Why China's judicial reform has a long way to go

Each of the three levels of courts under the SPC may hear a first instance case, depending on the subject matter involved and the amount of the damage claim. For example, a first instance patent infringement case would be filed with an Intermediate People's Court. But if the amount of damage claim exceeds a certain threshold (such as Rmb100 million), the case would be filed with a Higher People's Court. This creates opportunities for the plaintiff to forum-shop the court to file its lawsuit both in terms of the geographic location and the hierarchical level.

Judicial proceedings in China occur in two instances. The decision from the trial court is subject to appeal to the court at the immediate higher level, and the decision from the appeal is final. But litigants can petition for a retrial even when the final judgment has been rendered. While intended to curtail the courts' abuse of judicial power, the procedure has created uncertainty to the finality of court judgments. Overall, only less than 1% of the cases go through the retrial process each year.

Efforts to establish case precedents

The primary source of law in China is the statutes enacted by the National People's Congress. But as the statutes are usually abstract and deal with general principles, judges often have great flexibility in exerting discretionary power during litigation, which has created varying decisions from different courts for cases involving similar issues. In the last decade, the SPC has put a considerable effort in trying to establish a system with a more consistent and predictable application of the law and better guidance for legal practitioners appearing before a tribunal, largely through the training of judges, issuance of judicial interpretations and establishment of the Guiding Case System (GCS).

Under the GCS, a number of court decisions from various court levels are selected each year, which the courts should consult in similar future cases. This system is intended to improve the quality and consistency of court decisions, but critics have argued that the SPC lacks constitutional authority to issue guiding cases and the system signals an increasing degree of precedence creeping into China's civil law jurisprudence. On November 26 2010, the SPC issued the Rules on Work Related to Guiding Cases (Rules on GCS), to further unify and standardise the exercise of judicial discretion, making the GCS officially part of the SPC jurisprudence.

It remains murky how the GCS should be applied in practice. According to the Rules on GCS, once a final court judgment is selected as a guiding case, courts at all levels should consult it when adjudicating similar cases. However, according to a recent survey conducted by Sichuan University and the Sichuan Higher People's Court on decisions from the Basic People's Courts in Sichuan province, judges very rarely cite the guiding cases in their decisions. Also, it is unclear what the consequence is if a judge intentionally overlooks relevant guiding cases other than the litigants having the opportunity to seek an appeal or retrial.

Judicial activism

Chinese judges do not have the authority to review the validity of laws and local and administrative regulations even in situations where the law or regulation directly contradicts another legal document with superior authority. In fact, a local judge at Henan province lost her job after she declared in her decision a local ordinance invalid for violation of a codified statute. The rapidly-changing social and economic landscapes also pose problems for the Chinese courts as they are constantly facing issues not fully anticipated by the legislature when the laws were written. Chinese courts are also in charge of reviewing decisions of administrative agencies. This is not an easy task, given the courts' reliance on the local governments for funding and various support (the central government has recently tried to cut off the intermediate and basic people's courts' financial reliance on local governments where they sit, but the results remain to be seen).

The difficulty for Chinese courts to review a case independently from the influence of other branches of government, in combination with the codified laws' inability to catch up with rapid social and economic development, results in a unique brand of judicial activism in China.

First, the SPC, through its judicial interpretations, takes up the responsibility to fill many blanks left by the statutes, a role that many argue should be reserved to the legislature. For example, in Article 2 of the Interpretation of Several Issues Regarding the Application of Specific Laws in Handling Cases of Illegal Publications promulgated in December 1998, the SPC defines the standards of condemnation and penalty for the criminal offences of copyright authorship infringement. The SPC also issued the Interpretation on Several Issues Concerning the Application of the «PRC Contract Law» (1) and (2), each of which contains several provisions about the validity of contracts and the rights and obligations of contracting parties not defined in the PRC Contract Law – issues that probably fall outside the SPC's rule-making power – which is traditionally understood as covering only litigation procedures and statutory interpretations.

Second, in situations where the courts disagree with rules or regulations which are under their review, they have been creative in expressing their views but have also been careful to not overstep boundaries. In Jiangsu Simcere Pharmaceutical Group v the Patent Re-examination Board of the State Intellectual Property Office (SIPO), the issue was whether the patentee's amendment to the invalidation claim violated a rule promulgated by SIPO, which only permits three types of claim amendments in an invalidation proceeding. In this case, the SPC ruled in favour of the patentee. But instead of holding SIPO's rule invalid, the SPC found that the list of three specific types of amendments provided by SIPO in its Guidelines for Patent Examinations is not exhaustive, so other types of amendments may also be permitted. By twisting SIPO's own rule, the SPC was able to avoid direct confrontation with SIPO. But the SPC's political acumen also left little guidance for the practitioners to understand the scope of the rule so that the decision's value as a precedent may be very limited.

