Textiles: The Beginnings of Free Trade[?]

Way back in 1974 the Multi Fibre Arrangement (MFA) or Agreement on Textile and Clothing (ATC) was signed by the developed world to impose quotas on imports of textiles from much of the developing world in order to protect the textile production of the developed world because of the natural advantage that the developing world has in textiles due to intensive labor costs. The World Bank and IMF have estimated that this agreement cost the developing world 27 million jobs and $40 billion/year in exports.

During the Uruguay Round of GATT, which lasted from 1986 until 1994 and ultimately resulted in the founding of the WTO, the participating members agreed to gradually lift the quotas and formally end the MFA by January 1, 2005. The quotas had long allowed all developing countries to compete at the same level, and some countries, such as Bangladesh, were not even given quotas because they were so poor. In 2002, this all changed.

2002 saw the lifting of a large number of textile quotas. The developing world had long awaited this day, but a newly admitted member to the WTO, China, saw fit to spoil their party. China saw exports in virtually all categories increase by over 100%, and the countries that were previously filled the demand saw their exports decline below quota levels. The strongest exports from China were in robes (exports increased more than 1,500 percent), baby clothes (increase of more than 2,000 percent), and knit fabrics (increase of 21,000 percent). China's market share of the US import market share of apparel not subject to quota increased from 24 to 86 percent. And, China lowered worldwide wholesale prices by greater than half. The MFA expired in 2005 and conservative estimates saw China's market share of US clothing imports increasing from 16 to 50 percent, and it was even estimated that China would eventually have an 85 percent share of the US apparel industry. And, it was predicted that the developing world would lose 30 million jobs in the textile industry to China. The price/quality ratio for China manufactured apparel was better than anywhere else in the world, except for Bangladesh which featured extremely low wages. (All figures in this paragraph taken from an NPR radio piece that I was listening to on the long drive to San Diego,
yesterday. Really, you can't drive for 8 hours without hearing something about China.)

As predicted, EU and the US were flooded by inexpensive apparel from China in 2005 as soon as the MFA expired. Both the EU and the US quickly set up new quota systems on textile imports from China. The US quota system ends on December 31, 2008. The EU quota system, the Memorandum of Understanding on China-EU Textile Trade, ends today, December 31, 2007. Sort of...

In November 2007, the EU and the China Chamber of Commerce for Import and Export of Textiles, China National Textile and Apparel Council, and China Association of Enterprises With Foreign Investment, set new standards for Chinese exporters that would be exempt from quotas. The new standards require textile exporters to Europe to apply to the Ministry of Commerce and the General Customs Administration for export licenses. These export licenses are subject to bilateral monitoring by China through the granting of licenses and the EU through monitoring when then they enter the EU, and allow unlimited exporting of T-shirts, pullovers, men's pants, blouses, dresses, bras, bed linens and flax yarn, through 2008.

Chinese textile exporters in these eight categories will be granted an export license if they satisfy the following three requirements:

• minimum registered capital of RMB 500,000 ($68,250)
• at least two years of export experience
• no IPR or environmental protection law violations

This system is not guaranteed to continue. The WTO provides in paragraph 242 of the Report of the Working Party on China's Accession to WTO, that WTO members are allowed to reinstate quotas if China's textile exports disrupt the market. Chinese bureaucrats have suggested that Chinese exporters "exercise restraint" and develop in-house brands, to discourage WTO members from reinstating quotas in the face of massive Chinese imports.

The Xinhua article from which most of this is drawn, suggests that if this EU-China system is successful, then the US may continue a similar system come similar date next year.

Posts of the Week: 12/23 - 12/29

Christmasy, slowish week in China blogging. Not very Christmasy week in Pakistan. Benazir Bhutto: martyr or victim of a freak fall? I'm glad I don't have to decide.

Laborious Suzhou at This is China! BLOG
Bill Dodson brings us the word from the expat street on China's new Labor Law that goes into effect on January 1, 2008.

Working with Small to Medium Size Factories in China at Silk Road International Blog
David Dayton explains what you are likely to run into if you are sourcing from small and medium factories in China, and lists several ideas to help overcome the problems that you are likely to run into.

China's New Labor Law. Still Coming. Still A Big Deal. at China Law Blog
Dan Harris reminds us that the Labor Law is coming. Plus, he provides a nice index to the rest of his posts on the new Labor Law.

Danone/Wahaha: Both Parties Agree to Truce (Part 8) at Managing the Dragon
The latest in the continuing saga...

Paul Krugman is not a protectionist at Free Exchange
The Economist reminds us that though we should respect protectionists as people, we should "certainly not" respect protectionists as "crafters of economic policies."

Newsweek 's Special Edition

Newsweek has a special edition out this week with a section on China in 2008. There are a collection of articles stressing, at least on the surface, a pragmatic, reasonable approach to China. This is refreshing coming from a highly circulated American periodical. However, the undertone to each article is that China needs democracy and freedom, and until this is achieved, the US will always be greater. It is a self-congratulatory boosterism of China. Though, this is further than most (all?) of our presidential candidates are willing to go.

The opening story, "The Rise of a Fierce Yet Fragile Superpower", by Fareed Zakaria, draws up on Susan Shirk's comments about China being a "fragile superpower" (and elaborated upon at China Law Blog). Mr. Zakaria sees China's biggest problem as a weakening central government, evidenced by the low central tax collection. The weakness of Beijing allows the provinces to ignore orders form the central government which exacerbates the rich/poor gap, a gap that should not be too wide in an allegedly communist country. Zakaria suggests that a more transparent, responsive, and accountable government could function better in the new "more chaotic and empowered society."

That part of his paper was less convincing than the part he wrote about conflict between the US and China. Many "see the seeds of inevitable great-power conflict and perhaps even war" between the US and China, but Zakaria says that not all great powers are alike: "some ... have been like Nazi Germany and others like modern-day Germany and Japan." Also, the US replaced Britain without a war. Zakaria says that economic competition is inevitable, though, and the character of this conflict will depend upon policy choices. Zakaria quotes John Ikenberry as saying that since nuclear weapon's make great-power war suicidal, "Today's Western order, in short, is hard to overturn and easy to join".

Of course, this is all used by Zakaria to illuminate the argument of his essay: This "should be the year we craft a serious long-term China policy."

The next article is by Newsweek's Beinjing Bureau Chief, Melinda Liu. The article uses Ms. Liu's family history to frame the history of China over the past 30 years beginning with the restoration of full diplomatic relations between China and the US. Fun read.

This is followed by a short piece on various activists around China.

Next is an article on President George H.W. Bush's year in "Mao's China" in 1974-'75.

And, of course, there is the obligatory article on the Olympics. Well, wait a sec! There's only one article on the Olympics in here!?!?

