LLM Journal

THE INFLUENCE OF THE U.S. REGULATION OF M&A LEADING TOWARDS MONOPOLY ON THE LEGISLATION OF ANTI-MONOPOLY LAW IN CHINA

2009-10-08T08:51:00.001-07:00

by Xiaochen Hu

I. INTRODUCTION

The United States, the first country to enact an anti-monopoly law with the Sherman Act in 1890, has a long established set of regulations on mergers and acquisitions (M&A) leading towards monopoly under Section 1 and 2 of the Sherman Act, Section 7 of the Clayton Act, Section 5 (a) of the Federal Trade Commission Act, the merger guidelines, and Supreme Court cases. During its development for over a century, the regulation underwent changes to meet domestic and international economic developments. Through these regulations (the U.S. regulation), a series of principles and tests have been set up to control monopoly issues with respect to M&A, all of which have far-reaching influence on the legislation of anti-monopoly laws in other countries, including China.

After Deng Xiaoping’s reform and opening door policy was adopted by the Chinese government in 1978, China has been experiencing a dramatic growth in economic development, which has attracted foreign firms on the huge potential Chinese market. Many of them, through M&A, control China’s domestic leading firms to obtain control over the competition in the relevant market. To prevent M&A that lead towards monopoly, Chinese legislators began to draft an anti-monopoly law in the early 1980s.[1] However, for many reasons, the anti-monopoly law has not yet been enacted. After its entry into the WTO, China was required to open its domestic market to the world. Thus, anti-monopoly regulation on M&A leading towards monopoly became a big and sudden concern. The Chinese government is aware of the urgent necessity to legislate on this issue.

The Provisional Regulation on the M&A of Domestic Enterprise by Foreign Investors (the Provisional Regulation),[2] which was enacted in 2003, provided China with its first anti-monopoly regulation concerning M&A leading towards monopoly. This law, to some extent, influenced by the U.S. regulation on M&A leading towards monopoly, will definitely impact the legislation of future anti-monopoly laws in China.

This paper will discuss the influence of the U.S. regulation of M&A leading towards monopoly on the legislation of anti-monopoly laws in China. Part II will provide a background on the regulation of M&A leading towards monopoly in the U.S. and the legislation of anti-monopoly laws in China. Part III will describe the main features of the regulation of M&A leading towards monopoly in the U.S. Part IV will discuss the first provision concerning M&A leading towards monopoly in China to show the influence of U.S. regulations on the legislation of anti-monopoly laws in China. Part V will propose that China, in legislating its own anti-monopoly law should adopt certain concepts and principles from the U.S. regulation on how to define M&A leading towards monopoly, what is market share, how to define the relevant market and market concentration, and how to enforce the law effectively. Part VI will give the conclusion.

II. BACKGROUND

A. The Historical Development Of The Regulation Of M&A Leading Towards Monopoly In The U.S.

After the American Civil War, the unified domestic market promoted economic development. At the end of the 19^th century, the United States experienced the first climax of M&A in its history. A number of small and medium sized enterprises, through M&A, became giant enterprises. Gradually, few enterprises in its relevant industry controlled most of the market share and obtained monopoly power. Without any legal restraint, these enterprises abused their monopoly powers to dominate the market, prohibit competition, and restrict free trade. Under this circumstance, the Federal Trade Commission (FTC) enacted the first anti-monopoly law, the Sherman Act in 1890, which laid the foundation for the regulation of M&A leading towards monopoly in the U.S. to “safeguard the free-enterprise system.”[3]

In 1914, the Clayton Act took effect. Section 7 of the act is the principal anti-monopoly law applicable to M&A.[4] This Act focuses not only on the present effect of M&A on competition, but also on the “probable effect” which may be “substantially to lessen competition, or to tend to create a monopoly.”[5] Thus, some M&A, which cannot be originally challenged by the Sherman Act, began to be under the control of the Clayton Act, which enlarged the scope of M&A regulation. The Clayton Act did not cover asset acquisition until the 1950 amendment.[6] The Clayton Act also required pre-merger notification, known as the Hart-Scott-Rodino (“HSR”) Antitrust Improvement Act of 1976 which became a part of Section 7 of the Clayton Act.[7] Section 7 of the Clayton Act also includes exemptions to the pre-merger notification.[8] Later in 1980, the parties to an M&A under this Act also came to include individuals and partnerships, not merely corporations.[9]

Section 5 of the Federal Trade Commission Act is enforced only by the Federal Trade Commission.[10] This Act challenged M&A under Section 5 where one of the parties was not a corporation.[11] Thus, it was used as a supplement to Section 7 of the Clayton Act before 1980.

Since 1960, the first merger guideline was issued and became a part of the regulation. Though the guidelines are not binding, [12] the principles and tests with respect to M&A play an important role in the development of regulations.

The 1960 and 1968 guidelines identified market share and market concentration as the primary indicators of the lawfulness of all types of mergers.[13] The anti-monopoly policy has dramatically changed since the 1980s. The market share and the market concentration are no longer the key factors to determine whether M&A leads towards monopoly, however, other factors such as barriers to entry and the efficiencies arising from the merger are also considered.[14]

In 1982, the Department of Justice issued substantially revised merger guidelines which provided a very different framework in which to evaluate the competitive effects of mergers.[15] Before 1982, mergers were divided into three categories: horizontal, vertical, and conglomerate mergers.[16] After the issuance of the 1982 merger guidelines, mergers were divided into two categories: horizontal and non-horizontal mergers.[17] This structure change indicates that the regulation changed its focus mainly to horizontal mergers instead of non-horizontal mergers. The 1982 guidelines also employed the Herfindahl-Hirschman Index (“HHI”) to measure market concentration.[18]

The 1984 merger guidelines made some refinements to its 1982 guidelines, which provided much more flexible measures to analyze mergers in light of their particular factual circumstances. It also expanded the scope of the market. The geographic market may include both domestic and international markets.[19] This change manifested that the U.S. government loosened its control over some M&A if it benefits the party in international competition.

A big step was taken on the merger guidelines of 1992. The first guidelines, issued by the Department of Justice (DOJ) and the FTC, are called the 1992 Horizontal Merger Guidelines.[20] They created a five-step analysis to determine whether a horizontal merger would create, enhance, or facilitate the exercise of market power.[21] Thus, the attitude of the U.S. government towards M&A leading to monopoly changed from overall interference to selective interference.

Nowadays, the anti-monopoly policy in the U.S. is much more flexible and selective. With the global economy, the U.S. regulation of M&A leading towards monopoly has moved towards an international perspective. Under this circumstance, there are fewer and fewer M&A challenges by the FTC and DOJ.

B. Background On Anti-monopoly Laws Legislation In China.

Before the reform and opening up policy was adopted in China, China’s economic system had been running under the highly concentrated planned economy since the founding of the People’s Republic of China. All the industries, except agriculture, were state-owned.[22] Private investments were prohibited in these industries.[23] Therefore, during 1949 to 1978, the economy itself was as a matter of fact a state-monopolized economy. No real competition existed. From this point of view, it is not hard to understand why there was no anti-monopoly law in China during that period.

After the new policy was adopted, the Chinese economic system moved from the planned economy to the socialist market economy, which requires breaking up state monopolies and introducing competition and setting up a unified, open, competitive, and orderly modern market system.[24] Since the early 1980’s, the economic policy encouraged private investors to enter into certain industries, such as textile, food and electronics to introduce competition between private firms and state owned enterprises (SOEs).[25] The SOEs, after the reform, are run by the corporation itself instead of the government.[26]

The economic reform led the government to consider the necessity of regulating competition. Under this circumstance, the legislation of anti-monopoly law was initiated in the 1980’s. By 1993, the government has already enacted laws and regulations with respect to anti-monopoly laws. However, there is no unified anti-monopoly law in China. They are scattered in various laws and regulations.[27]

M&A leading towards monopoly did not gain much attention until the 1990’s.[28] There are several reasons for this. First, in order to develop the market economy in China, the Chinese government encouraged M&A to enhance the economy of scale. Second, it is hard to get a monopoly power through M&A in a huge domestic market like China with relatively small firms. Thus, at the beginning stage of drafting the anti-monopoly law in China, M&A was not a big issue.

After multinational firms entered the Chinese domestic market, through competition, a lot of them began to monopolize the competition and some of them used M&A as an effective means to engage in direct investment in China. Though the anti-monopoly law is still in the process of drafting, some other regulations were enacted to regulate this issue.

The Ministry of Commerce began to draft the anti-monopoly law as early as 1994.[29] The draft has been revised many times. The key issues in the draft with respect to M&A include the form of abusing market dominant position, the standard and procedure of merger control, and the extraterritoriality of the anti-monopoly law.[30]

Currently, the only regulation on M&A leading towards monopoly in China is the Provisional Regulation on the M&A of Domestic Enterprise by Foreign Investors which was enacted on March 7, 2003.[31] The regulation only applies to transactions involving foreign investment. The proposed anti-monopoly law is in the drafting process and is expected to pass at the end of 2005.

III. THE FEATURES OF THE REGULATION OF M&A LEADING TOWARDS MONOPOLY IN THE U.S.

A. The U.S. Regulation Was Changed To Be Consistent With The Goal Of Economic Efficiency And Consumer Welfare.

Law should be stable so that it can be predictable, but should not be too rigid. During over a century of development in the U.S. anti-monopoly regulations, the basic foundations, such as the Sherman Act and Clayton Act, remained stable. However, the Merger Guidelines and the Supreme Court Cases reflect some substantial changes in the U.S. regulation in the past three decades.

Since the Sherman Act, it was particularly receptive to the FTC and DOJ that M&A in markets with certain structural characteristics would lead to anticompetitive effects.[32] Antitrust policy should favor the small business interests in maintaining their entrepreneurial freedom instead of consumer interests in the efficient organization of vast new industries.[33] Thus, the policy reason underneath the U.S. regulation determined that efficiency could not be treated as a sufficient defense to M&A at that time.

It was not until the United States Supreme Court decided the Brown Shoes Case[34] that the policy of M&A turned to accept “efficiency” as an affirmative defense to M&A with certain conditions. In the mid-1970, the federal courts and enforcement agencies, accepting many of the Chicago School’s[35] criticisms of the activist antitrust of the Warren Court[36] era, began to reshape antitrust law to make its standards more consistent with the goal of economic efficiency.[37] The 1968 and 1982 Merger Guidelines provides that efficiency claims would be considered only in “extraordinary cases” and the DOJ explicitly showed its concern on how to determine the magnitude of efficiencies.[38] The 1984 Merger Guidelines stated that “if the parties to the merger establish by clear and convincing evidence that a merger will achieve net efficiencies, the department will consider those efficiencies in deciding whether to challenge the merger … the department will reject claims of efficiencies if equivalent or comparable savings can reasonably be achieved by parties through other means.”[39] M&A lead to market concentration, which result in both enhancing economic scales and lessening competitions. M&A enable firms with capital, management expertise, and marketing savvy to expand internationally without having to build duplicative infrastructures.[40] The 1997 Amendment to the 1992 Merger Guidelines even explicitly states that “the Agency will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market.”[41]

In most cases, the purpose of the M&A is to enhance efficiencies; therefore, less M&A were challenged by the U.S. regulations because of this efficiency defense. In addition, with the international trade development, the FTC and DOJ are inclining to accept this defense to enhance the competitive ability of U.S. firms in the international market. The policy reasons behind the merger guidelines and the Supreme Court case show the U.S. regulation is stable but also has flexibility.

B. The U.S. Regulation Provides Well-defined Concepts Of Key Terms Such As Market, Market Share, And Market Concentration.

In the U.S., there are a lot of factors to determine whether an M&A violates the regulation. Market share and market concentration are the most important factors.

Before M&A is challenged under the U.S. regulation, the Court and the enforcement agencies have to define the relevant market. In the Merger Guidelines, the relevant market is composed of the product market and the geographic market. The product market is ''determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.''[42] Geographic markets are frequently national, occasionally regional or local, and increasingly worldwide.[43] The Supreme Court has held that the geographic market must ''both 'correspond to the commercial realities' of the industry and be economically significant.''[44] In addition, the relevant geographic market should reflect the ''area of effective competition ... in which the seller operates, and to which the purchaser can practicably turn for supplies.''[45] The relevant geographic market ''must be broad enough that buyers would be unable to switch to alternative sellers in sufficient numbers to defeat an exercise of market power by firms in the area.''[46]

After the relevant market is determined, the next step is to consider the market concentration. Since the 1982 Merger Guidelines, the FTC and DOJ adopted HHI, which is computed by squaring and then adding together the market shares of all industry participants, as a measure of concentration.[47] Whether the merger will increase the possibility of monopoly is determined by examining both the pre-merger and post-merger HHIs. The Guideline divided markets into three groups by using post-merger HHI: (1) unconcentrated market (HHI less than 1000); (2) moderately unconcentrated market (HHI between 1000 and 1800); and (3) highly concentrated market (HHI greater than 1800).[48] The DOJ examines not only the post-merger HHI, but also the HHI change resulting from the merger.[49] When a merger increases the HHI by more than 100, and the post-merger HHI is between 1000 and 1800, the DOJ is inclined not to challenge it.[50] However, when a merger increases the HHI by more than 50, and the post-merger HHI exceeds 1800, the DOJ will challenge it anyway.[51]

The U.S. regulation provides concrete definitions to the key terms through its merger guidelines and Supreme Court cases, which make the analysis of the M&A leading towards monopoly workable in practice.

C. Pre-merger Notification Effectively Reduces The Possibility Of The M&A Leading Towards Monopoly.

HSR, which is a part of the Clayton Act, requires M&A parties to give notification to the FTC and DOJ before a merger if the transaction meets certain thresholds. The pre-merger notification mechanism affected a sea-change in merger enforcement activity, away from litigation seeking “divestiture” relief after a merger had been completed and toward much more of a “regulatory” regime of advance review and negotiation over competitive concerns before a merger is allowed to proceed.[52]

Generally, HSR provides three criteria for the thresholds: (1) the commerce test which means if the acquiring or acquired person is engaged in commerce or in any activity affecting commerce;[53] (2) the size of person test which means if the annual net sales of one person participating in the transaction are $10 million or more and those of the other person, $100 million or more for transactions valued between $200 million and $50 million;[54] (3) the size of transaction test which means the acquiring person will hold voting securities or assets of the acquired person valued in excess of $50 million as a result of the acquisition.[55]

There is a 30-day mandatory waiting period for the pre-merger notification after the parties file all the required documents, which means the M&A will not take into effect until this period passes by. Usually, FTC and DOJ make their decisions in 30 days.[56] If no decision is given during this period, then the M&A will take into effect. However, the waiting period can be extended for another 30 days if the government issues a “second request” for further information.[57]

There is also implementing regulations to facilitate the pre-merger notification process. Substantial fines can be imposed on those who fail to file notification or provide accurate information. Generally, failure to comply with the requirements can result in a civil penalty of up to $10,000 per day.[58] This enforcement provision facilitates the pre-merger notification process by urging the M&A parties file the motion promptly.

HSR also provides exemptions from pre-merger notification, listing eleven exemptions[59] in detail which “are not likely to violate the antitrust laws,”[60] such as acquisitions in the ordinary course of business, acquisitions of voting securities held solely for investment purposes, and institutional investment; and which “antitrust problems are not likely to arise,”[61] such as intraperson transaction, acquisitions by underwriters,[62] creditors and insurers,[63] and transfers by gift, will, or trust.[64] Additionally, HSR gives the FTC and the Assistant Attorney General the power to exempt, from the requirements of the HSR, transactions that “are not likely to violate the antitrust laws.”[65]

E. The Enforcement Mechanism Ensures That Violations Of The U.S. Regulation Are Challenged And Punished.

The Supreme Court of United States and agencies like the FTC and DOJ are the authorities to punish M&A that violates the U.S. regulation. The FTC and DOJ also have the rights to challenge the M&A leading towards monopoly. In the pre-merger notification period, failure to file the documents or provide accurate information can result in a civil penalty of up to $10,000 per day as mentioned above.

One of the significant features of the U.S. regulation in the enforcement mechanism is that it allows the private party to bring an action against M&A leading to monopoly under the Clayton Act if “the private party has been or is likely to be injured as a result of anticompetitive effects.”[66] Remedies available to a private party include equitable relief such as preliminary relief[67] and permanent relief,[68] divestiture,[69] and treble damage recovery.[70] Usually, Congress authorized state attorney generals to file federal antitrust suits on behalf of all citizens within their states.[71] Congress also sharply raised the penalties for criminal violations by, for example, raising the maximum prison sentence for convicted individuals from one to three years per violation.[72]

F. The Extraterritorial Principle Exists In The U.S. Regulation.

The scope of the market has a significant influence in determining the legality of an M&A. Sometimes, whether an M&A violates the U.S. regulation utterly depends on the definition of the relevant market. For a long period, the geographic market in M&A only means the local, state or national market. It was not until the 1984 Merger Guidelines that the extraterritorial principle was recognized. This Guideline points out that when the FTC and DOJ scrutinize an M&A, they should also take foreign firms into account.[73] Thus, the geographic market definition was expanded to the international level.

In order to protect the U.S. consumers’ welfare, the U.S. regulation employed the extraterritorial principle to expand its effect across its border.[74] The U.S. applies its antitrust laws to foreign business combinations based on the “effects test,” established initially in United States v. Aluminum Co. of American.[75] In that case, Judge Learned Hand ruled that the U.S. had jurisdiction and could apply its antitrust laws where wholly foreign conduct had an intended effect in the U.S.[76]

In 1991, the FTC and the European Community’s competition authority jointly announced their execution of a U.S.-E.C. Antitrust Enforcement Cooperation Agreement, inaugurating a liaison that became a significant feature of antirust enforcement activity on both continents over the course of this decade.[77]

In the U.S., it is settled law that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders that the state reprehends; and these liabilities other states will ordinarily recognize.

IV. THE INFLUENCE OF THE U.S. REGULATION ON THE LEGISLATION OF M&A LEADING TO MONOPOLY IN CHINA.

There is no unified anti-monopoly law in China up to now, but the Provisional Regulation in China firstly addresses the control of M&A leading towards monopoly in detail, which reflect the influence of the U.S. regulation.

A. The Purpose Of Enacting The Provisional Regulation Is To Promote Foreign Investment, Regulate The M&A Of Foreign Investors, Ensure Fair Competition, And Protect The National Economic Security.[78]

After a year of investigation, SAIC’s fair trade bureau came up with a report entitled “The Competition-restricting Behavior of Multinational Companies in China and Countermeasures,” which warned that foreign business giants were building monopolies in China. According to the report, some multinationals carry out sweeping M&A to absorb their major competitors to ensure market dominance.[79]

The report used Eastman Kodak as an example. Kodak formerly held more than 50% of China’s film market and is expected to further consolidate its market dominance after taking another 20% from its only Chinese rival Lucky Film Corporation.[80]

M&A that help multinationals consolidate monopolistic positions met with few legal limits in China.[81] While continuing to welcome their investments, China is learning about the potentially negative effects of multinational giants.[82] To control the M&A leading towards monopoly and to protect the effective market competition, the provisional regulation especially aims at how to regulate the M&A of foreign investors.

B. The Main Articles Concerning M&A Leading To Monopoly Are Influenced By The U.S. Regulation.

1. The Provisional Regulation Establishes Similar Extraterritorial Principle as the U.S. Regulation.

The Provisional Regulation divides the M&A into two groups: one is onshore M&A, and the other is offshore M&A. Onshore M&A refers to any M&A of a domestic enterprises by foreign investors in China, while offshore M&A means any M&A of domestic enterprises by foreign investors outside China. Thus, the Provisional Regulation extends its legal effect across the board. The rationale behind this regulation is to protect the domestic market from excessive concentration, which may jeopardize fair competition and consumer interest. With the development of the global economy, more and more countries begin to define the term “market” much boarder than before. The first M&A regulation shows that China is also aware of that.

