CHINA ESQUIRE

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…

Weekend review again. This week, Brad Luo at China Business Law Blog did a post entitled “Amount in Controversy and Jurisdiction Redefined by the SPC”. Apparently, the Supreme People’s Court released new guidelines for what courts a litigant may bring his, her, or its case in depending upon the amount in controversy. (see here for the full Chinese text)

Here is a bit of what Brad translated:

A. Beijing

Beijing Higher People Court as first instance court:

The amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan, or

the amount in controversy must exceed 1,000,000,000.00 100,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

Beijing intermediate courts (including Railway Intermediate) as first instance courts:

The amount in controversy must exceed 50,000,000.00 Yuan, or

the amount in controversy must exceed 50,000,000.00 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

B. Shanghai

Same as Beijing

C. Guangdong Province

Higher People’s Court as first instance court:

The amount in controversy must exceed 3,000,000,000.00 300,000,000.00 Yuan;

the amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries);

Cases with substantial impact on the entire province; or

Any cases that the Court deems it should exercise first-instance jurisdiction.

Intermediate courts:

1. Guangzhou, Shenzhen, Foshan, and Dongguan Intermediate courts:

The amount in controversy should be between 3,000,000,000.00 300,000,000.00 and 50,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00 200,000,000.00 and 40,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

2. Zhuhai, Zhongshan, Jiangmen, and Huizhou intermediate courts:

The amount in controversy should be between 3,000,000,000.00 300,000,000.00 and 30,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00 200,000,000.00 and 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

3. All of the rest intermediate courts in Guangdong:

The amount in controversy should be between 3,000,000,000.00 300,000,000.00 and 20,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00 200,000,000.00 and 10,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

How does this alleviate anything? Good question. It does bring some certainty as Brad noticed:

Personally, I am very surprised to see rules that detailed on jurisdiction in China since many rules are intentionally vague for civil law jurisdictions. As a result of these rules, there would be, presumably, less uncertainty with respect to finding the right court to sue in China. But, I am wondering what prompted the promulgation of these rules. I also wonder what these rules would have on forum shopping in China. Does anyone out there know?

I don’t know for certain, but I am pretty sure that this will only encourage forum shopping. Who wouldn’t want to have home court advantage where your client is actually a good friend of the judge? If I were litigating in China, I would want that. So expect the forum shopping.

I am glad that the Chinese courts are moving toward a straight-forward and open civil procedural law. But this makes me wonder: is it really necessary to have three courts of first instance? California used to have two at the state trial level: municipal (now the limited civil jurisdiction) and superior (not unlimited civil jurisdiction). But for the sake of cost-cutting, Chief Justice Ronald George tried to do away with such a split. And it worked. Federal courts have been like this for some time now: one large district level court, and not many subdivisions.

Isn’t much easier to just file with one lower court and not have to worry about process? Isn’t justice more served by having a larger roster of judges who can be assigned to various types of cases at random? I would think so. Promulgating civil procedure rules is a step in the right direction. But perhaps someone should consider: does this structure make sense?

Just my thoughts on this post.

I have been thinking a lot about the Chinese mindset vs. the American mindset. Being a Chinese American, I find myself smack in the middle a lot: appreciating western principles, culture and ideology, and yet, raised by those who were culturally very Chinese, and all that it entails about trust for others, ideology, and principles. The two mindsets are vastly different.

This has become even more clear as I dialogue with Chinese friends about Tibet. [note: I am not posting anything on this blog about that topic for two reasons: (1) I like being able to get through the great firewall and (2) it is hard work to maintain any sense of neutrality about the subject, and I prefer taking a neutral stance wherever possible.] Inevitably, I find myself having to defend the western viewpoint to some degree because the two are just so different. So many of the grievances on both ends could be addressed just by understanding the other perspective.

So what triggered this post? An interesting article about international arbitration in a supplement to The Recorder entitled “Going Global” by Alexandre de Gramont at Crowell & Moring. In the article, he discusses how in the past, American companies approached international arbitration like American arbitration/litigation: hire a slick attorney who is a litigation super star, and let him dazzle the panel. Well, this article talks about how this utterly failed for American companies. And large firms were forced to develop international arbitration practices that dealt with many of the cultural and international aspects of arbitration. I only want to highlight a few portions because I need to actually type them:

A foreign company brings a high-stakes international arbitration against a U.S. company. The U.S. Company turns to a star outside litigator, an American attorney, to handle the matter. Although he has never handled an international arbitration before, the litigator has an unparalleled track record of winning bet-the-company cases in state and federal courts around the country. His performance in domestic arbitration is equally superb. . . . Why go elsewhere . . . .