In the final article, Mayor Michael Bloomberg poses China not as a threat, but as "An incredible opportunity". Mayor Bloomberg argues that as global economics is not a zero-sum game, a healthy Chinese economy is good for the US and good for the world. As such, he writes that we need the public infrastructure to prepare ourselves to compete in the global economy. But, the real purpose of this article come sout in the final paragraph, quoted in full:

This summer's Olympic games will give China a chance to showcase its impressive economic progress. But it will also remind the world that much work remains to be done in building a healthy society where differences of opinion--on politics, philosophy and faith--are respected as fundamental human rights. We live that lesson every day in New York, and as China may yet come to see, it is our greatest competitive advantage in the global economy.

I have written before that Americans really like their democracy and have deep problems thinking that any other form of government is desirable. We see that in this edition of Newsweek as the undercurrent in each article. But, there is not one article that outright bashes or debases China, or fear-mongers Americans into worries about Commies poisoning the brains of their children. The articles are well chosen, and damn near as pragmatic as a popular American periodical can get.

Posts of the Week: 12/17 - 12/22

So, it's sort of a vacation week. Post frequency is down. Here's a list of a few posts that I really liked. There is at least one post that I plan on doing an extended post on, and I'll save my comments on that to a later time.

Stocking Coal at Free Exchange
American aloofness in climate negotiations.

China Product Costs: The Whole Enchilada at China Law Blog
Nice, lengthy post on all the costs you need to think about if you're sourcing products form China.

China Trademark Law: Simple and Effective at China Law Blog
The title of this post says it all...

Here's a list of a few that are not terribly substantive, but a good story nonetheless:

Death of a Migrant, Pregnant Woman at China Business Law Blog

Why the Yilishen ant farming scandal was the perfect China story at Imagethief

China and Middle East Are Stabilizing US Financial Markets at The China Game

US-China Product Safety Agreements at China Hearsay

What's the Deal With the PPP Story? at China Hearsay

The Danone-Wahaha Instruction Method

Classes are over. Exams are finished. No cite-checking assignments due. Only a Comment to finish for the law journal. In a memo to myself I discovered that, in school, one does not procrastinate when one learns. Thus it was that I found myself wracked with guilt for not cracking open my folio of case law, statutes, and journal articles, and banging out a few pages of Comment, when all of a sudden I stumbled across a law journal article kindly linked to by good Dan Harris at China Law Blog, "Wahaha as Pedagogy" by Micah Schwalb of Boulder2Beijing. I have yet to develop the "aversion," and Wahaha, as Mr. Schwalb argues, can serve as an adequate diversion for a student of Chinese legislation. It may also have occurred to me that a post could possibly be divined from this article perusal.

Mr Schwalb's thesis is that a whole introductory course on Chinese Company Law and foreign direct investment in China could be taught out of the Danone-Wahaha controversy. The majority of the fourteen pages are spent showing how this could be done. This instructive part of the paper read like a primer on Company Law; I felt like I was back in our arctic-chill classroom at Jiao Tong University learning the statutes governing foreign direct investment. Truly a great resource for seeing how these many laws fit together and play out in a dispute.

But, Mr. Schwalb had another agenda that he reveals in his blog post: to teach Chinese law in a new manner. Rather than "sitting through slide presentations about specific code provisions" (it takes ~3 hours to read all 219 articles of the Company Law out loud word for word in English, trust me on this one), Mr. Schwalb suggests incorporating the case study method into a course. Danone-Wahaha serves as a great case for a Company Law course because, "with a few exceptions, ... [it] literally encompasses the entirety of Chinese company law".

I heartily agree. In a civil law system the ultimate authority rests with the statute and the statute is the most important thing to learn, but it is difficult to comprehend the importance of individual articles without seeing them applied and challenged. I have a couple of friends in medical school at UC San Diego and we often discuss our educational experiences. The aspect of law school that they find most intriguing is lacking in medical school: case study. They learn the chemistry and the biology and the physics and the pharmacology and the names of body parts, but the closest they come to a case study is an episode of House. They worry that the lack of case studies hurts them as future healers by depriving them of education on the application of their knowledge (at least until they are in residency and thrown to the wolves).

The majority of our law professors at Jiao Tong incorporated some aspect of case study into their lessons, but the professors who did not hurt their students because a statute by itself is difficult digest without seeing how it works. I hope they take Mr. Schwalb's recommendations to heart, for a lot can be learned about Chinese Company Law from Danone and Wahaha.

As it turns out, the thing I find most intriguing about medical school happens to be lacking in law school: cadaver dissections.

USCC: Energy & Environment

Colleague Thomas Del Monte sent me a link to the Annual Report to Congress of the U.S.-China Economic and Security Review Commission (USCC) telling that it came up in a discussion he was having with someone about China's CER investment practices. I flipped the report open to page 8 of the Executive Summary which summarizes China's Energy and Environmental Policies and Activities. I had mixed reactions, but I thought it would be a good idea to read around before I got to typing.

Stan Abrams has a fine post at China Hearsay on the USCC, which he dubs the “Unbelievably Scary China Committee”. The post is in the Panda Punchers series which gives you an idea of what he thinks of the report. Mr. Abrams reproduces several choice findings in the Report detailing the xenophobia (too strong of a word?) of the Commission.

The early parts of the energy and environmental summary fall into this same xenophobic trap: China's cheap dirty coal fired energy generation is choking us all; the vast bureaucracy and the disconnect between central and local governments prevents any real gains from happening; China supports bad guys by buying oil from whomever. Below are some of the most damning accusations:

• "If China’s underlying environmental problems are not addressed effectively, this could become another source of unrest that could challenge the Chinese Communist Party’s control of the country."
• "China aids regimes operating contrary to U.S. foreign policy interests, such as the genocidal government in Sudan and Iran’s government that is attempting to develop its own nuclear capability."
• "The bilateral relationships China is building around the world ... have resulted in an
  increase of its global economic, political, diplomatic, and cultural influence that has the potential to challenge U.S. interests."
• "China’s naval modernization is targeted not only on a Taiwan scenario but also on protecting China’s economic resource supply chains."

Pretty ominous stuff... There might be some truth there, but the theme is: China Bad! Imagine my surprise then, when I read the Commission's "Prospects for Addressing the Effects of China’s Energy Consumption":

• "Success in addressing China’s energy challenges will require the Chinese government to focus on correcting the structural weaknesses within its energy policymaking apparatus."
• "Cooperative projects that promote and support the collection and reporting of sufficiently detailed energy and environmental data will contribute substantially to China’s ability to address challenges in these fields and to the ability of the United States and other nations to provide real encouragement and targeted assistance to those efforts."
• "U.S.-China cooperation on energy and the environment is a crucial component for addressing the energy challenges that both countries face."
• "China presents an opportunity to develop and apply U.S. energy technologies on a large commercial scale that will increase the viability of these technologies on the market."

