China: A Consistent Commitment To The Rule Of Intellectual Property and Corporate Law - Part I

Thursday, June 1, 2006 - 01:00

Part II of this interview will appear in the July 2006 issue.

Editor: Mr. Garbus, you are just back from China. Would you share with us what took you there?

Garbus: I have always had a great interest in China, and I have been there a dozen times since my first trip in 1976. This time I went to teach at Renmin University of Beijing, to meet with the law firm with which I established an association to practice law in China, and, given that several of Davis & Gilbert's clients have significant interests there, to be in a position to provide practical, meaningful and up-to-date information on and insight into the state of the law as it affects their business. In Beijing, the University asked me to speak at a conference of judges and to work with several of the legislative committees that serve the National People's Congress. In addition, the State Department asked me to give a series of lectures in Shanghai and Nanjing. In the course of two months in the country I was able to meet with a number of people - both academic and government - involved in the protection of intellectual property and to get a sense of their commitment.

Today China possesses an astonishing number of colleges devoted solely to the study of IP, specifically, the protection of IP. These are large institutions, and their program consists of a four-year curriculum. Most of their graduates will go on to work for the government, while others will work for Chinese companies or foreign companies doing business in China. As is the case with American patent lawyers, most of the college students have backgrounds in engineering, science and technology. At least part of the curriculum is devoted to the connection between IP law and technology, and they are expected to have a good grasp of the concept of a patent.

Editor: Over the past 25 years China has moved in the right direction with respect to the protection of intellectual property and the rule of law. As someone who has witnessed this evolution from something very much like a front-row seat, would you share with us how this movement is progressing?

Garbus: When I first went to China in the 1970s, there was no legal system, to say nothing about the protection of IP. The legal system that was scrapped in 1949, however, when the Communists came to power, was not entirely forgotten. When the time came for the Chinese to try to build a new legal system, they turned to the old one - to the best aspects of it - as a kind of frame of reference. When you trace the evolution of China's creation of a legal system, you see the influence of the past. This is something of a surprise to many people, but then China is full of surprises.

The American foundation community played a significant role in this process. The Ford Foundation's scholarship program, which ran from 1986 to 1996, was particularly important. The first Chinese law schools to open during the 1979-1982 period sent their first wave of graduates to the United States pursuant to the Ford Foundation's scholarships. As a consequence, today many of the people who are preeminent in China's legal establishment have degrees from Berkeley, Harvard, the University of Michigan and various other U.S. institutions. They have had a profound impact on the development of the Chinese legal system - indeed, they have been the principal drivers of that development.

Since 1996 the Chinese government has turned to the civil code system. This may reflect, at least in part, some concern by the authorities over law being created by the judicial system - through common law precedents - as opposed to being the sole province of the legislature. In any event, it is extremely interesting to note the role that the Internet is playing in the implementation of a civil code system across the country. A judge in Shanghai will post his decision in an IP case on a website devoted to the particular legal code covering IP. That decision, of course, is then available to his colleagues elsewhere in the country, and they, in turn, will post their comments. The Shanghai decision will not have binding precedential value elsewhere in the country, but it may have some significant influence, particularly if the judge in question has rendered a number of decisions in the IP area. This is civil code law, but with a distinctly Chinese feature.

As an aside, let me note that at the entrance to the Renmin University campus a large stone has been placed on which the words "Speak Truth From Facts" appear. The faade of the main building on campus displays logos representative of the various legal systems the Chinese are drawing from to build their own system. The central logo represents the American legal system and depicts, among other documents, the Constitution and the Federal Code of Criminal Procedure. The Chinese emblem includes a flowing river - which represents law as both even-handed and fair - and a dragon, which symbolizes law as society's protector.

There continues to be a gap between the quality of the judiciary in Beijing, Shanghai, and some of the other major cities and elsewhere in the country. The former group is possessed of higher education and a much better grasp of the judicial process than judges in the provinces, and they are not as much subject to the control of local officials. In the countryside the local officials hire the judges, and the degree of independence that a judge in Shanghai enjoys is simply not present.

Editor: Even with these shortfalls, the overall progress is extraordinary.

