CHINA ESQUIRE

I have been doing some posts about networking and being able to practice law (unofficially) in China. Well, the Star had an interesting article entitled, “Practising law a risky endeavour in China”. Sure, it involves lawyers who end up taking controversial cases, but I thought it was worth highlighting because the rule of law is not yet established in China, and that is something to consider before you work out there. For example, if you want to be a public interest lawyer, you should be forewarned that there might be some headache and heartache involved.

Here’s the article:

One fine fall afternoon last year, Li Heping was making his way towards a newspaper kiosk not far from his office when a man approached, grabbed him by the arm and said sternly, “Come with me.”

In a matter of seconds, Li had a cloth sack pulled over his head, he was wrestled into a car and driven to the outskirts of town where he was brought down into a basement and beaten.

Li is a lawyer – a partner in the respected Beijing Globe Law Firm.

“They were slapping me about the head, pulling me by the hair and striking me with electrical batons.

“They were yelling, `Sell your house, sell your car and get the hell out of Beijing!’”

Towards midnight, he was bundled back into the car and dumped in a forested area, from which he eventually made his way home.

I would’ve expected that business lawyers would be exempt from this sort of bullying. Well, what did Li actually do?

He’s among a select group of lawyers in China who dare to take on politically sensitive cases.

Li is one of 49 human rights lawyers interviewed for a report released today by Human Rights Watch entitled, “Walking on Thin Ice: Control, Intimidation and Harassment of Lawyers in China.”

Part of me is cynical and thinks that this is part of the territory. But part of me also recognizes that the rule of law, building such a thing into a country that does not really have it firmly established, will involve these sort of personal costs.

Senior government officials routinely proclaim China to be a country of “the rule of law.” Even President Hu Jintao, at the 17th Communist Party Congress last year, stressed “the rule of law constitutes the essential requirement of socialist democracy.”

But many observers see China as a country of “the rule by law” – the law being an instrument that remains largely in the hands of the government.

As a consequence, it remains risky for lawyers to take on certain cases.

“Abuses of lawyers compound human rights violations,” says Sophie Richardson, Human Rights Watch’s Asia advocacy director. “Without due process and genuine defence rights, law remains little more than an instrument of state repression.”

I’ve heard of substance abuse, but lawyer abuse? Interesting.

Two things. First, this should not discourage you from wanting to be a lawyer in China. It shouldn’t really. The rule of law is still marching forward, albeit slowly. But it should make you think about what your motivations are. If you want to be a lawyer in China to change the government and the system, you might actually accomplish that. But there is a high price to pay and you better know that. You also better know that it might not happen in your life time. I am not anti-public interest. But I am opposed to public interest types thinking that they can be aggressive in America, and then just waltz into China and be aggressive there too. Don’t be naive.

In general, I don’t think this applies to most of us who want to practice business law in China. The actions and motivations of someone like that is probably going to be a little different than a crusader.

Second, if you do end up out there as a lawyer, even as a business lawyer, it does not mean you are suddenly immune. You choose your cases. Well, you also choose your causes. And if you insist on choosing causes that the government doesn’t like, just be ready if intimidation comes knocking on your door.

Bottom line: use your head.

The Institute for International and Comparative Law is hosting their Annual Symposium: International Mergers & Acquisitions - Strategies and Trends. This two day program takes place in Plano, Texas, on June 17-18. Both days are packed with programs, as can be seen here. Of particular note are some of the sessions, which cover a lot of topics:

A Case Study of a Cross-Border M&A (3 parts and nearly all of one day to present!)

Practical Problems and Guidance for a Cross Border M&A

Best Practices and Worst Mistakes Made by Foreigners in Brazil, India, Russia, U.S. and Venezuela

General Counsels’ Roundtable on M&A Issues

Pitfalls and Disputes in Multi-Jurisdictional M&A Transaction

You can even register online here.

I have been hammering the fact that Chinese IPR enforcement–the protection of various sorts of intellectual property like patents and trademarks–has been getting better and better.  Statistics are powerful, and I don’t think these are any different.  The Economist recently did an article called “850,000 lawsuits in the Making” ( h/t Rich Brubaker at All Roads), which reads:

Since 2003 the number of trademark applications has grown by 60%; the number of patents has nearly doubled (850,000 are now active) and the number of lawsuits about intellectual property has more than doubled (see chart). The government is encouraging the trend in many ways, including signalling to the press to cheer it on.

This enthusiasm marks a dramatic change. During the Maoist era, private property of any kind was seen as theft from the masses, and so subject to just expropriation. Only in 1985 did China begin to enact laws to protect patents. It did not enforce them much until 2001, when the authorities promised to crack down in order to win admission to the World Trade Organisation.

China has since opened more than 50 courts that deal solely with intellectual-property cases, and Chinese firms are using them. Prominent litigants include a pram manufacturer protecting designs, a soya-milk producer defending an industrial process and a maker of Chinese medicines shielding a name that, roughly translated, means “mind and blood purge”.