The litigator no doubt feels the same way, that is, until the arbitration gets under way. With an experienced international arbitration specialist on the other side, the parties begin by selecting a tribunal of three arbitrators. The specialist seems to be on personal terms with nearly all of the available international arbitrators. Indeed, she has even served as an arbitrator with some of them.

In the meantime, many of the witnesses just don’t seem to warm to the U.S. litigator and his team, who don’t understand the witness’ language or culture and who have to communicate with witnesses through interpreters (whereby much is lost in translation). Even the translating service selected by the U.S. team has missed some of the critically important legal subtleties in the key exhibits.

As might be expected, this particular adventure does not end happily for the star U.S. litigator–and his client.

Moral of the story: what works in America and what works for you now won’t necessarily work on a global, international scale. Or in China for that matter. “When in Rome…” seems to make good sense because you need to learn to what works in China rather than making the assumption that you already know. You (or your client trying to go into China) may be dead wrong if you don’t.

I found the article interesting because it shows that American biglaw firms are gaining enough sensitivity and sophistication to know that things don’t work the same internationally as they do in America. (and trust me, large law firms are hardly the model of cultural sensitivity) And though American large corporations have discovered this going into China, it is imperative that smaller enterprises (SMEs) understand Chinese culture and ways of doing business first. It is very different. So before you go on Alibaba, plunk down a lot of money, and wait for disaster to happen, you should educate yourself. China blogs such as China Law Blog, This is China!, All Roads Lead to China, and others (hopefully including my own) will give you a start. My blogroll has a number of these.

You can and should read, read, and read some more. It doesn’t mean you will fully understand the Chinese culture and mindset. But at least you’ll have a much better idea and grasp of it. Really, resources and capital are only half the battle to doing international business. Common sense, respect, savvyness, and the ability to understand another culture are equally important.

The California State Bar International Law Section is co-hosting an event with the International Centre for Dispute Resolution: the third annual California International Arbitration Conference. This year’s title is “Decision 2008 - Debates on International Arbitration”. It is scheduled for Friday, May 2, 2008, from 8:30am - 5:15pm, and will be at The Doubletree Guest Suites in Santa Monica, CA.

Here is a little about the program:

The arbitration of disputes arising from cross-border transactions and relationships is a highly topical issue, having engendered in recent years significant discussion in the secondary sources. Moreover, entertainment disputes often involve questions of intellectual-property and technology law that remain of interest to virtually every California practitioner from San Diego to Silicon Valley, and to Hollywood inbetween. The 2008 conference will address each of these key areas of international arbitration practice.

Last year’s conference, which focused on the resolution of disputes in the Pacific Rim, succeeded in bringing together some of the world’s leading practitioners from China, Japan, Singapore, Canada, the United Kingdom, and, of course, the United States. This year’s diverse and equally distinguished faculty, which will include key industry representatives as well as preeminent practitioners, will provide attendees with insight into trends and developments in international arbitral law generally and into the resolution of international entertainment disputes in particular.

And the keynote presentations from the program are:

Session I: Star Wars – Whether to Arbitrate or Litigate International Disputes

So-called entertainment disputes in reality cover a wide range of areas, from talent contracts to real property transactions to film financing agreements. This panel of experts will address the costs and benefits of moving international commercial disputes and entertainment disputes, to the extent such things exist, from national court systems to international arbitral bodies.

Session II: Hollywood to Bollywood – Arbitration Means Different Things to Different People

The second panel will consider whether advocacy and decision making styles differ from continentto- continent or even from country-to-country, identify perceived differences, and debate which styles may be most effective in an international arbitration proceeding.

Session III: Copycat – How to Protect Your IP Overseas

Effectively protecting copyrights, trademarks, trade secrets, and patents can prove difficult under the best of circumstances and becomes all the more challenging when that intellectual property takes its way across borders. The third session will consider the role international arbitration can play in meeting that challenge, addressing, among other things, the arbitrability of intellectual property disputes, the availability of interim measures in arbitration, and the enforceability of IP related arbitral awards.

Session IV: The Big Fix – Problems and Ethical Challenges In International Arbitration

The fourth and final session of the 2008 California Arbitration Conference will address potential improvements to the current systems of international dispute resolution in the areas of arbitrator ethics, conflicts of interest, discovery, non-signatory involvement, confidentiality, and case management issues.

The list of speakers includes attorneys and mediators from the U.S., Canada, China, Japan, Singapore, India. Brochure for the program is here, and you can register here. The program is also worth 6.5 hours of MCLE credit.