These prospects and solutions are focused around cooperation between the U.S. and China which stand in contrast to the energy and environmental problems which are focused on China as a threat. Cooperation always seems to be the most beneficial method of proceeding, but getting nations to cooperate has been, at best, difficult over the years. These solutions also suggest why the Commission paints such a scary picture of China: if cooperation is the only solution to these scary geopolitical concerns, then Congress is going to need to cooperate. This is an interesting and risky tactic. If China becomes too scary to Congress and the American people, cooperation, no matter how beneficial, will not become an option. Mistrust and misunderstandings by two Allies in the first half of the past century dissolved any chance at cooperation and precipitated a chill across the other half of the century resulting in a Wall, a Crisis, and a host of land wars in Asia.

Posts of the Week:12/8-12/16

Lots of good posts around the web this past week, though I think I may have missed a few between studying for my final Finals.

The Technical Side Of China Trademark Law: Forget You Ever Read This at China Law Blog
This is a simplified explanation of Brad Luo's post on judicial interpretation of agent or representative in China's trademark law.

Resources, relations and free trade: How China is opening up its borders to Vietnam at China Briefing
First article in a series detailing China's border relationships.

China Logistics: Its On The Road, Not In The Air at All Roads Lead to China
and
Trucks in China Remain a Purely Local Affair at Managing the Dragon
A pair of posts discussing the importance of trucking in China, and the difficulty that foreign truck manufacturers face in getting into China.

Danone-Wahaha: No Sympathy at China Hearsay
and
Learning from Danone: The legal admin you really need to be conducting at China Briefing
The latest on Danone-Wahaha. Be sure to check out the comments at China Hearsay, a lot of note was discussed in there.

Financial credit and due diligence checks on individuals in China at China Briefing
An interesting due diligence service.

China publishes implementation rules for new corporate income tax at China Briefing
A summary of the important changes in the new corporate income tax law.

China FDI: Quality Not Quantity at China Law Blog
Further discussion of the revised Catalog for the Guidance of Foreign Invested Enterprises.

Panda Punchers - #4 - Special Debate Coverage (and here and here) at China Hearsay
Stan Abrams does an excellent job of questioning the statements by the Democratic candidates during the NPR debate.

IP Litigation Data: What It Means

Here is some interpretation on this data.

1. The winning rates are similar whether the plaintiff is domestic or foreign.
2. Trade secret is the most difficult IPR to protect.
3. A higher percentage of cases involving foreign parties went to trial than cases involving only domestic parties.
   
4. IPR is surprisingly (?) easy to protect with the plaintiff prevailing over 75% of the time.

Jurisdictional Issue
I don't know the Chinese court system well enough to answer this, but the Beijing courts see more IP cases than other jurisdictions because they also review PRB decisions. I am not sure whether this would make Beijing judges more or less amenable to novel arguments in litigation, but it is worth considering.

Problems...
This data is all cases selected for publication by the courts in each jurisdiction through January 2007. The data collector said that this is only a small number of the cases that were actually decided which raises one gigantic question: what criteria did the courts use in deciding what cases to publish? There may have been bias in the cases selected, and these cases might not be representative of the actual win/loss rates in IP litigation. Also, the low number of cases published involving foreign parties means that there might be large variation in outcomes as more cases are decided.

Conclusion
Inconclusive. But, encouraging for foreign companies who are wary of the China market for fear of not being able to find remedies for infringement.

NPR: China-US Strategic Economic Dialogue, and The Committee of 100

A couple of very interesting reports from National Public Radio this morning.

U.S. Delegation in China for Economic Talks
The focus here is on the dialogue between US Treasury Secretary Henry Paulson and Vice Premier Wu Yi. Mr. Paulson opened the talks by saying that "worries about the effects of foreign competition through trade or through foreign investment have led to a rise in economic nationalism and protectionist sentiments in both of our nations." These are pragmatic words that seem to seek to defuse American's stance towards China (check out China Hearsay's Panda Punchers) and Chinese perceptions of American's view of China (check out Cup of Cha's What Chinese People are Saying about our Blogs [mostly in regards to brainwashing by the West]) by implying that economic nationalism and protectionism are irrational because our nations are so dependent on each other economically. Unfortunately, this pragmatism is tainted by Mr. Paulson calling on the Chinese to raise their production standards to meet the US standards. Sure, this would help, but an anonymous Chinese product safety official reminds listeners that 85% of the 30+ million recalled toys were recalled due to defective designs, not defective production standards, and there should thus be joint responsibility for the problems. Also of note, Ms. Wu points out that the punitive trade bills currently under review in Congress would "seriously harm relations" between the nations if passed.

UPDATE:
Looks like China and US signed a product safety pact and Chinese exports to the US of food, animal feed, drugs and medical devices are going to be subject to inspections and be issued certificates that meet USDA standards.

China, a Display of Stunning Economic Activity
This is an interesting radio piece sponsored by a group that I had never about, The Committee of 100. This is a group of prominent Chinese-American politicians, business people, artists, and so forth, that are concerned with Chinese-American relations. The group focuses on providing perspective.

Chinese Scholars Examine New US Patent Law

This was in my email this morning:

Remember the Indian newspaper article arguing that the patent reform measures being considered by Congress will make it easier for India's patent holders to enter the U.S. market? A similar story has now surfaced in China, this one written by one of that country's leading intellectual property experts.

The attached article was published in China Intellectual Property News on November 7, 2007, and has just been translated into English. Its author is Yongshun Cheng, former senior judge and deputy director of the Intellectual Property Division of the Beijing High People's Court. Cheng argues that the proposed patent reform bill is bad news for American innovation and good news for foreign infringers, pointing out that the bill "is friendlier to the infringers than to the patentees in general as it will make the patent less reliable, easier to be challenged and cheaper to be infringed."

He goes on:

"It is not bad news for developing countries which have fewer patents. Many of the Chinese companies are not patent owners in the U.S. market and their products are often excluded from the market because of patent infringement accusations. This bill will give the companies from developing countries more freedom and flexibility to challenge the relative U.S. patent for doing business in U.S. and make it less costly to infringe."

Cheng concludes by claiming that the proposed bill is in conflict with the U.S. government's practice of pressuring China to strengthen its own protection of intellectual property rights.

Cheng is the current director of the Beijing Intellectual Property Institute (BIPI). In 2003, he was nominated by Managing Intellectual Property as one of the 50 most influential IP figures worldwide and one of the top three in China.

An additional interesting part of the article is the authors suggest that China use the US law as a reference for the 3rd amendment of the Chinese patent law on the issue of damages. The authors write that the courts have too much discretion in determining damages because there is "no detailed provision both under the current Chinese Patent Law and its implementing Regulations." US law, on the other hand, is very clear about damages.

If you head to Philip Brooks' blog, you'll find a downloadable copy of the article in English.

China IP Litigation Data: What Does it Mean?