Again, very encouraging numbers.  50 specialty courts that deal with IP?  That’s fantastic.  Sure, they are not all up to par with the Federal Circuit Court of Appeals, but I cannot complain.  Chinese judiciary specializing in IP and learning how to deal with these sorts of cases is a good thing.

As companies in China establish brands and develop products, the incentive to sue will grow, particularly because the cost of bringing a case is minimal. “If you can afford a car, you can afford a lawsuit,” says Tony Chen, who works in the Shanghai office of Jones Day, an international law firm.

In America, firms often settle intellectual-property cases out of court for fear of enormous awards by juries. That is not true in China, Mr Chen says, where a judge rules in the majority of cases and damages tend to be small. They normally cover legal costs, however, turning lawsuits into a self-funding method to battle piracy.

Well, perhaps there is an argument to be made for the British system…  that being a tangent, the British winner-takes-all approach will only allow the rule of law to grow in the early stages of IPR enforcement.  Maybe later it can hurt, but for now, including damages into legal costs will encourage more and more companies to turn to the courts for IP remedies.  That is a good thing.  Few things encourage the rule of law such as the general citizenship of a country embracing lawsuits.  And if Chinese companies can embrace them wholeheartedly, then perhaps the Chinese people will finally be able to as well.

Unsurprisingly, the main beneficiaries of the sudden interest in intellectual property are Chinese lawyers. Some reportedly earn more than $5m a year. Non-Chinese law firms sometimes provide advice on thorny cases. But they are not allowed to file patents or appear in court on behalf of a client—a proprietary process that Chinese lawyers are keen to defend.

Yes, there is a silver lining in the advancement of the rule of law: it’s that the lawyers profit most.  I guess I can’t complain.  But yes, someone will have to profit off of this sort of growth.  For most people, that’s an unfortunate fact.  But it’s a fact of life.  The more that law becomes integral to Chinese society, the more lawyers will become more important.  That’s an already established fact in America–much as lawyers are hated, they are also necessary to the functioning of everyday business.  Expect the same in China.

So onward rule of law!  Just make sure your coattails are long enough for the lawyers…

This is sort of a follow up on my previous post about networking tips for law students (see here), hence the title, but also in response to the fact that blogging made the cover of the California Lawyer Magazine this month. I found the main article to be a re-hash of most such articles because of the content:

• lawyer blogging is booming (a 3500% jump in 5 years, which is no surprise)
• attorneys have many reasons to blog: to build a reputation in a specialty, attract clients, monitoring a legal niche, starting a conversation with a community of interest, etc. (common sense, no surprise again)
• the downside of blogging (lawyers are often technophobes and trolls are annoying, nothing new)
• future of blogging (no real information, just some pretty lame speculation)

However, the magazine provided 7 tips for blogging. Since I had counseled law students to learn about blogging and start their own blogs (or join the staff of a blog which has multiple authors like Transnational Law Blog), I thought I would put up some excerpts of the tips:

1. THINK GLOBALLY
In blogging, even though it feels like you’re sharing your thoughts with an intimate circle of friends, remember that millions of Internet users around the world will be able to read-and react to-what you’ve written.

This is even more important if you are taking on an international niche–then you really do need to think globally.

2. MANAGE YOUR READING REQUIREMENTS
Everyone already has too much to read, and the popularity of blogs is an added burden. But to be a well-regarded blogger, you really need to keep up with what fellow bloggers are saying. “Blogs act as funnels,” says Kevin O’Keefe, president of Seattle consulting firm LexBlog. “It’s like you have an intelligence agent that puts things in perspective for you.”

It is possible to follow a dozen or two dozen blogs without taking too much time if you have RSS or a standard bookmark list that you check once or twice a day. No need to keep on reading a blog over and over because there will be new stuff eventually.

3. KEEP IT CIVIL
If you wind up in a heated online spat but aren’t familiar with the tone and behavior expected in the blogosphere, resist the urge to respond immediately.

4. JOIN THE CONVERSATION (BUT IGNORE THE TROLLS)
When someone blogs misinformation about you, your firm, or an issue you are involved in, you should go ahead and set the record straight online. “The remedy for false speech is more speech,” says JoAnne Speers, executive director and ethics program director of the Institute for Local Government in Sacramento.  However, if you encounter a rabid, screaming, and pertinacious blogger-often referred to as a troll-you might want to hang back.

Just common sense, though I slightly disagree with #4. One thing is that when “trolls” abound, in general, just let them be. That usually works well. It’s the debate that will keep them coming back. No debate, moderate their comments, and you will be just fine.

5. FOLLOW OFFLINE RULES ONLINE
For the most part, you can avoid getting in hot water while blogging. “Use the same standard of ethics and decorum that applies to any medium,” including a person-to-person conversation, Speers advises.

Remember you are a professional. If you are a to-be lawyer, what you say will be remembered by the lawyer blog community. It’s a small community. So be professional always.

