Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
judges through Berkeley’s Boalt Hall and the San Francisco-Shanghai Sister Committee, and he
currently has an of counsel relationship with Chinese law firm AllBright Law Offices.
Quan acknowledges that, while China has made considerable progress on legal reform in recent
years, government enforcement mechanisms are weak and dispute resolution through the courts
can be arbitrary. Even after contracts are signed, negotiations continue as to their meaning. Local
officials, the central government and the Communist Party can all influence court and arbitration
decisions and, at least until recently, they have tended to strongly favor the Chinese party in
a dispute.
The government tends to give “public good” considerations—protecting domestic industries and
jobs, for example—priority over individual commercial rights. An extension of this principle can
be said to apply to intellectual property cases, where China often sees a philosophical, developing
country “right” to certain technology transfer free of prohibitive costs. Yet it should be stressed
that China’s patent and trademark laws generally conform to those of most countries in the
world other than the U.S., favoring the first party to file a patent or register a trademark versus
the inventor or first user. And recently China upheld Pfizer’s patent on Viagra and toughened
IP protection in cases affecting public health, in response to risks posed by counterfeit
pharmaceuticals.
Attorneys in China practice frequently refer to being “hometowned” by a legal system based on
civil law tradition, with a three-judge panel instead of a jury, no attorney cross-examination of
witnesses, and only a single appeal permitted. Most of China’s 200,000 judges are recruited from
the military or the police and given on-the-job training, or increasingly are recent law school
graduates with relatively little practical experience. Most judges are hired, paid, promoted and
fired by local or provincial governments.
Court “adjudication committees” made up of local administrative leaders may intervene in cases,
usually behind closed doors. Use of local officials or police to harass outside parties to settle—
either to dispose of a case quickly and quietly, or in a way favorably for local plaintiffs or defendants—is
not uncommon. Behind the scenes influence from the Communist Party is also a frequent
aspect of dispute resolution. Experienced attorneys, while praising China’s ongoing, rapid
transition to the rule of law, privately acknowledge that use of connections and relationships—
“guanxi”—is still an important asset that any foreign lawyer must bring to the table.
Most commercial disputes are settled through an arbitration process rather than the court system.
The favored arbitration venue specified in commercial contracts is the China International
Economic and Trade Arbitration Commission (CIETAC), a panel of international lawyers established
in China in 1989. Some 200 cities also have their own arbitration commissions as an alternative,
and courts in some large cities have created special departments to deal with foreign trade
and investment issues in lieu of arbitration.
The system is still far from perfect: Even CIETAC has acquired a reputation for corruption, ex
parte communications and other unethical practices. And some foreign companies receiving favorable
decisions in arbitration have still had to sue in Chinese courts to enforce judgments