of work-related injuries.

The station recently helped 41 construction workers fight to collect about 90,000 yuan, their half-year earnings for last year. “The work is tougher as they were employed indirectly through sub-contractors or, even worse, via oral promises,” said Zhao.

Now, the Xi’an lawyers have at least two things to be proud of—the historical legacy of Shaanxi and their care for the “soul.”

The Call of the Home

(Foreword--China Business Law Blog strives to focus on matters only related to Chinese Law, but the following post is an exception due to the unique weather circumstances in China right now. This post is dedicated to all the migrant workers, either at home already or still on the road.)

The coldest winter of half a century has so far claimed at least 60 people.

It has caused billions of dollars in economic damages.

It has paralyzed much of the transportation system in southern, central, and southwestern China.

It has engendered mass blackouts in many areas, including my parents’ home.

And it has exposed the Chinese government’s weaknesses in emergency response management. At least, it is a huge blow to a government whose leadership believes that “man is sure to triumph over nature.”

Besides bringing about these unpleasant losses, damages, and revelations, the worst weather in half a century also showed something golden and precious—Chinese people’s unwavering resolve to go home for the most important holiday of the year, no matter what.

Hundreds of thousands of migrant workers are willing to brave the cold, the pushing and shoving, the rude railway employees, the cops, the hunger and thirst, and the seemingly endless waiting while exposed to the elements. Even though they knew they would be delayed for an extended period of time, most of them still chose to wait some more so that they could catch a train or bus for home. So, many of them are still waiting in the cold as I am writing and by the time you are reading this.

Why? Why don’t they just turn around and return to their factories, warehouses, construction sites, dormitories, or wherever they were before their arrival at the Guangzhou train station? Or some other stations scattered across southern and central China? It would be such an easy, logical, and obvious thing to do, given the grave circumstances.

But they did not. Millions of them chose the counter intuitive approach. They chose to brave the difficulties on their way home. They chose to suck it all up for a New Year’s Eve meal with their family whom they have not seen for at least a year; they chose to “eat the bitterness” in order to spend a few days at home, drinking home water, eating home meals and breathing home air; they chose to go home for all that it stands for and all that it means consciously and subconsciously to them. They chose to go home at all costs. They simply choose home over a hotel room, a dormitory bunk bed, or a rented apartment where they do not belong. Because to them, the simple truth is that as far as the Chinese New Year is concerned, “North, South, East or West, Home is the best.”

They won’t do this for the Labor Day; neither will for the National Day; nor will for any other cultural or political holidays. Somehow, the return to home for the Chinese New Year is so deeply ingrained in their psyche that nothing can overcome their drive and resolve to accomplish it.

Is it worth their while to risk so much, even their lives, just to be home?

For observers outside China, the answer is not so obvious, but for them, it seems to be a simple yes.

After observing migrant workers at the Guangzhou train station, the China Blog has the following to say:

My overriding impression was that I was impressed. I was impressed by what people were willing to put up with just for the possibility of getting a seat or even a spot on the floor of a train for a 20+ hour trip home. It was a grand display of enduring hardship, or what in Chinese is vividly known as "eating bitterness" (吃苦).

Of course, that is what many of these people's lives are about, a willingness to endure hardship to get ahead. The thousands waiting outside the Guangzhou station were largely migrant workers, people who traveled to Guangdong province from China's interior seeking a better life for themselves and their families. So when I spoke with the Chinese reporter, my final thought was that I couldn't imagine many Americans going through this. I left feeling a little guilty for complaining about transpacific flights in economy class.

It definitely gives me a new perspective about the Chinese New Year and going home. The closest thing about going home during a holiday in America can be found, I think, in the comedy movie Planes, Trains & Automobiles, although the mood is totally different from the reality in China now.

Hope the migrating masses in China find their transportation and get safely back to their sweet home soon; and above all, wish all a happy Chinese New Year (starting on February 7, 2008).

Mag Train, or Mega Pain?