6. ABANDON ANONYMITY
Although it may be tempting to launch an anonymous blog in which you can speak freely, keep in mind that anonymous bloggers rarely stay anonymous. “Eventually, you are going to get found out,” says Kristie D. Prinz, founder of the California Biotech Law Blog. Howell agrees. “It’s not that difficult to figure out who someone is,” she says. Just ask Rick Frenkel, a lawyer at Cisco Systems. Shortly after his anonymous blog-Patent Troll Tracker-was outed this year, two Texas patent attorneys sued Frenkel and Cisco for defamation. Cisco has since revised its blog policy.

As a law student, I think this is a definite must. You need to be known in the community, and anonymity will hurt you. Of course, this assumes you are writing an informative blog and not something like Anonymous Lawyer (by Jeremy Blachman I believe).

7. SPEAK FOR YOURSELF
A blog is not the place for corporate blather or marketing blasts-it’s a place of personality. Keep that in mind as you write, suggests J. Craig Williams, a Newport Beachbased litigator. “Blogging by committee is bland and dry,” he says. “What makes blogging successful is voice. The most important thing is to be yourself.”

I also disagree with #7. Some blogs do it quite well, so I don’t think that’s a reason to stay away from group blogs. You can still develop your personal voice in a committee blog, especially when your partners aren’t going to heavily edit your work.

I hope this helps!

While I am still talking about intellectual property and IPR enforcement, I thought I would highlight an article I read recently. The Associated Press recently published an article entitled “While upset about piracy, EU is more serene about China than US”. The article reads:

Compared to Washington, the European Union has been serene about piracy in China of its trademarks, copyright and patents. Can that last?

The EU estimates pirated goods cost EU businesses €21 billion (US$33.3 billion) in lost trade annually — about a third of current EU exports to China. But unlike the United States, it has to date not pursued any Chinese piracy cases in the World Trade Organization.

Still, the EU has put China in the category of worst violators of intellectual property. It is the only country in that category because its anti-piracy efforts are so weak that 80 percent of counterfeit goods imported into the 27-nation bloc are Chinese-made.

Again, I would like to know how that figure of 21 billion euros is calculated. As I mentioned before: if it wasn’t for piracy, I really doubt the figures many times.

I also think it can last. Why do all the dirty work of calling China out when America is already more than willing to do that? I think its the best policy.

Mandelson has repeatedly criticized blatant sales of fake goods throughout China that cost European and U.S. businesses dearly. To counter this he has nudged China into a 2007-2011 venture designed to boost enforcement of Chinese piracy laws by providing expertise and training.

“It is important to offer the Chinese all possibilities to put their house in order,” says Luc Devigne, head of intellectual property issues at the European Commission’s trade directorate. “We are not always convinced there is a willingness to stamp out piracy.”

That’s as tough as the piracy language gets at the EU.

I disagree. I think China has done a pretty good of trying to stamp out piracy. It’s true: China has not taken a zero tolerance policy, as evidenced by street vendors continuing to sell pirated products and fly-by-night stores that sell counterfeit goods. But I think the numbers are pretty good: 10% drop in software piracy in years; 76 million discs and other goods confiscated, 13,000 businesses shut down in 1 year (see here); 1.3 billion illegal publications over 20 years (though not all piracy related) (see here). Court cases being won regarding trademark, copyright, and patent. Realistically, there isn’t all that much that China has not already done in my book.

“In America, there are strong feelings of protectionism in the Congress. And the U.S.-China relationship is much more complex, more interdependent. There is America’s huge trade deficit with China. China has leverage over the U.S. because it holds significant amounts of U.S. Treasury debt. And there are security issues like Taiwan and North Korea.”

By comparison, says Innis, Europe “is much more in an appeasement mode with China.”

That is “a bad thing,” says Stuart Newman, head of the Brussels-based Foreign Trade Association whose 100 members include Europe’s biggest supermarket groups and textile importers. “We should be going after China in a tough way on intellectual property rights violations.”

While he favors legal action through the WTO, Newman does not underestimate the job of eradicating piracy in China.

I also disagree. I think the appeasement mode works better. Here’s why: (1) America will be the bad cop, while the EU can be the good cop. Good cop/bad cop works pretty well actually. And I think the EU will end up having a better image for it. Piracy will go down. America is hated. The EU is loved. That’s a win-win if I ever saw one. (2) That is how the Chinese prefer to negotiate. The government knows that IP is a problem. And the government knows that IP enforcement will be important to China’s economy in the future. China is not naive. But to throw that into their face like America does makes China defensive. And it makes China amp up the rhetoric as well. It’s just unproductive. But if the EU can dialog with China and do things in a less-blatant fashion, I think it will encourage the Chinese government to want to work with the EU. I know it sounds so offensive and ridiculous to westerners, but let the Chinese save face where you can. Really, it works.

My take: the EU should stay the course. The EU will benefit from America’s aggressiveness and still get what it wants, while maintaining the favor of the Chinese government and people.