2. Certain Key Concepts, such as “Market Share,” “Related Industries,” “Consumer Interests,” and “Excessive Concentration,” are Adopted in the Provisional Regulation.

The Provisional Regulation uses “market share” as a term to define the market concentration. If the China market share of one of the M&A parties to the transaction exceeds 20% during the current year, or the M&A will result in the China market share of a party reaching 25%, then the M&A of a Chinese domestic company should conform to the provision.[83] It seems that “market share” here means only the national level market share. However, there is no further provision to clarify this definition. The literal meaning of “the China market share” in the provision is only restricted the geographic market, but not product market. Since the domestic market in China is huge, the general “China market share” definition is too vague to be workable in practice. Even if the definition really means only the national market, then M&A will be hard to challenge by MOC and SAIC because of the huge national market.

The Provisional Regulation also mentioned related industries, which is similar to the “product market” in the U.S. regulation. According to the Provisional Regulation, if a foreign investor has merged with or acquired more than 10 domestic enterprises in related industries within one year, the M&A should also conform to the Regulation.[84] However, the Provisional Regulation itself does not define what “related industries” mean.

The concepts of “excessive concentration” and “consumer interests” are adopted in the Provisional Regulation in its Article 20 and 21, which authorizes the MOC and SAIC to scrutinize whether the proposed M&A will cause excessive concentration, hinder market competition, or harm consumer interests.[85] Despite the abstract concepts, there are no detailed definitions for these terms. The concept of “excessive concentration,” especially, seems to be defined according to the authorities’ discretion, which is not predictable for M&A parties.

Though the Provisional Regulation adopts some key concepts of M&A leading towards monopoly from the U.S. regulation, the lack of concrete definitions, to some extent, hinder the implementation of the Provisional Regulation.

3. The “Pre-merger Notification” Principle was also Adopted in the Provisional Regulation which Authorizes the Approval and Registration Authorities to MOC and SAIC.

The Provisional Regulation provides the authority over M&A leading towards monopoly in China to the Ministry of Commerce (MOC) and the State Administration of Industry and Commerce (SAIC).[86] The two agencies are responsible for the approval and registration of foreign investments. Both the onshore M&A and offshore M&A require pre-merger notification; however, they are not exactly the same.

In onshore M&A, the foreign investors should notify MOC and SAIC if certain requirements are met under the Provisional Regulation.[87] After the MOC and SAIC receive the pre-merger notification, they have 90 days to decide whether to approve the M&A. However, offshore M&A only requires the foreign investors to give pre-merger notification to the MOC and SAIC without clarifying the waiting period as in an onshore M&A.

In the Provisional Regulation, the standards to determine whether the onshore and offshore M&A will lead towards monopoly are the same. Both Article 20 and 21 provide that after receiving the pre-merger notification, MOC and SAIC will examine whether there is any possibility that the proposed transaction will cause excessive concentration in the domestic market, impair domestic competition or harm domestic consumers, and make a determination whether to approve the transactions.[88]

Where notification is required but is not filed, the application for M&A will not be approved by the MOC. Without approval, the new business cannot obtain a business license, comparable to the Certificate of Incorporation in the U.S., from the SAIC. No Chinese company will be able to complete its establishment or carry on even routine business without a Business License. Thus, the whole transaction will not take effect under Chinese law. But no further enforcement provision is provided by the Provisional Regulation.

4. The Provisional Regulation Provides an Exemption Clause For M&A Leading Towards Monopoly.

Like the U.S. regulation, the Provisional Regulation also employs an exemption clause for M&A which may lead towards monopoly. Article 22 of the Provisional Regulation lists four circumstances where a party to an M&A can apply to the MOC and SAIC for an exemption from antitrust review. These circumstances are if the transaction (1) can improve the conditions for fair market competition; (2) will restructure loss-making enterprises and ensure employment; (3) will introduce advanced technologies and management talent, and increase the international competitiveness of enterprise; or (4) can improve the environment.[89] These four exemptions are similar to the efficient defense in the U.S. regulation.

C. The Regulation still Leaves Some Loopholes.

From the above, it is not hard to find that the Provisional Regulation was influenced by the U.S. regulation. However, some of its provisions are still too vague and leave some loopholes. These provisions only borrowed the structure from the U.S. regulation, not the content. For instance, the regulation lacks procedural guidelines as to when a party should file a pre-merger notification and what kind of information should be included in the notification. Though it mentioned the market share, related industries, and excessive concentration, it does not clarify these concepts in detail, and the Provisional Regulation also lacks implementation rules.

V. THE PROPOSALS TO THE LEGISLATION OF M&A LEADING TOWARDS MONOPOLY IN CHINA ANTI-MONOPOLY LAW.

The proposal section will be divided into two parts: the first part will propose that the legislation of M&A leading towards monopoly in China’s anti-monopoly law should adopt certain provisions from the U.S. regulation; however, because of differences in China and the U.S. legal systems, cultural backgrounds, and experiences in M&A, the second part will propose that while transplanting[90] some important terms from the U.S., China also needs its own ways to effectively regulate this issue.

1. The Legislation of China Anti-monopoly Law can Transplant[91] some Provisions From the U.S. Regulation.

(a) The anti-monopoly law in China should clarify the definitions of key terms.

The Provisional Regulation manifests its reference from the U.S. regulation. Even though, as mentioned in Part IV, the reference is very limited by adopting some concepts without detailed definitions. China has been aware of the importance of anti-monopoly laws since the 1980’s. However, the practical experience on how to control M&A leading towards monopoly is quite limited. Therefore, it is worth referring to the U.S. regulation to define certain important terms.

The U.S. regulation divides the geographic market into four levels: local, state, national, and international. This classification is extremely suitable to China. China is a country with a large geographic market. If the anti-monopoly law only challenges M&A on the national level under the Provisional Regulation, then it will boost local or provincial protectionism. Also, it is absurd and illogical that the monopoly is prohibited nationwide, but prevails monopoly in the local and provincial levels. The Provisional Regulation states that the offshore M&A, which has certain impact on China domestic market, is under the control of it. Hence, the international market has already been recognized as one type of the geographic markets. But the Provisional Regulation does not address the local and provincial market at all. To better the definition of the geographic market, in the legislation of future anti-monopoly in China, the U.S. geographic market classification should be covered.

The concept of “excessive concentration” in the Provisional Regulation is too vague to be applied in practice. HHI in the U.S. regulation provides a good explanation on how to test the market concentration. By using post-merger HHI, the authorities may easily identify the “unconcentrated market,” “the moderately unconcentrated market,” and “highly concentrate market.” In addition, the HHI change between pre-merger and post-merger also provides important information to the authorities to decide whether the change will increase the possibility of monopoly. The HHI test has already been tested as a workable and efficient measure in the U.S. Thus, in the legislation of China anti-monopoly law, the HHI test can be considered to measure the market concentration.

(b) Foreign firms and domestic firms should be treated equally.

The Provisional Regulation only provides articles on how to control M&A leading toward monopoly by foreign investors. Since this is the first regulation which concerns the M&A leading towards monopoly issue in China, it implies that there is no law to regulate M&A leading towards monopoly by domestic firms. Thus, if a domestic firm merges or acquires domestic firms, which may tend to create a monopoly, it is more likely that it will not be challenged at all. The policy reason may explain why foreign investors and domestic investors are treated differently under the current circumstance.

As former state owned firms enter the socialist market economic system after Deng’s reform and opening door policy, they have to be used to the extremely competitive market. Some of them survived through competition. However, due to the huge domestic market, it is still hard for these firms to get monopoly power by M&A on the national level. Some of them do get monopoly power on the local and provincial levels, but serious local and provincial protectionism serves as a big umbrella to these monopolies without any prohibitions. Meanwhile, even if there is an M&A leading towards monopoly in the national level, it is usually entirely state owned, and its M&A is encouraged by the government to enhance its international competitiveness.

Generally, the policy behind the Provisional Regulation is that it is much easier for foreign investors through M&A to get monopoly power than domestic investors do because (i) in most cases, the foreign investors are the multinational firms that do business in the international, or at least multinational markets; (ii) they have sufficient capitals to directly invest in the Chinese domestic firms; (iii) they have much more experience in how to do M&A efficiently and successfully as compared to domestic investors in China. In addition, the lack of anti-monopoly law in China provides a good opportunity for those foreign investors who want to occupy the huge domestic Chinese market immediately without being worried that the M&A will be challenged under the Chinese law. In the official report as mentioned in Part IV, foreign business giants has already carried out sweeping M&A to absorb their major competitors and to ensure market power. Therefore, the policy attempts to balance the regulation of foreign investors while still encouraging foreign investment in China. Thus, the Provisional Regulation was enacted to focus on foreign investors only.

However, in the U.S. regulation, there is no specific regulation or even article showing that it has any different regulations for domestic or foreign investors. Thus, the U.S. regulation treats domestic and foreign firms equally, which should be adopted by the Chinese legislators.

Since China is a member of the WTO, it should fulfill its WTO obligations. The WTO requires that the principles of national treatment and transparency are to apply to investment measures put in place by member countries.[92] However, the Provisional Regulation seems to discriminate against foreign firms and overemphasize the protection of its domestic industries. Therefore, the Provisional Regulation violates China’s WTO obligations by not giving national treatment to foreign investors who are from WTO member countries.

The Chinese government may argue that because the socialist market economic system had been established for only over two decades, many domestic firms are still too weak to get monopoly power through M&A. Even if there are certain domestic firms through M&A that get monopoly power, the importance of enhancing domestic firms’ competitive ability in the international market preempts that of challenging their legality of getting monopoly power in the domestic market.

However, China has been experiencing a stable and fast economic development in recent years. Some of the state-owned firms through M&A do have monopoly power, thus these firms may abuse its monopoly power to lessen competition. Some private firms grow up very quickly, which may also get monopoly power through M&A. Thus, the argument that domestic firms are too weak to get monopoly power does not hold water. Second, the M&A can be a way to enhance the international competitive ability of the domestic firms. However, it should not be an excuse to exclude domestic firms from the legislation of anti-monopoly law. When China legislates its own anti-monopoly law, enhancing the international competitive ability of domestic firms can be used as an efficient defense just like the U.S. regulation to protect domestic firms because of national interest concerns. Third, national treatment is one of the WTO principles so that China should perform its obligation by treating domestic and foreign investors the same. To fulfill the WTO obligation is also important to establish China’s creditability in the global economy, which may attract more foreign investors to invest in China. Fourth, even though the domestic investors’ M&A transaction is not a big concern right now, it is necessary to regulate the M&A by domestic investors as well in the future anti-monopoly law to make it predictable. With the development of China’s economy, it is more likely than not that the domestic investors may abuse its market power by M&A. Therefore, it is necessary to treat foreign firms the same as domestic firms in the future anti-monopoly law by canceling this classification.

2. The Proposal to the Legislation of China Anti-monopoly Law which Matches China’s Own Characteristics.

In the past decade, a lot of developing countries, such as Peru[93], Brazil[94], and Mexico[95], began to transplant[96] wholesale from either the U.S. or European models of antitrust law, but they leave much to be desired.[97] While the developing country legislating its own anti-monopoly law, it can and should transplant some provisions, which are suitable to its own economic, legal, and political environment. Meanwhile, because of differences in the U.S. and China legal systems (common law system v. civil law system), cultural backgrounds (the western cultural v. the eastern cultural), the M&A experiences (over one century development v. at most ten-year practice), and economy power (developed country v. developing country), the wholesale transplant cannot work out the optimal regime of anti-monopoly law in China from the lessons of other developing countries. Thus, it is proposed that while transplanting some important principles and tests from the U.S., China also needs its own effective ways to regulate M&A leading towards monopoly in its anti-monopoly law.

(a) Enforcement rule should be effectively provided in the anti-monopoly law.

In the Provisional Regulation, there is no enforcement rule with regard to non-compliance with the pre-merger notification principle. Without the enforcement power, some M&A transactions that violate the Provisional Regulation by leading towards monopoly can use this loophole to continue its post-merger business because there is no punishment even if this violation was found later on. Therefore, the enforcement rule is necessary in the anti-monopoly law legislation.

In the U.S. regulation, a private party can bring a private action to enforce the antitrust law. However, China is a country without too much experience in M&A. It is extremely hard and almost impossible for a private party in China to bring a suit against a M&A transaction, which may violate the anti-monopoly law.

In the Provisional Regulation, article 19 provides a sub-article, which allows a domestic Chinese competitor, relevant governmental agencies, or industry associations to ask for the foreign investor to file a notification to MOC or SAIC even if the general requirements for the pre-merger notification are not met. If MOC or SAIC believes that a very substantial market share is at stake, or there are factors that seriously affect market competition or the national well-being and the economic security of the country, the MOC and SAIC may use its discretion to decide whether the foreign investors should file the notification or not. This provision, to some extent, offers a third party to supervise the M&A which may lead towards monopoly and authorizes the decision-making power to the MOC and SAIC, which is more suitable to China’s current situation.

Currently, the Provisional Regulation does not authorize the MOC and SAIC the right to file a lawsuit against M&A parties who violates the principle, which seriously hinder the enforcement of the principle. If the authorities cannot enforce the rules effectively, then the so-called authority is powerless. The future anti-monopoly law in China should adopt the provision of article 19 to give the third party the right to supervise certain M&As. Meanwhile, the law should give the authorities the right to file a lawsuit against any M&A violating the anti-monopoly law because the authorities are the ones who investigate the legality of the M&A and decides whether or not to approve the M&A. If they cannot sue the M&A parties for violating the anti-monopoly law, the law will not be enforced effectively.

In the future anti-monopoly law, the non-compliance with the pre-merger notification principle should be fined at a certain amount. In the U.S. regulation, failure to comply with the principle can result in a civil penalty of up to $10,000 per day, which seems to be harsh and rigid. The China anti-monopoly law may give the M&A parties a reasonable amount of time, for example, ten days, to prepare the required document to file a pre-merger notification. If in this reasonable time the M&A parties do not file the pre-merger notification, the fines should be imposed on them. Also, the fines may be increased according to the length of the delay to encourage the parties to file the notification promptly. If the parties still refuse to comply with the principle, then the future anti-monopoly law should authorize the MOC and SAIC to file anti-monopoly lawsuits against the violated parties.

(b) More procedure rules should be enacted in the pre-merger notification principle.

In the Provisional Regulation, it does not specify when should file a pre-merger notification if the transaction meets one of the requirements for an onshore M&A under Article 19. However, it does specify in Article 21 that the offshore M&A parties should notify MOC and SAIC of their M&A plan before the plan is announced in public or at the same time that it is submitted to the authorities in the country where the M&A transaction is done. The U.S. regulation also does not specify when should file a pre-merger notification to the FTC and DOJ, but it imposes a $10,000 fine per day to urge the parties to file the notification promptly. As mentioned in the enforcement regulation of part (a), the future anti-monopoly law should consider providing a reasonable time for the M&A parties to prepare required documents in order to file the notification. The reasonable time can be decided according to (1) the complication of the transaction; (2) the type of the transaction; or (3) the amount of the transaction. It should also set up a bottom line for the reasonable time to prevent some M&A parties from using it as a loophole.

Article 20 of the Provisional Regulation provides 90 days for the MOC and SAIC to decide whether or not to approve the onshore M&A after they receive all required documents. Unlike the U.S. regulation which will offer another 30 days for the second request if it is necessary, there is no second request in the Provisional Regulation. However, a total of 90 days is still longer than the U.S. regulation which offers a total of 60 days to make a decision. Therefore, the 90 days waiting period provision should be kept in the legislation of future anti-monopoly law as to give enough time to the MOC and SAIC to make their decision. But the Provisional Regulation does not state how long the offshore M&A can get approval. Thus, it is hard for the foreign investors in the offshore M&A to predict how long the approval process will take. The anti-monopoly law should solve this procedure issue by either referring to the waiting period provided in the onshore M&A or enacting a different waiting period for an offshore M&A if necessary.

In the onshore M&A notification review, the Provisional Regulation states that the MOC and SAIC may jointly or separately convene the relevant departments, institutions, firms, and other relevant parties for a public hearing within 90 days after receiving the all required documents to decide whether or not to approve the transaction. But there are no other provisions to define these relevant parties, or to clarify under what conditions MOC and SAIC may convene these parties. There is also no provision to regulate the hearing procedure. Therefore, the Provisional Regulation leaves too much power to these two authorities. With respect to the lack of M&A practices in China, it is not wise to authorize too much power to the authorities to determine the procedural issues. The future anti-monopoly law should provide more detail on these procedural loopholes.

VI. CONCLUSION

The U.S. regulation establishes a well-structured legal system to control the M&A leading towards monopoly for over a century of development. It keeps the stability of its basic foundation, such as the Sherman Act and the Clayton Act, while updating some out-dated provisions through amendments, the Merger Guidelines, and Supreme Court cases. The principles and concepts such as the pre-merger notification principle, the extraterritorial principle, the enforcement mechanism, and well-defined concepts have significant influence on the Provisional Regulation in China. Some of these principles and concepts have been adopted in the first Provisional Regulation. However, it still needs lots of improvements[98] in future M&A leading towards monopoly legislation.

The influence of the U.S. regulation on the legislation of China M&A leading towards monopoly is considerable. However, since the U.S. and China are different with respect to the legal system, the cultural background, the M&A experience, and economic power, the wholesale transplant is not workable. Therefore, China should not only learn from the precious experience from the U.S. regulation, but also need to find out its own ways to effectively legislate M&A leading towards monopoly in its anti-monopoly law. With China’s entry into the WTO and with the fast development of its economy, M&A leading towards monopoly will definitely be a big issue in the legislation of China anti-monopoly law. How to effectively regulate this “Economic Constitutional law” has confused Chinese legislators for over two decades. This paper proposes that certain improvements can be made in the legislation of future anti-monopoly laws in China according to the U.S. regulation from comparative perspective and China’s current situation. The proposals deserve attention from both Chinese legislators and business investors in China.

[1] Yuanyuan, <反垄断法>缘何十年难产 [Why the anti-monopoly law is slow in coming in the decade?], http://www.zaobao.com/special/newspapers/2005/01/lwothers270105e.html (Xiaochen Hu trans., Jan 24, 2005).

[2]外国投资者并购境内企业暂行规定 [The Provisional Regulation on the M&A of Domestic Enterprise by Foreign Investors] (Landon R. Prieur & Pengfei Su, trans., 2003) (CHN); See also Landon R. Prieur & Pengfei Su, The International Comparative Legal Guide to Merger Control 2005, http://www.coudert.com/publications/articles/041125_3_MergerControlChina_iclgmc.pdf (accessed Feb. 21, 2005).

[3] Robert A. Skitol, The Shifting Sands of Antitrust Policy: Where It has been, Where It is now, Where it will be in Its Third Century, 9 Cornell J. L. & Pub. Pol’y 239, 240 (1999).

[4] Julian O. von Kalinowski, Peter Sullivan & Maureen McGuirl, Antitrust laws and Trade Regulation, § 29.01 (2d ed., Matthew Bender & Co. 2005).

[5] 15 U.S.C. § 18 (2005).

[6] Id.

[7] 15 U.S.C. § 18a (2005) (This subsection is about the notification and waiting period which is known as “HSR”).

[8] Kalinowski, Sullivan & McGuirl, Supra n. 4 at § 34.05.

[9] 15 U.S.C. § 18 (2005).

[10] Kalinowski, Sullivan & McGuirl, Supra n. 4, § 29.03 (3).

[11] 67 F.T.C. 282 (1965).

[12] Ernest Gellhorn, William E. Kovacic & Stephen Calkins, Antitrust Law and Economic 421 (5th ed., West 2004).

[13] Id. at 405.

[14] U.S. Dep’ of Justice, Merger Guidelines (1982), reprinted in 4 Trade Reg. Rep. (CCH) P 13,102, at pt. IV (The DOJ in the 1982 Merger Guildelines stated that in accessing whether to challenge mergers, it would consider market concentration, market share, conditions of entry, barriers to entry, and whether merger would facilitate collusion or evasion of rate regulation).

