“Wahaha” Ain’t French, and It Belongs to China. (Republish)

Major news came out of the Danone v. Wahaha lawsuit saga, and it is again bad for Danone.

On July 30, 2008, the Hangzhou Intermediate People’s Court ruled that the “Wahaha” trademark belongs to the Wahaha Co. , not the joint venture between Danone and Wahaha, of which Danone is the majority shareholder.

Because this ruling affirms that of the Hangzhou Arbitration Commission  of December 2007 regarding this matter, the decision is not appealable, according to this report (in Chinese).

I will restate the facts briefly.  In 1996, the two parties signed a trademark agreement, transferring the “Wahaha” trademark from the Wahaha Co. to the then newly formed joint venture.  However, the Trademark Office of China disapproved this transfer.  So in the eyes of Chinese law, the transfer was never consummated, and there was no deal to speak of in terms of an IP transfer.

In 1999, the parties got creative about the trademark “transfer.”  Instead of calling it a “transfer,” they signed another agreement, titling it “Trademark Use Agreement.”  And of course, this deal was done under the table, irrespective of Chinese law.  Things went along smoothly and well for seven years, until 2006 when Danone found that it was not getting all the money that it should, and that its Chinese partner was competing against the JV.  To end all the “trickery,” Danone decided to buy out the Chinese partner, Zong Qinghou, but only to be rejected.

Hence, the lawsuits, all over the world, and all over China.

Now, the final gavel has fallen against Danone, to nobody but Danone’s surprise.  In China, the 1996 trademark transfer has been referred to the “Yang” contract, while the 1999 trademark “use” agreement the “Yin” contract.  It is pretty obvious what happened there.  Danone could not resist walking away from a guy as powerful and resourceful as Zong Qinghou, and certainly could not step away from the unbelievable profits to be made from the JV.  The “Wahaha” trademark would just be another pretty flower on the beautiful wreath that came into the JV.  However, it did not think about the consequences of doing things not in accordance with Chinese law even though it knew that the transfer was illegal in 1996.  If it is illegal done on the table, it is probably still so if done under the table.  I guess Danone pretended that there would be no problem, or even if there were a problem, its Chinese partner would take care of it.

Now, that mistake has come back to haunt Danone, for a long time.

The biggest “takeaway” from this is to follow the law no matter what your Chinese partner says, and regardless of the amount at stake.

Check out my previous posts for background information if you care about this stuff:

Wahaha v. Danone: Who Will Have the Last Laugh?

Wahaha v. Danone: Partnership at Grace’s End

Wahaha & Danone Dispute: “The Good, The Bad, and The Ugly”

IP Registration in Macao (Republish)

Just ran across an article Filing for Industrial Property Protection in Macau, China.  I thought it is very informative about Macao and its IP laws.

Here is what it has to say about Macao:

Macao is a small territory set on the southern coast of China, located not far from Hong Kong. It was colonized by the Portuguese in the 1500’s and became the first European settlement in the Far East. Macao’s treaty stipulated the territory would return to Chinese control. Therefore, on December 20, 1999, it changed [its] names [sic] to the Macau Special Administrative Region (SAR) of China.

The agreement that returned the region to China also stipulated it would remain under a “one country, two systems” formula. Consequently, the Chinese socialist economic system will not be practiced in Macau and great autonomy will exist, save for decisions on foreign relations and defense affairs for the next 50 years. The area is set on several islands about a sixth the size of Washington, DC, USA. Yet, tiny Macau is currently undergoing one of the greatest casino-building booms the world has ever seen.

The author, Kelly O’Connell’s description is brief yet accurate.

Then the article talks about the IP laws of Macao:

Intellectual Property rights (IPR’s) protection in Macau is administered completely separate from the People’s Republic of China. The administration is handled through the Intellectual Property Department of the Economic Services Bureau (DES) of the MSAR Government, charged with handling all IP matters in the territory. IP protection is legislated in the Industrial Property Code of Macau and the territory is also a member of the WTO and party to most WIPO conventions. All applications for protections of IP rights must be submitted in one of the official languages: Portuguese or Chinese.

The subject matter is covered by the Industrial Property Code Decree-Law Nº 97/99/M of 13 December 1999 (IP Code). The following questions will be answered to help explain the IP application process: What Subjects May Be Protected Under the Industrial Property law?; Who May File for Industrial Property Protection, what is the Fee and Where it is Published?; How is Priority Established? How are Application Inspections Conducted? On What Grounds Are Applications Rejected and What about Rectification.