Review time… I didn’t think too many frivolous lawsuits happened in China. In fact, that’s often the criticism I hear about the United States. (think of lawsuits like McDonald’s making you fat, etc.) But here is a case where I think there is a frivolous lawsuit… in China of all places. Not that I don’t understand the sentiment behind the lawsuit. I do. But to actually allow this one to go to court? Let’s just say that if it does, China’s legal system will remain a laughing stock of the modernized world.

First the news itself:

A group of Chinese lawyers have sued CNN, saying remarks by commentator Jack Cafferty in which he called Chinese “goons” violated the dignity and reputation of the Chinese people, a Hong Kong newspaper said.

The Beijing-backed Wen Wei Po said the Beijing court had yet to accept the case, which comes amid a wave of criticism in China against Western news outlets in the wake of recent unrest in Tibet and disruptions to the Beijing Olympic torch relay abroad.

China’s Foreign Ministry summoned CNN’s Beijing bureau chief last week and demanded an apology after Cafferty said Chinese products were “junk,” adding the remark: “They are basically the same bunch of goons and thugs they’ve been for the last 50 years.”

One of the 14 lawyers who launched the case told the newspaper Cafferty’s remarks “seriously violated and abused the reputation and dignity of the plaintiffs as Chinese people, and caused serious spiritual and psychological injury to the plaintiffs.”

The lawyers sought the restoration of the Chinese people’s reputation through publications and in the media and asked for 100 yuan ($14.31) in damages, it said.

In response to the Foreign Ministry’s initial demand for an apology, CNN said there was no intent to cause offence and that Cafferty was offering a “strongly held” opinion of the Chinese government, not the people.

I know that China does not have free speech. But to allow civil liability for editorial comments will surely chill speech in China. Or even worse, force media outlets to censor… and of course, that will force the journalists to take underhanded jabs at China. Which will really screw up the desire for us to have factual, unbiased reporting. And of course, for more local news outlets without the reach of CNN in China, I can see reporters publishing stories with those local outfits to criticize China.

Either way, this will not help China. I think it will make the attacks nastier. People know Cafferty mouths off, and no one takes him all that seriously. I think this will encourage other reporters–who the public does take seriously–to adopt an anti-China stance. You mess with one journalist, you mess with all of them. But don’t tell the Chinese government that, because the government seems to stick its head in the sand when it comes to smart PR campaigns.

Of course, it wouldn’t be Chinese unless it had China sized damages. Reuters reported:

A Chinese primary school teacher and a beautician have filed a suit against CNN in New York over remarks they say insulted the Chinese people and are seeking $1.3 billion in compensation — $1 per person in China, a Hong Kong newspaper reported.

Seriously, $1.3B in damages?! Can we say groundless? Again, if you want to make China’s courts the laughing stock of the world, you would allow damages based on pure speculation and without any merit. Otherwise, give me a break. I really hope the court tosses this one out.

Here is Donald Clarke’s take on the law itself:

Chinese law does allow damages for what under US law would be considered merely insulting expressions of opinion (and therefore non-actionable) - I’m thinking of the case in which a journalism professor sued a web site for posting a student’s derogatory opinions about him and his teaching materials. (Discussed here.) Thus, under existing Chinese law, I think the Dalai Lama, Nancy Pelosi, Chris Patten, and Chen Shuibian might have a good case against Xinhua and various Chinese government officials (although of course the prospects of their being allowed to sue and win are, to say the least, remote). The problem here, though, is different: can individuals who feel offended by a general derogatory reference about their group do anything about it? (Let’s assume for the sake of argument that Cafferty was including all Chinese, and not just the government.) To allow this kind of suit is opening a real can of worms. The relevant precedent in this case might be the Zhengzhou lawyers who sued the Shenzhen Public Security Bureau because they were offended at the PSB’s insulting banner about Henan criminal gangs. (Discussed here.) That case ended in a mediated settlement, though, so we don’t have a court ruling. Still, I guess it’s significant that the court accepted the case in the first place, and didn’t throw it out immediately as not stating a claim. At the same time, though, the court in question was a Zhengzhou court, and in any case may not have analyzed the complaint in terms of whether or not it stated a claim for which relief could be granted.

I couldn’t agree more. If China thinks it’s a dandy law to allow to use against foreigners, just wait until people realize that it works against the Chinese government, which is just as slanderous and malicious as any other government. (like Nancy Pelosi and the Olympics opening ceremony)

Even worse, just imagine Chinese individual citizens using this against each other. It will get ugly. Because Chinese people don’t sue… unless there is a real vendetta. Loss of face is a cause for such a vendetta. So I foresee that this could become the precursor to some of the ugliest, scorched earth cases in court if allowed unchecked. If I were the court, I would want no piece of this.

Of course, the Chinese government right now doesn’t seem to think this. The article from Reuters goes on:

Asked if China supported the action against CNN, Foreign Ministry spokeswoman Jiang Yu characterized it as “spontaneous activity by Chinese civilians”.