[15] Skitol, Supra n. 3, at 250.

[16] Gellhorn, Kovacic & Calkins, Supra n. 12, at 409.

[17] Skitol, Supra n. 3, at 251.

[18] Calkins, The New Guidelines and the Herfindahl-Hirschman Index, 71 Cal. L. Rev. 402 (1983).

[19] U.S. Dep’t of Justice, Merger Guidelines § 4.0 (1984), reprinted in 4 Trade Reg. Rep. (CCH) P13, 103, at 20, 637 (June 29, 1984).

[20] U.S. Dep’t of Justice & Federal Trade Comm’n, Horizontal Merger Guidelines § 0.1 (1992).

[21] Id.

[22] Junkuo Zhang, Anti-Competitive Conducts: China Experience, http://www.fias.net/Conferences/CompetitionPolicySriLankaDocs/Junkuo%20Zhang.prn.pdf (June 22, 2004).

[23] Id.

[24] Wang Yang, The Improvement of the Competition Status in China, http://www.apeccp.org.tw/doc/APEC-OECD/2003-12/007.pdf (Dec. 23, 2003).

[25] Zhang, Supra n. 22

[26] Id.

[27] Dai Yan, Monopoly law badly needed, report says, http://www.chinadaily.com.cn/english/doc/2004-05/24/content_333377.htm (updated May 25, 2004, 08:35 a.m.) (The main laws and regulations concerning anti-monopoly provisions are the 1993 Law against Unfair Competition, the 1998 Price Law and the 2000 Bid and Tender Law).

[28] Id.

[29] Id.

[30] Shibing Cao, 反垄断法研究 [The Research on the Anti-monopoly law] Ch. 10 § 2 (1)-(2), 252-253 (Xiaochen Hu trans., 2d ed., Law Press 1997).

[31] Jointly enacted by the former Ministry of Foreign Trade & Economic Cooperation (“MOFTEC”), the State Administration of Taxation (“SAT”), the State Administration of Industry and Commerce (“SAIC”) and the State Administration of Foreign Exchange (“SAFE”) on March 7, 2003 and effective on April 12, 2003. Under the Plan on the Organizational Reform of the State Council passed on March 10, 2003, MOFTEC and State Economic and Trade Commission (“SETC”) were combined into the new Ministry of Commerce (“MOC”).

[32] Arthur Austin, Antitrust Reaction to the Merger Wave: The Revolution vs. the Counterrevolution, 66 N.C. L. Rev. 931, 948 (1988).

[33] Skitol, Supra n. 3, at 241.

[34] Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962) (In Brown case, the government brought suit to enjoin consummation of a merger of two corporations on the ground that its effect might be substantially to lessen competition or to tend to create a monopoly in the production, distribution, and sale of shoes, in violation of § 7 of the Clayton Act, as amended in 1950. The Brown Court entered the judgment for the government); see also Timothy J. Muris, The Efficiency Defense Under Section 7 of the Clayton Act, 30 Case W. Res. L. Rev. 381, 403-407 (1980) (The treatment of efficiencies in Brown Case is discussed); See Timothy J. Muris, The Government and Merger Efficiencies: Still Hostile After All These Years, 7 Geo. Mason L. Rev. 729, 730 (1999).

[35] Skitol, Supra, n. 3, at 248 (Chicago School evolved from the work of an army of antitrust critics populating both the law schools and economics departments of prominent universities across the country. The University of Chicago was the center of this effort and there by gave the movement its name).

[36] Id, at 246 (Warren Court represented the aggressive antitrust enforcement activity whose precedents blocked all significant horizontal and vertical merger transactions).

[37] William H. Page, Antitrust Review of Mergers in Transition Economies: A Comment, with Some Lessons from Brazil, 66 U. Cin. L. Rev. 1113, 1114 (1998).

[38] Timothy J. Muris, The Government and Merger Efficiencies: Still Hostile After All These Years, 7 Geo. Mason L. Rev. 729, 730 (1999).

[39] Supra n. 19, § 3.5 at 20, 564.

[40] Kenneth J. Hamnerr, Focus on: International Terrorism: Comment: the Globalization of Law: International merger Control and Competition Law in the United States, the European Union, Latin America and China, 11 J. Transanat’l L. & Pol’y 385, 388 (1998).

[41] U.S. Dep’t of Justice and Federal Trade Comm’n, 1992 Horizontal Merger Guidelines § 0.1 (1992) (with April 8, 1997, revisions to 4), available at http://www.ftc.gov/bc/docs/horizmer.htm.

[42] Brown Shoe Co., 370 U.S. at 325 (1962); Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953); see also FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34, 46 (D.D.C. 1998) (''In other words, when one product is a reasonable substitute for the other, it is to be included in the same relevant product market even though the products themselves are not the same. A product is construed to be a 'reasonable substitute' for another when the demand for it increases in response to an increase in the price of the other. Because the ability of customers to turn to other suppliers restraints a firm from raising prices above the competitive level, the definition of the 'relevant market' rests on the determination of available substitutes'').

[43]United States v. Phillipsburg Nat'l Bank, 399 U.S. 350, 362-365 (1970); FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D.D.C. 1998) (national geographic market, as well as regional geographic markets); FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.C. 1997) (geographic markets defined as 42 specified metropolitan areas); AlliedSignal, Inc. v. B.F. Goodrich Co., 183 F.3d 568 (7th Cir. 1999) (global market for landing gear used in commercial aircraft); United States v. Eastman Kodak Co., 63 F.3d 95, 109 (2d Cir. 1995) (worldwide geographic market for photographic film); Northeastern Educ. T.V. of Ohio, Inc. v. Educ. T.V. Ass'n of Metropolitan Cleveland, 758 F. Supp. 1568, 1579 (N.D. Ohio 1990) (worldwide geographic market for television programming); In re ABB, 5 Trade Reg. Rep. (CCH) P 24,552 (Analysis to Aid Public Comment, 1999) (global market for process gas chromatographs and process gas spectrometers)

[44] Brown Shoe Co., 370 U.S. at 336-337 (1962).

[45]United States v.Philadelphia Nat'l Bank, 374 U.S. at 354-59 (1963) (Relevant geographic market is the area ''to which consumers can practically turn for alternative sources of the product and in which the antitrust defendants face competition'').

[46] In re Hospital Corp. of Am., 106 F.T.C. 361, 466 (Order, 1985), aff'd, 807 F.2d 1381 (7th Cir. 1986).

[47] Kalinowski, Sullivan & McGuirl, Supra n. 4, § 30.03 (3) (a) (ii).

[48] Supra n. 19, at 26,824; 26,831-26,835.

[49] Andrew M. Rosenfield, The Use of Economic Analysis in Antitrust Litigation and Counseling, 1986 Colum. Bus. L. Rev. 49, 60 (1986).

[50] Kalinowski, Sullivan & McGuirl, Supra n. 4, at § 31.01 (2) (iv).

[51] Id.

[52] Skitol, Supra, n. 3, at 246-247.

[53] 15 U.S.C. § 18a (a) (1) (2005).

[54] 15 U.S.C. § 18a (a) (2) (B) (2005).

[55] 15 U.S.C. § 18a (a) (2) (2005).

[56] 15 U.S.C. § 18a (b) (1) (B) (2005).

[57] William M. Hannay, Transnational Competition Law Aspects of Mergers and Acquisitions, 20 NW. J. INT’L L. & Bus. 287, 289 (2000).

[58] U.S. Dep’t of Justice, Antitrust Division Manual III: 26 n. 26 (3d ed. 1998).

[59] 15 U.S.C. § 18a (c) (1)-(11) (2005).

[60] 15 U.S.C. § 18a (c) (12) (2005).

[61] Kalinowski, Sullivan & McGuirl, Supra n. 4, § 34.05 (2).

[62] Id. at § 34.05 (2) (a).

[63] Id. at § 34.05 (2) (b).

[64] Id. at § 34.05 (2) (c).

[65] Id. at § 34.05 (1).

[66] Id. at § 34.05 (3).

[67] Id. at § 32.03 (1) (A preliminary relief means a private party may seek a preliminary injunction or a temporary restraining order to prevent the consummation of a proposed merger or acquisition).

[68] Id. at § 32.03 (2) (A permanent relief means a private party may seek permanent injunctive relief to eliminate the threat of continuing injury posed by past and possible future unlawful acquisitions).

[69]California v. American Stores Co., 495 U.S. 271 (1990) (The Supreme Court held that the divestiture remedy was available to private parties).

[70] 15 U.S. C. § 15 (2005) (The Section 4 of the Clayton Act entitles a private plaintiff to treble damages for injury to his “business or property by reason of anything forbidden in the antitrust laws.” The Supreme Court also recognized in Brunswich v. Pueolo Bowl-O-Mat case (429 U.S. 477 (1977)), that a private party can recover treble damages in Section 7 of the Clayton Act).

[71] Skitol, Supra n. 3, at 246.

[72] Id.

[73] Id. at 254.

[74] Id.

[75] United States v. Aluminum Co. of American, 148 F.2d 416, 444 (2d Cir. 1945) (In this case, the United States alleged that the actions of the Aluminum Co. of American violate the Sherman Act by monopolizing interstate and foreign commerce, particularly in the manufacture and sale of virgin aluminum ingot).

[76] Joseph P. Griffin, Extraterritoriality in U.S. and E.U. Antitrust Enforcement, 67 Antitrust L.J. 159 (1999).

[77] Skitol, Supra n. 3, at 255.

[78]外国投资者并购境内企业暂行规定 [The Provisional Regulation on the M&A of Domestic Enterprise by Foreign Investors] Article 1 (The Provisional Regulation on the M&A of Domestic Enterprises by Foreign Investors, Mar 7, 2003. The Provisional Regulation was enacted by the State Administration of Taxation (SAT), the ministry of Foreign Trade and Economic Cooperation, MOFTEC (now merged into MOC), the SAIC, and the State Administration for Foreign Exchange (SAFE)) (Landon R. Prieur & Pengfei Su, trans., 2003) (CHN); See also Landon R. Prieur & Pengfei Su, The International Comparative Legal Guide to Merger Control 2005, http://www.coudert.com/publications/articles/041125_3_MergerControlChina_iclgmc.pdf (accessed Feb. 21, 2005).

[79] Dai, Supra n. 27.

[80] Id.

[81] Id.

[82] Id.

[83]外国投资者并购境内企业暂行规定 [The Provisional Regulation on the M&A of Domestic Enterprise by Foreign Investors] Article 19 (3)-(4); Article 21 (3)-(4) (Landon R. Prieur & Pengfei Su, trans., 2003) (CHN); See also Landon R. Prieur & Pengfei Su, The International Comparative Legal Guide to Merger Control 2005, http://www.coudert.com/publications/articles/041125_3_MergerControlChina_iclgmc.pdf (accessed Feb. 21, 2005).

[84] Id. at Article 19 (2).

[85] Id. at Article 20-21. (Article 20 states that If one of the requirements listing in Article 19 is met, the foreign investor must file a notification with MOC and SAIC. Even if none of the requirements is met, MOC or SAIC may also require the foreign investor to file a notification at the request of a domestic Chinese competitor, relevant governmental agencies, or industry associations if MOC or SAIC believes very substantial market share is at stake, or there are factors that seriously affect market competition or national well-being and the economic security of the country. Article 21 is about the standards set for the offshore M&A parties to file a pre-merger notification. The Article provides that if any of the following factors are present in an overseas transaction, the parties should submit the merger or acquisition plan to MOC and SAIC prior to public announcement of the plan or simultaneously with its filing with the authorities of their home countries: (1) one party to the offshore transaction has assets in China worth over 3 billion RMB (approximately $ 362 million); (2) the current year China market turnover of one party to the offshore transaction exceeds 1.5 billion RMB (approximately $ 181 million); (3) the China market share of one party to the offshore transaction (including its affiliates) has already reached 20%; (4) the China market share of one party to the offshore transaction (including its affiliates) will reach 25% as a result of the proposed offshore transaction; or (5) as a result of the overseas transaction, one party to the offshore transaction will directly or indirectly hold an equity interest in more than 15 foreign investment enterprises in the corresponding industry. MOC and SAIC examine whether there is any possibility that the proposed transaction will cause excessive concentration in the domestic market, impair domestic competition or harm domestic consumers, and make a determination whether to approve the transaction).

[86] Id.

[87] Id. at Article 19 (It provides that any M&A of a Chinese domestic company resulting in at least 25% foreign ownership should conform with the provision if one of the four requirements listed below is met: (1) turnover of one of the parties to the transaction in the China market exceeds 1.5 billion RMB (approximately $180 million) in the current year; (2) the foreign investor has merged with or acquired more than 10 domestic enterprises in related industries within one year; (3) the China market share of one of the parties to the transaction exceeds 20% during the current year; or (4) the M&A will result in the China market share of a party reaching 25%. If one of the requirements is met, the foreign investor must file a notification with MOC and SAIC).

[88] Id. at Article 20-21.

[89] Id. at Article 22.

[90] Here, “transplant” has the similar meaning as “borrow”, which is widely used in China law review Articles. This concept is also used in the U.S. law review articles, too; See also Manisha M. Sheth, Formulating Antitrust Policy in Emerging Economies, 86 Geo. L.J. 451, 452 (1997) (The author pointed out that the developing countries’ structural reforms are usually transplanted wholesale from either the U.S. or European models of antitrust law).

[91] Id.

[92] White & Case, New Antitrust Rules for Mergers In China, http://www.whitecase.com/files/tbl_s47Details/FileUpload265/262/china_law_bulletin_11_2002.pdf (accessed Feb. 13, 2005).

[93] Clive S. Gray & Anthony A. Davis, Competition Policy in Developing Countries Pursuing Structural Adjustment, 38 Antitrust Bull. 425, 430 (1993).

[94] Id. at 428.

[95]A.E. Rodriguez & Malcolm B. Coate, Limits to Antitrust Policy for Reforming Economies, 18 Hous. J. Int’l L. 311, 338 (1996).

[96] Supra n. 90.

[97] Gray & Davis, Supra n. 93, at 452.

[98] The improvement includes that the “marker share”, “relevant industries”, and “excessive concentration” concepts should be clarified; the foreign investors and the domestic investors should be treated equally; the more efficient enforcement provision should be enacted; and more procedure rules need to be added in the pre-merger notification.

Copyrightable Subject Matter

2009-10-08T08:48:00.000-07:00

by Wanneeya Attahakul

I. Introduction

Copyright law plays a central role in the present world and tends to be increasingly more important, especially since the nineteenth century because technologies has become more important in the world of communication, people can exchange information easier and faster through the internet. These new technologies challenge the copyright framework. Therefore, it is essential that those who enact copyright laws understand the fundamental policies, and the fundamental concepts of copyright systems to effectively amend their copyright laws and respond to the continuing changes in the nature of creative works.

Copyright law is unique to each country. However, the Berne Convention, the basics of international copyright protection, provides minimum standards for copyright protection: originality and the idea/ expression requirements. However, because copyright law in every country confronts the realities of new challenges, such as computer networks and new types of information, it is still a question of what works should be protected, or what the subject matter requirements should be.

This author studied copyright law in Thailand and in the United States. As such, this paper will compare the copyright laws of these two countries. The United States is representative of common law countries, and Thailand is representative of civil law countries. This paper will provide a guide for copyright law and propose responses and answers to contemporary questions raised in copyright law.

This paper will discuss and distinguish the copyrightable subject matter requirements in the United States and Thailand. Part II will provide a background of the requirements of both countries, consisting of their histories, policies, and fundamental concepts of subject matter requirements under the copyright laws of the United States and Thailand. Those fundamental concepts involve the nature of the work protected, and include originality, creativity, the scope of protection under the idea/expression dichotomy, fixation, and the non-illegal and moral work requirements. This paper will provide the required elements in each country to be a copyright subject matter because there some requirements common to the United States and Thailand, and some additional requirements that differ between the U.S. Copyright Act and the Thai Copyright Act. Part III will discuss in more detail each of the requirement for the respective countries. This part also provides and analyzes some cases to demonstrate the concepts and the significant differences between the United States and Thailand. Moreover, it discusses the significant distinctions between the U.S. Copyright Law and the Thai Copyright Act in each requirement, and identifies problems in each subject matter requirement.

Part IV will propose solutions to problems identified for each requirement. In the originality requirement, the Thai Copyright Act B.E. 2537 should have only two factors, regardless of the author’s expense, to meet the originality requirement like the United States Copyright Act of 1976. First, the author must engage in some intellectual endeavor of his own, and not just copy from a preexisting source. Second, the work must exhibit some amount of creativity. Furthermore, the Thai statute should clearly state in the originality requirement these two factors. Moreover, the Thai Copyright Act B.E. 2537 should add scenes a faire as a condition of the originality requirement to follow the purpose of copyright protection.

For the idea expression requirement, there is now no specific standard under the Thai idea/ expression requirement, whether it depends on the tangibility of a work, or the nature of the work, like the certain standards under the U.S. idea/ expression requirement.

Consequently, this paper proposes that the Thai Copyright law should consider the nature of the work instead of the tangibility of the work, as the standards for the idea/expression requirement.

Moreover, the Thai and the U.S. governments should consider the controversial issue of whether copyright law should protect the methodologies or processes adopted by programmers. This paper proposes that the U.S. and Thai copyright law should not allow copyright protection of methodologies, or processes adopted by programmers.

For the fixation requirement, section 102(a) of the U.S. Copyright Act should be changed to eliminate the fixation requirement for many reasons. For example, the U.S. Constitution provides only that Congress may grant exclusive rights in writings, regardless of whether those writings are fixed in a tangible medium.

For the non-illegal work requirement, Thailand and the United States should clearly provide in the Thai Copyright Act B.E. 2537 and the U.S. Copyright Act 1976, respectively, that the non-illegal requirement is also a copyrightable subject matter requirement. However, only the Thai statute should clearly provide for the non-illegal requirement. Moreover, the statutes should state that an illegal work, as a whole, not only an illegal part of a work, is not protected by the Thai and U.S. copyright law. Finally, for the moral work requirement, the Thai and U.S. statutes should not have a moral work requirement.

II. Background

A. In the United States, Congress over time changed its answer to the question of what works should be protected by copyright.

Section 102 of the U.S. Copyright Act represents the congressional judgment as to what works merit the grant of exclusive rights.[1] Section 102 establishes three requirements for copyrightable subject matter. First, the work must be “fixed” in a tangible medium of expression. Second, it must be an “original work of authorship.” Finally, ideas, procedures, principles, discoveries, and devices are all specifically excluded from copyright protection. In other words, copyright protection does not attach to every element of a work. The following explains the basics and the development of those elements.

1. Fixation Requirement

A protected work of authorship is intangible, and must be distinguished from a tangible object in which the work is fixed. For example, a copyrightable literary work is intangible. The paper, audio tape or floppy disk on which the literary work is recorded, or fixed, is tangible. Copyright law protects only the intangible literary work, not the tangible manifestation. However, an intangible literary work is eligible for copyright protection only once it has been fixed in a tangible form at least once.

