A Constructive Way to End the U.S.-China Trade War

Training Chinese Officials on Open Government

December 11 marks the seventeenth anniversary of China’s accession to the WTO. But instead of celebrating, China is facing a 90-day deadline agreed upon with the United States during a post-G20 summit meeting to come up with a plan to address U.S. concerns, or the U.S.-China trade war will continue. The clock is ticking. And, the arrest of Meng Wanzhou, Chief Financial Officer of Huawei, a high-tech giant in China, makes the fate of U.S.-China trade negotiations look even more gloomy.  

However, there is actually a solution that China can deliver to address some, if not all, U.S. concerns about intellectual property (“IP”): bolstering China’s system of IP Guiding Cases, which are de facto binding judicial cases in a country that has traditionally emphasized legislation only.  

The United States should welcome this solution, as Guiding Cases was a topic of a U.S.-China dialogue held in August 2016, following Chinese President Xi Jinping’s state visit to the United States in 2015.  During the state visit, the two countries agreed to “conduct high-level and expert discussions […] to provide a forum to support and exchange views on judicial reform and identify and evaluate the challenges and strategies in implementing the rule of law”.  

An Eight-Year System with Some Success

In November 2010, China’s Supreme People’s Court (the “SPC”) established a ground-breaking system in which certain Chinese court judgments are selected and re-issued as Guiding Cases to guide the adjudication of similar subsequent cases and ensure the uniform application of law.  To date, approximately 100 Guiding Cases have been released by the SPC. Twenty of these cases address IP (e.g., patents, trademarks, copyrights, rights to new plant varieties), unfair competition, and/or antimonopoly issues and are, unlike many other cases in China, well-reasoned.  

In each Guiding Case, the SPC summarizes relevant legal principles, which are, in effect, binding on all courts in China.  For example, in Guiding Case No. 84, Lilly Company v. WATSON Pharmaceuticals (Changzhou) Co., Ltd., A Dispute over Infringement of an Invention Patent, the SPC summarized various legal principles, including the following (English translation prepared by Stanford Law School’s China Guiding Cases Project):

In a patent infringement dispute involving a drug preparation method, a people’s court should, in the absence of other, contrary evidence, presume that the allegedly infringing drug’s technical process filed with drug supervision departments is the actual technical process for the preparation of the drug.  Where there is evidence to prove that the filed technical process of the allegedly infringing drug is not authentic, a people’s court should fully review evidence, including technical sources, production procedures, batch production records, filed documents, etc. of the allegedly infringing drug, to determine, in accordance with law, the actual technical process for the preparation of the allegedly infringing drug.

Apparently inspired by the preliminary success of Guiding Cases, the SPC has authorized the Beijing IP Court (the “BIPC”), one of the three specialized IP courts in China, to establish a more rigorous and clearly defined case system, under which judges of this court are required to abide by effective judgments applicable to a pending case when said judgments have been rendered by the BIPC or upper-level courts.  If other courts at the same level as the BIPC have rendered prior similar judgments, the judgments should be referenced by the BIPC judge(s) adjudicating the pending case.  

At a seminar held in October 2017 at Stanford Law School, two judges from the BIPC explained how this system had made a positive impact by the end of 2016: in over 200 of the 763 cases referencing prior judgments, the BIPC’s decision was reached by following the prior judgments, while in another 80 cases, the BIPC distinguished the prior judgments from the pending cases based on differences in facts.  In the rest of the 763 cases, the prior judgments were found to be irrelevant to the pending cases or found to have been submitted to the court without following the procedures.

China’s Deliverables

The above success lays a foundation for China to address U.S. IP concerns.  To this end, China should consider a few deliverables.

  • Release more IP Guiding Cases

Since the first batch of Guiding Cases was released in 2011, only 20 IP Guiding Cases have been released.  More Guiding Cases of this type should be released to provide guidance on the adjudication of numerous IP issues.

The small number of IP Guiding Cases has limited their impact.  As of the end of 2017, the China Guiding Cases Project (“CGCP”) had found, through its search conducted on the official SPC website (http://wenshu.court.gov.cn)), 1,281 subsequent cases mentioning Guiding Cases.  Only ten of these subsequent cases mentioned IP Guiding Cases. One possible explanation of this phenomenon is that many of these IP Guiding Cases were released relatively recently, and so it may take more time to see subsequent cases using these Guiding Cases.  Another possible explanation is that the issues covered by these IP Guiding Cases are simply not broad enough to address many other issues occurring in practice.

  • Provide more training to polish judges’ and lawyers’ skills in using Guiding Cases

The CGCP analysis of the 1,281 subsequent cases mentioning Guiding Cases reveals the roles played by judges and lawyers in using Guiding Cases.  

In 853 of these cases, at least one party (or its lawyer) mentioned a Guiding Case in its arguments, but the deciding courts did not respond at all in most of these cases (688 in total).  This may partly reflect inadequate understanding of Guiding Cases among judges, but may also reveal judges’ uncertainty as to whether and how they should explicitly cite Guiding Cases in judgments.

On the other hand, in the remaining 428 of these 1,281 subsequent cases, Guiding Cases were not mentioned by any party involved in the dispute; nevertheless, the deciding courts took the initiative to consider the relevant Guiding Cases. This reflects lawyers’ lack of competence as they should understand Guiding Cases better.

Thus, more training on Guiding Cases and how to use them can empower Chinese judges and lawyers and increase the practical value of Guiding Cases.

  • Replicate the rigorous and clearly defined case system used in the BIPC in all IP courts

The BIPC’s success in implementing its clearly defined case system is impressive.  Similar system should be established in the other two IP courts located in Shanghai and Guangzhou, and, if possible, in the new appellant IP tribunal that is scheduled to be established within the SPC and to begin its operation on January 1, 2019.  

By taking the above measures, China will be able to better achieve its own goals of releasing Guiding Cases (i.e., “summarize adjudication experiences, unify the application of law, enhance adjudication quality, and safeguard judicial impartiality”).  With such a commitment to the rule of law, China is better positioned to address U.S. IP concerns and end the current trade war.

Dr. Mei Gechlik, Founder and Director of Stanford Law School’s China Guiding Cases Project, teaches Chinese law and business at the law school and has 25 years’ experience advising U.S. and Chinese policymakers.