“We will wait and see CNN’s response,” Jiang told a news conference, referring to the Foreign Ministry’s request for a full apology.

“We hope CNN will take this seriously, because what CNN said and did has not only hurt China’s feelings, but also CNN’s own image.”

I normally don’t take aim at the government. But this time around, I must say: the only one looking stupid and hurting its own image is China.

In summary, this is bad policy. Of course, it will be hugely unpopular in China if CNN got away. But for reasons having to do with policy and rule of law, it would be wise for the courts to drop this case really fast.

The International Law News, which is the American Bar Association’s (ABA) publication for the International Law Section, published an article by Richard Gruner entitled “Intellectual Property in the Four Chinas”. You might be wondering if there are four Chinas in the first place since most people think there is one China… unless you are a firm supporter of Taiwan, which is technically the Republic of China. That would give you two.

On that note, Professor Gruner argues astutely:

The analysis of IP laws and their enforcement in China has been hobbled by oversimplifying China itself. A number of astute observers of the developing business environments . . . in China have recognized that there are at least four distinct regional situations–that is, the “four Chinas” within the [PRC]–that are developing as the country emerges into a period of greatly heightened commercial activity.

The regional characteristics . . . of the four regions fo the PRC discussed here create four very different sets of opportunities and problems for IPR holders. The impactof IP varies in different regions of the country because a combination of local differences in types of dominant businesses in local areas, variations of the local political clout of businesses that infringe IPR, and the ability of local officials to grant or withhold strong IP enforcement due to the regional nature of IP enforcement mechanisms in China.

I cannot agree more. China, while it is trying to unify its laws and enforcement of IP law (and other laws, for that matter), is a huge nation. I keep reminding people that China has a landmass that is far more comparable to the entire EU than to America. (yes, there are many geographically challenged Americans) Inevitably, there are bound to be differences. If people forum shop in the U.S. because courts are different, imagine forum shopping in a landmass that encompasses more than three times the population. I think you get the picture.

Gruner identities the Four Chinas as:

1. The municipalities of Beijing, Shanghai, and Hong Kong, and the surrounding areas under the direct control and influence of these cities, which are both commercial centers and heavily industrialized.
2. Coastal China, the areas near China’s coastline other than the major urban centers of the First China, which are often mixed economies with many large scale manufacturing activities conducted at low product cost.
3. Inner China, regions immediately inland from the coastal sections of China, which are heavily dominated by agriculture.
4. Outer China, the western provinces of China and desert areas, which consist mostly of economies of mineral and oil extraction.

Again, this should be no surprise to China watchers. The differences between the “tiered” cities mirrors some of these observations.

Gruner observes that in the First China, “local authorities have strong motivations to pursue IPR enforcement as a means to both reward and enhance local innovators and to entice outsiders . . . to inject new technologies into the local economy through IP licensing.” He approximates the level of IP interest as being similar to those of highly technical western counties like the U.S.

Coastal China’s manufacturing “involves technologies originating in other parts of China or copied (often without proper IP licenses) from foreign sources. The interests of this region are thus largely tied to the . . . profitability of local manufacturing without any reciprocal concern over the lack of IP-based rewards for local innovators.” Gruner concludes about this area:

This region represents the greatest challenges for IP enforcement in China due to both its present economic interests in weak IP enforcement and the breathtaking scope of its infringement capacity in large-scale, low-cost manufacturing of unlicensed goods covered by IPR.

Inner China, on the other hand, will find IP enforcement largely irrelevant except “IP-protected products or services used in agriculture.” On the whole, inner China is more like “unindustrialized portions of Africa.”

Finally, outer China also finds IPR enforcement irrelevant except where mining and oil extraction take place, because businesses “may have significant opportunities to use advanced technologies. While there may be some local innovation in these technologies . . . , these are probably outweighed by the commercial advantages of tolerating infringement.”

Given all of these facts, Gruner argues that a multi-regional view of IP in China is necessary. I agree.

Xinhua is reporting that China destroyed some 47 million copies of illegal publications this past Sunday. And it gives even more numbers from the past 20 years. The article reads:

Chinese authorities destroyed 47.18 million pornographic and illegal publications on Sunday as part of an ongoing campaign to strengthen intellectual property rights (IPR) protection.

More than 17 provinces eliminated more than 1 million pieces each, with Guangdong topping the list, destroying 12 million, or a quarter of the total.

China has attached great importance to IPR protection, which has been considered as a national strategy to help build an innovative country, said Liu Binjie, director of the National Copyright Administration.

According to official statistics, China has in the past 20 years closed down 238 pirate disc production lines, solved more than 400,000 cases of IPR infringement and confiscated more than 1.3 billion illegal publications.

Official statistics show that last year, 2,967 people were arrested for suspected violations of IPR. Public security departments investigated 2,283 cases of IPR infringement and made arrests in 2,008 cases, involving 1.49 billion yuan (about 213 million U.S. dollars).