According to legislative history, Congress established the definition of “fixed” in Section 101 of the U.S. Copyright Act of 1976: “(a) work is fixed in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”[2] The U.S. Copyright Act also adds that this medium may be one “now known or later developed.”[3] This broad language is intended to avoid the artificial and largely unjustifiable distinctions, derived from cases such as White-Smith Publishing Co. v. Apollo Co.,[4] under which statutory copyrightability in certain cases has been made to depend upon the form of medium in which the work is fixed.[5] In White Smith, the court held that the perforated music rolls were parts of a machine which, when properly operated, produced musical tones in harmonious combination, but were not copies within the meaning of the Copyright Act.[6] The court interpreted the existing copyright statute to require that a “copy” of a musical composition be “a written or printed record of it in intelligible notation to human reader, not simply to a machine such as a player piano.[7]

2. Originality Requirement

Although U.S. copyright law has always required originality as a condition of copyright protection, it has not always done so expressly. Instead, courts found an originality requirement implicit in the statutes, and in the underlying language of the constitutional grant of authority to enact copyright laws.[8] Perhaps for this reason, the first time that Congress attempted a comprehensive statement of the sorts of works entitled to copyright protection, it chose language that mirrored that of the constitutional grant.[9] Section 4 of the 1909 Act provided that “the works for which copyright may be secured under that title shall include all the writings of the author.”[10]

However, in the 1976 Act, Congress chose a different language, “original works of authorship.” In using the phrase “original works of authorship,” rather than “all the writings of an author,” the intent of the 1976 Act was to avoid exhausting the constitutional power of Congress to legislate in the field of copyrightable subject matter[11]

Nevertheless, the 1976 Act does not indicate exactly what Congress meant by “original works of authorship.” The phrase “original works of authorship” is purposely left undefined because it is intended to incorporate without change the standard of originality established by the courts under the present copyright statute.[12] This standard does not require novelty, ingenuity, or esthetic merit, and there is no intention to enlarge the standard of copyright protection to require them.[13] Consequently, the task of interpreting the scope of the statutory grant of copyright protection was left to the courts.

The reason why some level of creativity is required for copyright protection is that it would not make sense to grant exclusive rights to someone who merely copies a preexisting work. Furthermore, from an economic perspective, the mere copyist has supplied nothing to justify the cost of a grant of copyright; from a noneconomic perspective, the copyist has supplied nothing of his or her own.[14]

3. Idea/Expression Dichotomy

The legislative history of the final requirement for copyrightable subject matter, idea expression dichotomy, is somewhat vague, indicating primarily that the provision was intended to continue the status quo.[15] “Section 102(b) in no way enlarges or contracts the scope of copyright protection under the present law. Its purpose is to restate, in the context of the new single federal system of copyright, that the basic dichotomy between expression and idea remains unchanged.”[16] As a result, the courts must develop their own guiding principles. This specific exclusion helps maintain the distinction between copyright protection and patent law. Ideas and inventions are the subject matter of patents, while the expression of ideas is the subject matter of copyright law.

Under section 102(b) of the U.S. Copyright Act of 1976, copyright protection is limited to particular means of expressing ideas and facts and does not give copyright protection in the underlying ideas or facts themselves.[17] Therefore, others are able to use the ideas or information revealed by the author’s work without his permission.

B. As a result of Thailand’s rapid modernization and greater role in international trade, copyright law has a very long history in Thailand, especially in the subject matter requirements.

Although many people in Thailand have entertained the impression that copyright is something new, the result of Thailand’s rapid modernization and greater role in the international trade, copyright has a very long history in Thailand. This history could be traced back to the year 1892 when the Royal Proclamation of Vachirayan Library for the Protection of Literary work R.S. 111.[18] The Proclamation gave a limited protection, namely, prohibition of unauthorized reproduction of any part of, or any article published by the Vachirayan Library (the present day National Library) without prior permission of “Kamma-sampathikasapa.”[19]

In 1901, protection was provided in the Copyright Act R.S. 120 for all the authors of books upon registration.[20] In 1914, the Copyright Act R.S. 111 was amended to cover a wider range of works.[21]

Like the U.S. copyright law, the Thai copyright law has grown to protect new forms of literary and artistic works, and has been changed many times to answer the question of what works copyright law should protect. Since there was a lot of competition for foreign and domestic markets in Thailand and in other countries around the region, Thailand has been in the midst of rapid industrialization, making the transition from an agricultural society to a newly industrialized country, and using increasing amounts of new technology to stimulate economic growth.[22] According to the value of such advanced technology has become widely established in Thailand, it has played an essential part in the industrialization process.[23]

As a result of this world’s rapid technology growth and modernization, such as the creation of computer programs, sound and visual recordings performances, the leasing of audio-visual work, and the greater role of Thailand in international trade, especially in order to follow significant prodding by the United States,[24] the Thai government proposed a new copyright act to the parliament which was passed as the Copyright Act B.E. 2537 (A.D. 1994). Moreover, since Thailand became a member of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement), Thai Copyright law was amended to meet the standard level of protection under the TRIPs Agreement.[25] Since Copyright Act B.E. 2537 was passed, there have been significant changes from the previous Act, including the subject matter requirements.

The fundamental subject matter requirement of copyright protection in Thailand is the author’s skill, effort, and labor to create a work which may be useful for all mankind. It does not matter how much a person uses her effort.[26] Moreover, the work cannot be a natural work.[27] For example, a work of sculpture which is created by a person is a copyrightable work, but a beautiful stone created from nature is not a protected subject matter of copyright.

Sections 4 and 6 of the Thai Copyright Act B.E. 2537 do not require fixation, but establish three requirements for copyrightable subject matter. First, under section 4 and section 6 paragraph 1, similar to the U.S. originality requirement, the work must be created or made by an author.[28] Even though the Copyright Act B.E. 2537 no longer uses the language “by his own initial idea,” which was addressed in the definition of “creator” in the previous Copyright Act B.E. 2521, the author must have engaged in some intellectual endeavor of her own, and not just have copied from a preexisting source.

Second, under section 6 paragraph 2, similar to the U.S. idea/ expression dichotomy, copyright protection shall not extend to any idea, procedure, process or system or method of use or operation or concept, principle, discovery, or scientific or mathematical theory.[29] This means that the Thai Copyright Act protects works in only the form in which it is expressed but does not protect the underlying ideas and information in the work. More importantly, copyright protection is limited to particular means of expression of ideas and facts, and does not give monopoly rights in the underlying ideas or facts themselves.

The final requirement, the non-illegal and moral work requirement, is still debatable, as to whether the Thai Copyright Act B.E. 2537 requires that, to be a copyrightable work, a work must be a non-illegal and moral work. Historically, there has not been a statement in the Thai Copyright Act B.E. 2537, 2521, and the Literary and Artistic Works Act B.E. 2474 providing clearly for this requirement. The only time it is provided for is in the Thai Copyright Act B.E. 2457; Thai copyright law limited copyright protection to some types of works. Therefore, to avoid this vagueness and the difficulty of interpreting the Thai subject matter requirements, the Thai government should amend the present statute.

III. There are some requirements for Copyright Subject Matter that are common to U.S. and Thai Copyright laws.

A. Originality Requirement

1. Originality in the United States

In the United States, a requirement for copyrightability is that a work be an “original work of authorship.”[30] In contrast, patent law requires that an invention be new, useful, and nonobvious to qualify for protection.[31]

Both as a statutory matter and as a constitutional matter, the modern definition of “originality” means only that the work was independently created by the author, as opposed to being copied from other works, and possesses at lease some minimal degree of creativity.[32] This means that the amount of originality required is extremely small.

For example, in Feist Publications, Inc. v. Rural Telephone Service Co.,[33] the plaintiff published a typical telephone directory that listed the names of its subscribers in alphabetical order along with each subscriber’s telephone number and town. The Court stated that facts are not copyrightable because they do not owe their origin to the author.[34] However, compilations of facts meet the originality standard for copyright only if the compiler independently makes choices as to selection and arrangement of the facts which entail a minimal degree of creativity.[35] Consequently, the mere labor of collecting data, “sweat of the brow,” does not warrant protection absent originality in the selection and arrangement of data.[36] In Feist, the names and telephone numbers of the subscribers were all facts and the plaintiff’s selection and arrangement involved no creativity.[37] Therefore, they could not be protected under copyright law.[38]

In Bleistein v. Donaldson Lithographing Co.,[39] the court recognized that originality does not depend on a work’s aesthetic merit. As a result, a copyrightable work need not be fine art.[40] In Bleistein, the plaintiff’s employees created three chromolithographs[41] depicting various circus scenes.[42] The posters depicted different circus scenes: one of an ordinary ballet, another of bicycle performers, and one of men and women costumed to represent statues.[43] Moreover, they were not made from anyone else.[44] The court rejected the notion that originality should be decided by judging the aesthetic merits of a work and held that the Plaintiff’s ordinary posters were original because they contained the artists’ personal imprint of creativity and uniqueness.[45]

In addition, a new arrangement of a public domain work can be copyrightable if it meets the standards of originality for a derivative work.[46] For example, in Italian Book Co. v. Rossi, copyright was asserted in music created by improvising additions to what the author could remember of Sicilian folk songs he had heard but nearly forgotten.[47] The court held that the songs were entitled to protection as derivative works.[48] In this case, the protection would extend only to those elements added by the authors to the public domain songs underlying their works.[49]

Even though the bar is set quite low in determining originality, where there is no other way of saying, photographing or otherwise creating an idea, the courts prevent the monopolization of that idea through the application of the “scenes a faire doctrine.”[50] Scenes a faire are incidents, characters, settings, or other elements which are indispensable, or at least standard, in the treatment of a given topic.[51] For example, the Court of Appeals for the Second Circuit held that elements such as drunks, prostitutes, vermin, and derelict cars would appear in any realistic work about the work of policemen in the South Bronx.[52] These elements are therefore unprotectible scenes a faire in such a work. Likewise, the Seventh Circuit stated that standard maze-chase game devices in video games, including the maze, scoring table, and tunnel exits, are unprotectible under the scenes a faire doctrine.[53] Such elements are expected and routine. No single author may prevent others from using them in their own works.

Moreover, under section 202, 1(a) of Chapter 37 of the Code of Federal Regulations, the Copyright Office has promulgated a regulation stating that words and short phrases such as names, titles, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering or coloring; and mere listing of ingredients or contents will not qualify for copyright.[54] In addition, this regulation has frequently been stated by courts;[55] even if such things as book titles and short advertising slogans may be protected as trademarks, they are not copyrightable.

In order to further clarify what was considered a work of authorship, Congress included a list of eight works of authorship in the Act itself in section 102(a): (1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.[56] Congress intended, according to the language in section 102(b) that shows that “[w]ork of authorship include the following categories” to provide these eight categories as only examples of works of authorship; as a result, if there is a new type of category, the new work can be a copyrightable subject matter if courts determine that Congress would intend to include it.

2. Originality in Thailand

Like the originality requirement of the U.S. Copyright Act of 1976, Sections 4 and 6, paragraph 1of the Copyright Act B.E.2537 require that a copyrightable work must be created or made by an author.[57] This originality requirement has three elements. First, the author must engage in some intellectual endeavor of his own, and not just copy from a preexisting source. Second, the work must exhibit some amount of creativity. Finally, it also depends on the creator’s expense.[58]

Therefore, the originality requirement gives creators more opportunity to receive copyright protection as long as he uses his skill, effort, and labor to create his work and does not copy from others’ work. In contrast, patent law requires that an invention be new to qualify for protection.[59] Therefore, an inventor is not entitled as a patent owner if his invention is the same as or similar to any preexisting invention, even though he does not copy from the preexisting source.

An example is when ten students draw the Statue of Liberty on their paper at the same corner, location, and time. These paintings are original works even if they look similar because each student uses his skill, effort, and labor to create his work and does not copy from others’ work. On the contrary, if the originality principle requires novelty of works, those students who finish their drawings after the first one are not entitled to copyright protection. Their works are not new because they look similar to the first one’s work.

Another example is Case No. 2750/2537,[60] where the court held that even though the plaintiff composed the Thai dictionary by using an ancient process, he used his skill, effort, and labor to create his own definitions of each word, and put some pictures to define some words. Moreover, he did not copy from others’ work.[61] Therefore, he is a creator under section 4 of the Thai Copyright Act B.E. 2537.[62]

In addition, section 12 of the Thai Copyright Act B.E. 2537 extends protection to compilations as copyrightable subject matter.[63] A compilation results from an author’s selection, bringing together, organizing, and arranging previously existing materials of all kinds, regardless of whether the individual materials he is working with are themselves copyrightable.[64] To be a copyrightable work, the creator of compilation must use his skill, effort, and labor to create the resulting work different from the previously existing work.

A copyrightable work does not depend on a work’s quality and value. The Thai copyright law protects any original work that meets the requirements for copyrightable subject matter, regardless of who creates the work, the creator’s or reader’s preference, how to perceive, whether the work is beautiful or unsightly, whether the work is melodious or whether it has aesthetic merit.[65] Therefore, whether the work is original does not depend on someone’s subjective preference for or against the work. This also can imply that the amount of originality required is extremely small, like in the United States.

Sections 4 and 15 of the Thai Copyright Act B.E. 2537, in addition to original work, also provide that derivative works are within the subject matter of copyright.[66] To be copyrightable, the derivative work must contain some substantial variation from the underlying work on which the derivative work is based.[67] For instance, in Case No. 848/2519, the plaintiff hired a musician and a singer to play an old Thai song with an expired copyright.[68] The plaintiff made a sound recording of the song to sell tape records.[69] The court reasoned that the plaintiff’s music and recorded sound were not copyrightable; the plaintiff only reproduced from the public domain and there was no change to support a derivative work copyright.[70]

Here, the court applied the same rule as the Bleistein court: a new arrangement of a public domain work can be copyrightable if it meets the standards of originality for a derivative work. In the Thai case, the plaintiff did not create by improvising additions to the domain work so the plaintiff’s work was not copyrightable, as compared to the plaintiff’s songs in Bleistein which were created by improvising additions to what the author could remember of Sicilian folk songs, so the plaintiff’s songs were entitled to copyright protection.

Furthermore, Section 12 of the Thai Copyright Act B.E. 2537 provides copyright protection for works that are compilations or compositions of copyright works.[71] Like U.S. copyright law, a compiler must independently make choices in the selection and arrangement of the facts, which entail a minimal degree of creativity.

Section 6 of the Thai Copyright Act B.E. 2537 provides that works of authorship must fall within the categories of literary, dramatic, artistic, musical, audiovisual, cinematographic, sound recording, sound and video broadcasting work or any other works in the literary, scientific or artistic domain, whatever may be the mode or form of its expression.[72] However, like in the United States, these categories are not intended to be absolute, as stated in section 6, which states that the categories include “any other works in the literary, scientific or artistic domain.” The Thai statute left a little flexibility for the courts. Consequently, if something new in the literary, scientific, or artistic domain does not fit within any of the listed categories, it may still be protected.

3. A Comparison of Originality Requirement in Both Countries

Under both section 102(a) of the U.S. Copyright Act of 1976 and section 4 and 6 paragraph 1 of the Thai Copyright Act B.E. 2537, a copyrightable subject matter must be original to qualify for copyright protection. In both countries, the required level of creativity is extremely small. Moreover, novelty is not a factor in both countries in determining whether a work is protected by copyright. Finally, to meet the originality requirement of both countries, a copyrightable work does not depend on a work’s aesthetic merit.

Furthermore, both countries also protect a compilation if the compilation involves some originality beyond mere alphabetic sorting of all available works, and a derivative work if it contains some substantial variation from the underlying work on which the derivative work is based.

However, even though both countries consistently require an extremely small amount of originality, whether a work is sufficiently creative depends on different factors. The United States only has two factors to meet the originality requirement: that the work is independently created by the author, and it possesses at lease some minimal degree of creativity. Thailand, like the United States, requires these two factors. In addition, Thailand considers an author’s expense as an additional factor of originality.

Moreover, the same three factors above are also applied to analyze whether compilations and derivative works meet the originality requirement in Thailand. Therefore, determining the originality requirement of compilation and derivative works in Thailand and the United States are also different; as stated above, there are three factors in Thailand and there are only two factors in the United States. However, some courts, such as the Court in Case No. 848/2519[73] do not consider the author’s expense as a condition. Consequently, the factors needed to meet the originality requirement in Thailand are still inconsistent among Thai cases. To provide uniformity in the Thai copyright law, this paper provides some propositions.[74]

In addition, unlike the United States, the Thai Copyright Act B.E. 2537 does not provide scenes a faire doctrine, where there is no protection if the subject matter represented can be expressed in no other way than through the particular scenes a faire. Therefore, Thailand does not exclude a work that can be expressed in only a limited number of ways.

Finally, unlike the United States, the Thai copyright law will protect works of authorship that do not fit within the listed categories only when they are works in the literary, scientific, or artistic domain.

B. The Idea/Expression Dichotomy

1. The Idea/Expression Dichotomy in the United States

Section 102(b) of the U.S. Copyright Act of 1976 makes clear that copyright protection does not extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work. An author is not required to distinguish those parts of his work he considers original expression, which are protected, and those parts he considers idea that are not protected.[75] That problem is left to the courts in infringement litigation.

As stated above, because the originality threshold for copyrightability is very low, the analysis for achieving the proper balance primarily involves distinguishing an idea from an expression. What the courts consider an idea and what the courts consider an expression, or the scope of protection, varies with the nature of the work.

For example, in Nichols v. Universal Pictures Corp.,[76] the plaintiff alleged that the copyright in her play was infringed by defendant's movie. Both stories were about the marriage of an Irish man and a Jewish woman and the differences between their families.[77] The court found that the two stories were different as to incident and character, and thus there was no infringement.[78] As for plots, the only matter common to the two was a quarrel between a Jewish father and an Irish father, the marriage of their children, the birth of grandchildren, and a reconciliation.[79] The court found such theme was only a part of the plaintiff's ideas, and therefore was not copyrightable.

In Baker v. Selden,[80] the court drew a distinction between an author's original writing, which was a valid subject of copyright, and an idea, which generally was considered to be community property and was the subject not of copyright but of a patent if completely original to the author. In this case, the plaintiff claimed copyright in a book that explained a particular method of bookkeeping and included blank forms for using the method.[81] When the defendant published a book that included forms for use in the plaintiff’s bookkeeping method, the plaintiff sued for copyright infringement.[82] The court held that when the art taught by a work of authorship cannot be used without copying some aspect of the work of authorship, then that aspect of the work will not be protected by copyright.[83] The Court reasoned that if the plaintiff had a right in his form, the only way of implementing the bookkeeping method, the plaintiff would have a monopoly in the bookkeeping method itself without satisfying the stringent requirements of patent law.[84]

A doctrine related to the idea expression dichotomy is the doctrine of merger. If only one or a limited number of ways exist to express an idea, the idea and expression merge into an uncopyrightable whole.[85] For example, in Morrissey v. Procter & Gamble Co.,[86] the court held that a set of rules for a sales promotional contest of the sweepstakes type involving the social security numbers of the participants is not copyrightable because this idea, subject matter, with at best only a limited number of forms of expression, is not copyrightable.

Even under section 102(b), copyright protection is limited to particular means of expressing ideas and facts and does not give copyright protection in the underlying idea or facts themselves. Some concern has been expressed that copyright protection in computer programs should extend to the methodology or processes adopted by the programmer, rather than merely to the writing expressing his ideas.[87] Under section 102(b), the U.S. Copyright Act states clearly that the expression adopted by the programmer is the copyrightable element in a computer program, and that the actual processes or methods embodied in the program are not within the scope of the copyright law. Therefore, this might be an important issue in the future whether the U.S. Copyright Act should be changed and extended to protect the actual processes or methods embodied in the program. Nevertheless, under the present law, section 102(b) in no way enlarges the scope of copyright protection.

2. The Idea/Expression Dichotomy in Thailand

Like U.S. copyright law, Thai copyright protection is limited to particular means of expressing ideas and facts and does not give monopoly rights in the underlying ideas or facts themselves under section 6 paragraph 2 of the Thai Copyright Act B.E. 2537.[88]

Thai copyright law separates unprotectable systems or processes from copyrightable expression. For example, in Case No. 7036/2543, the plaintiff composed and developed a mathematical exercise book for students in grades 1 to 6.[89] This work comprised of mathematical questions, methods, ways to analyze questions, and mathematical questions in the appendix.[90] The plaintiff’s book was composed of numbers, pictures, symbols, signs, and mathematical questions to help readers easily understand each step, and persuade readers to learn to calculate faster.[91] The plaintiff created this book from his information, and from many years of teaching experience.[92] The court held that the plaintiff independently created the book to help students calculate faster.[93] The book was not an idea, procedure, process or system or method of use or operation or concept, principle, discovery, or scientific or mathematical theory. Therefore, the book was a copyrightable subject matter.