Third, the courts have found greater freedom in leading the development of the laws in areas with no clear statutory guidance, but some judicial guidance/court decisions in these areas have generated controversies due to the lack of legal scholarship and the judges' own inexperience. For example, the Beijing Higher People's Court has promulgated a judicial interpretation requiring lower courts to calculate damages for copyright infringement of literary works on the internet based on the number of characters in the copyrighted works. This rule is very much divorced from the general compensatory principle for damage awards in civil cases as neither the infringer's gain nor the copyright owner's loss is likely tied to the number of characters in the work. In anti-monopoly, the courts have been constantly facing issues of first impression, a situation that probably calls for greater judicial restraint to allow the relevant legal theories to develop.

Roadblocks to reform

With intertwined and sometimes conflicting interests between the central and local governments and between courts and other branches of government, legal reform requires substantive efforts to revitalise the current system.

Undue influence from local government is an issue that has long plagued Chinese courts. The systematic weakness of the Chinese judiciary in political life cannot be changed overnight. While the central government has tried to shield local courts from other branches of local government, such as by providing more financial freedom, it would be difficult for the local courts to be truly independent given the omnipresence of executive power in every aspect of people's lives in China. Generally, cases influenced by local protectionism are more common in the countryside and economically under-developed cities, and rare in large metropolitan areas such as Beijing, Shanghai or Nanjing. More competent judges and less reliance on the local government, as well as punishment for officials interfering with judicial process, are required to foster independence of the courts.

Large caseloads and low compensation may also drain the judges' energy. During the last 20 years, the Chinese courts heard altogether more than 62 million criminal, civil and administrative cases, with the number of cases increasing at an accelerated rate. For example, a judge in Beijing courts typically handles between 100 and 200 cases each year. This is in addition to his/her other administrative duties as a government employee. On the other hand, the income of judges follows the official lock-step system (a junior judge earns approximately US$1,000 (Rmb6,100) per month), which is insufficient to attract the best talents, especially in cities such as Beijing and Shanghai, where the living costs are on par with those of major metropolitan areas around the world. In addition, the rigid requirements for speedy trials also prevent judges from engaging in in-depth legal analysis in many cases. Under the PRC Civil Procedure Law, a first instance case between domestic entities should be concluded within six months and the second instance within three months, which are apparently not enough for courts to thoroughly deal with cases involving complex legal, economic or technical issues.

The procedural rules also require improvement, despite the recent amendment to the Civil Procedure Law and numerous SPC judicial interpretations. The current system lacks a deterring effect for tampering and doctoring evidence and imposes too great a burden on the plaintiff to prove its claims. For example, in a trade secret misappropriation case or a process patent infringement case, the plaintiff has a hard time proving the defendant's use of the asserted trade secrets or the patented process without having access to the defendant's internal documents or equipment. These cases therefore may require a more expansive use of evidence preservation or court investigation tools. Both the National People's Congress and the SPC have noted this issue. For example, the recent Decision on Amending the «Supreme People's Court, Several Provisions on Issues Concerning the Application of the Law in the Trial of Patent Disputes» (Draft for Public Comments) issued by the SPC requires the defendant in a patent infringement case to provide the relevant accounting books and materials for determining the amount of damages after the patentee has satisfied its initial burden of proof. But bolder and more aggressive steps may be required.

Moving forward

Every legal system has its own characteristics, as well as its own unique history of legal culture and development. More competent judges, more effective case management, clearer systems of accountability, greater transparency and improved human and financial resources benefit virtually all legal systems, and the Chinese court system is no exception.

China has strived to improve its judicial system with Chinese characteristics through the reform, which has achieved some positive results. But it is still an evolving process that constantly brings forth new ideas and developments. With the country experiencing an important period of transition towards greater market economy and personal freedom, only continuous judicial reform can enable the courts to satisfy the increasing needs of the public. It remains a long and arduous task.

Fang Qi, Fangda Partners, Beijing

More from CLP:

Protecting your brand under the new rules – IP Focus

Enforcing your rights – IP Focus

Decoding the top IP cases

Supreme People's Court, Annual Report on Intellectual Property Cases (2013) (Abstract)

Seeking transparency on interim injunctions

Opinion: China's judiciary increases IP savvy