Law and Truth: Judicial Reform in China

“The civil systems have converged towards us,” states Judge of the United States Court of Appeals for the Ninth Circuit, William Fletcher, to a packed lecture hall at Stanford University. He’s referring to China’s unprecedented legal rebirth; their movement from a civil law system towards a more precedent focused, common law system.[1]

China’s current legal system gives the National People’s Congress the power to enact legislation and restricts the role of the judiciary to the application rather than the interpretation of a statute. However, this model has created problems, primarily in the consistency of application of statute across the country’s 30 provinces.

Almost all – 94%, to be exact, of China’s judges, are aged under 50 years, whilst only 1.32% have a PhD.

According to Professor Leon Lee, Executive Director of the Case Law Research Center at the School of Law in the Central University of Finance and Economics, there are vast differences between judgements of similar cases between provinces in China.[2] These discrepancies even exist between judges within the same courts. Professor Lee suggests that this is partially due to the judiciary’s relatively young age, with the system having only come into fruition within the last half a century. This is particularly telling when you look at the statistics. Almost all – 94%, to be exact, of China’s judges, are aged under 50 years, whilst only 1.32% have a PhD.

These discrepancy issues often stem from the sheer volume of cases flowing through the courts, with 11 million cases moving through the court system in the first 9 months of 2016 alone.[3] This prevents judges from adequately researching and writing consistent judgements.

To combat this, China has introduced a guiding case system aiming to address the inconsistency in the judiciary’s experience. The guiding principles were officially brought forward by the Supreme People’s Court (“SPC”) in 2010 in an attempt to unify Chinese law.

So, how does it work? Cases are first elected by a lower court and considered by the high people’s court before the SPC finally examines it and decides whether it becomes a guiding case. What’s the difference between a guiding case and say, a case determined under Australian law? The latter will automatically become a source of law: it sets a precedent as to how the issue at hand will be determined in the future. Meanwhile, a guiding case merely aids judges in reaching a decision and is not a source of law.    

The implementation of a guiding case system has effectively blurred the lines between China’s civil law system and other common law systems. However, China’s system is still civil law, just with strictly controlled common law elements.

Does it work? Well, yes and no. It may work, but the regime is still yet to enjoy widespread adoption by the judiciary. An inherent problem is that some judges are unwilling to use the guiding cases, as they are not technically considered law. Further, the guiding case system itself is very limiting, containing a small number of cases (86 as of 2017) that only apply to a handful of scenarios.[4] 

By the end of 2015, only 181 cases referred to guiding cases, and in 96 of these cases, the judgment did not mention the guiding case.[5] By the end of 2016, only 516 had used guiding cases. While this may seem a significant increase, it is inconsequential in comparison to the millions of cases that run through the courts every year.

China’s IP case guidance system

One area of law that has been particularly impacted by these disparities is intellectual property (IP) law, which has been acknowledged by the Chinese Government as being an area that needs reform. China’s IP statute consistently lags behind the rapid advancement of technology and requires frequent amendments in order to keep up. The case guiding system has done little to help unify Chinese IP law; only 20 guiding cases are related to IP, and these have only been used three times.[6] 

Microsoft sought $22 million in damages. However, after a verdict in their favour, they were awarded a mere $260 USD.

Traditionally, IP rights have not been stringently enforced in China, with punishments for infringement often lenient. In 1994, Microsoft sued China-based Company,[7] Shenzhen Reflective Materials Institute, for counterfeiting thousands of Microsoft Holograms. Microsoft sought $22 million in damages. However, after a verdict in their favour, they were awarded a mere $260 USD.

More recently, in 2013, New Balance was sued for infringing its own trademark,[8] after a man named Zhou Lelun took New Balance to court for using his trademark “Xin Bai Lun”, meaning “New Balance” in Chinese. Despite the fact that the trademark was applied for in 1994, and New Balance had been selling shoes in China since the 60s, Guangzhou IP court ruled in favour of Zhou and awarded him $15.6 million. This amount was half of New Balance’s profits between 2013 and 2015. 

