Category Archives: global risk

Tesla’s Chinese Road Bump

There have been a few eye opening stories coming out of China about intellectual property issues. Apple is having its headaches. Tesla is as well.  These companies can foot the bill to figure out how to deal with their travails. They have likely decided that this bill will be worth it considering the business opportunity at hand. But taking a step back from these stories, where is Chinese IP law headed?

That is an interesting story worth following.  Commenting on the Apple debacle, Tim Worstall writes for Forbes

… China in general, Chinese courts and Chinese companies are only going to start taking the protection of IP seriously when they’ve got some of their own IP to protect.

He may be right. But think about it. He is making two points. The first one is that law is local – not universal. In other words, law works when it meets local expectations — not universal standards. The second point is that the Chinese legal system itself is not capable of self-reform. It will only upgrade its performance when forces from the outside (in this case, Chinese business interests) compel it to do so.

Now take this thought one step further.  China is not unique with respect to either of the above points. And at present there are no organized forces  compelling upgrade of legal system performance around the world.

Does that make you just a bit nervous?

End Legal Provincialism?

Law is by its nature, provincial. Localities, or you might call them  jurisdictions, make law, teach it, and define law practice. It has been this way for a long, long time.

BTW, it has not always been this way. Before the Treaty of Westphalia, it was more accepted that localities were subservient to a universal source of law. In the European context, that was the law of the Catholic Church.  But the protestant reformation led to a terrible war that could not be resolved – each side claimed legitimacy directly from God. So, after decades of gruesome and inconclusive combat,  it was decided to let legal locality trump universality. The treaty did that and a way to a tentative peace was established. Each side agreed that the other side — no matter how disgusting it may have been — had the right to govern its own affairs. Universality gave way!

So here we are, a few centuries later. As lawyers, we accept this as normal and find it difficult to think in any other way. Hence “international law” has had rough going. It simply runs counter to the underlying paradigm of  legal legitimacy that is based on locality. Local trumps global, especially in the US.  And even in Europe, a system that supposedly transcends the “nation state”, and a place where you would expect locality to give way to more universal legal thinking, enforcement of European law over local law remains controversial and spotty. Want an example? Try enforcement of European competition law via private remedies. Ouch!

This reliance on locality has had global benefits and these benefits are well understood.  Powerful countries tend to intrude on the affairs of other states less blatantly and less often than they used to.  And Professor Pinker from Harvard brings out that the longer term trend has been a gradual and long term reduction in global violence. Parallel to that, we think that those who ignore this rule are “beyond the pale”. Folks like Hitler.  One is supposed to have an extraordinary justification before imposing one’s will on another state.  The US claimed that it had when it invaded Afghanistan and Iraq. Putin found it harder to do so in his recent Crimean adventure. The key point is that while these things still happen, they are not the norm. This is not perfect, but it is not bad either.

But there are drawbacks as well. We pay a price for living in a balkanized world.  Most important, how do we make progress in dealing with global issues? We may be able to do this slowly via treaties. But are we really making serious progress in dealing with cross border problems? When you think about issues such as global warming and fundamental human rights, you cannot feel great optimism.

The recent humanitarian crisis on the US southern border brings out how our local thinking drives us.  Large numbers of children are fleeing violence in their homelands. If they were our children, we would be horrified. But the legal reaction in the US to the humanitarian nature of this problem as been mixed. At best, US legal authorities offer “due process”.  There is very little, an perhaps even no passion for addressing, let alone solving, the underlying problem. To the contrary, a mainstream reaction has been to protect US interests first  – to “secure its border”. Local trumps universal, right? Going further, some argue that the US should just “cut off aid” to those countries in order to … well, in order to achieve something or other.  Again, not a word about intervening in some way in order to quell the gang violence that is at the root of the problem.

It is unfortunate, but at least a part of this is most likely a reaction to  the troubled US led nation building projects in Afghanistan and Iraq. The “legal reform” portions of these projects did not produce noticeable improvements in adherence to the “rule of law”.  If they had, we might be living in a different space. And these were not the first examples that bring out how weak government legal assistance projects are in relation to the legal reform issues that they purport to address. It is instructive to review the long term project in India that was supposed to re-vitalize Indian court practice and produced no tangible gains.

We might throw our hands up and say this is just not worth the effort. We cannot “export” the rule of law, right? After all, law is local.  Many take this position. Indeed, this why we call legal assistance “technical legal assistance” rather than “advocacy”. In other words, we offer resources rather than  demand results.

But here is the rub. Business is becoming more and more global. And this trend is likely to continue. US firms that engage in global business quickly discover that law is local elsewhere around the world as well as in the US. These firms have an interest to be treated fairly. But they may or may not. And there is not a lot they can do about it, other than cross their fingers. Apple’s recent experience with its patent case in China comes to mind.

We call this a type of “risk”.  And as lawyers, we can mitigate this risk to a certain extent. But the demand for better global risk mitigation is likely to grow as the flow of cross border business grows. Sooner or later, I would argue, firms will want better performance (meaning more fair treatment and less uncertainty) from other jurisdictions. And as global legal services are structured now, firms — no matter how knowledgeable and high powered their lawyers are — will have difficulty meeting that demand.

I am not advocating a return to dominance by a universal authority like the church. I am advocating for a better understanding of how our provincial view of law blinds us to more creative ways of cooperating in order to raise the standards of performance of legal institutions around the world.  Legal systems operating jointly provide legal services — not a single law firm or judge or law maker.

Could we do better? One step in the right direction would be  to stop hoping that government acting on its own will make this happen for us.  This has not worked out so far, and it is not likely to in the future. Another step is to accept that legal systems are more than baskets of legal theory and rules — they are composed of people. Actors within these systems are either empowered and accountable for results or they are not. It may be time to invest in that empowerment and accountability.

In sum, our provincial view of law will  not disappear. And perhaps that is a good thing. At the same time, we can and should become more sensitive that locality both protects and limits us. And if we are going to retain our provincial approach to law, we have little choice but to invest in helping localities function according to minimal standards. Not by relying on global rules, but at least managing a meaningful global discussion about best practices from local systems. We can do a lot more in this area than we are doing now.