I was given a slew of data on IP litigation between domestic parties and between a domestic party and a foreign party in Beijing, Guangzhou, Jiangsu and Zhejiang courts. The idea was to write a sort of companion piece to Mei Gechlik's paper on decisions by China's Patent Review Board (PRB), covered in an earlier post. My faculty advisor for my comment wisely expressed concerns over citing this data. Thus, I'm writing my comment on torts by Chinese workers in US courts. But, I might as well share the data with the rest of the world. Today, I'm just going to post the data and let readers interpret it for themselves. Later in the week, I'll post my interpretation to the data along with other's interpretations. Feel free to post in the comments, to my email, or on your own blog.

Beijing Cases
The following two tables summarize decisions collected from all 85 IP cases involving at least one foreign party published by the Beijing courts (Beijing No. 1 Intermediate People's Court, Beijing No. 2 People's Court, and Beijing High People's Court) between November 2005 and January 2007 at their website. The Administrative Cases are court reviews of PRB decisions.

Case Type

Type of Case	Patent	Trademark
Civil Cases
Final Judgment	25 (33%)	2 (22%)
No Final Judgment	16 (21%)	3 (33%)
Administrative Cases
Final Judgment	34 (45%)	4 (44%)
No Final Judgment	1 (1%)	0
Total	76	9

Case Outcomes

Civil Cases
Patent Holder Won	16 (67%)
Patent Holder Lost	8 (33%)
Subtotal	24
Trademark Holder Won	2 (100%)
Trademark Holder Lost	0
Subtotal	2
Settled/Withdrawn	10
Ownership/Jurisdiction Disputes	10
Subtotal	46
Administrative Cases		Courts upheld PRB decisions	Courts dismissed PRB decisions
Patent Valid	9 (27%)	8	1
Patent Invalid	17 (52%)	16	1
Patent Partially Valid	2 (6%)	2	0
Remanded	5 (15%)	0	5
Subtotal	33 (100%)	26 (79%)	7 (21%)
Patent Application Rejected	1
Withdrawn	1
Trademark Registration Case	4
Subtotal	39
Total	85

In the 15 patent cases that damages are reported, the average damage award was RMB 158,457 plus injunctions. The largest damage award was RMB500,000 for infringement of an invention patent. The company who won this award claimed RMB37,500,000 in damages.

The one trademark case with reported damages resulted in damages of RMB500,000 plus an injunction for infringement of the Honda trademark on a claim of RMB12,509,555.01.


Guangzhou Cases
The following two tables summarize decisions in 105 cases published by the Guangzhou Intermediate People's Court in October, November and December of 2006 at the court's website. 21 of the cases involve at least one foreign party, and the rest involve only domestic parties. Guangzhou is similar to Shenzhen in business environment and IPR protection.

Case Type

Type of Dispute	Patent	Trademark	Copyright	Trade Secret	Tech Transfer
W/Domestic Parties Only
Final Judgment	14 (35%)	6 (43%)	11 (42%)	0	1 (50%)
No Final Judgment	26 (65%)	8 (57%)	15 (58%)	2 (100%)	1 (50%)
Subtotal	40	14	26	2	2
W/Foreign Party
Final Judgment	3 (20%)	2 (67%)	2 (67%)
No Final Judgment	12 (80%)	1 (33%)	1 (33%)
Subtotal	15	3	3
Total	55	17	29	2	2

Case Outcomes

	W/Domestic Parties Only	W/Foreign Party
Patent Holder Won	10 (71%)	3 (100%)
Patent Holder Lost	4 (29%)	0
Subtotal	14	3
TM Holder Won	3 (50%)	1 (50%)
TM Holder Lost	3 (50%)	1 (50%)
Subtotal	6	2
Copyright Holder Won	10 (100%)	2 (100%)
Copyright Holder Lost	0	0
Subtotal	10	2
Others - Final Judgment	2	0
Case Settled/Withdrawn	51	13
Others - Non-Judgment	1	1
Total	84	21

Of the 3 patent case involving at least one foreign party, the average damage award was RMB56,666 plus an injunction.

The one TM award to a foriegn party went to Puma for RMB80,000 on a claim of RMB200,000.

The average of the 3 copyright damage awards to foreing parties was 25,500 plus an injunction.


Jiangsu Courts
The following two tables summarize decisions in 382 cases published by the Jiangsu People's Courts, including Jiangsu High People's Court, Nanjing Intermediate People's Court and other intermediate people's courts in January 2005 through December 2006 at the court's website. The 333 domestic cases involving only domestic parties are all published IP cases in this time period that reached a final judgment by the courts. The 49 cases involving a foreign party include all IP cases published regardless of whether the courts issued a final judgment.

Case Type

Type of Dispute	Patent	Trademark	Copyright	Trade Secret	Other	Total
Domestic Cases
Final Judgment	84 (25%)	61 (18%)	101 (30%)	17 (5%)	70 (21%)	333
Foreign Cases
Final Judgment	3 (15%)	11 (55%)	4 (20%)	2 (10%)	0	20
No Final Judgment	12 (41%)	5 (17%)	7 (24%)	1 (3%)	4 (14%)	29
Subtotal	15 (31%)	16 (33%)	11 (22%)	3 (6%)	4 (8%)	49
Total	99	77	112	20	74	382

Case Outcomes

	Domestic Cases	Foreign Cases
Patent Holder Won	60 (71%)	3 (100%)
Patent Holder Lost	24 (29%)	0
Subtotal	84	3
TM Holder Won	49 (80%)	8 (73%)
TM Holder Lost	12 (20%)	3 (27%)
Subtotal	61	11
Copyright Holder Won	87 (86%)	4 (100%)
Copyright Holder Lost	14 (14%)	0
Subtotal	101	4
Trade Secret Holder Won	6 (35%)	0
Trade Secret Holder Lost	11 (65%)	2 (100%)
Subtotal	17	2
Others - Final Judgment	70	0
Case Settled/Withdrawn	N/A	29
Total	333	49

Injunctions were issued in all three of the decisions for foreign patent holders, but the damages award was reverd on appeal for one of the cases. The average damages award for other two cases was RMB275,000.

Injunctions were issued in six of the eight cases where the foreign trademark holder won, and the damages in seven of the cases averaged out to RMB74,000.

Injunctions and an average damage award of RMB88,581 was awarded in all four cases where the foreign copyright holder won.


Zhejiang Courts
The following two tables summarize decisions decisions in all 272 cases published by the Zhejiang People's Courts, including Zhejiang High People's Court, Hangzhou Intermediate People's Court and other intermediate people's courts through December 2006 at the court's website. The 213 domestic cases involving only domestic parties are all published IP cases in this time period that reached a final judgment by the courts. The 59 cases involving a foreign party include all IP cases published regardless of whether the courts issued a final judgment.