While most of China is paralyzed by one of the coldest winters of nearly half a century, including the South, and Southwest, the citizens of one district in Shanghai is engaged in a potentially flammable protest against the Shanghai government. As reported by western media (NYTimes, and Washington Post) and in China (Chinese only), some citizens are waging their "battle" against the city government, which has proposed an extended stretch of the Shanghai mag-lev train. Under the proposed plan, the train line, connecting the Pudong Int'l Airport with the Hongqiao Airport, will cut across a densely populated residential area, potentially wrecking the peaceful life of thousands of residents (the number could be over one million based on one undisclosed source). As soon as those residents caught wind of the plan, they began vehemently opposing it, but in peace and through various forms of pleas and petitions. Their efforts so far culminated in a public hearing held on January 19, 2008; this event was attended on the one hand by officials from the city bureau of environment protection, bureau of city planning, the Mag-lev Project management team, and various district officials, and on the other hand by affected citizens of the proposed project.

One of the citizens' key concerns is just compensation for the loss to their property due to the project. Reportedly, the plan proposes to "condemn" property within 22.5 meters of the train line on both sides. In other words, the government will appropriate private property by way of eminent domain; however, it will only do so to property that it deems necessary for the consummation of the project—those apartments located on the plots of land lying within 22.5 meters of both sides of the train line. And the government will compensate the owners of property that it deems "affected" by the project, whereas those owners with property beyond the 22.5 meter boundary take nothing.

Many homeowners cannot stomach this Mag-lev project and the compensation methodology to be employed by the government. First, they disagree with the 22.5 meter rule as proposed, citing that it is arbitrarily set without adequate scientific evidence that the property beyond the boundary will be unaffected by the train. Of course, two sub-issues are embedded in this concern. 1). whether the government needs to "condemn" more land beyond the 22.5 meter line for safety concerns; and 2). whether the entire project will affect the health, safety, home value, and qualify of life of those residents alone the train line, irrespective of the 22.5-meter eminent domain proposal. Second, they disagree that this project is for public good. Public good is the prerequisite to eminent domain proceedings initiated by government entities (more on this later), but the construction project, linking two airports, does not either directly or indirectly benefit the people concerned. Rather, the benefit and convenience go to transit travelers. Third, they oppose the proposed plan all together because they believe that this project is a direct consequence of poor city planning, and that they should not bear the burden and consequence of substandard governance.

So far, the city government appears to be just listening. Officials have appeared at the public hearing, received complaints, and have "softly" pressured vocal dissenters. But, the severity of the issue, with homes and lives of thousands of residents on the line (pardon the pun), begs the question of "what next?" if the government turns a deaf ear. What other recourse do the citizens have? What are their rights under the Chinese legal system? How can they protect their rights in a country where the central government has been "pursuing" the Rule of Law? How should they navigate the complex and at times unfriendly legal system to enforce their rights?

To be Continued...

Woe to Assumptions!

"Assumption and Expectation ~ Two cousin brothers responsible for most of the chaos in the world."

An anonymous blogger behind the FOARP kindly pointed out a technical error in one of my previous posts: Microsoft Falls One Step Behind in Protecting “Windows” . Here is the comment that this reader left:

Mate, there is no such thing as CTPO, there is CTMO (the trademark office) and SIPO (the state intellectual property office - which deals with patents) but no CTPO.

It was an assumption on my part. Here in the United States, one is so familiar with the USPTO that one might assume that trademark and patent offices in other countries are organized and institutionalized in a similar way as in the United States. Small it is, but the error is indicative of my tendency to assume certain things. A bit of attention would have led me to the acronym "CTMO" as used by the China Trademark Office Website (English Version). In the study of law, assumption is costly because it affects one's credibility; in the practice of law, assumption is a lawyer's enemy, costing clients' business, case, and trust. For those who practice international law, the need for precision, sensitivity to cultural differences, and thoroughness is paramount. It's a wake-up call for me as well as a reminder that attention to details really matters in the legal profession.

Thank you, FOARP! Corrections have been made at your suggestion. And for readers out there, please note the changes.