Pretty good stuff, and it surely educated me.  To find out the answers to these important questions, read on here.

Any Recourse for the Slaying of American Tourist in Beijing? (Republish)

By now, I think everybody knows about the brutal attack and killing of Mr. Todd Bachman, an American tourist at the Bell Tower in Beijing on the first day of the Olympic Games. 

Caijing has a nice rendition of what happened:

Workers at a Hangzhou instrument gauge factory in eastern China’s Zhejiang Province remember Tang Yongming as an ordinary colleague who liked to joke and play cards at a local tea house.

Tang could be talkative, opinionated and moody, his former workmates told Caijing. But none thought he could kill in cold blood.

Police, however, have identified 47-year-old Tang as the knife-wielding man who shattered the peace of the Beijing Olympics’ first day by attacking an American couple and their Chinese tour guide before killing himself. The U.S. Embassy in Beijing said the couple’s adult daughter was also at the scene but escaped injury.

The husband, however, didn’t escape Tang’s blade and  died at the Drum Tower tourist site near central Beijing. U.S. news agencies identified the man as the father-in-law of the coach of the U.S. men’s volleyball team. The wounded wife and tour guide are expected to recover.

After the stabbing spree, police said, Tang killed himself by leaping from the tower’s upper level.

The August 9 incident came less than 24 hours after the capital city successfully opened the games with a Bird’s Nest stadium gala a few miles away. An embassy statement said the attack was “what appears to be a senseless act of violence.”

I agree that this is a “senseless” killing of a man and violent attack of  a few more people, right there in the heart of Beijing, where the 2008 Summer Olympic Games were unfolding.  But, I cannot brush aside my thoughts as to who should be held responsible, other than the assailant. 

Yes, you are right–I am asking if and how the family of the aggrieved can be justly compensated for the loss of their loved one.  To me, someone has got to be held responsible.  But who and how? 

Thinking from a U.S. perspective, I am trying to figure out causes of action against the parties responsible for providing security at the Bell Tower.  The Beijing city government?  The Beijing Police?  And/or whoever was providing security. 

“Sure, the defendants will argue that criminal activities committed by Mr. Tang was a superseding cause of Mr. Bachman’s death.  But, don’t we have a special and unique circumstance here?  Does the defendant(s) owe the deceased a heightened level of duty of care?  Mr. Bachman was an invitee, and those in charge of securing the Bell Tower had a duty to make that place reasonably safe and secure for folks like him.  Further, those in charge had a duty to adequately train their security personnel so that the popular tourist destination would be reasonably safe and secure.  In addition, since those in charge of security knew or should have known that more visitors were coming to the Bell Tower, which enhances the odds of harm and danger to invitees like Mr. Bachman, they have the duty to provide adequate security as reasonably prudent men would.  

But, they failed, miserably.  An attacker was able to get into the crowd, injure a few individuals, and fatally attack another before he committed suicide.  Where were the security guards?  What were they doing when the attack was happening?  Had there been adequate security Mr. Bachman would not have been fatally attacked and killed consequently.  Had there been adequate security personnel with adequate training Mr. Bachman would not have been so brutally killed by his assailant.  Therefore, it was the negligence of the parties providing security at the Bell Tower that proximately caused Mr. Bachman’s death.”

That is kind of what and how I would have argued on behalf of the deceased. 

What do you think?

What If Pigs Fly? (Republish)

“Why if pigs fly?” as my boss always asks.

Dan at China Law Blog beat me to blogging about the New York Times articleCourts Compound Pain of China’s Tainted Milk.  Doubting that I can say anything more eloquent about this topic, I quote Dan in full here:

This New York Times article does as good a job of any at setting out the issues China is facing in deciding whether to allow milk taint victims to pursue their claims in court. The article is, somewhat wrongly entitled, “Courts Compound Pain of China’s Tainted Milk.” It does a nice job dealing with the issues of whether China’s courts are set up for these sorts of mass tort cases and also whether the rejection/acceptance of such lawsuits is being driven from Beijing or locally.

I would think most Western lawyers would agree China eventually needs a system that can handle class action torts (or just mass tort cases), but the much tougher question is what it should do in the meantime.

The fact in China is that there is no recourse or redress for the wrongs committed against them.  More than sixty thousands were sickened; four babies, as far as I can remember, lost their lives to baby formula made with tainted milk; hundreds of hours of work were missed, therefore, wages lost; and countless tears shed on top of nauseating pain, suffering and mental anguish.  The list of wrongs and grief can go on and on, but, other than limited compensation from the Chinese government, there is no recourse against the individuals, companies, and entities responsible for the atrocities committed against so many innocent people.  For so many of them, money is not what they seek.  They probably seek justice, in the American vernacular–their day in court.