The lunch session is actually being by Kenneth Starr, former Judge of the United States Court of Appeals for the D.C. Circuit, former Solicitor General of the United States, current Dean of Pepperdine Law School, and author of the infamous Starr Report from the Whitewater days. Should be interesting… and perhaps even entertaining.

Despite all of the hubbub about Tibet (which is important news, don’t get me wrong), the headline that caught my eye fastest yesterday at China Digital Times was that the Heparin contaminant was actually identified.  Here is the article from the Los Angeles Times ( h/t to CDT):

A compound related to a common nutritional supplement has been identified as the contaminant in a blood-thinning drug imported from China that sickened hundreds of frail patients in the U.S. and is suspected in a number of deaths, federal officials said Wednesday.

The substance mimics the real drug — heparin — in standard safety tests and may have been deliberately substituted for the genuine compound somewhere along the line to boost middlemen’s profits. It could also have been added through a mishap or some kind of misguided experiment. Because of difficulties in back-checking, it’s unclear whether Food and Drug Administration officials will ever know for sure.

The recall inflamed public concerns about the safety of consumer goods from China; the heparin investigation may give a boost to legislation stalled in Congress that would set up a much more rigorous import inspection system.

“It is unacceptable that Americans have died and been seriously injured by what appears to be deliberate tampering,” Sen. Edward M. Kennedy (D-Mass.), who chairs a panel that oversees the FDA, said in a statement. “Whether this contaminant was introduced intentionally or by accident, the full force of the law must be brought to bear to bring those responsible to justice.

“To guard against future abuses, every drug manufacturer needs to inform FDA of where it sources its ingredients and what it is doing to ensure that these ingredients are pure and potent.”

“This is not a new problem,” said England, who now advises foreign companies on how to comply with U.S. regulations. “This is a close cousin of problems that have presented themselves before.”

The FDA is chronically short of resources to meet its mandate to oversee a vast array of drugs, medical devices, and processed and natural foods. Inspections of foreign producers in particular are infrequent. And China has been difficult territory for U.S. regulators.

I have already been on the record many times about doing QC and due diligence with regards to the Heparin debacle, so I will refrain from overly beating a dead horse.  (see “ first pet food, then trader joe’s, now heparin…” and “ heparin update part 2: chinese fda lays responsibility on importers“)  Note that the FDA cannot catch all of the bad apples. It is short of resources–in fact, woefully short of resources.  So if you are counting on regulatory agencies to help solve your sourcing quality issues, the U.S. has no resources and the Chinese have disclaimed all responsibility.  In other words, the ball is in your court.  ‘Nuff said.

The other thing that I want to note is that Senator Kennedy is on the record saying “the full force of the law must be brought to bear to bring those responsible to justice.”  Well, if the LA City Attorney’s Office can do it, so can others.  We now have a Heparin contaminant identified.  As the article points out, we may never know where the problematic materials were introduced.  So who will take the fall?  The FDA won’t. I foresee yet another criminal case coming in the future.  Maybe not now, but if deadly toothpaste and pet food can warrant a criminal case, you can be sure this Heparin thing will too.  I don’t know if it will be Baxter or someone else, but just wait and see.  It may even be a different set of charges because this criminal liability thing for Chinese sourced products is so new that prosecutors have room to be creative in which causes of action to bring.

The storm is coming.  Do you feel it?

The rule of law increasing through mass public participation? And not triggered by the party or a few activist lawyers? Sounds like a dream. But apparently, it’s happening. This is China recently ran a post about what happens in China when you can’t get your own lawyer to fight your cause: learn the law yourself… and win. I thought the free legal assistance ( legal aid in Xi’an) was a big deal. Well, this is too.

The article from Reuters ( h/t to Bill Dodson):

Qi Yunhui didn’t even graduate from middle school, but on a recent afternoon he addressed the Shenzhen Intermediate People’s Court with the confidence of a seasoned litigator.

When he came to Shenzhen in 2002, the fast talking native of China’s central province of Hubei worked in a leather shoe factory. Now, he is part of a new and growing breed of “citizens’ agents”, former workers offering cheap legal aid to fellow migrants involved in labor disputes.

In the past five years or so, these self-taught “barefoot” labor lawyers have proliferated, filling an important niche in a country where migrant workers are increasingly caught in a dilemma — they are encouraged by the leadership to know their rights, but lack effective, efficient channels to protect them.

“We want to encourage people to go to court,” Qi, 30, said over dinner with five toy factory workers he was representing in a case over unpaid overtime.