Thai copyright law does not extend copyright protection to ideas, procedures, or processes. Therefore, anyone might use the ideas, procedures or processes to create his own original work. Nevertheless, to create a copyrightable subject matter, the person must create his own information, details, and expression of idea. He cannot use only the main ideas of others’ works.

For example, in Case No. 1908/2546,[94] the defendant’s book contained the same contexts as the plaintiff’s main idea in 30 of 150 pages of the plaintiff’s book. Some sentences of the defendant’s book were the same as some sentences in plaintiff’s book word for word, but some sentences were changed to make a few distinctions.[95] The court found that this incident hardly happens; consequently, the court found that the defendant did not create his own information and expression of idea; instead he used only the main idea of the plaintiff’s work.[96] Therefore, the defendant infringed the plaintiff’s right.[97]

Thai copyright law has the same problem as U.S. copyright law in that the difficulty in applying this rule is in distinguishing between ideas and expression. There is still the conflict as to what condition should be considered to meet the idea/ expression requirement. Some believe, like Professor Jakkrit Koapot, that only a concrete work can be an expression of an idea.[98] This means that an abstract work does not meet the idea/ expression requirement.

For example, if a person decides to write a poem, song, or draw a painting, these thoughts are only his ideas and they are subjective or abstract. Therefore, copyright protection would not expand to these ideas. In contrast, if a person puts more details and features in these ideas, and express or show these ideas, the expression of ideas is copyrightable, but the ideas themselves are still not copyrightable.

Furthermore, some believe, like Professor Chaiyos Hemalatchata that to meet the idea/ expression requirement, a work need to be tangible.[99] This tangibility condition is harder to meet than the concreteness condition because some works might be concrete, but not tangible in that they are not fixed in tangible mediums.

For instance, under the tangibility condition, a speech is not a copyrightable subject matter because it is not fixed in a tangible medium, such as a paper or a video tape. On the other hand, under the concreteness condition, it is a copyrightable subject matter because an author puts details in his ideas, and expresses his ideas by speaking in front of the public. His speech is a copyrightable subject matter even if it is not recorded in a tangible medium. Due to this conflict, this paper will later propose a resolution of what the condition should be.[100]

3. A Comparison of the Idea/ Expression Dichotomy in Both Countries

Both the Thailand Copyright Act B.E. 2537 and the United States Copyright Act of 1976 require an expression of an idea to be a copyrightable subject matter. Both U.S. and Thai copyright protection do not extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery.

Nevertheless, both countries have their own principles to determine whether a work meets the idea expression requirement. In the United States, whether a work is an expression of an idea depends on its nature. On the contrary, determining the Thai idea/ expression requirement is still debatable; there is now no predictable standard to meet the Thai idea/ expression requirement, whether it depends on the concreteness of a work, the tangibility of a work, or the nature of a work, like the predictable standard in evaluating the U.S. idea/ expression requirement.[101]

In addition, the Thai government should consider whether the Copyright Act B.E. 2537 should be changed to give some exceptions to the idea expression requirement. For example, the recent Act extends the scope of copyright protection to protect a computer program under the definition of literary work. However, as stated above, there is some concern in the United States about protecting the methodology or processes adopted by programmers. The Thai government should reconsider this issue, which will definitely be raised in Thailand in the future.[102]

IV. There are additional requirements that the U.S. Copyright Act and the Thai Copyright Act do not share.

A. Fixation Requirement

1. Fixation in the United States

In the United States, the Constitution provides only that Congress may grant exclusive rights in writings, and under 17 U.S.C. section 102(a), to be a copyrightable work, the work must be fixed in a tangible medium of expression.[103] Therefore works that are not fixed in a tangible medium qualify as writings if those works is in a form in which others can perceive it.

The U.S. Copyright Act of 1976 makes no distinction on what the form, manner, or medium of fixation may be – whether it is in words, numbers, notes, sounds, pictures, or any other graphic or symbolic indicia, whether embodied in a physical object in written, printed, photographic, sculptural, punched, magnetic, or any other stable form, and whether it is capable of perception directly or by means of any machine or device “now known or later developed.”

For example, in the case of computers, to meet the fixation requirement, a work must be recorded onto some form of medium, which in the computer context includes floppy disks, CD-ROMs, and digital storage devices. In MAI Systems Corp. v. Peak Computer, Inc.,[104] the court held that loading software or other work into RAM creates a copy that is sufficiently fixed in a tangible medium because it can be accessed. In Stern Electronics, Inc. v. Kaufman,[105] the court stated that work in a computer’s memory satisfies the fixation requirement. On the other hand, reciting a poem to a live audience, or improvising jazz in front of them, indubitably fails to satisfy the prerequisites of fixation.

Under section 101 of the statute, the definition of fixation provides by implication that a work will not be deemed fixed unless its embodiment in a copy or phonorecord was done by or under the authority of the author.[106] Therefore, an unauthorized fixation will not qualify a work for copyright protection.

Normally, an author must fix a new work, for example by making a sound or video recording of it before publicly performing it to receive federal copyright protection at the time of the performance. Therefore, if the work is unfixed, federal copyright law will not prohibit audiences from copying it.

However, section 101, provides for the status of live broadcasts, such as sports, news coverage, and live performance of music as reaching the public in unfixed form but are simultaneously being recorded.[107] In fact, fixation simultaneous with performance will suffice to trigger copyright protection at the time of performance if the performance is being transmitted by a device or process that causes images or sounds to be received beyond the place from which they are sent.[108] For example, live television will be protected by copyright if it is recorded on a videotape at the same time they are broadcasted.

Some states might continue providing common law copyright protection for works of authorship that is not fixed in a tangible form.[109] Nevertheless, those works do not qualify for federal protection. A few state cases indicate that protection may be afforded for a person’s extemporaneous oral statements, but only if the speaker makes it clear that he intends to claim a proprietary interest in his words.[110]

2. Fixation in Thailand

As the Berne Convention leaves the decision about whether to require fixation to each of the member countries, and neither the WIPO Copyright Treaty nor the TRIPs Agreement mentions fixation, Thailand has decided not to require fixation.[111] In fact, Thailand accords a work copyright protection as soon as it is in a form in which others can perceive it, regardless of whether it is also fixed in a tangible medium. As a result, such works might include, for instance, improvisational performances and off-the-cuff lectures.

B. Non-illegal and Moral Work Requirement

1. Non-illegal and Moral Work in Thailand

The Thai Copyright Act B.E. 2537 does not clearly provide whether to be a copyrightable work, the work must be a non-illegal work, and must meet the Thai moral standard.

There is, however, a case where the court held that a plaintiff’s video tape was not a copyrightable work, as the video tape was obscene. In Case No. 3705/2530,[112] some parts of the plaintiff’s video consisted of sex scenes. The court held that the obscene video was not a copyrightable subject matter because the obscene work was an illegal work under the Thai Criminal Law Act which provides that whoever produces or occupies obscenity violates criminal law.[113] Consequently, according to this case, it is implied that an illegal work, such as an obscene work is not a copyrightable subject matter in Thailand.

2. Non-illegal and Moral Work in the United States

In the United States, there is no context in the Constitution, the United States Copyright Act of 1976, and previous statutes providing that a copyrightable subject matter must be a non-illegal work, and must meet the U.S. moral standard.

Even though the First Amendment permits Congress and the states to ban obscenity, it does not contain an affirmative requirement that obscenity must be proscribed. Moreover, according to the constitutional purpose, Congress has a copyright power to promote the progress of science and useful Arts by allowing all creative works to be accorded copyright protection regardless of subject matter or content, trusting to the public taste to reward creators of useful works and to deny creators of useless works any reward.[114]

Consequently, unlike in Thailand, a court in the United States held that obscene work can be a copyrightable subject matter. In Mitchell Bros. Film Group v. Cinema Adult Theater,[115] the court held that it was improper to permit that assertion of obscenity as an affirmative defense to a copyright infringement claim because nothing in the Constitution, and the 1909 Act indicated that obscene materials could not be copyrighted. Therefore, the plaintiff’s movie, Behind the Green Door, was copyrightable subject matter.

V. The Copyrightable Subject Matter Provision of Both the U.S. Copyright Act of 1976 and the Thai Copyright Act B.E. 2537 should be amended

A. Originality Requirement

The Thai Copyright Act B.E. 2537 should have only two factors to meet the originality requirement, like the United States Copyright Act of 1976. As stated above, whether a work is sufficiently creative depends on different factors in Thailand and the United States. The United States does not look at an author’s expense, but Thailand does. The investment of an author should not be considered as a factor to meet the originality requirement because the fundamental purpose of the originality requirement is to grant exclusive rights to a creator to appropriate the benefits of his creation. The benefit the creator receives from the public should come only from the imagination of the creator, not the money of the creator. The investment of the creator, his money, does not show any creativity at all. If we consider the creator’s expense as a factor of originality, someone who creates a work by his own labor, and skill without money might lose his work to another who can show that he spends a lot of money to create the work. Therefore, the Thai Copyright Act B.E. 2537 should have only two factors to meet the originality requirement, like the United States Copyright Act of 1976.

The United States Copyright Act of 1976 and the Thai Copyright Act B.E. 2537 does not clearly state the factors as conditions of the originality requirement. The Thai statute should clearly state in the originality requirement provision that only the following factors are the condition of the originality requirement to avoid confusion in the future. First, the author must engage in some intellectual endeavor of his own, and not just copy from a preexisting source. Second, the work must exhibit some amount of creativity. The two main reasons are, as stated above, that it creates inconsistencies among Thai cases because some courts apply the author’s expense factor but some courts do not. Since Thailand is a civil law country, Thai law relies mainly on the Constitution and statute themselves for uniformity in the Thai copyright law. The Thai statute, thus, should clearly state in the originality requirement provision that there are only two conditions for originality.

On the contrary, in the United States, a common law country, the law relies on a set of rules or laws based upon what has been socially acceptable or generally agreed upon in the past. For example, in the United States, the scenes a faire doctrine has been strongly acceptable as a basic principle of the originality requirement; therefore, the U.S. statute does not need to provide the doctrine again because courts will follow precedents.

Additionally, the Thai Copyright Act B.E. 2537 does not exclude a work that can be expressed in only a limited number of ways. The purpose of the doctrine would be that granting copyright in the work is equal to giving the first author a monopoly on the commonplace ideas behind the scenes a faire. This is not the purpose of the originality requirement. Creating a work which has only a limited number of ways to express does not show the author’s creativity. Therefore, the Thai Copyright Act B.E. 2537 should add the scenes a faire as a condition of the originality requirement.

B. The Idea Expression Dichotomy

As stated above, there is now no specific standards under the Thai idea/ expression requirement, whether it depends on the tangibility of a work, or the nature of the work, like the certain standards under the U.S. idea/ expression requirement.

The Thai Copyright law should consider the nature of the work instead of the tangibility of the work, as the standards for the idea/expression requirement. For example, if it is a literary work, such as poems and writings, the expression of an idea should be written on an object. Besides, an impromptu can be held as an expression of an idea because the creator already expresses his idea by speaking even if the impromptu is not written on any object. Therefore, this nature of work standard is similar to the concreteness of work standard; a copyrightable work does not have to be tangible if it is concrete.

There are three main reasons why the Thai Copyright law should consider the nature of the work, instead of the tangibility of the work, as the standard of the idea/expression requirement. First, the Thai copyright law does not require fixation. This approach would encourage investors to develop new sorts of innovations, and since the development of new sorts of economically valuable information products is increasing, courts need some flexibility to analyze whether a work is an expression of an idea on a case by case basis.

First, if the Thai copyright law considers the tangibility of the work as the standard of the idea/expression requirement, many creative works that are not physically manifested, are not eligible as copyrightable subject matters. This means that the Thai copyright law would require that a copyright work has to be fixed in a tangible medium of expression. Thai copyright law does not have a fixation requirement, so imposing that copyrightable subject matters be fixed in a tangible medium of expression is not consistent with the purpose of the Thai copyright law; Thailand choose not to require fixation.[116]

Second, since the development of new sorts of economically valuable information is increasing, if the statute does not explicitly provide the standard, some courts might face difficulty in distinguishing between an idea and an expression of an idea, and apply the narrower standard, the tangibility standard, which would exclude many intangible works that actually eligible for copyright protection.

The Thai Copyright Act B.E. 2537 should state clearly that the nature of the work is the standard of the idea/ expression requirement to allow courts more flexibility based on the nature of work standard to judge in the fairest way. More importantly, the Thai Copyright Act B.E. 2537 should leave a little flexibility for courts. If something new fits within originality requirement and any of the listed categories, it should be protected if the court determines that it is an expression of an idea based on the nature of the work.

For example, in Apple Computer, Inc. v. Franklin Computer Corp.,[117] the court stated that one must distinguish between the method in which the computer operates internally, and the program, which is the set of instructions the computer follows in the course of carrying out the method. The difference is the same as between a method of building a model airplane, and the written instructions for building the plane. The instructions are merely the expression of the method, and as expression, are within the subject matter of copyright. As soon as there are sufficient alternative ways to express the same underlying method, the instructions can be protected by copyright.[118]

Finally, some innovations need some incentive for creation. Otherwise, investors would not develop those innovations and devote them to the public if they cannot benefit from their works and if they knew that their creative intangible works are not copyrightable. Therefore, this might adversely affect the public’s interest if there is no development of some works. In the United States, the law is more flexible by considering what an expression of an idea based on the nature of the work, regardless of whether the work is tangible. Following this approach, investors will be encouraged to create.

Moreover, as stated above, the Thai and U.S. governments should consider the debatable issue of whether copyright should protect the methodology or processes adopted by programmers, which will definitely be raised in Thailand in the future and is still being debated in the United States. The U.S. copyright law should not allow copyright protection to the methodology or processes adopted by programmers. As mentioned above, the purpose of the U.S. copyright law is to promote the progress of Science by securing for limited times to Authors the exclusive right to their respective writings. The U.S. copyright law serves to protect the writings of authors against unauthorized copying. Only works that are original are protected; as a result, independent creation by another without access to the copyrighted work would not be copyright infringement. In fact, the U.S. copyright law entitles the second work to copyright protection in its own right.

Unlike the U.S. copyright law, the purpose of the U.S. patent law is to promote the progress of useful arts by securing for limited times to inventors the exclusive right to their discoveries. Therefore, only a useful process, machine, manufacture, or composition of matter, or any useful improvement thereof can be protected by a patent.[119] Furthermore, the U.S. patent law requires novelty, and non-obviousness.[120]

Consequently, the novelty requirement of patent law contrasts with the originality requirement of copyright law. The novelty and non-obvious requirements state that the invention must not be a part of the prior art and not be an obvious variation of the prior art. As a result, an invention is not entitled to patent protection if it does not meet all these three requirements even though the invention is created independently from the prior art, unlike the U.S. copyright law.

Moreover, section 102(b) shows explicitly that Congress intends to distinguish between an expression adopted by the programmer, and the actual processes or methods embodied in the program. Therefore, the scope of copyright protection under the present law does not expand to the methodology or processes adopted by the programmer.

Congress intends to prevent overlapping protections under the copyright and patent laws. More importantly, it clearly shows that copyright protection covers only the expression, either in its original source code format, or in its machine-readable format within the definition of writing for copyright purposes.[121] Separately, patent protection covers ideas, which in this case are the methods and processes embodied in the program.

If copyright is extended to protect ideas, methodology or processes adopted by programmers, then those ideas would be protected by copyright even if those ideas do not meet the rigorous prerequisites of patent law, such as the novelty requirement. Creators of methods and processes would be able to claim copyright protection for their inventions if they cannot claim patent protection.

Otherwise, they might be able to claim both copyright and patent protection and take advantage of both laws. This is not the purpose of the copyright and patent laws. For example, utility patents expire seventeen years (or fourteen years in the case of design patents) from the date of filing with the U.S. Patent and Trademark Office.[122] Since protection for inventions gives a monopoly right in the exploitation of an idea, such protection is short in duration.

In contrast, copyright prevents only unauthorized use of the expressions of ideas. A person who has disclosed to the public an idea cannot prevent third parties from using this idea. Therefore, the duration of protection can be much longer than in the case of the protection of ideas.[123] Therefore, if an inventor is entitled to protection under both copyright and patent laws, the inventor would take advantage of the longer duration of copyright. This situation is equal to extending patent protection beyond its statutory term; it is an illegal extension of the patent grant.

Some opponents might argue that there is no statement in the Constitution and federal statutory law providing that patent and copyright protection must be an either/or protection. However, this argument is not appropriate because even though there is no such statement, the Constitution and federal statutory law should be enforced pursuant to their purposes as mentioned above.

Like in the United States, the Thai copyright law should not allow copyright protection to the methodology, or processes adopted by programmers because the purposes of Thai copyright and patent laws are similar to the U.S. laws. Similarly, the purpose of the Thai copyright law is to encourage people to create independently their own literary and artistic works (originality) without copying. The Thai copyright law protects only the manifestation of an idea, not an idea itself. On the other hand, Thai patent law protects ideas, method, and process. Like the U.S. copyright law, the second work, is eligible for Thai copyright subject matter as long as the author uses his skill, effort, and labor to create his work even if it is not new. Therefore, the Thai copyright law does not require novelty, unlike the Thai patent law. Allowing copyright protection to the methodology or processes would not be reasonable for the same reasons as under the U.S. theme.

C. Fixation Requirement

Section 102(a) of the U.S. Copyright Act should be changed to eliminate the fixation requirement for four main reasons. First, the U.S. Constitution provides only that Congress may grant exclusive rights in writings, regardless of whether those writings are fixed in a tangible medium. Second, even though Congress sought to resolve problems of new types of technology, such as live broadcasts through section 101, it is still not fair for authors. Third, requiring fixation encourages making copies of others’ works or copyright infringement. Finally, the elimination of the fixation requirement in the U.S. would encourage creating new works via the internet, and would benefit the public.

First, the Constitution provides only that Congress may grant exclusive rights in writings, regardless of whether those writings are fixed in a tangible medium. Therefore, works that are not fixed in a tangible medium should qualify as writings. More importantly, Congress should not exclude those works because requiring the fixation is not in the Constitution’s purpose. Furthermore, there is no policy reason that provides that the fixation requirement is a condition of copyright protection.

Second, even though Congress sought to resolve the status of live broadcasts through section 101, it is still not fair for authors if their creative live performances do not qualify as copyrightable subject matters because they do not fix their works by themselves into a tangible medium, or if the works are not fixed under their authority. Under section 101, the fixation requirement is not met unless the work is fixed by or under the authority of its author. Therefore, improvised live performance is not protected by copyright law, such as extemporaneous lecture, reciting a poem to a live audience, and improvising jazz in front of them; authors do not fix their works during the performance, or the authors have no control on recording their work by someone in the audience without the authors’ consent.

There will be a problem of fairness, such as when an author recites his poem extemporaneously. Someone may recite his extemporaneous poem perfectly, and then write the poem on his book. The second person who copies after the author recites will profit from his published books without copyright infringement. Similarly, an author may create a song and play it in a restaurant while someone may record the same song. The second person will profit on the album simply by recording. These situations are inconsistent with the purpose of copyright law. It encourages people to create works through copying, and thus ultimately violate the copyright law.

Third, even if an author of a live performance receives copyright protection, he will obtain copyright protection only against an audience’s subsequent copying. He has no copyright protection against an authorized simultaneous recording. Therefore, this amended section 101 does not prevent copyright infringement but encourage people to make copies instead.

Finally, due to the rapid growth of technology, there are a lot of works that might be questionable whether they are fixed in a tangible medium, such as a web site, e-mail, and on-line chat. According to section 101, those creative works do not qualify for copyright subject matter. For instance, transmission via the Internet would not be sufficiently fixed unless the work had already been copied onto a fixed medium or was being copied at the same time it is being transmitted. The elimination of the fixation requirement in the U.S. would encourage creating new works via the internet and the free flow of information. The public, as a result, would receive more information.