“We will carry out comprehensive and integrated reform of the judicial system and enforce judicial accountability in all respects sothat the people can see in every judicial case that justice is served.”

Fortunately, the Government’s tolerance of such discrepancies is waning. “We will carry out comprehensive and integrated reform of the judicial system and enforce judicial accountability in all respects”, said Xi Jinping, China’s President, in an address to the 19th National People’s Congress in October 2017, “so that the people can see in every judicial case that justice is served.” China is seeking a significant further investment of Western capital; in return, the West requires strong IP protections that conform with international standards. “What you need in commercial law is a known predictable, stable system,” says Judge Fletcher, “You don’t want to invest in conditions of uncertainty.”[9]

To combat this uncertainty, the Government have implemented a dedicated, IP specific guiding case system with the help of the Beijing IP courts. This system is designed to assist the judiciary in the consistent and efficient application of IP law. The IP case guidance system has seen immense preliminary success, with prior effective judgements being used in 763 IP cases by the end of 2016.[10]

It is not certain how long it will take for this new innovation to become widely adopted, and deliver the reform its benefactors are hoping for. What is certain, is that China is slowly but surely entering a new golden age of prosperity.

This article was originally published in UTS Vertigo 2018 'Genesis'.

For business inquiries, you can contact Jazz Osvald at [email protected].

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[1] William A Fletcher J, ‘Why a Public Database of Judicial Decisions is Essential to a System of Commercial Law’ ’ (Speech delivered at On Building China’s New IP Case System Seminar: A Discussion with Chinese Judges as well as Legal and Big Data Experts, Stanford Law School, October 19 2017) <https://cgc.law.stanford.edu/event/guiding-cases-seminar-20171019/>.

[2] Leon Lee, ‘Implementing a Case System in a Statute-Based Country: Why Now? And How?’ (Speech delivered at On Building China’s New IP Case System Seminar: A Discussion with Chinese Judges as well as Legal and Big Data Experts, Stanford Law School, October 19 2017) <https://cgc.law.stanford.edu/event/guiding-cases-seminar-20171019/>.

[3] Mei Gechlik, China’s Guiding Cases System: Review and Recommendations, Stanford Law School China Guiding Cases Project, Guiding Cases Analytics?, Issue No. 5, August 2016.

[4] Liu Yijun, ‘The Application of China’s IP-Focused Case Guidance System in the Beijing IP Court’ (Speech delivered at On Building China’s New IP Case System Seminar: A Discussion with Chinese Judges as well as Legal and Big Data Experts, Stanford Law School, October 19 2017) <https://cgc.law.stanford.edu/event/guiding-cases-seminar-20171019/>.

[5] Ibid.

[6] Mei Gechnik, ‘Latest Developments of China’s Guiding Cases System’ (Speech delivered at On Building China’s New IP Case System Seminar: A Discussion with Chinese Judges as well as Legal and Big Data Experts, Stanford Law School, October 19 2017) <https://cgc.law.stanford.edu/event/guiding-cases-seminar-20171019/>.

[7] Computer Business Review, MS Seeking $22M in Compensation from Shezhen Reflective Materials Insitute (9 May 1994) <https://www.cbronline.com/news/ms_seeking_22m_in_compensation_from_shenzhen_reflective_materials_institute/>.

[8] Scott Cendrowski, Has the Boston-based athletic-shoe maker made a mistake by fighting a two-decade trademark battle? (28 May 2016) Fortune <https://fortune.com/new-balance-chinese-trademark/>.

[9] William A Fletcher J, above n 1.

[10] Liu Yijun, ‘The Application of China’s IP-Focused Case Guidance System in the Beijing IP Court’ (Speech delivered at On Building China’s New IP Case System Seminar: A Discussion with Chinese Judges as well as Legal and Big Data Experts, Stanford Law School, October 19 2017) <https://cgc.law.stanford.edu/event/guiding-cases-seminar-20171019/>.