These are nothing to laugh at. Sure, it’s still the tip of the iceberg, but it isn’t true that China is doing nothing and looking the other way at intellectual property infringement. At least, let’s look at the cold hard facts and not the BSA and MPAA propaganda.

Stan Abrams at China Hearsay commented on my last post about this matter, which noted that China’s IPR enforcement is actually quite laudable:

welcome to my world. Misery loves company, and trying to explain why IP enforcement is now much better in China compared to the state things were in several years ago is a thankless task. Furthermore, explaining how some of the statements made by the trade associations can actually set back the political debate can be dangerous for us practicing lawyers.

I can’t tell you how many times I run into people who think that China is an IP black hole without laws in copyright, trademark, or patent. That is completely wrong. While China isn’t quite at par with the United States in terms of its enforcement, we all know that intellectual property protection has been increasing in China: there have been cases where foreign companies win trademark lawsuits (Starbucks v. Shanghai Xingbake Cafe Corp, here) and even patent suits (Motorola, here). Courts are enforcing IPRs, thank you very much. There is already one case where damages were out the roof: G2000. (See China Business Law Blog) The government has been conducting a lot of raids. Sure, you can walk through the streets of Beijing or Shanghai and see pirated DVD vendors. But really, the numbers are encouraging: 1.3 billion publications and 400,000 cases in 20 years.

I think its time for the west to recognize that China is cleaning up its act and there are IP laws in place and being enforced. The next time a business person comes up to you and says “China doesn’t have an IP laws”, give them the facts. Or point them here.

There were a pair of articles last week at the Financial Times that talked about how companies are investing in the Asian M&A market while the western markets (American and European) aren’t do so well. The West’s pain will ultimately be China’s gain it seems.

The first article is entitled, “Asia’s M&A market shows its mettle” and it reads:

The mergers and acquisition market in Asia is holding up better than in Europe and North America, underlining easier access to funds in the region and the global expansion drive by Chinese and Indian companies, according to bankers.

Since the start of January, M&A transactions in Asia-Pacific have amounted to $236.5bn, a fall of 5.8 per cent from a year earlier, according to data from Dealogic. By comparison, the M&A declines in Europe and North America are respectively 31.8 per cent and 37 per cent.

Chinese and other Asian investors are injecting capital into Western financial services companies that have been hit by the collapse of the US subprime market.

Of course, this should come as no surprise to people who know that the Asian market is still growing… at least, it is in China, where “ slow growth” is the catch phrase.

The other article from FT ( h/t to China Digital Times) is an example of one such company, GE, which got hammered on its earnings due to the faltering U.S. economy. GE is investing 2 billion dollars into Chinese markets, with the hopes of increasing its revenues to $10B by the year 2010. Talk about aggressive:

General Electric plans to invest up to $2bn in acquisitions and other deals in China over the next three years as part of a strategy to double its revenues in the country.

The world’s biggest industrial company, which stunned investors last week when it announced its worst quarter of financial results in five years, is looking to hire a team of 20 “in-house investment bankers” to conduct the deals in China.

The aggressive investment plans, which will include acquisitions and joint ventures, underline GE’s intention to expand its China business rapidly at a time when its domestic operations face a slowing US economy.

GE plans to increase its 2007 revenues in China of $4.4bn to $10bn by 2010, which would require the company to expand more than twice as fast as the economy’s double-digit rate of growth.

“The wider problems in the credit market and the signs of a slowing in the overall global economy have not entered the picture [in China],” said Mr Bertamini.

The comments come just days after GE slashed its full-year earnings forecast because of the effect of the credit crunch.

China Venture News was optimistic about GE’s future in China:

With GE’s good record on clean technology and Beijing’s new emphasis on environmental issues, the company may be able to find its way into some sweet deals in the coming years

While I am not able to really comment on GE’s ability to succeed or fail in its aggressive stance in China, the China M&A market remains as one of the few places for western companies and venture capital/private equity to invest. It makes sense: the western economy isn’t doing well, shift the money to where the economy is doing much better. I don’t think it takes a rocket scientist to figure this out.

I have been hearing that the M&A work at law firms is slowing down. It doesn’t have to be. There are plenty of firms still quite busy because they are doing American or European cross-border M&A into China and other Asian countries. If you aren’t prepared to do Chinese M&A work, then it really is time to learn. There are plenty of resources out there, such as stuff from China Briefing, which can give you a very basic understanding of the law, and numerous conferences. You owe it to yourself to get educated.

This call to go west isn’t just for businesses looking for opportunities: it is siren call for lawyers as well.