Case Type

Type of Case	Patent	Trademark	Copyright	Trade Secret	Others	Total
Domestic Cases
Final Judgment	107 (51%)	37 (17%)	43 (20%)	6 (3%)	20 (9%)	213
Foreign Cases
Final Judgment	2 (11%)	12 (67%)	4 (22%)	0	0	18
No Final Judgment	21 (51%)	13 (32%)	5 (12%)	0	2 (5%)	41
Total	130	62	52	6	22	272

Case Outcomes

	Domestic Cases	Foreign Cases
Patent Holder Won	92 (86%)	1 (50%)
Patent Holder Lost	15 (14%)	1 (50%)
Subtotal	107	2
TM Holder Won	32 (86%)	12 (100%)
TM Holder Lost	5 (14%)	0
Subtotal	37	12
Copyright Holder Won	38 (88%)	4 (100%)
Copyright Holder Lost	5 (12%)	0
Subtotal	43	4
Trade Secret Holder Won	1 (17%)	0
Trade Secret Holder Lost	5 (83%)	0
Subtotal	6	0
Others - Final Judgment	20	0
Case Settled/Withdrawn	N/A	41
Total	213	59

Posts of the Week: 12/1 - 12/7

James Fallows and Zhang Zilin dominated the China blogosphere this past week. Some good came despite this...

China Legal -- The Elevator Speech at China Law Blog
Fine, short piece by Dan Harris on protecting business interests in China. The summary? 1) do Due Diligence; 2) Obey the law; 3) protect your Intellectual Property; 4) have good Contracts.

It's Getting Hotter - Climate Change & IP Strategy at IP ThinkTank
An interesting article by Duncan Bucknell and Joanne Sinclair on building climate change into IP strategy. One tip: "Your organization may have an environmental policy, but has it filtered through to your core business or your IP Strategy?"

Danone/Wahaha: Divine Intervention (Part 6) at Managing the Dragon
Jack Perkowski on dispute resolution by political leaders. Specifically, French President Nicholas Sarkozy talked Danone-Wahaha with Chinese President Hu Jintao during a state dinner on Mr. Sarkozy's first official visit to China. Mr. Perkowski thinks that politicians are better at solidifying new deals than resolving disputes in China, and "a great deal of tough negotiations remain ahead".

Venice, the Venetian Macao and the Venetian, Las Vegas at China Briefing Blog
Chris Devonshire-Ellis' case study comparing a couple of Venetians with the real deal. Each hotel alone surpasses the GDP of the city of Venice, but for Mr. Devonshire-Ellis, a Limoncello in the original Cafe Florian cannot be beat. If I did not have a tax final on Monday, I would not be obsessing over whether this is a deductible business expense.

All Roads Lead to China an China Hearsay on the US-China WTO Subsidy Settlement
Stan, you and Mr. Brubaker did such a great job covering the topic that I felt fine trolling the Miss World blog posts. These two posts and a radio piece on NPR beg the question, what is a subsidy in a world full of multinational companies? Also check out this interview of John Kimberey by Knowledge@Wharton which tries to answer that question.

India--China Developing Cross-Border Trade Links at 2point6billion.com
Sheetal Guliani gives a concise history of Eastern trade routes and explains modern efforts to develop these routes. I wish I could have been there for the whole presentation!

Aviation buffs only: Japan-Taiwan snapshots at James Fallows' blog
Mr. Fallows appears to be poking some fun at the controversy (here and here) over a post in which he documented, as referred to in this new post, "refueling the airplane through the time-honored mouth-siphon technique".

EDIT:
“China Trademark Update: Has Your Distributor (Representative, Manufacturer) in China Registered your Mark?” at China Business Law Blog
Some judicial interpretation on the meaning of agent (代理人) and representative (代表人) under Chinese Trademark Law.

Liebman on Restricted Reform in China Courts

In the school’s library I decided to see what they had under China in the current periodicals section. There was much that was not current, but one title struck my eye: The China Quarterly, September 2007, Vol. 191. This also happened to be a special issue covering new developments in China’s Legal System, with commentary on each article by Chinese law professors. Perfect!

On China Business Law Blog and China Law Blog, there has been discussion of judicial reform. On that note I’m taking up Benjamin Liebman’s article, “China’s Courts: Restricted Reform”. This is an interesting article because Mr. Liebman argues that the official reforms have been limited and the most important changes have come from innovation in local courts. In Shen Kui’s commentary, Mr. Shen argues for an alternative measure of judicial reform which finds that reform has not been restricted. Mr. Liebman is professor of law and director of the Center for Chinese Legal Studies at Columbia Law School, and Mr. Shen is an associate professor at Peking University Law School.

Official Abstract

China's courts have in recent years engaged in significant reforms designed to raise the quality of their work. Yet such top-down reforms have been largely technical and are not designed to alter courts' power. Courts have also encountered new challenges, including rising populist pressures, which may undermine their authority. The most important changes in China's courts have come from the ground up: local courts have engaged in significant innovation, and horizontal interaction among judges is facilitating the development of professional identity. Recent developments have largely avoided two central questions facing China's courts: why have courts been permitted to develop even limited new roles, and what additional roles, if any, may they play within the Chinese political system?

Summary of the Article

History of Top-Down Judicial Reform

• “Reconstruction of the legal system in 1978”.
• “Embrace of ‘rule of law’ by the 15th Congress of the Communist Party in 1997”.
• In 1999, Supreme People’s Court issues its first five year reform plan composed of 50 goals.
• “Significant reforms” including rules of evidence and separation of acceptance of cases from adjudication, and separation of adjudication from enforcement.
• In 2005, a second 5 year reform plan with 50 more goals.
• Mr. Liebman calls these goals largely general and overly abstract, aside from technical changes regarding the procedures in capital cases.
  

Mr. Liebman contends that the most significant reforms issued from the top have been in changing the make up of the courts themselves and are designed around increasing the competence of judges and “the professionalism of the court system.”

• More than 50% of judges held university degrees in 2005 compared to 6.9% in 1995.
• This includes four-year degrees, evening classes, junior colleges and correspondence courses.
  
• “Since 2002, all new judges … have been required to possess bachelor’s degrees.”
  

Based on interview with judges, Mr. Liebman concludes that the increased competence of judges is allowing them to more strongly resist external pressure and rely more on legal arguments. But, he also notes that intervention by Party officials is still common in politically sensitive cases whether criminal, political, or “involving the financial interests of the party-state, powerful individuals or high profile companies, as well as cases involving a large number of plaintiffs and those receiving media coverage.” The courts are loyal to the rule of law, but the courts are also loyal to the Party as “re-emphasized in 2006 with the launching of a new campaign on ‘socialist rule of law theory’”, and those who might be subject to litigation in China should not forget this.

Statistics on Caseloads:

• First instance civil cases peaked in 1999 with ~5m cases, first instance civil cases numbered ~4.4m in 2006.
• Thinks that suggests courts “are not necessarily playing a greater role relative to other institutions”.
• Appealing of civil cases has been on a more or less steady increase from about 180,000 civil appeals in 1994 to over 400,000 civil appeals in 2006.
• Liebman attributes this to greater familiarity with the judicial system, and greater confidence that higher courts will issue opinions that differ from the lower courts.
• Arbitration has increased more than 20% per year from 2004-2006.
• Increase in arbitration and decrease in growth of litigation suggests that there is no increase in the “clarity of legal norms”, according to Liebman.
  