Garbus: What has occurred in a generation is quite extraordinary. Since China began to open up in 1979 - a country with more than one billion people, most of whom lived in conditions we in the West have not experienced in hundreds of years - it has created a 21st century economy, with all that entails - a corporate finance law, securities regulation, even a set of insurance laws. The consistent commitment to the rule of law in certain areas over this time is extraordinary, particularly in light of the presence of considerable internal opposition and a series of economic and social problems that would tear most societies apart.

Editor: And you believe this commitment is going to carry China into the future?

Garbus: Today China is producing more law school graduates than the United States. Since 1985, that includes 400,000 lawyers, 130,000 judges and about 130,000 prosecutors. When I first arrived in China years ago, the people in these positions had only the vaguest idea of their responsibilities. Most of the judges were superannuated army officers with no legal education or experience whatsoever. I was engaged to teach people in this group during the early days, and their shortcomings were considerable. Today they are being retired, and their places are being filled by law school graduates who must pass rigorous national examinations. These are idealistic young people, and their commitment to the rule of law is very real.

The whole court system has also changed. In the 1970s, it was difficult to take the legal system seriously. Since then, a great deal of progress has taken place, first gradually and then at an accelerating pace. By the mid-1990s the courts were beginning to deal with some of the fundamental problems the country faces, not the least of which concerns the protection of IP. I have long believed that meaningful IP protection will be available through the court system when it is Chinese IP that needs protecting, and if that is a correct assumption today, we are well on the way to a viable protective system. The IP courts in Beijing, Shanghai and Nanjing report that 95 percent of the cases they handle at present concern Chinese companies. That is a very good sign. Another good sign is the recent filing by the Chinese government against a French-owned department store chain in China selling Herms knock-offs for a fraction of the regular price. This commitment is all the more extraordinary if you consider how much of the Chinese economy derives from the employment of people in the business of knocking off luxury brands and entertainment properties.

I hasten to add, however, that despite all this progress, so long as Western computer companies go to China with the idea of getting the prices for their products that prevail in the West, they are only going to attract counterfeiters, pirates and the like. I think some industries - perhaps having learned from the experiences of the American record companies - have attempted to develop low-priced alternatives to the high-end products they sell elsewhere. Warner Brothers now sells DVDs in China for about $1.50, and its DVDs contain features that are difficult to replicate on a pirated DVD. That cuts into the economic viability of the DVD counterfeiting business. It also makes good business sense in helping to build an audience in China for Warner Brothers' stars at a time when the Chinese government, in order to protect its domestic film industry and, perhaps, to limit the influence of American movies, is setting limits on the number of American films that can be shown in Chinese theatres.

Editor: Even if the laws are on the books, what about enforcement?

Garbus: It is moving in the right direction - particularly if you consider there was virtually no enforcement 20 years ago. The recognition that Chinese enterprises, as well as foreign companies doing business in China, are in need of IP protection is particularly important in this development. And the judges charged with enforcing the laws are increasingly diligent, highly educated and sophisticated people. They understand why the protection of IP is crucial to their country's development, but they also understand the terribly disruptive impact that effective enforcement of the law can have on the lives of millions of people whose income derives from knock-offs. At a time when income disparities are increasing, and the quality of life that people enjoy in the cities is very different from what prevails in the countryside, sophisticated judges are not a First World luxury.

Enforcement continues to be somewhat uneven. Let me give you a recent example. A major counterfeiter - whose gang was also responsible for a string of murders - was arrested and beaten by the police. The trial resulted in a death sentence which would be reduced to life in prison after two years of good behavior. He appealed. The appellate court, concerned with police brutality - and in the U.S. the constitutional issues here would have entailed a reversal - reduced the sentence to 50 years. Given the known corruption in the criminal justice system, that sentence might simply evaporate in short order in light of this defendant's influence and wealth. In any event, the decision of the appellate court provoked outrage, and the Supreme Court of China - which, incidentally, had no jurisdiction over this case - was inundated with e-mails. The press also weighed in about corruption in the courts. Shortly thereafter three judges appeared in the city where the defendant was being held. His trial began at 10 a.m. the next day, and he was executed at 4:00 in the afternoon. These judges had been sent by the Party, which recognized the need to make some "adjustments" in the handling of the case. I do not believe this kind of thing is going to occur, say, 20 years from now. For the moment, however, and despite great progress over the past 20 years, enforcement is still in a transition phase.

Please email the interviewee at mgarbus@dglaw.com with questions about this interview.