And FYI:

China Trademark Office (CTMO)
State Intellectual Property Office (SIPO) ( handling patent-related matters)
National Copyright Administration (NCAC) (in Chinese only)

WTO Guru

On Tuesday (January 15, 2008), a special visitor spoke in my International Business Transactions class at SMU Law School. His background and speech are so interesting that they warrant a special post here.

Hon. James Bacchus was the guest speaker. If you haven’t heard of him, he served two terms on the appellate body of the WTO. The following is an excerpt of his bio:

He was a founding Member, and remains the longest-serving Member, of the highest global trade tribunal. He was twice appointed by consensus of the Members of the WTO, and was twice elected Chairman by his six colleagues. During his eight years of service to the WTO, he was the only American, and the only North American, on the Appellate Body.
…
His final decision for the WTO was as the presiding judge in the appeal in the complaint by the European Union, Japan, China, Brazil, and other WTO Members against a safeguard measure by the United States restricting imports of steel. Following the decision by the United States to comply with the ruling by Bacchus and his colleagues on the Appellate Body, The New York Times concluded that "this case was the rough equivalent of Marbury v. Madison, the 1803 decision that established the Supreme Court as the final arbiter of the constitution, able to force Congress and the executive branch to comply with its rulings." (Page 25, December 5, 2003). According to the American Lawyer, "James Bacchus, as much as anyone, can lay claim to being the John Marshall of the World Trade Organization." (March, 2004).

He commenced his lecture with a short pithy discussion on the relationship between trade and freedom. In his opinion, economic freedom generally precedes political freedom, and he stated that is why he supported granting China the “Most Favored Nation” trade status while he was representing Florida in the United State Congress. In his own words, “sooner or later, people are going to ask for political freedom.” Not to put words in his mouth, but a corollary of free trade is ultimate political freedom. (A highly disputed topic, which I won’t get into.)

Then, he posited that the WTO does not try to influence any sovereign nation’s politics, and that it has power over a certain nation only when the member country (countries) chooses to give such authority. In the WTO dispute resolution mechanism, there is no private right of action. In plain English, only member countries, not individual corporations in the countries, can sue. Thus, if a country does not agree to sue the company in another country, the grieved company is out of luck. Simply put, the WTO’s compulsory jurisdiction is only good when a sovereign nation complains about another country.

Further, he shed light on how a judge makes a decision on a WTO case. Generally, a judge undertakes a three-step process. First, she examines the defendant country’s WTO obligations in a certain area at bar, which are laid out in WTO accession agreements. For example, intellectual property obligations would be governed by the TRIPs agreements. Then, she explores the measures that the defendant country has taken to fulfill the WTO obligations. Third, she scrutinizes the facts and circumstances in their totality, and analyzes whether the defendant country’s measures indeed fulfill its compulsory WTO obligations. If a shortfall exists, the defendant country is “guilty,” and it will be required to adjust its measures accordingly. If it does not comply, penalties will follow in the form of withdrawn WTO benefits, i.e. higher tariffs. (Writing a WTO legal opinion is a totally different matter. Those opinions go for hundreds of pages, if you think the U.S. Supreme Court opinions are long. For example, Panel report out on Mexico-US anti-dumping dispute.)

Unlike the International Monetary Fund (IMF) or the World Bank, the WTO is not an independent legal entity. It cannot own real estate, nor can it enter into other business transactions.

During the Q & A session, questions about the U.S. WTO action against China regarding intellectual property was raised, but he did not go into details. I think it is because that he is a counsel (or maybe an advisor) of one of the involved parties.

Another point of interest is that he would like to see a WTO specific legal code of ethics for those attorneys practicing at the WTO, but he sees the difficulty of it ever coming into fruition, since that would be giving the WTO too much power.

He was thoroughly enjoyable and extremely knowledgeable about WTO-related matters. What a treat!

Microsoft Falls One Step Behind in Protecting “Windows”

China Trademark Office (CTMO) dealt another blow to American software giant Microsoft in January 2008. Reportedly (here and here), it rejected Microsoft’s opposition of the registration of a trademark “Windows”by a Ningbo eye glass company. The company successfully registered “视窗” (“Shi Chuang”, which means windows of vision) in 2001, and it later tried to register “Windows” in 2003 for glasses (Class Nine). After a search at the CTMO’s database for opposition/cancellation decisions, I was not able to find the written decision regarding "Windows," and I will have to base my post on news reports. (note, I will continue to search in the next few weeks for the decision.)