As Dan so nicely put, ” China eventually needs a system that can handle class action torts…”  But, no one knows, none in China, none in America, none in Europe, none in the rest of the world knows when that day will arrive.  Nobody knows when people so wronged like the families of those sicked children can seek their day in court to be heard.  So, instead of going after reality, I want to imagine what it might be like when that day finally arrives.  I want to imagine the day when “pigs fly.”  Of course, my rendition is totally based on my legal training in a common law jurisdiction as unique as that of the United States (throw in some Texas law as well because I currently clerk for a Texan lawyer).

A.  Parents Can File a Class Action against the Government.

The government entity in charge of quality control failed the suffering children, and they need to be held accountable.  As a government entity, it had the nondelegable duty to supervise, manage and control the quality of consumer products as mandated by law.  Consumers at large rely on the government’s efforts in choosing products endorsed by the government as safe, secure and of high quality.  Sanlu was endorsed by the government as a brand that was exempt from quality supervision and scrutiny, which conveyed a message to consumers that it was of superior quality and reliability.  Based on that reliance, consumers suffered paid a heavy price–their health, lives in some instances, and their blind trust in the government.  Due to this breach of its duty, the government caused injuries and damages to consumers at large, for which the government should be held responsible.  (assume that sovereign immunity is a non issue here; assume also that numerosity, typicality, adequacy of class representation, and commonality of claims are satisfied).

B.  Parents Can File a Class Action against the Manufacturers.

Filing and winning a lawsuit against the manufacturer–Sanlu should be a “slam dunk.”  Slam dunk does not mean any kind of guarantee, of course.  But, it should not be a terribly difficult case to win given the obvious duty, breach thereof, causation, and damages.  In a jury trial, it is hard to imagine a jury not giving the plaintiffs a favorable verdict.  The sticky issue might be the amount of damages, which will be addressed below.

C.  Parents Can File a Products Liability Action against the Distributors/Sellers of the Tainted Milk.

The theory of strict product liability holds all players in the chain of product manufacturing and distribution liable for defective products.  In an action regarding the tainted milk, obviously many companies sold and/or distributed defective and toxic products to consumers and caused unbelievably enormous damages to them, so they should be held liable for doing so. 

D.  Parents Can Recover under Implied Contract/Warranty and Fraud Causes of Action.

Plaintiffs may argue that manufactures, like Sanlu, breached the implied warranty that the products are fit for consumption.  Further, they can argue that when the manufacturers made products with substandard and adulterated raw materials, with knowledge that they are substandard, they engaged in fraud.  Of course, as in all fraud cases, the standard of proof is higher, but it should not be difficult to prove the massive fraud within Sanlu.  Furthermore, Plaintiff can advance the theory that manufacturers, like Sanlu, intentionally failed to disclose that their product was defective.  Evidence can establish that the management at Sanlu knew months before the scandal that the milk used in their products were tainted with melamine; yet, they chose not to disclose or recall their product.  Consequently, consumers sustained injuries and damages.

E.  Parents Can Recover Damages on Multiple Grounds.

1.  Actual damages, including but are not limited to, medical expenses, lost wages;

2.  Pain and suffering in the past and future;

3.  Mental anguish in the past and future;

4.  Exemplary damages due to intentional conduct;

5.  court costs;

6.  Attorneys’ fees; and

7.  A public apology by all defendants to the consumers at large for their wrongful acts and/or omissions (uniquely Chinese).

Even if you discount the 33% that plaintiffs’ lawyers take, Plaintiffs will still be compensated for their huge losses to a certain degree.  But what is most important to the Plaintiffs is not the money; rather, it is the very fact that they lodged their complaint, they got heard, and they found justice.  And that is the day when pigs actually flew high up in the air.

(Obviously, I am not even going to try the criminal size of the story.  That belongs to another day. )  

Sanlu Group Co. Bankrupt: Morally & Financially (Republish)

It has been reported that the infamous Sanlu Group Co. has been declared bankrupt by a Chinese court (h/t China Digital Times).  It is about time.

For background information, Sanlu Group Co. is one of the companies that manufactured and sold adulterated dairy products, including baby formula, tainted with industrial melamine.