Practising Law Institute (PLI) is doing a multitude of international and China related conferences that give out Continuing Legal Education (CLE) credits.  This one is in New York only (sorry SF folks), but is available via webcast on June 3 from 9am - 4:45pm.  Here is the introductory information from the PLI website:

The global environment requires the sophisticated estate planner to know and understand how to provide multifaceted strategies for building and preserving the assets of non-resident alien clients and resident clients with assets abroad. Skilled structuring and administration of foreign trusts with multinational beneficiaries require a firm understanding in regulatory requirements. Understanding various estate, tax and immigration issues and how they intersect and work together is imperative. This program will give you important fundamental concepts and sophisticated issues in multinational tax and estate planning. This program will also provide you with the tools you need to serve your multinational clients best.

What You Will Learn

• Explore how proposed legislation may impact the tax treatment of expatriates
• Learn how to structure non-resident alien investments in U.S. real property and operating business interests
• Discover how new UK tax reforms will impact international planning for high-net-worth clients
• Learn the basics of U.S. federal taxation of investment products
• Develop tips on pre-immigration tax planning as it relates to foreign trust interests
• Examine case studies of unique tax and estate planning scenarios
• And much more!

Who Should Attend

Attorneys specializing in estate planning, insurance or tax, accountants and financial planners with multinational clients, trust officers of U.S. and foreign banks, and anyone whose fiduciary responsibilities require an awareness of the current trust rules.

The faculty is comprised of American tax attorneys who have an international focus:

Robert C. Lawrence III, Cadwalader, Wickersham & Taft LLP, New York, NY
Howard J. Barnet, Jr., Carter Ledyard & Milburn LLP, New York, NY
Robert L. Dumont, Principal, Deloitte Tax LLP, New York, NY
Ellen K. Harrison, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC
Alex Jones, Director, Deloitte & Touche LLP, London, GBR
Kenneth Klein, Mayer Brown LLP, Washington, DC
Michael G. Pfeifer, Caplin & Drysdale, Chartered, Washington, DC
Jane Tse, Special Counsel, Cadwalader, Wickersham & Taft LLP, New York, NY

While tax is not my cup of tea, it is definitely an important field to cover.  Law students, you can even take PLI courses at heavily reduced rates: a mere $25 with scholarship application.  (which is often and easily granted)

China has been trying to crack down on intellectual property violations for some time now. (a friend of mine used to do this sort of stuff for a living and he has some exciting stories) That being said, it seems that to the west (and not just America), China can never win. It’s IP enforcement is never good enough. And so we constantly hear “China’s IPR violations blah blah blah…” Let’s just think about this for a moment in light of articles like these.

The AP recently published an article entitled “China defends anti-piracy efforts” ( h/t to China Digital Times):

Officials defended China’s efforts to stop rampant copying of movies and other goods, saying Thursday that 4,322 people were convicted of product piracy last year and promising special efforts to protect Olympics-related trademarks.

China is the world’s biggest source of illegally copied goods and trade groups say violations are growing despite increased penalties and repeated crackdowns. The illicit trade is fueling tensions with Washington, which has filed a World Trade Organization case over Beijing’s failure to stamp it out.

In an annual report, the agency said authorities seized nearly 76 million pirated movies, software discs and other goods last year and shut down 13,170 piracy-oriented businesses.

Yi said courts convicted 4,322 people of product piracy, though he said he did not know what penalties they received.

Officials said they are making special efforts to prevent unlicensed use of Olympics-related logos and other property ahead of the Beijing Summer Games in August.

Yes, it may be the largest source of the world’s IP violations–copyright, trademark, and probably even patent too–but we’re talking about numbers here. China has over 1 billion people. Let’s multiply the rampant amount of Kazaa and Torrent downloading the United States by over 3 times and see how much the numbers look as scary. Or think about other nations which are much smaller. I am sorry to say this, but IP violations are a fact of life in many cases. And to continue to say that China isn’t trying can only be frustrating to the Chinese government and borders on being a falsehood. Sure, the government could always do more. But it’s doing something. 76 million discs and 4,000+ convictions is nothing to sneeze at. Especially where the West has accused China of being a lawless society–well, you try to convict 4,000+ people of IP law violations in a lawless society and see how you do.

So who is fueling a lot of this? Let’s continue with the article:

Chinese markets are awash in illegally copied goods ranging from software and Hollywood movies to designer clothes, sports equipment and medications. Industry groups say Chinese and foreign companies lose tens of billions of dollars a year in potential sales to piracy.

Washington filed a WTO complaint in April 2007 accusing Beijing of violating its trade commitments by failing to stop product piracy.

Film studios have won lawsuits against pirate DVD vendors and have begun filing cases against Web sites accused of allowing downloads of unlicensed movies.

But some 93 percent of DVDs sold in China are unlicensed, according to the Motion Picture Association, which represents Hollywood studios. Many are sold openly on sidewalks in Beijing and other major cities.

In a report last year, the Business Software Alliance said 82 percent of software used in China is pirated, thought it said that rate was down from more than 90 percent in earlier years.