But change is slower to come at local levels, where officials are pre-occupied with finding — and keeping — investment.

“Local governments seek economic benefits alone. They think protecting the boss is protecting their rice bowl, but it’s the workers who pay the price of sacrificing their health and lives,” said Zhou Litai, a self-taught lawyer who went a step beyond “citizens’ agents” like Qi by taking the national exams to receive his lawyers’ license.

Qi says men have come to his office to threaten him and he’s received several menacing phone calls.

The factory-studded Pearl River Delta, an engine of economic growth, now has hundreds of “citizens’ agents”, Qi estimates, and nationwide there are several thousand. Most, like Qi, learned the law on their own through personal quests to get back pay.

The business model is simple. While most lawyers demand retainers and charge high fees, “citizens’ agents” work for a modest contingency, which means it costs little for workers to initiate proceedings.

Lawyer Zhou operates that way, too, taking a cut of the compensation awarded if he wins a case.

But all over the country, knowledge of rights — and a willingness to go to the courts to defend them — is on the rise.

Zhou, 51, who was born into a peasant family in Kaixian, now a rural part of western Chongqing, became interested in the law during his own stint as a migrant worker at a brick kiln, after the kiln’s manager failed to pay agreed wages.

In his more than 20 years as a lawyer, his offices have handled some 8,000 migrant worker cases, most of them over compensation claims for workplace injuries or unpaid wages.

To meet their needs, as the number of citizens’ agents rises, trained lawyers, too, are turning their attention toward the once neglected area of labor law.

The United Nations Development Programme, with funding from the Belgian government, started a pilot program last year with the All-China Lawyers’ Association to fund legal aid for migrant workers in 15 provinces.

The Beijing branch alone has handled some 4,000 cases in the past year and about 30,000 workers have contacted the clinic.

Despite the low pay-back for law firms handling these cases, those involved say it has been easy to attract lawyers.

“They see it as a way of engaging in social transformation,” said Alessandra Tisot, the UNDP’s Senior Deputy Resident Representative in Beijing.

This is both encouraging and yet has a dark side to it. Let me start with the encouraging: the rule of law is being grown through the raising of awareness, consciousness, and rights by these non-lawyer citizen’s agents. (Wow, that sounds almost communist…) But it is. The article mentioned the free legal aid for migrant workers, one of those bases being Xi’an and the subject of much attention in the blogosphere. But the idea that people are educating themselves in the law to the point where they can bring lawsuits for a tiny fee? It shows that people want to know the law. And once they know it, they are willing to exercise their rights under it.

The dark side? The idea of self taught “lawyers” running around and bringing cases for others isn’t the best of things in the long run. Frankly, a lot of Chinese lawyers (actual lawyers) aren’t the best of litigators already. (which is why a lot of large lawfirms are bringing in US and British litigators as foreign legal consultants in order to teach basic litigation and presentation skills) So if the self-taught “lawyers” are just as good, chances are that the quality is likely pretty low.

But I digress. Imagine that people can hire lawyers or this other tier of not-quite-lawyers to represent them. Is that a good thing in the long run? Probably not. In the short run, it is necessary. But in the long run, someone is going to have to clamp down on this practice of law by people who aren’t qualified to practice. Because having pseudo-lawyers running amok is not going to be good to establish a solid legal system that can command the respect of the international community.

The bright side is that societal transformation can happen through this. The silver lining: someone is going to have to regulate this industry once it happens. And there will be some unhappy non-lawyers out there once it happens.

Don’t get me wrong though–on the whole, I still see this as a very positive step. But since it seems everyone will look at this positively, someone has to be the voice of caution. Who else better than a lawyer?

Here is an encouraging story about how the Chinese Supreme People’s Court has been rejecting a number of death sentences that have been dealt out by lower courts. It could be more encouraging if you are against capital punishment (as so many Americans are), but if you consider the effect on the Chinese legal and judicial system, I believe it already is.

From Reuters (and h/t to China Digital Times):

China’s top court has rejected 15 percent of death sentences handed by lower courts, citing poor evidence and procedural errors under new rules, but a top judge said the death penalty will remain in place for a long time.

China keeps secret the number of prisoners it executes, but international human rights observers have no doubt it judicially kills more than any other country — with estimates of executions somewhere between 1,000 and 12,000 a year in recent times.

But from the start of 2007, China’s Supreme People’s Court took back power of final approval on death penalties, relinquished to provincial high courts in the 1980s, and promised to apply the ultimate punishment more carefully.