Sanlu Group Co. and its board were thoroughly morally bankrupt.  The company knew that their products were contaminated by melamine when they used unsafe and impure milk during the manufacturing process.  Despite their knowledge of the danger that contaminated products might have on consumers, especially the young ones, they purposefully hid the information from the public and failed to disclose to the public until it was too late.  As a result, “[a]t least six infants died and more than 54,000 were hospitalized after 22 companies including Sanlu sold formula made from milk contaminated with melamine, an industrial chemical.”  When the news came out in waves about babies being sickened, I was too disgusted by the greed, immorality, and corporate filth to write anything about it.  To date, I still cannot imagine how the company managers and board members, who knew about the contamination before hand, sleep at night.  I have young children, and many of my friends and relatives in China have young children and babies.  The thought of harming helpless babies with poisonous food is too much to bear.  That is why I believe the entire management team at Sanlu Group Co. was morally bankrupt.

Now, Sanlu Group Co. is financially bankrupt in the legal sense.  “Sanlu’s bankruptcy was sought by a creditor of the company, Auckland-based Fonterra said today. The court’s ruling will ensure the orderly disposal of the company’s assets and repayment of creditors according to Chinese law, it said.”  According to the Bloomberg report, Sanlu has already been declared bankrupt by the Court after it accepted the case.  But this report is contradicted by another report in the widely read and respected Chinese financial newspaper Caijing, which reports that the Shijiazhuang Intermediate People’s Court No. 4 Tribunal has accepted the creditor-initiated petition but has yet to rule on it.  Irrespective of the discrepancy betweent the two news sources, a number of issues are noteworty, especially in light of the China’s new Enterprise Bankruptcy Law  (unofficial English translation) promulgated in 2006:

a.     Creditors can file a bankruptcy petition in the court of proper jurisdiction.  This right for creditors is provided for under Article 7.  When the debtor is unable to pay its debts when they become due, creditors have the right to apply for a reorganization or liquidation.  According to the Caijing article, a bank creditor applied for the liquidation of the debtor, Sanlu Group Co.  Presumably, the creditor has evidence to show that Sanlu could not pay its debts and reorganization is not the way to go.

b.     It is probably a smart move on the part of the bank creditor.  Under the Enterprise Bankruptcy Law, only the debtor in possession and the court appointed administrator can propose reorganization plans.  Without the right to submit reorganization plans, creditors lose a potential leverage point in the reorganization process.  Unlike the China, in the U.S. Bankruptcy Code, creditors can, after the exclusive period alloted for the debtor in possession, file their own plans.  In addition, even though various local governments (courts indirectly) have so far blocked lawsuits against Sanlu for products liability associated with the contaminated milk products, it is uncertain that whether some consumers could ultimately sue within the general two year statute of limitations.  Further, since the bank creditor is a secured creditor, it has the first lick at anything in the company.  One of the most applauded features of the new Bankruptcy Law is that secured creditors’ claims have superiority over employee compensation and other general claims.  With this priority, the secured bank creditor is guaranteed payment to the greatest extent before anyone else can jump in for a share.  So, it makes great sense for the bank to file for liquidation when Sanlu still has something left at this stage.

c.     Besides liquidation, reorganization and conciliation are also options for Sanlu under certain circumstances as provided in the Enterprise Bankruptcy Law.  According to the Caijing report, another compnay, Beijing Sanyuan Food Products Co., Ltd. is in the process of formalizing acquiring Sanlu.  Of course, as the new owner of Sanlu, Sanyuan plans to reorganize rather than liquidate Sanlu.  However, Sanyuan apparently did not anticipate that a creditor could race it to the court house and file for liquidation.  How will this strategic move by the bank creditor end up impacting Sanyuan is something to watch for in the future.  But I bet you Sanyuan is probably kicking itself for not filing for reorganization as soon as possbile after the M & A is consummated.  Of course, I am assuming that the M & A has already been done by the time the bank filed the liquidation suit.  This raises an interesting legal issue–does a prospective owner of a insolvent company have standing to file an application for reorganization?  (I don’t have the answer yet, and I’d love to hear your opinion.)

Won’t this be a good law school exam question?

The Protection of Secured Creditors in China Under the New Enterprise Bankruptcy Law (Republish)

 Bankruptcy law is exceedingly complex yet interesting.  It is complex because the law has to banlance many competing interests when a business entity falls into financial trouble: the entity itself, its employees, its secured creditors, its general unsecured creditors, its owners, its suppliers, and the federal government (the IRS).  It is interesting because bankruptcy constitutes either the end or the springboard for rebirth for a business entity, or individual for that matter. 