So we have the MPAA and the BSA involved. These are clearly special interest groups. And trust me, they are good at embellishing the truth with alleged facts and figures. The BSA claims that software publishers have lost billions and billions of dollars due to software piracy worldwide. Really? I don’t think so. Because if people couldn’t pirate your product, they wouldn’t buy it at all. It’s too expensive for most people outside of certain industrialized nations. In fact, I am willing to believe that software companies in places like China benefit because they have a virtual monopoly through piracy. And in the end, businesses will begin to pay for the software as the US retains its role as a sock puppet for the BSA.

The MPAA too. Only the MPAA would have the audacity to sue ordinary citizens for downloading movies. Well, they did. Yes, it got the message across. Did it stop the decline in movie attendance? No. You have DVDs to thank for that. (which people actually purchase… and many times, people purchase after seeing a pirated version and they like the movie enough to own it)

I am not anti-IP law. I am anti-MPAA and anti-BSA though. These are 2 organizations that I wish would just go away.

Software piracy has dropped by about ten percent in recent years. 10 percent… in a nation of 1 billion plus people? That’s amazing. And especially with the Chinese view of the law (China Law Blog did a beautiful post on this comparing the Chinese v. American view of the law), that is really amazing. Let’s give credit where it is due: the Chinese government is doing an excellent job in starting to enforce IPRs. Yes, there is always much more to do. But we are talking about stemming a flood. (or drinking from a fire hydrant) It will take a LONG time before IP is as highly regarded as it is in America. (though we in America actually despite IP wonks) But for now, can we just applaud the government’s efforts?

The China Daily mentioned in an article last week ( h/t to China Digital Times today) that some of China’s new ideas for a food safety system won’t just be suggestions: they are being drafted into a new law.  That is indeed interesting.  Here is how the article reads in part:

The new product identification and tracking system, which has been in the spotlight recently over concerns it may raise production costs, has been written into the draft food safety law, a senior quality control official said Tuesday.

The system has become part of the draft food safety law and will become a legal obligation for all food companies if it is passed by the Standing Committee of the National People’s Congress (NPC), Pu Changcheng, deputy director of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), said at a working conference in Beijing.

“It allows every stage of a product’s production and distribution cycle to be tracked.”

Food companies, however, have argued the system will increase their production costs. More than 20 firms, including Nestle, Mars, Coca-Cola and Pepsico, have submitted a joint petition against the system to the legislative affairs commission of the NPC Standing Committee and State Council Legislative Affairs Office.

The system will require new equipment to be purchased, will slow production, and changes will have to be made to packaging and design, the firms said in the petition.

In a report submitted to the AQSIQ, the China National Food Industry Association said all 40 of the food companies it surveyed last month said the system will raise their production costs, and 31 said it will lead to price rises of up to 15 percent.

“More importantly, the system is of little use in ensuring product safety, as it doesn’t deal with the quality of raw materials,” Li Yu, scientific and regulatory affairs director of Mars China, said.

“Also, the system doesn’t apply to small food plants, and they have the most problems,” he said.

Well, I have many thoughts regarding this sort of a law.  First, it is very encouraging that the government is stepping up to the plate regarding food safety regulation.  Standards are fine, but laws are required if you want broader enforcement.  Will this law have any real teeth?  Only time will tell.  (Charlie McElwee and I had some discussion about enforcement of China’s new environmental laws, and the conclusion was the same: we can only hope that enforcement steps up)  But it is a very positive step in terms of possible enforcement.

Second, it means the government is acknowledging that there are issues with food safety.  And it isn’t just foreign countries’ imports (think the whole pet food and shrimp scandal, and China’s backlash)–they are acknowledging that domestic products also need regulation and enforcement.  Yes, China needs to become more transparent.  But things like this (and the admission that the 3 gorges dam is an environmental disaster) gives me great hope that this country will indeed become more and more transparent.  And be able to better dialog in a somewhat more western manner with criticisms and problems domestically.

Third, there is a big question of who is going to receive the toughest treatment?  I suspect it will be the foreign and multinational enterprises, those with larger pools of resources, that receive the brunt of this.  Because it is enforcement, but it is also with a somewhat Chinese sense of fair play.  I think some Chinese companies will get theirs as well, don’t get me wrong.  But indeed, it is the Nestles and Mars & Company’s that have the most to lose.  And so they will have to eat the rising costs.  (or worse, pass them on to the consumer, and only add to Chinese inflation)

Is there a benefit to this for them?  Of course.  If they implement and other companies don’t, then I expect that Chinese citizens with some means will start buying the more expensive, but more likely safe products, en masse.  Not everyone will be able to, but the Chinese wealthy and middle classes sure will.  If you have the means and you have only one child, will you feed him garbage?  Over your dead body.  No, everyone wants to buy with confidence.  It is not a Chinese-only thing.  So expect the premium products to control just that a–a slight premium.

Finally, just to be a little cynical, what will happen when some of the more shady Chinese food producers realize that Nestle and Mars sells well?  Compete?  No.  (Some will)  But I can see what happens in smaller markets by smaller, fly-by-night producers: counterfeiting.  And then we have an IP / trademark problem on our hands.  But we will cross that bridge when we get there.