Based on the report, as soon as the owner of the Ningbo Eye Glass company filed its application for the “Windows” trademark, it received a demand letter from Microsoft. As those letters typically go, it expressed its opposition of the registration of “Windows” in China, because Microsoft used it first. Sounds great, right?

Well, not necessarily for the CTMO, apparently. Prior use in the United States may establish common law trademark rights (which is not something that a major IP owner should hang its hat on), but in China prior use does not establish any trademark rights unless the mark has been registered, or unless the mark has been deemed legally famous for particular classes of goods and services.

Without further facts or the CTMO written decision, I can only assume what went wrong on the part of Microsoft. Two possible scenarios exist here that might have led to Microsoft’s misstep in protecting “Windows” in China. First, Microsoft simply forgot to register “Windows” in China, which is unlikely given its level of legal sophistication. Second, it registered “Windows” in China but did not cover Class Nine, limiting its rights to the classes of goods or services registered for.

All is not lost though. Assuming that Microsoft registered “Windows” for certain classes of goods (say, software), it could ask either the CTMO or a People’s court to give “Windows” the famous mark status, thereby availing itself of broader protection. It is unlikely that Microsoft’s counsel has not tried that at the CTMO, but it can still try at an intermediate court in Zhejiang province where Ningbo is located. The court might find “Windows” legally famous for software (and whatever Microsoft registered it for in China), and might rule that the registration or use of “Windows” by another applicant for eye glasses is likely to dilute “Windows”, the famous mark for software.

(Too many facts are not available at this moment; so much of this post is based my assumptions and speculations. Once I get my hands on more details, I will write an update.)

“Regulationism”

My apologies to lexicographers, linguists, and English teachers out there for coining the word “regulationism.” But I couldn’t help it after seeing so many regulations that come into my China New Law alerts on a daily basis. To me, regulationsim means a tendency by a government(s) to resort to administrative regulations to solve social issues that might otherwise be resolved through alternative means.

Most people who know China are aware of the plethora of regulations in China, and my mentioning of the issue is surely no news. But, I am not certain that people know how the almost ubiquitous and countless rules and regulations impact China’s efforts to establish the rule of law, and how they affect people’s daily lives (both good and bad). I am not sure I know either, but I fear that regulations, once they start to “run wild” and become a short cut to the formal legislative process, do come with high costs that citizens probably do not want to pay.

For example, there have been fierce discussions on the regulation/standard on steamed buns in China. Reportedly, all steam buns must be made of flour, and be either oval or round in shape. Understandably, there needs to be certain standards for quality and sanitation, but a required shape for buns? Yes, this regulation will benefit average consumers by ensuring that all steamed buns will have a desirable uniform quality; however, these regulations also result in fewer choices for consumers. What if a consumer wants a triangular bun? What if she desires a bun made of a mixture of flour and corn meal in the market? Therefore, an unexpected corollary of excessive regulation is the blockade of the market mechanism.

In light of the consequence of this steamed bun regulation, its necessity should be called into question. The fact is that China already has Product Quality Law (and its relevant regulations), which should be sufficient to address quality concerns. Why then is another regulation necessary just for steamed buns? The answer, I guess is that the two Chinese agencies, General Administration of Quality Supervision & Inspection and Standardization Administration, subscribe to “regulationism.”

(Note: in the midst of a fury of outcries about the standard shape of steamed buns, the Standardization Administration issued an explanation that the standard shape of steamed buns in the regulations is only a recommendation, not a requirement.) Query, why even a recommendation?

While this topic of excessive regulating is discussed, I just learned of another notice by the State Council issued on December 31, 2007, which has to do with the ban on the production, sale and use of ultra-thin plastic grocery sacks (<0.025 mm). Pursuant to the notice, this ban goes into effect on June 1, 2008, and the National Reform and Development Commission will revise the Investment Guide Catalogue to reflect this national campaign to root out ultra-thin plastic sacks. In addition, starting on June 1, 2008, all markets in China shall cease to offer plastic sacks for free, and shall charge customers a specific fee for sacks requested by customers.