Consequently, the United States should follow the approach of other countries, such as Belgium, France, Brazil, Italy, Germany, and Thailand and accord copyright protection as soon as a work is in a form in which others can perceive it, regardless of whether it is also fixed in a tangible medium. Such works might include, for example, improvisational performances.

D. Non-illegal and Immoral Work Requirement

Thailand should clearly provide in the Thai Copyright Act B.E. 2537 that the non-illegal requirement is also a copyrightable subject matter requirement. There are two main reasons why Thailand should provide a non-illegal requirement. First, it can be implied in Case No. 3705/2530 that an illegal work cannot be a copyrightable subject matter in Thailand. Second, criminal policy should overcome copyright policy in the case of an illegal work.

First, as mentioned above, even though the Thai Copyright Act B.E. 2537 and the previous statute do not clearly provide whether an illegal work can be a copyrightable subject matter, it can be implied, according to the court in Case No. 3705/2530,[124] that an illegal work cannot be a copyrightable subject matter in Thailand. Thailand, thus, has an implied non-illegal requirement.

In addition to Case No. 3705/2530,[125] which assures that Thailand has a non-illegal requirement, Thai legal policies also show that Thailand should have a non-illegal requirement. The issue of the legal or illegal work is relevant to criminal law.[126] Consequently, whether Thailand should have a non-illegal requirement should depend on both copyright and criminal policies.

The purpose of copyright law is to stimulate the creation of as many works of authorship as possible to benefit the public. Criminal law governs the standard of conduct what conduct is criminal, and prescribes punishment to be imposed for criminal conduct. Therefore, the purpose of criminal law is to prevent harm to society. Both the copyright and criminal policies should be examined together, and balanced to determine what the policy should be in case of an illegal work.

Here, the criminal policy should defeat the copyright policy because safety to society is more important than benefit to the public. More importantly, the public should first be served under the criminal policy and before the copyright policy. For instance, granting copyright protection to a movie that depicts children in a sexually explicit manner might be a way to encourage people to commit crime to children and sexual abuse. Therefore, even if the movie meets the other subject matter requirements (the originality, idea/ expression, and fixation) copyright law should not allow copyright protection to this illegal movie. Granting copyright protection to the illegal movie is equal to encouraging people to commit a crime. As a result, Thailand should have a non-illegal requirement.

Like in Thailand, the U.S. Copyright Act of 1976 should be amended and provide a non-illegal requirement because both countries have similar copyright and criminal policies.

Moreover, the statute should address that a whole illegal work, not only an illegal part, is not protected by Thai and U.S. copyright laws to prevent harm to society. In fact, copyright law should not protect the legal part of the work if any part of the work is illegal, even if it meets all the subject matter requirements.

Some people might argue that copyright and criminal laws should be considered separately; therefore, even though a work is illegal under criminal law, the work might qualify under the copyright subject matter. Every law, however, should be considered to provide the best benefit to society.

As Thailand should have a non-illegal work requirement, the Thai Copyright Act B.E. 2537 should clearly provide that a non-illegal work is a subject matter requirement. Even if there is precedent, Case No. 3705/2530, the statute should explicitly provide that a non-illegal work is one of the subject matter requirements because. Thailand is a civil law country. Thai laws rely mainly on the Constitution and statutes themselves, not Thai cases. Moreover, for uniformity in the Thai copyright law, the Thai statute should clearly state that a non-illegal work is a subject matter requirement.

On the other hand, the Thai statute should not have a moral work requirement. Case No. 3705/2530 implies that an illegal work cannot be copyrightable subject matter, but the court did not state whether an immoral work can be a copyrightable subject matter. Due to this inconsistency in Thailand, the Thai government should amend the Thai statute and clearly address this issue.

Like in Thailand, the United States should not have a moral work requirement. There are two important factors why Thailand and the United States should not have a moral work requirement.

First, it is hard to define what a moral and immoral work is. In both countries, especially in the United States, there are a lot of nationalities, so there are a lot of competing cultures and values. The more cultures there are, the more difficult it is to frame the definition of moral and immoral works because people in each culture will have their own definitions. For example, an average person in Bangkok, the capital city of Thailand, will have more opportunity to interact with and adopt foreign cultures because they are in contact with more foreigners than the average person in other provinces. Therefore, on the average person in other provinces might decide that a critical journal is an immoral work because an author should not criticize in such a way; in contrast, a Bangkok resident might not see the work as immoral because everyone has freedom of speech. In the United States, in addition to the First Amendment, which protects the freedom of speech, U.S. citizens believe that they have a strong freedom of speech. Therefore, defining what constitutes a moral or immoral work is difficult.

Second, the difficulty in defining what is moral and immoral will be affected by the difference of ages. Adults might, consequently, decide that some works are immoral; on the contrary, teenagers might see the same works as moral.

Due to the variety of culture and age in both countries, there is no certainty to decide whether a work is moral or immoral. Therefore, both countries should not have a moral work requirement.

VI. Conclusion

To seek the best benefit to the general public, copyright law needs to balance two public policy goals which normally would conflict with each other. First, the law should provide an incentive to create copyrightable subject matters by giving authors exclusive rights. Second, it should provide the greatest possible public access to the works to promote a competitive marketplace. In case of subject matter requirement, copyright law, thus, should consider how to impose the subject matter requirements while also encouraging authors to create many works without fear that their works would not meet all the subject matter requirements. At the same time, copyright law should consider how to impose the subject matter requirements to preclude some works from copyright protection to allow public access those works without the creators’ consent.

To determine what subject matter requirements should be would be different from country to country based on a lot of factors, such as copyright policy and other areas of legal policies like criminal law. Culture and fairness should be considered. For instance, even though Thailand is a developing country, and would normally follow the U.S. court’s decision/judgment, the leader of copyright law, Thailand has its own legal system so the Thai government should consider Thai legal policies as a fundamental factor, instead of simply copying the U.S. Copyright Act of 1976 or U.S. copyright policies.

Moreover, Thailand should also realize its primary policy, all previous copyright law and judges’ opinion, especially in the Supreme Court where this issue might have been already addressed. Therefore, even though in the future there will be a lot of new changes in the nature of creative works, every country will be able to effectively enact copyright law.

[1] 17 U.S.C. § 102(a) provides as follows

“Copyright protection subsists, in accordance with this title, in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include the following categories:

(1) literary works;

(2) musical works, including any accompanying words;

(3) dramatic works, including any accompanying music;

(4) pantomimes and choreographic works;

(5) pictorial, graphic, and sculptural works;

(6) motion pictures and other audiovisual works;

(7) sound recordings; and

(8) architectural works.”

[2] 17 U.S.C. § 101 (1976).

[3] Id.

[4] White-Smith Publishing Co. v. Apollo Co. 209 U.S. 1 (1908).

[5] H.R. Rep. No. 94-1478 Section-by-section Analysis of the Copyright Act of 1976, http//www.digital-law-online.info (accessed April 4, 2005).

[6] 209 U.S. 1.

[7] Id.

[8] Julie E. Cohen, Lydia Pallas Loren, Ruth Gana Okediji & Naureen A. O’Rourke, Copyright in a Global Information Economy 75 (2002).

[9] Id.

[10] 17 U.S.C. § 4 (1909).

[11] A recurring question (under the 1909 Act) has been whether the statutory and the constitutional provisions are coextensive. If so, the courts would be faced with the alternative of holding copyrightable something that Congress clearly did not intend to protect, or of holding constitutionally incapable of copyright something that Congress might one day want to protect. To avoid these equally undesirable results, the courts have indicated that “all the writings of an author” under the 1990 Act is narrower in scope than the “writings” of “authors” referred to in the Constitution. The bill avoids this dilemma by using a different phrase – “original works of authorship” – in characterizing the general subject matter of statutory copyright protection. H.R. Rep. No. 94-1476, 94^th Cong., 2d Sess. 51 (1976), reprinted in 1976 U.S.C.- C.A.N. 5659,5664.

[12] Supra n. 5.

[13] Id.; see also Dan L. Burk, Patenting Speech, 79 Tex. L. Rev. 99, 153 (2000).

[14] Cohen, supra n. 8.

[15] Id.

[16] H.R. Rep. No. 94-1476, 94^th Cong., 2d Sess. 57 (1976), reprinted in 1976 U.S.C.-C.A.N. 5659, 5670.

[17] Section 102(b) provide that “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.”

[18] R.S. is the abbreviation of Rattanakosinsok (Rattanakosin Era) which started from the founding of Bangkok in A.D.1781 or B.E.2324. It is no longer in use.

[19] Weerawit Weeraworawit, Copyright in Thailand: The Intellectual Property
and International Trade Law Forum 1 (The Central Intellectual
Property and International Trade Court 2003).

[20] Id.

[21] Id.

[22] Jaran Pakdeethanakul, Intellectual Property Law 19 (Nititum 1980).

[23] Arapan Panaspattana, Intellectual Property Law 38 (Nititum 2004).

[24] Thailand was on the priority watch list for action under Special 301 of the Tariff Act for several years.

[25] Chaiyos Hemalatchata, Intellectual Property Law 28 (Nititum 2002); see also Jakrit Koawpot, et al., Intellectual Property Law 174 (Sukothaithummathirat 2003).

[26] Pakdeethanakul, supra n. 22.

[27] Hemalatchata, supra n. 25 at 29.

[28] Section 4 provides that “Creator means a person who makes or creates a work which is a copyrighted work under this Act;” Section 6 paragraph 1of the Thai Copyright Act B.E.2537 provide “Copyright works by virtue of this Act mean works of authorship in the categories of literary, dramatic, artistic, musical, audiovisual, cinematographic, sound recording, sound and video broadcasting work or any other works in the literary, scientific or artistic domain, whatever may be the mode or form of its expression.”

[29] Section 6 paragraph 2 of the Thai copyright Act B.E. 2537 provides that “Copyright protection shall not extend to any idea or procedure, process or system or method of use or operation or concept, principle, discovery or scientific or mathematical theory.”

[30] 17 U.S.C. § 102(a) (1976).

[31] Cohen, supra n. 8 at 83.

[32] Id. at 76.

[33] Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 345-346 (1991).

[34] Id.

[35] Id.

[36] Id.

[37] Id.

[38] Id.

[39] Bleistein v. Donaldson Lithographing Co., 188 U.S. 239 (1903).

[40] Id.

[41] Chromolithographs are pictures printed in colors from a series of lithographic stones or plates.

[42] Bleistein, 188 U.S. 239.

[43] Id.

[44] Id.

[45] Id.

[46] Section 103 provides that derivative works are within the subject matter of copyright. Section 101 defines a derivative work as a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, are reproduction, abridgment, condensation, or any other form in which a work may by recast, transformed, or adapted.

[47] Italian Book Co. v. Rossi, 27 F.2d 1014 (1928).

[48] Id.

[49] Id.

[50] Douglas Y'Barbo, The Heart of the Matter: The Property Right Conferred by Copyright, 49 Mercer L. Rev. 643, 665-66 (1998).

[51] Margreth Barrett, Intellectual Property 89 (Aspen 2004).

[52] Id.

[53] Id.

[54] 37 C.F.R. § 202 (1) (a) (1998).

[55] Barrett, supra n. 51.

[56] 17 U.S.C. § 102(a) (1976).

[57] Copyright Act, B.E. 2537 § 4, § 6 ¶1 (1994) (Thail.).

[58] Chaiyos Hemalatchata, Intellectual Property Law 32 (Nititum 2002).

[59] Section 5 of the Thai Patent Act B.E. 2522 provides that “Subject to Section 9, a patent may be granted only for an invention in respect of which the following conditions are satisfied:

(1) the invention is new…”

Section 6 of the Thai Patent Act B.E. 2522 provides that “An invention is new if it does not form part of the state of the art

The state of art also includes any of the following inventions:

(1) an invention which was widely known or used by others in the country before the date of application for the patent…”

[60] Case No. 2750/2537 (S.Ct. 1994) (Thail.).

[61] Id.

[62] Id.

[63] Section 12 provides that copyright in the work which is a compilation or a composition of copyright works by virtue of this Act done with the consent of the owners of copyright or a compilation or a composition of data or the materials which are readable, or conveyable by a machine or other apparatus vests in the person who makes the compilation or the composition; provided that he has done so by means of selection or arrangement in the manner which is not an imitation of the work of another person but without prejudice to the owners of copyright in the works or data or other materials, created by the original authors, which are complied or composed.

[64] Id.

[65] Arapan Panaspattana, Intellectual Property Law 38 (Nititum 2004).

[66] Section 4 provides that “adaptation means a reproduction by transformation, improvement, modification or emulation of the original work for the significant part without a manner of creating a new work wether in while or in part; ...”

Section 15 provides that “subject to Section 9, Section 10 and Section 14, the owner of copyright has the exclusive rights of: (1) reproduction or adaptation; …”

[67] Jakrit Koawpot, et al., Intellectual Property Law 174 (Sukothaithummathirat 2003); see also Jaran Pakdeethanakul, Intellectual Property Law 26 Nititum 1980).

[68] Case No. 848/2519 (S.Ct.1977) (Thail.).

[69] Id.

[70] Id.

[71] Section 12. Copyright in the work which is a compilation or a composition of copyright works by virtue of this Act done with the consent of the owners of copyright or a compilation or a composition of data or the materials which are readable, or conveyable by a machine or other apparatus vests in the person who makes the compilation or the composition; provided that he has done so by means of selection or arrangement in the manner which is not an imitation of the work of another person but without prejudice to the owners of copyright in the works or data or other materials, created by the original authors, which are complied or composed.

[72] Copyright Act, B.E. 2537 § 6 (1994) (Thail.).

[73] Case No. 848/2519 (S.Ct. 1976) (Thail.).

[74] See infra pt. V (A).

[75] Jessica Litman, Revising Copyright Law for the Information Age, 75 Or. L. Rev. 19 (1996).

[76] Nichols v. Universal Pictures Corp., 45 F.2d 119 (1930).

[77] Id.

[78] Id.

[79] Id.

[80] Baker v. Selden, 101 U.S. 99 (1879).

[81] Id.

[82] Id.

[83] Id.

[84] Id.

[85] Cohen, supra n. 8. at 94.

[86] Morrissey v. Procter & Gamble Co., 379 F.2d 675 (1^st Cir.1967).

[87] H.R. Rep. No. 94-1478 Section-by-section Analysis of the Copyright Act of 1976, http//www.digital-law-online.info (accessed April 4, 2005).

[88] Copyright Act, B.E. 2537 § 6 ¶ 2 (1994).

[89] Case No. 7036/2543 (S.Ct. 2000) (Thail.).

[90] Id.

[91] Id.

[92] Id.

[93] Id.

[94] Case No. 1908/2546 (S.Ct. 2003) (Thail.).

[95] Id.

[96] Id.

[97] Id.

[98] Kittisak Prokkati, The Thai Copyright Protection 15 (Nititum Publisher 1992).

[99] Chaiyos Hemalatchata, Intellectual Property Series 35 (2d ed., Nititum Publisher 2002).

[100] See infra pt. V (B).

[101] See infra pt. V (B).

[102] Id.

[103] 17 U.S.C. § 102(a) (1976).

[104] MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).

[105] Stern Electronics, Inc. v. Kaufman, 669 F.2d 852, 855 (2d Cir. 1982).

[106] See 17 U.S.C. § 101 (1976).

[107] Id.

[108] Id.

[109] See 17 U.S.C. § 301 (1976).

[110] Margreth Barrett, Intellectual Property 91 (Aspen 2004).

[111] See Berne Conv., art. 2(2) (1886).

[112] Case No. 3705/2530 (S.Ct. 1987) (Thail.).

[113] Id.

[114] U. S. Const. art. 1, § 8, cl. 8 (1790).

[115] Mitchell Bros. Film Group v. Cinema Adult Theater, 445 U.S. 917 (1979).

[116] Article 2(2) of the Berne Convention leaves the decision about whether to require fixation to each of the member countries, and neither the WIPO Copyright Treaty nor the TRIPs Agreement mentions fixation.

[117] Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (1983).

[118] Id.

[119] See 35 U.S.C. § 102.

[120] Id.

[121] In 1980, the U.S. copyright laws were amended to make explicit that computer programs, to the extent they embody an author's original creation, are proper subject matter of copyright.

[122] See 35 U.S.C. § 154.

[123] See 17 U.S.C. § 301-305.

[124] Case No. 3705/2530 (S.Ct. 1987) (Thail.).

[125] Id.

[126] According to the Thai Criminal Act B.E. 2499 section 287, whoever (1) for the purpose of commerce, distribution or performance to people, creates, occupies, imports a document, painting, advertisement, symbol, photograph, movie, recording film, recording tape or video which is obscene to Thailand or exports those works from Thailand (2) rent out those works…violates Thai criminal law.

A Comparative Analysis of U.S. and China’s Commercial Mediation and the Possibility of a China-U.S. Joint Mediation Program

2009-10-08T08:47:00.000-07:00

by Tao Huang

Introduction

Mediation has changed the idea of dispute resolution in a very impressive way. Long before the Chinese people began to settle disputes before tribunals, they had a tradition to settle such conflicts in an amiable way with an independent party, usually a person or organization with credibility or authority in the local community.

Though mediation has been used for centuries in East Asian countries, such as China and Japan, it was not until the middle of the last century that Western countries began to adapt mediation as an alternative dispute resolution (ADR). Since then, the United States, along with other Western countries, experienced an “explosion of mediation”[1] in the past 50 years.

International mediation grew rapidly around the world in recent years. One of the reasons for its development may be the continuous growth of international business transactions and international commercial cooperation among countries. On one hand, such kinds of commercial cooperation prompted global wealth and improved each country’s international trade; but on the other hand, such commercial transactions brought more commercial disputes. Since mediation has been very successful in settling domestic commercial disputes, legal professionals proposed that mediation should also be regarded as an international dispute resolution tool. With compelling data showing that 80% to 90% of disputes in China and the United States were settled not by litigation, but by mediation, ADR experts and legal scholars in both countries proposed that they should work together to settle the increasing commercial disputes between the two countries through mediation. It was their assumption that, since both countries have done a good job in applying mediation in dispute settlements, there should be minimal obstacles for experienced experts in both countries to work together to solve commercial disputes between China and the United States.

Unfortunately, after those ADR professionals began to work together in creating a mediation process, they realized that mediators from both countries had cherished different kinds of thoughts and working processes. Both the Chinese mediators and the United States mediators could not agree. It turned out that the mediators themselves needed a mediator to help them work together.

Hence, there was a barrier that interfered with the ADR experts’ joint efforts. Whether it is impossible for those professionals to work together and to help Chinese and U.S. companies settle commercial disputes through international commercial mediation came to be a very important issue for the legal professionals to address.

This article will analyze these questions on mediations in the United States and China. This article will also talk about the possibility of forming a China and United States joint mediation program. Part II will provide a background on the concept and a historical background on mediation in the U.S. and China. Part III will compare the two different ADR systems and identify the similarities and differences. Part IV will propose that, to promote a joint Chinese and United States ADR organization, there should be a working party to unify the concept, process, and working methods for the organization.

II. Historical background on mediation in the U.S. and China

Along with arbitration and litigation, mediation is another important way to solve disputes. It could be defined as “[a] method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution.”[2] The definition indicates three key points: (1) there are facts showing that parties do have disputes; (2) a neutral third party interferers to assist disputants; and (3) the purpose is to make a mutually acceptable solution for disputing parties.

The use of mediation in China to resolve disputes has a long history that can be traced to 2,500 years ago, the earliest time in Chinese history. Like China, as some American scholars provided, mediation in the United States can be traced to Colonial America.[3] Accordingly, this article will introduce the historical background on mediation in China and the United States.

The Evolution of Mediation in China

Mediation has been widely used in Chinese history. There are many old proverbs that express how Chinese people prefer mediation as the primary method for resolving disputes: “harmony is valuable,” “cooperation could lead to fortune,” and “it is better to keep a friend, than to win a victory.”[4] This traditional tendency to avoid litigation has at least two reasons: the idealistic reason and the practical reason.