In a rare glimpse into how the new rule is working, the president of the top court’s criminal law chamber, Huang Ermei, said that in 2007 it rejected 15 percent of death sentences passed by lower courts, according to the China News Service on Saturday. She gave no hint of the overall number of executions.

Huang said the rejections were due to “unclear facts, insufficient evidence, inappropriate determination of punishment and unlawful procedures.”

She also said 2007 was the first year that the number of prisoners who received “death penalties with reprieve” — that convert into long prison terms after two years unless the convict offends again — was more than the number outright executed.

Huang did not say how many of the prisoners whose death sentences were rejected were then freed or given jail sentences.

Again, this is very encouraging news because it shows a number of things. First, higher Chinese courts are recognizing that lower courts do need improvement. What was cited? “[U]nclear facts, insufficient evidence, inappropriate determination of punishment and unlawful procedures.” It means the Chinese judiciary, as fallible as it may be, is improving. It can now recognize, at least at the higher levels, that judges do rule upon poor factual evidence and apply improper procedural law. So we have a marked improvement as 15% is quite a bit.

Second, it means the increase in the rule of law. Procedural law, which I hated in law school (but have come to deeply appreciate as a practitioner), actually has authority in China–at least, among the higher courts. Chinese courts will hopefully continue to honor and improve in their application of procedural law. Note that the Supreme People’s Court wants apply the punishment more carefully.

Finally, and this is more qualitative and sentimental, the Chinese high court is taking a role that is more akin to our high courts. The California Supreme Court regularly deals with death penalty appeals, though I believe it only overturns about 10% of those cases. Knowing that the Chinese Supreme Court is doing so, and rejecting 15% of the death penalties, gives me a deep sense of hope that the judicial system in China will one day be quite respectable.

So yes, the government is secretive as to how many executions take place. That could improve. But if this is one step at a time, this is quite a big one.

Yet another China IP case where the company suing to enforce IPR’s has won. Everyone “knows” China is weak on IP enforcement, but the reality is that the Chinese courts have been getting better and better. (See e.g., G2000 case covered here) Score another one for the continued development of Chinese IP enforcement: a patent suit from Motorola.

From a press release by the company ( h/t to China Tech News) dated today:

Motorola, Inc. (NYSE: MOT), today announced that in 2007 it filed a lawsuit against a Chinese company known as Guangzhou Weierwei Electronic Science and Technology Co. Ltd. (Weirwei). The lawsuit related to the Chinese Company’s two-way radio model number VEV3188 that was claimed to fall within the scope of a Motorola Chinese Design Patent.

In a ruling last December, the First Intermediate People’s Court of Beijing (the court in the first instance) determined that the VEV 3188 two-way radio infringed Motorola’s Design Patent. Weierwei was therefore ordered to cease the manufacture and sales of VEV 3188 two-way radios and to financially compensate Motorola.

“We are very pleased that the First Intermediate People’s Court of Beijing recognizes the importance of intellectual property protection and has ruled in Motorola’s favor,” said Jonathan P. Meyer, Motorola senior vice president for Intellectual Property Law. “Motorola invests extensive human and financial resources to bring compelling designs to market, and the company will remain vigilant in protecting the value of this investment”.

We now have trademark cases and a patent case within the span of a month coming out of various Chinese courts. This is good for businesses wanting to go into China. Wonderful.

So maybe you’re asking yourself the next question: what’s the catch? The catch is that while Motorola is trumping this decision, we have no idea how much the damages were. We know there was an injunction, which is standard fare. (though I guess the defendant could always go and start another company doing the same thing fairly quickly) There was also monetary damages. And we are all dying to know what they are. I have a feeling they were within the 500,000 yuan cap or Motorola would be trumpeting the damages as well.

While we don’t know the results (and I hope Brad Luo or Danny Friedman post about this soon), I suspect its this way: low IPR damages 2, high IPR damages 1. We’ll see how the game develops though.

UPDATE: Stan Abrams has also done a post on this with a more hopeful tone than I. Here are some of his thoughts:

For those of you who care about these things, take note of three details: first, although the defendant is a Guangzhou company, the case was heard by Beijing’s 1st Intermediate Court (the IP department, one would assume). Good reason for coming up here to litigate instead of trying it in Guangzhou, including the threat of local protectionism.

Second, notice the underlying IP at issue here, a design patent. For all of you who deride these things as “junk patents,” remember that a design is just as good as any other kind of IP as long as it isn’t invalidated. I assume this one was robust and did not have any pesky novelty problems or other skeletons in its proverbial closet.