Outside Pressure on the Courts That Are Limiting Reform
Liebman writes that the media plays “an important role in exposing injustice and in pressuring courts to play fairly.” This media coverage also encourages the Party to step in and intervene in cases for the sake of social stability. Outside intervention stymies steps towards the rule of law by placing the concerns of the interveners above the law.

Liebman expresses the concern of the Chinese judges that he interviewed who worry that pressure from petitioners and protesters is causing courts to rule in cases that lack legal merits. And when judges respond to one protest or petition, they encourage further petitions and protests.

Most Significant Bottom-Up Developments
Liebman argues that the three most important developments are happening in the lower courts.

1. Lower courts are looking to other courts of equal rank for guidance on new or difficult legal questions. He believes that this judicial networking “may lead to more consistent application of the law”. This also leads to the growth of judicial identity with their peers which will make the courts more likely to resist outside interference.
2. These growing judicial networks “may foster judicial innovation”, which “challenge existing legal norms or consciously break new legal ground”. An example presented by Liebman shows this to be what was happening in Brad Luo’s post linked to in the introduction. In the Seed Case, the judges declared a provincial pricing regulation invalid because it was in conflict with the national Seed law. This showed that courts had the power to invalidate regulations, according to Liebman.
3. The courts are being used by lawyers who want “to use litigation to bring social change”. Liebman writes that China “may be distinct in its extreme reliance on extra-judicial responses to major public disputes in the courts”, and the use of litigation to create this pressure might have a big effect on the policies of the party.
   

Liebman’s Concluding Remarks
He in no way means to trivialize the reform that has taken place in Chinese courts, he is merely recognizing that reform has been limited in creating independence of the judiciary from the Party.

Liebman writes that the West has mainly pondered the role of courts within a democratic regime, but that this is inappropriate for China where courts “have limited powers over other administrative actors”. A second theory from the West is that a functional legal system is necessary for economic development. He comes up with three alternative theories that he thinks are more plausible:

1. Chinese “courts are one of a number of party-state institutions serving as a safety valve for a widening range of popular complaints”.
2. “[T]he evolving roles of courts, including increasing conflicts with other party-state institutions, reflect the development of institutional competition in the Chinese political system”.
3. “Bottom-up development of the courts may be a source of judicial power”.
   

Liebman also writes that it is possible for the courts to be fair without independence from the Party.

Call me old fashioned, but I like the theory that a functioning, independent legal system is necessary for economic development beyond a certain point.

Mr. Shen’s Commentary
Mr. Shen writes that he agrees “with the conclusion [of Mr. Liebman] in the sense that judicial reform has not yet brought about any significant change in the position or role of courts in China’s political system”. But, Mr. Shen proposes three tests “to evaluate the achievements of judicial reform in respect to the role or position of the courts.

1. The first is Liebman’s “ideal-based test” which evaluates judicial reform in its ability to make the judiciary more independent. Mr. Shen writes that under this test, Mr. Liebman is correct that the courts have not experience much reform.
2. The second is a “goal-based” test which analyzes judicial reform based on whether it has realized the goals laid out by the policy makers. The main goal of the policy makers has been to improve the efficiency and fairness of the courts, and Mr. Shen argues that this has been modestly successful.
3. The third is a “process-based” test which evaluates judicial reform “against the background of the long and difficult process of political reform in China”. Under this test, Mr. Shen says that “judicial reform has not been restricted in the past decade”.
   

Sometimes a scream is better than a thesis

Thanks Manfred Eigen... But, neither my comment editor nor my faculty adviser would accept that deep of a trek into the bowels of post-modernism.

In the second draft of my paper [first draft info: here and here] I am trying to really make my theme and thesis shine throughout. The question is, what is my theme? I really wish I could say my theme is that US business should be held accountable for causing harm to injured Chinese workers. I am just unable to sympathize on any sort of meaningful level with the plight of workers half the world away. Mostly because I find that sort of sympathy pretentious and paternal, no matter how politically correct it may be. 36 hours ago I had problems admitting that to myself let alone to the world, but two nights while reading Stephen Pinker’s The Blank Slate, a passage by Adam Smith from The Theory of Moral Sentiments allowed me to make peace with a theme in line with my beliefs. Here is that passage:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would react upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all labours of man, which could thus be annihilated in a moment. He would, too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquility as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger tomorrow, he would not sleep to-night; but provided he never saw them, he would snore with the most profound security over the ruin of a hundred million of his brethren.

Pinker writes that science is proving that human nature is largely defined by this selfishness, a selfishness he describes as the Tragic Vision of humanity which finds that “humans are inherently limited in knowledge, wisdom, and virtue, and all social arrangements must acknowledge those limits.” Pinker connects Thomas Hobbes, Edmund Burke, Adam Smith, Alexander Hamilton, James Madison, Oliver Wendell Holmes Jr., Friedrich Hayek, Milton Friedman, Isaiah Berlin, Karl Popper, and Richard Posner, to this Tragic Vision. Once we realize that humans are largely guided by selfish impulses (and, yes, there are extreme examples of human selflessness, but these too fit into Pinker’s science based philosophy), we can design our laws to make our selfishness compatible with the improvement of humanity.

Pinker writes, “the Tragic Vision looks to systems that produce desirable outcomes even when no member of the system is particularly wise or virtuous.” Adam Smith’s butcher, brewer, and baker, from the greatest document of 1776 point to the Market Economy as one such system that produces desirable outcomes based on the selfish desires of the actors within the system. Noble intentions are not necessary, but as long as actors play by the rules of a competitive market economy, wealth is increased by the “invisible hand.” The invisible hand is a dirty word to many, but Pinker, by way of Hayek, says that the invisible hand is an intelligent system because it “is distributed across millions of not-necessarily-intelligent producers and consumers” as a sort of neural network which makes the system itself more intelligent and function better than any person or group of persons could hope to achieve by actively directing the market. Hayek himself goes a bit further, and writes in Law, Legislation, and Liberty Vol. II: The Mirage of Social Justice, with the innards filled in by Pinker: “’The manner in which the benefits and burdens are apportioned by the market mechanism would in many instances have to be regarded as very unjust if it were the result of a deliberate allocation to particular people.’ But that concern with social justice rests on a confusion, he claimed, because ‘the particulars of [a spontaneous order] cannot be just or unjust.’” This means that if the system is deliberately allocating benefits and burdens to a particular people then the system is unjust. In a perfect market economy, benefits and burdens would not be deliberately allocated to a particular people, but when workers in a foreign country are being allocated undue burdens and companies are reaping undue benefits, there is injustice.

I apologize, but we must take a deeper detour into the land of law. It should be short, and it should come together in the end. Justice Holmes, whose words form the title of this blog, had more than a few words to say when it came to modifying the system we live in. He wrote that his job was “to see that the game is played according to rules whether I like them or not… [and] to improve conditions of life and race is the main thing… But how the devil can I tell whether I am pulling it down more in some other place?”