1. The Idealistic Reason

The idealistic reason that Chinese people have a preference for mediation rather than litigation is based on Chinese traditional culture. “Confusicianism played a major role in the evolution of mediation in the PRC.”[5] As Confucius said in one of his famous books, “Lun Yu,” the most valuable usage of Li is to regulate the relationship among people. [6] Confucius stated that a king should follow the effect of Li to rule his kingdom; he should regard Li as the essential virtue of the country; no matter what people were dealing with, they should obey Li as the guideline for their life.[7] That is, as citizens in such a country, they should conduct their lives in accordance with their respective social status. [8]

In Confucius’s view, the world would be in peace and harmony as long as everyone follows Li. If not, disputes and conflicts would arise which would jeopardize the social harmony. Hence, when a dispute arose, the parties should try to resolve it promptly by themselves or by an independent person, who usually was a person with good reputation or credibility to help solve the dispute.

2. The Practical Reason

Besides Confucianism, practical considerations were very important to the disputing parties. [9] From its earliest history, the Chinese people had formed a tradition of disliking the bringing of disputes before a judge. [10]An old saying shows the ancient Chinese view of lawsuits: “It is better to die of starvation than to become a thief; it is better to be vexed to death than to bring a lawsuit.”[11]

The reasons why the Chinese people so dislike litigation might be that, first, “in traditional China, failure at compromise resulted in a lawsuit, which caused both sides to ‘lose face’ and ruined a person’s reputation in society.”[12] Second, the time and expenses for litigation were usually too high for them to afford. Furthermore, the outcome of such litigation would be inefficient for all the disputing parties. For example, a plaintiff might not recover through a judicial decision if the defendant could not bear the plaintiff’s claims for both his losses and litigation fees, or “[p]ending trial and during the long period that the case might be on appeal.”[13] As to the parties, such results would be inefficient for them. Therefore, both parties prefer to settle their disputes outside of court through mediation.

Because of the domination of Confucianism in Chinese history and the Chinese people’s negative views on litigation, mediation was the primary method for dispute resolution, while litigation became an alternative. As to contemporary China, the Chinese people still value a conflict-free, group-based system of social relations.[14] Though litigation has been widely used in settling disputes, mediation remains on its own as an important method for dispute resolution.

In today’s China, the government regards mediation as an ideal way to resolve civil conflicts or disputes. In 1954, just after five years of the establishment of the People’s Republic of China, the Chinese government adopted the Provisional General Principles on the Organization of People’s Mediation Committees. [15] This regulation confirmed the legal status of mass organization to the People’s mediation committee.[16] From then on, the government allowed the registration of such mediation committees as non-profit organizations, and most of them were regulated by the Department of Justice.

Mediation not only had been officially admitted by administrative authorities, but also had been accepted by the Chinese legislative organs and courts. About 80 to 90 percent of cases had been solved by mediation processed through a judge. The People’s Congress put mediation as the mandatory process in “Chinese Marriage Law,” requiring that a judge should operate mediation for couples before issuing his decision. [17]

With the support from government, mediation in China took an important role in solving disputes in civil, criminal, commercial and trade, real estate construction and many other areas. With the efforts of the China Council for the Promotion of International Trade/ China Council of International Commerce (CCPIT/CCOIC), the largest Chamber of Commerce in China, arbitration and mediation became widely used to solve international commercial disputes.[18]

The development of mediation in the United States

Mediation in the United States can be traced to Colonial America. “In the United States, religious immigrant and trade groups in colonial New England sustained their ethical and religious traditions in part by using mediation to resolve conflicts among group members.”[19] In 1913, it was formalized as an alternative to litigation by the U.S. Department of Labor, which appointed a panel called the "commissioners of conciliation" to deal with labor and management disputes and provided that the Secretary of Labor act as mediator.[20] In 1926, the American Arbitration Association set up its mediation service for the resolution of disputes.

However, mediation did not receive more attention than litigation and arbitration in the United States until the 1960’s. Some legal scholars stated that it was the result of “often voiced frustration and disappointment associated with the use of our justice system as a means of dispute resolution.”[21] Litigation is risky, arbitrary, and costly.[22] It is also an all or nothing resolution to a conflict that can disrupt business and family relationships.[23] Such criticism partly explained the development of the ADR movement in the United States.

As more and more used mediation to settle civil and criminal disputes, Americans realized that mediation is an efficient method of dispute settlement.[24] During the time from 1960’s to 1970’s, organizations across the country formed committees to find ways of using alternate dispute methods.[25] These organizations advocated that people could use mediation “(1) to relieve court congestion as well as undue cost and delay; (2) to enhance community involvement in the dispute resolution process; (3) to facilitate access to justice; [and] (4) to provide more 'effective' dispute resolution.”[26] Mediation, thus, developed rapidly in the United States in the past 20 years.

Noticing the positive efforts that mediation had made, “[m]any state and local governments have funded mediation programs to deal with disputes in many different situations including family, environment, governmental contracts, and even the playground.”[27] For example, “[i]n 1979, the U.S. Department of Justice supported the development of model Neighborhood Justice Center programs in Kansas City, Atlanta, and Los Angeles. Each program was required to provide training in mediation skills for those serving the center.”[28]

Furthermore, United States courts, both federal and state, welcomed the explosive use of mediation in the early 1980’s. In court, mediation is referred to as “mandatory mediation.” With mandatory mediation, a court orders the parties into a mediation session. Although the parties have to enter mediation, they do not have to agree to accept the agreement or the mediator's award and can still proceed to the courtroom to resolve the dispute.[29] That is to say, mandatory mediation is not the only method to settle disputes in a court, but is one of the methods which judges use to resolve disputes before parties enter a courtroom.

The increasing use of mandatory mediation in courts has much to do with relieving the judges’ burden of cases and for bringing a faster resolution of disputes. Therefore, legislatures began admitting mediation as an important method of dispute resolution. In 1981, New York State published its statewide, publicly funded statutory scheme enabling each county to adopt a mediation program for its jurisdictions to handle misdemeanor cases and small claims disputes.[30]

As to the federal government, court mandated ADR received a jump-start from the federal government in 1998 when Congress enacted a statute ordering federal courts to start ADR programs.[31] This statue also called the Alternative Dispute Resolution Act of 1998, authorized federal district courts to implement ADR programs. [32] The ADR programs are used in all civil actions, and the statute specifically includes bankruptcy proceedings.[33] This law allows the district courts significant flexibility, "including the ability to determine the extent of the court's ADR program, what types are used, [and] what disputes are covered."[34]

Nowadays, mediation has been widely used in resolving commercial, civil, small claims, criminal, family, labor, housing, land, and environmental disputes in the United States. “Parties are now commonly providing for mediation in dispute resolution provisions in contracts and voluntarily turning to the process when disputes arise.”[35] Furthermore, ADR experts and scholars also use mediation in solving international commercial disputes.[36]

III. The similarities and differences between mediation in China and the United States

Mediation has been used widely to resolve disputes in many countries. Within the international context, international mediation offers all of the benefits that it offers domestically, especially in settling conflicts in business relationships. [37]

Having learned that mediation is gaining widespread acceptance and realizing the importance of regulating the working process of mediation, many international organizations started to set guidelines or model laws for implementing mediation programs. Indeed, the Uniform Mediation Act (UMA) and the United Nations Commission on International Trade Law Model Law for International Commercial Conciliation (UNCITRAL Model Law) “reflect the emergence of an international consensus about the importance of mediation as a mainstream method of resolving disputes, as well as the importance of confidentiality to that process.” [38]

Furthermore, some international arbitral organizations consider mediation to be part of their mission of promoting the settlement of disputes. For instance, “the American Arbitration Association (AAA) standard form of arbitration provisions includes mediation-arbitration procedures. The AAA also has adopted rules for mediation of commercial disputes that compliment its arbitration rules.”[39]

In China, the China International Economic and Trade Arbitration Commission revised its Article 44.4 of its Arbitration Rule (2000), stating that if parties who are involved in an arbitration procedure reach an agreement through mediation without the involvement of the Arbitration Commission, “any of them may, based on an arbitration agreement…request the Arbitration Commission to appoint a sole arbitrator to render an arbitration award in accordance with the contents of the settlement agreement.”[40] This article, to some extent, grants the enforceability of a mediation agreement by converting the content of the mediation agreement into an arbitration award.

Likewise, many domestic mediation institutions followed and started to create their own guidelines or regulations for international commercial mediation.[41] Some of the mediation institutions even started to appoint foreign mediators to solve disputes arising from parties with different business cultures.

As to China and the United States, since 1979, under Deng Xiaoping’s “open door” policy, the Chinese economic and legal structures have developed rapidly. As more and more companies began to do business and invest in China, disputes arose when deals or investments went bad. Since more and more parties agree to choose mediation to solve their commercial disputes, international mediation institutions in China and the U.S., such as the China Council for the Promotion of International Trade Conciliation Center, appointed mediators from the United States into its mediation panel list to facilitate parties from the U.S. to choose mediation.

Unfortunately, those institutions found that, during the mediation process, the Chinese mediators and U.S. mediators usually could not agree with each other in many issues; they even criticized each other. For example, mediators from the United States usually complained that their Chinese colleagues did not follow the mediation procedure; on the other side, the Chinese mediators could not bear that those U.S. mediators were reluctant to find the facts of those disputes and were not willing to help parties arrive at an enforceable plan. [42]

In order to identify the barriers and the causes of disagreements between Chinese and U.S. mediators, one must compare the mediation process in both countries, and analyze their similarities and differences.

The similarities between mediation in China and the United States

The similarities between mediation in both countries are evident. Since China has a long history of using mediation to settle disputes and the United States has used China as a reference in the beginning of its mediation practice, both the mediation systems enjoy some similarities.[43]

Initiation of Mediation

In both countries, “[m]ediation is a voluntary process in which a neutral third party with no authority to impose a solution helps parties to reach a personalized agreement for resolving their differences.”[44] Both of the mediation systems require parties who want to initiate the mediation to submit their written application, along with the mediation fee. If there is no submission for mediation or no contract clause for mediation, a party may request the mediation institution to invite another party to join in a submission to mediate. [45]

Qualifications and Ethical Requirements for Mediator

As to mediators, they “work with the parties together and separately to identify important issues, to minimize the retrospective placing of blame, to stress potential areas of agreement, and to build a desire to reach a settlement acceptable to both parties.”[46] Hence, mediators are essential to a mediation process. To a very great extent, the results of the entire mediation are decided by the quality of its mediators. One could put much suspicion on the fairness of a mediation award if he had a chance to learn that mediators have a bias towards one party. Thus, most mediation centers have admission standards, and also an additional Ethics Rules for mediators. As to the CCPIT Conciliation Center and AAA, each of them set a very high standard and Ethic Rules for mediators.

Article M-5 of the AAA International Mediation Rule (2003) provides that “[n]o person shall serve as a mediator … in which that person has any financial or personal interest in the result of the mediation, except by the written consent of all parties. Prior to accepting an appointment, the prospective mediator shall disclose any circumstance likely to create a presumption of bias or prevent a prompt meeting with the parties.”[47]AAA also has The Model Standards of Conduct for Mediators to help mediators perform three major functions: to serve as a guide for the conduct of mediators; to inform the mediating parties; and to promote public confidence in mediation as a process for resolving disputes. [48]

The CCPIT Conciliation Center does not provide its qualification requirements for mediators in its Mediation Rules, but established its Ethic Rules for Mediators in 1993. The rules require mediators to be impartial and independent to all disputing parties. [49]

Privacy and Confidentiality

One of the major pillars[50] of mediation is that, it allows mediators to “conduct joint and separate meetings with the parties.”[51] The AAA International Mediation Rules, establishes that “[m]ediation sessions are private. The parties and their representatives may attend mediation sessions. Other persons may attend only with the permission of the parties and with the consent of the mediator.”[52] Besides that, “[c]onfidential information disclosed to a mediator by the parties or by witnesses in the course of the mediation shall not be divulged by the mediator.”[53]

In China, though the protections of privacy and confidentiality are generally weaker than the United States, according to Article 66 of the PRC Civil Procedure (1991),[54] the CCPIT Conciliation Center provides that, “[m]ediators should keep the information received from one party confidential if the party requires.” [55] The Rules also allow mediators to proceed with the mediation process under any proper methods they deem appropriate.[56]

Termination of Mediation

Mediation is a non-binding, consensual procedure facilitated by mediators without any decisional power,[57] so the termination of mediation usually occurs in two ways: (1) with the facilitation of mediators, parties agree on a mediation award, which is not binding, or a mediation agreement and execute it; (2) if parties could not agree on a mediation agreement, mediators and/or parties usually would write a written declaration stating that the mediation process is to be terminated. Article M-14 of AAA International Mediation Rules has such provisions, and one could also find the same contents in Article 17 of The CCPIT Conciliation Center Mediation Rules. Moreover, both of the mediation rules allow disputing parties to submit their disputes to an arbitration committee or a court if the mediation process is over.

Other Similarities

There are many other similarities in both of the countries: the initial statements are taken from parties;[58] there is a restatement of the facts by mediators, and the use of caucus is present in mediation.[59]

In addition, both mediation programs have some common disadvantages in settling disputes: disputants can refuse to implement the mediation agreement even if they signed it, and the process would be an extra waste of time and money if the mediation is not successful.[60]

The differences between mediation in China and the United States

Despite the similarities mentioned above, differences between mediation in the United States and China are also apparent. In addition to institutional factors, the differences in mediation between China and the United States are attributed to fundamental social and cultural differences. China is a collective society while the U.S. is a more individualistic society. The U.S. people and Chinese people speak different kinds of languages, they experienced different social traditions and customs, the religions are not the same, and they also have different demands on ethics and morals. These cultural differences lead mediators from each country to cherish different ways of thinking and different working methods during the mediation process.

1. Procedure Preferred or Facts Preferred

The main difference between mediation in China and the United States is that mediators in the United States care more about the procedure of the mediation process, while Chinese mediators prefer to know more about the facts between the disputing parties.

Just two years ago, when mediators from China and the United States worked together in assisting disputing parties from each country, one from China and the other from the United States, the U.S. mediator complained that the Chinese mediator kept on asking the disputants questions concerning substantive issues and provided his own judgment on those issues, and the Chinese mediator did not follow the procedural rules for the mediation proceedings strictly. The U.S. mediator stated that the Chinese mediator did not act in a professional way and will ruin the whole proceedings in the end. On the other side, the Chinese mediator stated that the U.S. mediator acted as a businessman, but not as a legal professional. All he did is just “Huo Xi Ni,” which in Chinese means he was nice to both of the parties, even if a party had legal liabilities to the others. The U.S. mediator did not have a right view on right and wrong, and he stuck himself too much on the written rules.

Chinese mediators, like mediators in the United States, utilize skills and strategies to establish and promote communication between disputants. Pursuant to the Mediation Rules, they also followed some procedural steps in mediation processes. [61] But unlike their U.S. colleagues, they are more likely to know the facts of the disputing issues, and make recommendations for possible solutions, and give advisory opinions. [62]

This difference may be caused by the different legal culture in these countries. Generally, the ancient Chinese judges focused more on the substantial facts in a case,[63] but they were reluctant to adopt comprehensive rules for “the Due Process of Law,” which is a concept in U.S. legal culture that American lawyers have enjoyed for two hundred years. Though this traditional custom has changed in the past twenty years, one can still find its influence in today’s China. As to mediation, the mediation rule makers appreciated the idea of “seeking for substantial facts.” Article 1 of The Mediators’ Ethic Rules requires that “[m]ediators should, based on the facts and laws which would applied, with the analysis of parties liabilities, mediate disputes neutrally and independently.”[64] In other words, this article allows mediators to determine the facts, as well as the legal liabilities of disputants, and run the mediation process by offering parties his judgment and solutions on the disputing issues.

In contrast, mediators in the United States do not have the obligation to find out what the facts really were and what kind of solutions the disputants should adopt. Though, the mediator may provide information about the process, raise issues, and help parties explore options. The primary role of the mediator is to facilitate a voluntary resolution of a dispute. [65] It was the parties who shall be given the opportunity to consider all proposed options. That is to say, the mediators should not impose his self-deemed reasonable solution on parties. Additionally, the mediation rules in the United States pay more attention to the procedural issues during a mediation process, such as vacancies, date, time, place of mediation, and identification of matters in a dispute.[66]

2. Mediator-Oriented or Disputant-Oriented

The first major difference also leads to other differences in mediation between China and the United States. For example, a mediator from China could not agree on a typical mediation rule in the United States, saying that the disputing parties should decide the time, and place for the mediation process because it is the mediators’ rights to set up a timetable and working procedure for the mediation process. Comparing the two mediation systems, the Chinese mediation system is based more on mediators’ interests, offered mediators more power to run the mediation process even by imposing some obligations on disputing parties: “[p]arties should cooperate with mediators sincerely, submit his evidence and relating materials, present in mediation meeting on time by mediators’ requests.”[67] Besides that, the mediation rules also allow mediators to “disclose the information he got from one party to another, based on his own judgment unless the party inform him not to.”[68]

On the contrary, the mediation rules in the United States prefer to protect disputants’ rights and interests rather than the mediators. As to confidentiality, though Chinese mediation rules provide such protection to some extent, the United States mediation rules have a better protection for parties saying that “[c]onfidential information disclosed to a mediator by the parties or by witnesses in the course of the mediation shall not be divulged by the mediator.” [69] The United States mediation rules and practice also let the parties to arrive at solutions by themselves; the ideas from disputants would be well concerned in the mediation meeting. The role of a mediator is just to act as a neutral, independent third party who may provide some options to facilitate the parties to come to an agreement, but he should not impose any pressure on parties arrive or not to create a solution.

IV. The possibility of establishing a joint mediation program between China and the U.S.

Though the issue of how to promote mediation between China and the U.S. to be more applicable and more effective has become one of the most heated topics since the trade relationship between the two countries has grown closer, the differences in the idea, the process, and the culture of mediation have been a barrier for mediators of the two respective countries to work together in a certain case. As mentioned above, the mediators in China were more likely to act as a Chinese judge in a mediation process, while U.S. mediators acted as an independent third party whose job was only to assist the parties to arrive at a solution.

The different roles of mediators in the mediation process in China and the U.S. may result from practice as well. The Chinese people, when disputes arise, will choose mediation to solve conflicts first. In that period of time, there are usually no lawyers involved in the process to provide legal advice to the parties. Since the mediators in such a mediation process are people with good reputations or legal professionals, the parties would like to put their trust on them and believe they would provide reasonable analysis on the facts, and then provide satisfactory solutions for each of the disputing parties. Things may be different in the United States. In the U.S., when people have disputes in commercial practice, they will contact their lawyers first. The lawyers provide a legal analysis of the facts and represent their clients in negotiations. If the negotiation fails, instead of submitting the dispute to a court, they will choose mediation to be an alternative resolution. When the mediation process initiates, each party, with the assistance of their lawyers, will not have trouble understanding the facts and legal issues. Thus, the roles and functions of the mediators in U.S. have been limited quite a lot in the mediation process, “[u]nlike a judge or an arbitrator…the mediator is not a decision-maker… [t]he role of the mediator is rather to assist the parties in reaching their own decision on a settlement of the dispute.”[70]

Although the mediators in each country have diverse but successful ways to help disputing parties to solve their conflicts in an amiable way, such ways may not apply in dealing with international commercial disputes arising between companies from different countries. But the fact is, more and more U.S. business people and companies now have been deeply involved in commercial cooperation with their Chinese partners in the form of foreign direct investment, trade, manufacturing, and licensing. With increasing business between them, disputes occur frequently and there is a growing need to resolve them.[71] Within such an international background, recognizing mediation is an attractive alternative which could “[minimize] the cost, [provide] a speedy settlement, and [preserve or develop] an underlying business relationship between parties to the dispute,”[72]the disputing parties have got a preference to mediation or arbitration over to solve their disputes. Thus, such demands for mediation require mediators from both of countries to find a way to work together through the mediation process.