Bankruptcy lawyers are probably doing pretty well now.  Given the bad and worsening economic conditions, more and more business and individuals will fall behind on their debts, thus in need of bankruptcy protection, either liquidation or reorganization.  If the reorganization route is taken, legal counsel plays a very pivotal role during the entire reorganization process.

Since I just wrote a post about Sanlu’s bankruptcy, I figured that I should share a paper that I wrote for my comparative law class on China’s new Enterprise Bankruptcy Law.  The paper is titled–Secured Creditors in Corporate Reorganization: A Comparative View of the United States and China.  If interested, please email me.

Shenzhen Court Convicts Software Pirates: A Cause for Cautious Optismism (Republish)

On December 31, 2008, a criminal court in the Futian District of the southern city of Shenzhen convicted 11 suspects charged with pirating Microsoft software.  Besides the criminal convictions, the Court also handed out hefty fines to some of the criminals.  The result of this case surprised many, and was welcomed, of course, by Microsoft Corporation and many intellectual property holders that do or want to do business in China.  In part, I agree this is a great case to celebrate for the enforcement of IP laws in China, I am only cautiously optimistic about the progress that China is making in the overall enforcement of its otherwise strong laws.

The following provides the background information for this post:

Wang and his counterfeit ring were found to have made illicit gains of 1.9 million yuan by counterfeiting 15,000 disks of Microsoft software and distributing 54,837 disks, said the statement.

On Dec. 31, Wang was sentenced to six and a-half years in prison with a fine of 1.5 million yuan.

China’s Criminal Law defines “especially grave violations of copyright” as those involving 2,500 or more copies. Violators could be sentenced to three to seven years in jail. Suspects in similar cases could face up to five years in prison in the United States.

Zhang and Che were sentenced to five years and three and a-half years in jail, respectively, with fines of 400,000 yuan and 800,000 yuan. Eight other offenders were jailed for 18 months to three and a half years.

The verdict was arrived at under the Criminal Law and two judicial explanations on criminal cases of violation of intellectual property rights by the Supreme People’s Court and Supreme People’s Procuratorate, the statement said.

There is no doubt that software piracy is a tremendous legal and economic problem for China and for the business community.  There is also no doubt that China does have the necessary laws and regulations already in place, protecting property rights in software by imposing monetary fines and even criminal punishment.  However, as is well known, the problem always lies in enforcement.

For example, as far as the legal infrastructure is concerned, China has the following (to name just a few) that directly deal with criminalizing software piracy:

a.    Copyright Law of China (2001), see Articles 47, 48;

b.    Regulations on Computer Software Protection (2002), see Articles 23, 24;

c.    Criminal Law of China (1997), see Articles 213-220.

d.   IP Infringement Criminal Thresholds (2004).

Basically, China’s got all the laws on paper that will make all software owners’ hearts sing.  But, as many commentators have suggested, software piracy is not simply a legal problem that can be addressed by a few pieces of legislation and a host of regulations and judicial interpretations.  That is why piracy is so rampant in China, almost everywhere in the nation, despite all the progress China has made on IP protection.

Now, the Shenzhen Court has put a bunch of software pirates out of business and has given a number of them jail time.  Does this suggest a breakthrough in enforcing software rights in China? Or does it still represent yet another critical step in China’s long march towards becoming a serious software protector?  Views diverge on this.  For instance,

Li Shunde, a legal scholar who heads the Chinese Academy of Social Sciences Intellectual Property Research Center, told Xinhua: “This [case] shows China’s sincerity in implementing intellectual property law enforcement.”

Mr. Li regards this case as a prime example of China’s “sincerity” and real action in enforcing software law enforcement.  But I respectfully disagree.  I think this case serves as an example of what China can do when under intense international pressure.  The fact that Microsoft and FBI were involved in the initial busting of the convicted should not be lost on readers.  Further, this case shows what the city of Shenzhen has chosen to do to fight software piracy.  Long regarded as a manufacturing powerhouse, Shenzhen has been trying to transform itself to be the next high-tech city in China.  Shutting down a piracy ring within jurisdiction of Shenzhen is a good additional step towards providing the necessary infrastructure to incubate the rebirth of the new high-tech Shenzhen.  But, equating the progress made in this southern pearl of a city to that of the entire country is unrealistic and exaggerating.  The fact is that much of China has much to do to catch up with what this Shenzhen Court has done.