Hayek, Pinker, Holmes, Smith, and the law coalesce with my topic and the facts to form a thesis and theme that I believe in and can be proud of:

Under current law, US businesses that manufacture in China should take every step to protect themselves from tort suits by Chinese workers who are being exposed to chemicals and industrial processes that are known to be unreasonably dangerous.

There is injustice, and it can be cured under the law without changes, spurred by the selfish desires of US companies to protect themselves from a frivolous disaster that would occasion real disturbance producing the desirable outcome of improving the conditions of life.

Fact Checkers? For a Primary Debate!?!?

On December 4, National Public Radio hosted a radio debate between the Democratic Primary candidates. You can find the debate here (c/o James Fallows' blog). For almost 2 hours, a handful of candidates spoke at length, without commercials, on three topics: Iran, immigration, and China. Well, NPR, as a respectable news source might be tempted to do, decided to do some fact checking and report back on their program the next morning (here). Three claims made by the candidates were checked on. I'll summarize NPR's checks on Chris Dodd and Barack Obama, and I'll pose some skepticism on one of Ms. Clinton's claims, after.


Chris Dodd - US-China relationship is adversarial and China is modifying their currency in violation of WTO rules making it difficult for America to compete globally.

The fact checker responds that, yes, China is breaking WTO rules, but so is the US. However, the fact checker also says that the currency manipulation China is accused of is not a violation of WTO rules because the WTO rules do not cover currency manipulation deeply enough for China to be violating them. The fact checker also found that very few economists would agree that China's currency policy is making it hard for America to thrive in the global marketplace.

Barack Obama - Would not let Chinese toys in, and would not purchase Chinese toys until the safety problems are solved.

The fact checker found that China makes 80% of the toys consumed in the United States. Of China's toy exports, less than 1/100th of 1% of all the toys have been involved in recalls or safety. The small percentage does not justify embargo, and if a toy embargo was put up, the alternative would be black markets full of inferior toys which would most likely aggravate toy safety problems.


Hilary Clinton - Claimed to have cured a problem where a New York company was slapped with tariffs by the Chinese government on exports to China making their company wholly uncompetitive, and the only solution would be [here's where it gets problematic] to go into business with a company, "more than likely a front group for the Chinese Army", who would then steal their IP.

Ms. Clinton stepped in and saved the day, pressuring the government to step down and remove the tariffs. Now, I don't know all of the facts of the situation the company Ms. Clinton speaks of was involved in, but this sounds like a fanciful tale designed to play well in scaring Americans into thinking that the Chinese government is in cahoots with the PLA to cheat hardworking Americans out of their businesses and then steal their intellectual property. Unfortunately, her vague choice of words discourages fact checking, but the uncertainty makes China into a more scary place than it is.

The Conclusion

If any of them get elected... I hope they form a pragmatic cabinet...

Why This Blog?

Well, it has been just under a month which I think gives me some authority to say what this blog is actually about and what this blog means to me.

Over the summer while working at Concord & Co. law firm in Shanghai, my boss, Alex Cai, suggested that I read China Law Blog to keep up on China's laws and as a good jumping off point for research. When I returned to the States, I found that I couldn't stay off of CLB, and I began posting comments. The comments helped me to stay somewhat sharp on Chinese law because I would search around for other sources for fear that I would say something completely uninformed. That's not to say that I didn't make some mistakes...

I began to feel, not guilty, but sort of strange posting comments on somebody else's blog so often, and there was even more that I wanted to post, but there was a nagging sense of invasion (but, now that I have my own blog I realize this was stupid). Thus, I started my own blog.

The tricky part was coming up with a name. Just about every combination of law, china, business, and blog, had been snatched up. I considered using a historical Chinese name or a Chinese idiom, but these seemed too presumptuous for a foreigner. Thus, I decided to choose the appropriate words of a, or is it The, great American Jurist, Oliver Wendell Holmes, Jr. My IP Survey Professor, David McGowan, unintentionally explained Holmes on the last day of class: [paraphrasing]

"You come into law school and we break down the cases and teach you all these little black letter rules that supposedly are what decide the case, when in reality you win the cases based on how snarfy your brief is written and the precedent that will be set if the judge decides in your favor. Good luck on the final, but remember that you're not going to learn anything until you're in practice. You're only learning critical thinking skills here."

This is my roundabout way of saying that the title of this blog is not me suggesting that I have a terrible amount experience, although I do have some, but that I need to grow experience. The person whom I most enjoy poking fun at is myself, and the title of this blog reminds me everyday that I need to gain experience and that logic cannot get me everything. There is a limited amount of experience one can gain from reading articles and synthesizing them on his blog, but it is experience nonetheless, and the extent of experience one can gain during a school year.

Sometimes my posts are virtually unintelligible (it was really late...), sometimes they are flippant, and sometimes they are good. They are not all without mistakes, see "good", but I will try and correct mistakes, see comment to "good".

This site does great service to me by forcing me to practice my writing and research often and in a subject I am interested in. And the site allows me to expand my learning beyond the rules that we discover in the classroom. For others, at the moment, I think that the best thing this site has going for it is the Posts of the Week, which I plan as a sort of practice guide that collects all of the best substantive posts of the week on business and law in China. That's not to say that some of my posts aren't original and useful, but that the totality of posts around the web on China each week outweigh the originality and usefulness of anything that I could produce.

That said...

I've got some fun posts planned for the next two weeks. I'll be posting another unintelligible post on law and economics tonight or tomorrow, and I'll be posting some data up next week that I hope gets some use.

Emobytes[?]: James Fallows Responds

So Fallows bashing may be a sport (China Hearsay and The China Game), but he (or at least his wife, Deborah) has some expertise on a recent article at the Economist, America's Emobyte Deficit. The math in the article seemed really funky and I was relieved to see my suspicions confirmed by Fallows in Crying wolf: Barry Diller, the Economist, and China.


Key Stats From the Economist:

• "China’s soaring online population is now estimated at 137m, second only to America’s 165m-210m."
• "80% of young Chinese people believe that “digital technology is an essential part of how I live,” compared with 68% of Americans."
• "Twice as many Chinese as Americans (25% to 12%) said they would not feel okay going without internet access for more than a day."
• "Some 82% of young Chinese agreed that “interactivity helps create intimacy, even at a distance,” compared with 36% of Americans."
  
• "Nearly two-thirds (63%) of Chinese surveyed agreed that “it’s perfectly possible to have real relationships purely online with no face-to-face contact”. Only 21% of Americans felt the same."
• "Just 30% of Americans said that the internet helps their social life; 77% of the Chinese respondents agreed that “the internet helps me make friends.” And not just friends: 32% of the Chinese said that the internet broadens their sex life, compared with 11% of Americans."
• "Chinese respondents were also more likely than Americans to say they have expressed personal opinions or written about themselves online (72% to 56%), and 52% have expressed themselves more strongly online than they generally do in person (compared with 43% of Americans)."
  