Third, and unless there was a typo somewhere, the case was filed in 2007 and adjudicated the same year! Yes, this is possible if the case was simple and there was no appeal, although I’m still quite impressed. The article does not mention if an appeal is likely, so we’ll have to wait and see.

UPDATE II: Dan Harris has also just weighed in (emphasis added) on topic,

At the conference, one of the speakers (not a lawyer) mentioned that the most important thing one must do to protect IP in China is to hire “a really good lawyer.” I then said that it is even more important to actually register one’s IP and then I talked very about briefly on how companies sometimes make the mistake of thinking that registering their IP in the United States or in the EU covers them in China as well.

So register your IP in China. That’s solid advice for all businesses.

While this is not directly China relevant, this is helpful to know for anyone representing Chinese clients (or any client) in federal court. There has been much coverage about the Qualcomm discovery sanctions mess where Day Casebeer and Heller Ehrman attorneys were sanctioned and reported to the California State Bar to professional ethics violations. This should serve as a warning to you: follow the discovery rules and take the high road. Produce what you must produce, object only when appropriate, and do not engage in dilatory tactics.

In case you haven’t been following, a brief summary from the California Bar Journal:

A federal magistrate’s ruling last month that wireless giant Qualcomm committed a “monumental discovery violation” in a patent infringement case should serve as a cautionary tale to lawyers who handle complex litigation, say legal experts. The judge’s findings highlighted issues involving electronic discovery, the division of labor and responsibilities in matters involving corporate clients and outside counsel, and the predicament faced by lawyers accused of misconduct who cannot defend themselves because of the attorney-client privilege.

San Diego Federal Magistrate Judge Barbara L. Major sanctioned Qualcomm for withholding “tens of thousands of e-mails” in a lawsuit it brought against Broadcom Corp. and ordered Qualcomm to pay Broadcom’s legal bills, which total more than $8.568 million. In an unusual move, she also referred six of Qualcomm’s outside attorneys, whom she described as “talented, well-educated and experienced,” to the State Bar for discipline. She chose not to sanction 13 other lawyers involved in the litigation.

Major said her review led “to the inevitable conclusion that Qualcomm intentionally withheld tens of thousands of decisive documents from its opponent in an effort to win this case and gain a strategic business advantage over Broadcom. Qualcomm could not have achieved this goal without some type of assistance or deliberate ignorance from its retained attorneys.”

For those of you who have not litigated, I would dare say that this type of scorched-earth litigation where documents are not produced (and hidden under a large number of technical and meaningless objections and privilege claims) is fairly common, particularly among the larger firms where clients pay a lot of money to “play hardball”. Having been the recipient of hardball tactics, usually by larger, more “prestigious” firms, I can affirm that this is quite common. Except for the first time, attorneys were not only caught red-handed, but skewered by the judiciary and public opinion.

Some suggestions from Professor David McGowan in the same article:

1. Division of labor. Where outside counsel are not directly responsible for discovery, they must take steps to protect themselves.

2. Responsibility should follow authority. Firms that do not have responsibility for the actual collection and/or selection of documents should not sign discovery responses relating to document production or make representations about the completeness of discovery. If the client insources, it should take responsibility for the completeness of discovery.

3. If labor is divided, demand an advance privilege waiver for communications relevant to any discovery disputes.

4. Don’t trust standard procedures or formal systems. Don’t trust; verify.

5. Try to de-bias yourself. Appoint one member of the team to be devil’s advocate. Write a list of conditions that would have to exist for the document to be unresponsive and ask if all the necessary conditions exist.

6. Err in favor of production.

7. The more you have to explain a decision to withhold, the less likely a court is to buy it.

8. The more you don’t want to produce a document, the more important it is to produce it.

9. Be prepared to walk away.

10. Associates: You have to look out for yourselves. If you feel strongly about production, fight for it.

11. If you mess up, fess up.

I think these suggestions make sense for any litigator.

Okay, so how does this affect Chinese litigants? Drastically. I have dealt with many Chinese companies over the years who never want to play the discovery game and attempt to hide their documents or ask their counsel to not turn over damaging evidence. You cannot do that. The scope of discovery is laid out in Federal Rule of Civil Procedure 26(b), not your client’s desires. Oftentimes Chinese clients will refuse to turn over org charts, company financials, stock certificates, etc. Press them for the information–gently, but firmly. It is confidential information, but the minute they got themselves into litigation, it’s open season.