Clearly, this new regulation aims to increase the externality for the use of plastic sacks, which is an annoying solid pollutant in China and elsewhere. Hopefully, it will be effective in achieving its administrative purpose in stemming pollution and shifting the cost of pollution to average consumers and investors in manufacturing of ultra-thin plastic sacks. I don’t doubt the wisdom of the rationale behind the regulation, but I do have qualms about how it will be enforced in China. So many enormous polluters of China’s skies, rivers, lakes, and wetlands go unpunished in spite of China's long existing environmental laws and regulations. Thus, how could a neutral China observer be convinced that the government will go after a small business owner or grocer for selling a few thin plastic sacks, following the announcement of yet another regulation? This leads to, as I see it, another unexpected consequence of regulationism—societal cynicism about excessive regulations. If regulations are not to be strictly enforced, why make them in the first place?

Any thoughts?

Death Penalty by Lethal Injection: Humane or Inhumane?

As reported below by the New York Times, China plans to replace execution by shooting in the head with lethal injection, thus providing a more “humane” method of capital punishment.

China plans to expand the use of lethal injection to replace the current method of execution, a shot to the back of the head, the newspaper China Daily quoted Jiang Xingchang, vice president of the Supreme People’s Court, as saying. Half of the 404 intermediate people’s courts, which carry out most executions, now use lethal injection, he said. “It is considered more humane” and “will eventually” be expanded to all such courts, he said without providing a timetable.

Curiously enough, the United States Supreme Court will hear arguments in the case of Baze v. Rees on January 7, 2008. The issue of this case centers not on the constitutionality of the death penalty, but on the constitutionality of the cocktail used in the lethal injections in the United States. Defendants plan to argue that, according to the FoxNews, one of the chemicals used in the cocktail causes severe pain and violates the Eighth Amendment. Basically, they advance the argument that the current chemical mix of lethal injection causes unconstitutional pain and suffering to the convicted.

Here, you have the vice president of the Supreme People’s Court of China advocating the lethal injection, citing that it is more “humane” than the somewhat out-dated (still used in some places) bullet-in-the-head execution. Juxtaposing the apparent “welcome” of lethal injection in China with the growing “challenge” it faces in the United States, one can see the huge differences in the criminal jurisprudence in the two countries.

Apart from the difference, one should, however, not ignore the attention that the death penalty has received in both countries in recent years. In the United States, there has been a de facto moratorium on the death penalty, while the Supreme People’s Court of China now automatically exercises subject matter jurisdiction over every death penalty review case. As debates surrounding the death penalty continue on both sides of the Pacific, it would be interesting to see what results in Baze v. Rees and how it will impact academic discussions in China about lethal injection.

And as we all sit tight for the ruling in Baze v. Rees to descend, the answer to the question posed in the title of this post is--stay tuned.

Migrant Workers Self Help: Extreme Edition

A group of workers camped around a fancy Audi, surrounding it in order to force the owner of the car to pay wages owed to them (h/t China Digital Times).

The picture speaks volumes about the social condition that Chinese migrant workers endure—overworked, underpaid, unappreciated, and at times violated. What is more, it epitomizes a social phenomenon where a class of people who are unaware of (or unable to utilize) another tool to exercise their rights to be paid for their blood and toil—the law.

For want of justice, people can resort to self help or the law. As the migrant workers often do, self help appears to be the most sensible and accessible method of achieving justice. A plausible reason for their tendency to self help is that they do not have the money to hire lawyers; and they probably do not know to report the violators to the proper authorities, thus availing themselves of administrative assistance. Or, they do not have faith in the legal system in its ability to dispense justice to poor migrant workers. Irrespective of the reason, this phenomenon reveals an undeniable weakness in the Chinese legal system—the poor, the weak, and the disenfranchised do not have easy access to it. (Of course, this is not a problem unique to China.)