• "Some 66% of the Chinese respondents said that “online interactions have broadened my sense of identity,” compared with 26% of Americans."
• "Some 42% of the young Chinese said they sometimes feel “addicted” to living online, compared to only 18% of Americans."

And while we're at it, what's an emobyte? "[A] unit of emotion flying about in cyberspace."

Fallows contends that the Chinese are only ahead in two categories:

1. Mobile phone use
2. Video game play.

This is unfair provocation.

Fallows' more insightful comment is in a note and is actually verbatim from the study that the Economist's article is based on, and it reflects my reaction to the study:

While the U.S. sample is representative of America's youth, the Chinese sample is necessarily weighted toward the young elite. Only about 10 percent of the Chinese population is online, largely young, urban and educated males.

Epstein and Chicago, Eminent Domain and China

Last year the University of San Diego School of Law founded the Center for the Study of Constitutional Originalism. Regardless of whether one buys into constitutional originalism, the center has served as a powerful draw for well-known and controversial legal scholars such as John Yoo and Justice Antonin Scalia. On November 16-17 the Center played host to Richard Epstein at the Bernard Siegan Memorial Conference on Economic Liberties, Property Rights, and the Original Meaning of the Constitution. Richard Epstein is most well known for directing the Law and Economics program at the University of Chicago School of Law, and for his book Takings: Private Property and the Power of Eminent Domain in which he argues that the government should be treated just like a private entity in a property dispute.

Law and economics is an outcome determinative analysis of legal problems. Laws should be applied and cases should be decided in a way that maximizes the differential between the costs and benefits of the various ways in which the case could be decided striving for the greatest net benefit to society. Judges should be encouraged to look not just at maximizing the net benefit to society on the case before them, but should also look at what sort of precedent they are setting.

One of the greatest examples of the application of Chicago School Law and Economics is ProCD v. Zeidenberg. You might remember this as the case about shrink-wrap licenses, but this is really the case of Judge Easterbrook playing economist. No question, a contract was offered and accepted. Bam, out of the way. ProCD spent $10 million to create their directory, the directory is useful, a property right in the directory was created by contracts, the contract will be enforced and Zeidenberg cannot copy ProCD's directory. A seminal case in copyright, Feist v. RTS would have allowed the copying of ProCD's directory as fair use, but Zeidenberg had accepted a contract saying that he would not copy. Easterbrook holds that the benefits of the flexibility of contracts to create a very expensive and very useful directory outweigh the costs of denying fair use in copyright as a mandatory right that cannot be voided. (Side Note: Where did Mr. Zeidenberg get the idea that he could create and distribute a copy of ProCD? As an undergraduate he read Feist and he read a law review article arguing that this sort of thing would be fair use under Feist. Lesson: hire an attorney if you're wondering whether you are going to infringe somebody's rights.)

What does this have to do with China or eminent domain? To begin with, investing in real estate in a country where I don't even own the land, but own a long term lease in the land that will presumably be automatically renewed upon expiration makes me nervous. However, I can now rest easy for as of a couple of days ago, China made it quite difficult for me to purchase real estate in said country. Steve Dickinson and Stan Abrams each have lengthy posts on this subject at China Law Blog and China Hearsay. What now worries me is that Chinese real estate owned by foreigners may become subject to seizure by eminent domain, or the taking of property by the state for a suspect public use. This fear is probably naive. Even in the United States property is seized by eminent domain and turned over to private groups with connections to the local government.

In the US we have a two-tiered system protecting seizures by eminent domain: the 4th and 5th amendments protect the taking of property by the federal government (and by the state governments through the 14th amendment) from people and persons; and the states cannot deprive the citizens of other states the right to hold property in a state through the Privileges and Immunities clause of Article IV. A taking can be the actual seizure of the property or the attachment of conditions to the property. The question becomes when those conditions deprive the private property of all use.

At the conference, while discussing the paper that Eric Claeys had written, the question turned to whether the government could seize the property of foreigners by eminent domain. Epstein, prone to blurting out whatever is in his mind as soon as it appears in his mind, responded so matter of factly and with such a simple answer that I could not help but hope that his rule would be applied in China. He said that the basic conception of liberty and natural law, governed by positive laws of the Constitution, requires that the government cannot seize by eminent domain the landed property held by foreigners, but that the government is free to restrict everything but the liberty to sell the property.

Under Epstein's theory, the Chinese government would be free to place covenants on the land held by foreigners and place restrictions on the land, but would not be able to take the land itself. If the government began taking foreigners' land or prevented foreigners from selling their land then foreigners would be unable to see a return on the investment in their land which would result in lower land values as the land is sold in a fire sale or auctioned off by the government to buyers who might not place much faith in the title they are purchasing. Land values are an important asset in determining credit risk and depressed land values in China would hurt the credit of many Chinese. Epstein's theory applied in China, where the government likes to have some control, would hope to preserve land value while also allowing the government to retain control over how the land is administered.

Though the Chinese government seems to enjoy its power, it was also founded in economic theory. I hope that they recognize the power of law and economics in finding legal solutions that maximize net benefits within the framework of positive law guided by natural law. Because sometimes it really does boil down to, "It's just not fair." Arguments can be made every which way about the fairness of attaching restrictions to property, but taking property away is simply not fair.

Posts of the Week: 11/24 - 11/30

There's a lot of good blog posts around the web on China each week, but I'll probably end up showing bias towards substantive posts. That said, let's begin with the exceptions:

James Fallows, "The" way vs "a" way (Japan v China dept)
I read this post in the library... Big mistake... Nerves run high during finals... Lots of people clearing their throats as I stifled giggle after giggle because I couldn't stop staring at "a" way...

Josh at Cup of Cha, China Should Forgive American Debt
Was Learn 2 Economy's comment a parody of potential readers of this satiric post?

Now on to the substantive...

Brad Luo at China Business Law Blog was on a roll this past week with three outstanding posts.

Mr. Luo has two posts on the Danone-Wahaha dispute. The first, Danone-Wahaha Dispute: No End in Sight, gives an overview of the world wide litigation with a hint of things to come in Mr. Luo's later post, Why Did My Lawyer Quit? Be sure to check out China Law Blog's follow up, Danone Wahaha: An Update.

Mr. Luo's other post, Move Over, Administrative Regulations!, is a fine piece of case analysis about laws trumping regulations in practice rather than just by theory. Again, China Law Blog has an informative follow up, China Law Evolving -- Businesses Take Note, Part VI.

Dan has two more important posts at China Law Blog: Foreign Investor LLCs In China: The Old Law Is Still The Law, which provides a nice summary of a an article by Steve Dickinson on China's Company Law; and Setting Up Production In China For SMEs, which gives a "pretty accurate analysis on what it takes to set up production in China."

Since I really like Friedrich Hayek, and Kevin Rudd had something to do with China at one point, here's a post from Free Exchange, Tie me Hayek down, Rudd!