So what can you do with stubborn Chinese clients? Four things:

• Warn them that they can be sanctioned for discovery abuse. This includes not only monetary sanctions, but if the tactics are dilatory enough, terminating sanctions have been applied. (not to mention negative inferences and issue preclusion) Judge William Schwarzer, of Rutter Group fame, taught a class at Hastings about federal pretrial litigation. He warned us over and over that terminating sanctions can be justified, especially with busy judges who want to clear their dockets.
• Make sure you get a protective order under FRCP 26(c). And if its confidential enough, make sure there is an “Attorney’s Eyes Only” category. Honestly, I don’t know how effective they are, but at least you have some protection for your secret information. And once you have it, use it as leverage to force your clients to turn information over.
• Warn them that if they refuse to turn over information and instead try to settle every case quickly, they will become a target for lawsuits. When I was litigating environmental and toxic tort cases, our major clients always allowed us to fight to the death so that they had a reputation for not tolerating B.S. lawsuits.
• I don’t recommend this often, but you can always drop them as a client.

Right when I had taken my stance with the Seattle Trademark Lawyer and Dan Harris of China Law Blog that IP damages for lost profits just don’t work, I have to eat my words. Brad Luo recently did some very interesting posts about a trademark case in the Hangzhou Intermediate People’s Court ( here and here), where the court awarded 20 million yuan in damages… in what appears to be lost profits. So I take back what I said, that you can never expect lost profits in Chinese courts. I still believe they are rare. But when you deal with a case this litigious, and with a Defendant who defies a court order, then expect a court to exercise its power–whether in China or America.

I will take straight from China Business Law Blog at this point because Brad does a good job covering it:

The Parties:

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

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

In 1992, Defendant registered the “G2000” mark in China for use covering clothing, shoes and headwear.

In 1997, Defendant registered the same G2000 mark for handbags, shopping bags, and straps.

In 2002, Defendant registered the G2 mark for clothing, neckties, socks, scarves, belts, etc.

[Procedural Background:]

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

Brief Facts:

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

My Thoughts & Reactions:

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

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

A very interesting case indeed. Did the court go against Chinese statutory law? It appears it does. So did the court royally screw up this one? I don’t think so… at least, from a U.S. practitioner’s viewpoint. It means that courts can grant larger damages, which will make it worthwhile for American companies to pursue IP lawsuits in China. It also makes sense to me because of G2000’s wilfulness in not turning over documents.

Here is my read on why something like this could happen. (though it is speculation) Imagine the scene: the parties have been fighting for 8 years. AIC complaints. Trying to invalidate a trademark and appealing that decision. Probably some nasty letters between the two sides throughout this entire ordeal. I surmise there is a lot of fighting over everything. And then after losing, the Defendant refuses to turn over financial information…

I don’t pretend to know how a Chinese judge would look at something like this, but I think a federal judge here in the U.S. would look at this as a zoo. And knowing federal judges here, who hate dealing with messes this big, and then to have your order defied on judgment–that is a big NO-NO. If you don’t believe me, see this article from the Denver post where some prominent American attorneys ignored the court’s order regarding claims construction ( h/t to ATL):

A federal judge recently got so infuriated by the conduct of two highly regarded trial attorneys that he overturned a jury’s $51 million verdict, then ordered the lawyers to pay the fees and costs of the opposing lawyers, a sum that could total several million dollars.

U.S. District Senior Judge Richard P. Matsch sanctioned attorneys Terrance McMahon and Vera Elson of the firm McDermott, Will and Emery, of Chicago and San Francisco, for “cavalier and abusive” misconduct and for having a “what can I get away with?” attitude during a 13-day patent infringement trial in Denver.

Terry McMahon among IP litigators is quite a big name. But even when he crossed a federal judge the wrong way, things go bad.

Frankly, I am not all that surprised by G2000’s conduct. Chinese companies often think they can flaunt Chinese or American law and court orders. (And discovery too… I have a post coming this weekend about that, so stay tuned) No, I am not being racist. This has been the case for actual clients that I have had. And if you play with fire long enough, you are going to get burned. I believe G2000 got burned because they wouldn’t cooperate. Yes, there are probably other factors too. But I see this as the straw that broke the camel’s back.

Will this be overturned on appeal? Probably a good chance to it due to the statute, but IP Dragon had a post about the Supreme People’s Court ordering full compensation in IP cases:

“Courts should fully apply logical reasoning and everyday life experiences, and comprehensively and objectively examine the evidence for calculating the amount of compensation,” SPC vice-president Cao Jianming told a national work conference on IPR trials in Jinan on February 20, 2008, according to the China Daily.

Perhaps the 500,000 yuan statutory cap on damages will fall by the wayside as courts begin to apply principles of equity to determine damages. Maybe the Hangzhou court actually got it right then.

Bottom line: cooperate with the legal process, even when you don’t want to. Trust me, the law is the law and you may well get burned if you don’t.

I am a big advocate for the rule of law, but that shouldn’t come as a surprise to you since I am very American and I wrote about it here regarding legal aid in Xi’an. I had lamented the lack of plaintiff’s attorneys in China in other articles, so I was quite warmed to read this article by the CS Monitor called “How One Man in China Strengthens the Rule of Law”. (Note that I don’t necessarily like how the article title seems almost defiant of the Chinese government because the article is not) But I think news of Chinese attorneys like this gives me much hope for the future of Chinese law.

Here is part of the article ( h/t to China Digital Times):

To most Beijingers, the receipt the attendant gives them for the six cents paid to use the public toilets in the subway is a worthless piece of scrap, quickly crumpled up and thrown away.

To Hao Jinsong, that piece of paper is a seed of Chinese democracy.

It took the 35-year-old law scholar a court battle to force the subway authorities to issue the legally required receipt, and he still treasures the one he sued for. But the chit itself, he says, is not important.

“Behind this receipt is a law that gives people the right to ask for one,” he explains. “If nobody respects the dignity of the law, everybody loses his own dignity. If today you lose your right to a receipt, tomorrow you may lose your right to your land, your house, your freedom, and even your life.”

But it is the very weakness of the rule of law in China that inspires his crusade, he says. If “people don’t use legal recourse to defend themselves because they think it’s useless … the law grows even weaker,” he argues.

“When … people use the law as naturally as they use chopsticks, China will be close to democracy,” he adds.

Hao is a pioneer of public interest lawsuits, a growing trend in a country where they were unknown, or dismissed by judges out of hand, only a few years ago.

He and a swelling band of lawyers like him have attracted less international attention than legal activists whose efforts to defend human rights have earned them beatings, house arrest or jail terms.

But they are achieving prominence in China, and winning plaudits from their peers. “We need someone to stand up and challenge shortcomings of institutions,” says Wu Ge, a law professor at Beijing’s Tsinghua University.

Hao is best known for lawsuits he has brought against the powerful Ministry of Railroads, challenging its refusal to give tax receipts for goods bought on trains, and its ticket pricing policy.

And just like in America, the media has quite a bit of sway over the law, especially with public interest type cases:

Key to such victories has been media coverage and the public debate it provokes. Though Chinese newspapers don’t dare report court cases involving political dissidents, many of them – including the Communist Party’s mouthpiece the People’s Daily – have written approvingly about Hao’s cases.

This would not happen if Hao confronted the government head on over issues such as free speech. Instead, he deliberately restricts himself to less political cases, holding the government’s feet to the fire on a goal it has publicly set itself – the rule of law.

“I would like to say the government and I are going forward together,” he explains. “I don’t want to strip the government of its power, but to curb it.”

A proponent of gradual change, Hao insists that democracy can only be won “at the right pace.

In America, law is often changed little by little, one case at a time. I expect China will follow this familiar pattern.

Brad Luo at Chinese Business Law Blog recently did a translation from Chinese of a decision from the PRC Supreme People’s Court. The decision, dated 2/18/2008, sets forth basic provisions regarding trademark law and damages. It takes effect on 3/1/2008.

Here is his translation:

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

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

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

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

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

So in more plain English, here is what is actually set forth.

Art I. There are different standards for trademark infringment depending on whether the infringing mark is within the scope of the goods and services that the registered mark covers. In other words, there is a difference between infringing on mark X if: (1) mark X is registered only for international class 29 (wine) and the counterfeit is also wine, and (2) mark X is wine and the counterfeit is frozen tuna. My thoughts: frankly, this does not tell me much that is revolutionary. I figured such things were discernable with a good head on your shoulders.

Art II. Courts should accept cases where an potentially infringing business name is confusing.

Art III. Courts should determine the applicable law depending on plaintif’f’s claim and the nature of the controversy. Honestly, I am not sure why either of these was an issue either. It seems common-sensical to me that this should be the case. However, note that Article 3 appears to expand the Chinese court’s power in equity to fashion a remedy and determine applicable law. This will prove interesting, as good lawyers should be able to exploit this.

Art IV. In the case of infringement, courts can grant injunctive relief. Again, this is not a surprise. In fact, its probably the only reliable source of damages you will get as Chinese courts will not grant lost profits. (see this post)

So what does this do for you ultimate? Not much, sadly. I don’t think the Supreme Court did much for anyone with this pronoucement. (except if you are trying to learn Chinese or English legal translation, it is good to look at Brad’s full post)