The mediation institutions in both countries have been conducting experiments on such kinds of joint mediation. For example, besides appointing U.S. mediators into its mediator panel, some Chinese ADR institutions, such as the China International Economic and Trade Arbitration Commission (CIETAC) has taken a mediation method as called “joint mediation” in international arbitration proceedings. [73] “Under the ‘joint mediation’ device, a Chinese party may apply to the CIETAC and the foreign party to a corresponding arbitral organ in his/her own country for joint arbitration.”[74] And then, these arbitral institutions, will each appoint one or more mediators to mediate the case jointly. [75] Such kind of solutions, avoid the problem of how to make mediators from different countries work effectively and productively. It would also cause another problem. Since there are two independent ADR institutions which apply different rules of arbitration and mediation, it is difficult for such institutions to communicate with each other and negotiate whose rules would apply in certain cases. That is to say, the situations are more complicated than appointing foreign mediators in one institution. If the institutions want to work together productively, they have to negotiate how to work together as well.

Therefore, applying commercial mediation in the international background is not as easy as legal professionals and scholars initially thought. There are different cultures, ways of thinking, working methods and working ideas involved which would definitely cause great conflicts between the mediators. In order to make international commercial mediation a success, appointing foreign mediators into a mediation center panel or cooperation within different ADR institutions are not the best approaches. The best approach is to establish a joint mediation program which has an independent center which has its own mediation rules and consisting of mediators from China and the United States.

A. The reasons for establishing a joint mediation center:

1. Unification of process. Unlike mediation centers that appoint foreign mediators occasionally into its mediation panel, and unlike mediation centers from different countries cooperating irregularly in joint mediations, the purpose of establishing an independent joint mediation center for China and U.S. is to unify the mediation rules, working procedure, mediator’s working guidelines, ethic codes, and a mediator panel list between the two countries. The advantage of such a method is that it will combine the variance of processes from different mediation centers into one, which is suitable for both cultures. With the unification of mediation rules and working procedure, such a joint mediation center could avoid the conflicts that occur if mediation centers argue on whose rules and mediation process would apply when they are cooperating together. Furthermore, it will provide the parties, mediators, and other working staff a guideline through the mediation process.

2. Administrative adequacy. “There are various ADR providers that have sought international business. There are also many individuals and firms that are seeking to increase their business in this area.”[76] Each ADR institution, individual or firm, if possible, will establish its own mediation rules and process to guide their mediation process. Thus, a problem will occur if two independent mediation centers work together in a joint mediation program. They have to negotiate, or even argue on whose policies and working procedure would apply in such mediation cases. Comparing such situations, an independent joint mediation center will have more administrative adequacy. It is much easier and more efficient for such an joint mediation center to enforce a policy or working procedure within the center; furthermore, with one mediator panel list which consists of permanent mediators from China and the U.S. instead of employing mediators occasionally, it is much easier to organize mediators in some training programs to get familiar with the mediation center’s rules and mediation guidelines.

2. Neutrality. Compared to domestic commercial mediation, the most important distinction of international commercial mediation is that it deals with cross-cultural disputes.[77] The involving parties, not only the disputants, and mediators, or even secretaries who deal with the arrangements and routine work in the mediation center, “must first recognize the additional challenges that cross-culture disputes bring.”[78] Since the people involved in a mediation process, the language, traditions, customs, religions, ethics and morals are quite different between China and the U.S., the establishment of a joint mediation center which consists of mediators from both of the countries will “neutralize” such kinds of differences.

The domestic mediation centers and mediators in both of the countries, as we learned above, have implemented different working policies and working methods which both of the two parts regarded as their valuable experience. Although, such experiences are quite successful in one country, they could not apply in dealing with international commercial mediation. For example, although mediators in China and the U.S. know that there are “normal steps of questioning the parties,”[79] such “normal steps” are not the same in China and the U.S. The Chinese mediators may cherish that it is his responsibility to question the parties about the facts of the dispute, and impose a solution which he thinks is reasonable on the parties. On the other side, the U.S. mediators may regard that all he should do is question the parties to clarify the dispute, and what the parties really want from mediation without providing the parties any solution.

However, establishing a joint mediation center will be helpful in eliminating such different ideas on the same terms. By adopting general mediation rules and handbooks within such a center, mediators, by taking part in training programs and meetings, will have a unified idea on the terms and conditions in the mediation rules, and also an integrated understanding on the mediation center’s working policies.

3. Shared values. Another reason for a joint mediation program under an independent joint mediation center is that it will provide the mediators an opportunity to share different values between China and the United States. It will provide mediators from both countries more opportunities to communicate with each other during training programs and meetings to share their opinions, which may be different from each side, on how to promote mediation within the two countries. By doing this, the mediators from China and the U.S. would have a better chance to arrive at a better understanding of the other side’s culture and social values. Thus, when disputing parties’ conflicts arise only based on different social values between China and the U.S., the mediators, with the understanding of both social values in China and the U.S., will find a easy way to help the disputing parties arrive at a solution.

Therefore, as compared to other mediation centers dealing with commercial mediation, a joint mediation center can do a better job in an international playground.

B. The practice of a joint mediation center between China and the United States

After learning from the lessons on unsuccessful joint mediation practices concerning China and the U.S., legal professionals, scholars, and even mediators themselves from both countries began to realize the importance of establishing an independent joint mediation center that focuses on providing mediation for disputants for Chinese and U.S. businesspeople. [80] Nevertheless, some of them started their cooperation years ago in establishing such a joint mediation center to provide mediation services for Chinese and U.S. companies and businesspeople.

Such cooperation leads to an effort in 2004. In partnership with each other, the China Council for Promotion of International Trade (CCPIT) and Central Public Resource Institute for Dispute Resolution (CPR) built the first joint mediation center, the U.S.-China Business Mediation Center, which implement its own rules and procedures, and its own commercial mediators from China and the United States to mediate resolution of conflicts between Chinese and American (or other Western) companies.[81] Compared to the CCPIT Conciliation Center mediation rules and the CPR Model ADR Procedures (Mediation of Business Disputes) which are made by each center individually, the U.S.-China Business Mediation Center tailors its rules and procedures to be more fair and commercially rational for the settlement of American and Chinese business disputes: [82]

1. Selecting the mediator. In the United States, as stipulated in Article 2 of CPR Mediation Model Procedure, there is usually one mediator in a mediation process who communicates with the disputing parties.[83] This rule, however, may not be practical when dealing with disputes concerning parties from different countries such as China and the U.S. because it is difficult to find a mediator, whether he is an American or a Chinese, who has sufficient understanding of both American and Chinese social culture and business practices. Thus, the U.S.-China Business Mediation Center adopted a Chinese mediation practice which gives the disputing parties a choice to select two mediators, one from China and the other from the U.S. to conduct the mediation. [84] With this method, the parties have an opportunity to tell his story more precisely to the mediator who can speak his own language, which would in turn give mediators a better understanding of the facts.

On the other hand, the U.S.-China Business Mediation Center prohibits the center itself from selecting mediators for the parties which provides the disputants ultimate right to the mediation process. This requirement, which is common in U.S. commercial mediation practice, is contrary to the Chinese practice which entitles the mediation center to designate a single mediator to conduct the proceedings if the parties could not agree on a mediator or mediators. [85] However, in order to make the joint mediation fair to both parties, Chinese legal professionals gave up their standards to show their respect to the U.S. mediation experience.

2. Confidential. It is a basic requirement for mediators to keep all information he has acquired during the mediation proceedings confidential. But as we mentioned above, the CCPIT Conciliation Center Rules (2000) allow mediators to disclose information he obtained from one party to another, based on his own judgment unless the party informs him not to. However, the U.S. -China Business Mediation Center abolishes the Chinese practice, which offer weakened protection for parties’ confidential rights, and adopts the U.S. practice by stipulating in the Mediators’ Professional Ethics that, “[m]ediators shall keep confidential all information, arising out of or in connection with the mediation, including the fact that the mediation is to take place or has taken place, unless compelled by law or public policy grounds.”[86] By adopting such an article, the center believes that it will attract the trust of U.S. companies in the mediation process to submit their disputes concerning their Chinese partners to the center.

Besides the innovative articles in its rules and procedures, with the ambition of providing a non-prejudiced and non-biased mediation service, the center also has a significant mediation panel which consists of many creditable legal professionals or mediators from both countries. These mediators have also been specially trained by the CPR and CCPIT to be aware of the business practices and legal alternatives of both Chinese and American companies. [87] With these methods, the Center has been regarded as a successful institution in providing mediation services concerning China and U.S. companies.

V. Conclusion

Mediation as a form of dispute resolution has been widely used even before laws were made in China. Nowadays, it gained increasing popularity in the United States as well.[88] The successful usage of mediation in China and the U.S. makes legal professionals, mediators and scholars believe that there could be another successful application if mediation could be applied in solving disputes arising between Chinese and U.S. businesspeople through the cooperation of mediators from both countries. However, to make this proposal applicable, more work needs to be done. Comparing the addition of foreign mediators into a domestic mediation center or two independent mediation centers, one from China and the other from the U.S., which cooperate occasionally in some mediation cases, a combined mediation center which implements its own rules, procedures, and its own commercial mediators from China and the United States will have more advantages to promote the peaceful settlement of such disputes. There are not only business and legal issues involved in those disputes, but also intercultural issues.

[1] Cheri M. Ganeles, Cybermediation: A New Twist on An Old Concept, 12 Alb. L.J. Sci. & Tech. 715, 728 (2002).

[2] See mediation, Black's Law Dictionary (Westlaw Online Database),.

[3] See Susan L. Donegan, ADR in Colonial America: A Covenant for Survival, 48 Arb. J. 14, 14 (1993).

[4] Justice Robert F. Utter, Tribute: Dispute Resolution in China, 62 Wash. L. Rev. 383, 384 (1987).

[5] Robert Perkovich, A Comparative Analysis of Community Mediation in the United States and the People’s Republic of China, 10 Temp. Int’l & Comp. L.J. 313, 314 (1996).

[6] “Li” means courtesy and decency in Chinese language.

[7] He Huang & Zili Mu, China’s Commercial Mediation: Principles and Practice, 2 (China’s Democracy and Judicial Press, 2002).

[8] As to social statuses, Confucius interpreted “Li” as “three Gangs”, which means “three orders” in a society: a king should be the “gang” of his ministers; a father should be the “gang” of his children; a husband should be the “gang” of his wife.

[9] Vai Io Lo, Resolution of Civil Disputes in China, 18 UCLA Pac. Basin L.J. 117, 122 (2001).

[10] Zhongqiu Zhang, Chunfu Yang and Jian Fan, Jurisprudence, 14 (Nanjing University Press, 1997).

[11] Jerome A. Cohen, Chinese Mediation on the Eve of Modernization, 54 Calif. L. Rev. 1201, 1201 (1966).

[12] Shin-yi Peng, the WTO legalistic Approach and East Asia: From the Legal Culture Perspective, 1 Asian-Pacific L. & Pol’y J. 13, 16 (2000).

[13] Utter, supra n.5 at 385.

[14] Shin-yi Peng, supra n.13 at 16.

[15] See Article 1, Administrative Affairs Council’s Decision on the Handling of Work on Letters from People and Reception of People.

[16] Id.

[17] See 2000 Marriage Law §4.32.

[18] CCPIT, Settlement of Disputes, http://www.ccpit.org/vhosts/english/VI.htm (April 7, 2005).

[19] James J. Alfini, Sharon B. Press, Jean R. Sternlight and Joseph B. Stulberg, Mediation Theory and Practice, 1 (Lexis, 2001).

[20] William E. Simkin and Nicholas A. Fidandis, Mediation and the Dynamics of Collective Bargaining 25 (2d ed. 1986).

[21] Kimberlee K. Kovach, Mediation: Principles and Practice, 1 (2 ed., St.Paul Minn. 2000).

[22] John W. Cooley, Mediation Advocacy 5 (Nita Publications 1996).

[23] Id.at 7.

[24] Joseph B. Stulberg, Training Interveners for ADR Processes, 81 Ky. L.J. 977, 977 (1993).

[25] Stephen B. Goldberg, Frank E. A. Sander, Nancy H. Rogers and Sarah Rudolph Cole, Dispute Resolution: Negotiation, Mediation, and Other Processes 3 (Aspen Publishers 2003).

[26] Id. at 5.

[27] Kovach, supra n. 22 at 26.

[28] Stulberg, supra n. 22 at 982.

[29] Peter Lovenheim, How to Mediate Your Dispute 28 (Nolo.com 1996)

[30] See Act of 1981, Ch. 847, 1981 N.Y. Laws 847.

[31] Christine Lepera & Jeannie Costello, The Use of Mediation in the New Millennium, 5 N.Y. L.J. 3, 3 (1999).

[32] 28 U.S.C. § 651(Alternative Dispute Resolution Act of 1998).

[33] Id. at § 651(c).

[34] Id. at § 651(d).

[35] Bennett G. Picker, Mediation Practice Guide 2 (ABA 2003).

[36] Many ADR organizations in the United States have dedicated to apply mediation in settling international commercial disputes. For example, the CPR Institute for Dispute Resolution has established mediation programs in Europe, South America and some part of Asia.

[37] Unlike litigation or arbitration, mediation focuses on maintaining good relationships between parties, usually the settlement occurs more quickly than litigation and arbitration proceedings; besides that, the procedural and evidentiary rules in mediation also offer more flexibility. See Erik Langeland, The Viability of Conciliation in International Dispute Resolution, 50-SEP Disp. Resol. J. 34, 35(1995).

[38] Jernej Sekolec and Michael B. Getty, The UMA and the UNCITRAL Model Law: An Emerging International Consensus on Mediation and Conciliation, 9 No. 4 Disp. Resol. Mag. 17, 17 (2003).

[39] Stephen K. Huber and E. Wendy Trachte-Huber, International ADR in the 1990’s: The Top Ten Developments, 1 Hous. Bus. & Tax. L.J. 184, 221 (2001).

[40] See China International Economic and Trade Arbitration Commission Arbitration Rule (2000), Article 44.4, http://www.cietac.org.cn/english/rules/rules.htm (April 7, 2005).

[41] For example, China Council for the Promotion of International Trade Conciliation Center revised its mediation rules in 2000, and added provisions for international commercial mediation.

[42] The author of this article, as a in-house lawyer and a secretary of CCPIT Jiangsu Conciliation Center from 2002 to 2004, experienced such kind of complaints from the U.S. and Chinese mediators from time to time.

[43] In order to analyze this issue more concisely, the following of this article would only choose The AAA’s mediation rule and CCPIT Conciliation Center Rule to compare.

[44] Stephen S. Cook, Mediation as an Alternative to Probation Revocation Proceedings, 59 Fed. Probation 48, 48 (1995).

[45] See Article M-2, AAA International Mediation Rules (2003), http://www.adr.org/sp.asp?id=22090#Intl_Mediation (April 7, 2005); See also Article 3 and Article 4, CCPIT Conciliation Center Mediation Rule (2000),http://tw.people.com.cn/GB/14815/14885/867118.html (April 7, 2005).

[46] Cook, supra n. 43 at 48.

[47] Cook, supra n. 44 at 45.

[48] American Arbitration Association, Model Standards of Conduct For Mediators, http://www.adr.org/sp.asp?id=22118 (April 7, 2005).

[49] Article 4, CCPIT Conciliation Center Ethic Rules for Mediators (1993), http://tw.people.com.cn/GB/14815/14885/867124.html (April 7, 2005).

[50] The three pillars of mediation are: efficiency, flexibility and confidentiality.

[51] Cook, supra n. 44 at 43.

[52] Article M-11, AAA International Mediation Rules (2003).

[53] Article M-12, AAA International Mediation Rules (2003).

[54] This article establishes that, “evidence concerning national confidential, personal privacy and business confidential should not be divulged out of the court.”

[55] Article 19, supra n. 45.

[56] Article 14, supra n. 45.

[57] Louise E. Dembeck, International Mediation, 10 Am. Rev. Int’l Arb. 265, 268 (2000).

[58] Kovach, supra n.21 at 124.

[59] Perkovich, supra n.5 at 327.

[60] Langeland, supra n.37 at 36.

[61] M. Holt Meyer and Charles J. Wysochi, Chinese Mediation, 57 N.Y. St. B. J. 37, 38 (1985).

[62] Roger Richman, Civil Dispute Resolution in China During Reform, 7 Ohio St. J. on Disp. Resol. 83, 88 (1991).

[63] Zhang, supra n.10 at 15.

[64] Article 1, CCPIT Conciliation Center Ethic Rules for Mediators (1993), http://tw.people.com.cn/GB/14815/14885/867124.html (April 7, 2005).

[65] Article 1, AAA Model Standards of Conduct For Mediators, http://www.adr.org/sp.asp?id=22118 (April 7, 2005).

[66] Id.

[67] Article 19, supra n.45.

[68] Article 17, supra n.45.

[69] Article M-12, supra n.45.

[70] Barry Kramer and Allen D. Brufsky, Trademark law Practice Forms, § 35:20, 3 Trade Law Prac Forms § 35:20 (Westlaw Online Database, updated August 2004).

[71] Jun Ge, Mediation, Arbitration and litigation: Dispute Resolution in the People’s Republic of China, 15 UCLA Pac. Basin L.J. 122, 122 (1996).

[72] Id.

[73] Kramer, supra n.70 at 126.

[74] Id.

[75] Id.

[76] Steven K. Anderson, Mediation and the North American Free Trade Agreement, 55 May Disp. Resol. J. 56, 58 (2000).

[77] Urs Martin Lauchli, Cross-Culture Negotiations, With a Special Focus on ADR with the Chinese, 26 Wm. Mitchell L. Rev. 1045, 1050 (2000).

[78] Camille Schuster and Michael Copeland, Cross-Culture Communication: Issues and Implications in International Business Negotiations 4 (Pervez N. Ghauri & Jean-Claude Usunier Eds. 1996).

[79] Isabelle R. Gunning, Diversity Issues in Mediation: Controlling Negative Cultural Myths, 1995 J. Disp. Resol. 55, 82 (1995).

[80] Before starting the establishment of a China and U.S. joint mediation center, the ADR providers in China have begun to seek the possibility to build up such kind of joint mediation centers with Canada and Korea. Some of the U.S. mediation providers, Central Public Resource Institute for Dispute Resolution (CPR) for example, established its joint mediation center with European countries too. See Liang Li, Joint mediation centre launched, Beijing Portal, http://www.beijingportal.com.cn/7838/2004/12/08/1821@2411925.htm (Dec. 8, 2004); See also the CPR Institute for Dispute Resolution, The CPR International Project, http://new.cpradr.org/CMS_disp.asp?page=CPR_Intl_WhatWeDo&M=10.1 (April 4, 2005).

[81] CPR Institution for Dispute Resolution, U.S.-China Business Mediation Center:
A Brief Introduction, http://new.cpradr.org/CPR_China.asp?M=10.5.3(April 4, 2005).

[82] Peter Phillips, New Joint Venture, U.S.-China Business Mediation Center, Adds

Options for Business, http://www.cpradr.org/pressroom/press51.pdf (April 4, 2005).

[83] See CPR Institution for Dispute Resolution, Mediation Procedure, (Revised and effective as of April 1, 1998), http://new.cpradr.org/med_proced.asp?M=9.2.4#selecting (April 4, 2005).

[84] Article 4, The CPR/CCPIT Mediation Procedure for Disputes Submitted to the

U.S.-China Business Mediation Center, http://new.cpradr.org/pdfs/Intl_China_Procedure04.pdf (April 5, 2005).

[85] Article 12, supra n.45. It provides that, “the conciliation center should designate a single mediator to conduct the mediation if the parties could not agree on a mediator or mediators.”

[86] See CPR Institution for Dispute Resolution, the Mediators’ Professional Ethics, http://new.cpradr.org/pdfs/Intl_China_Procedure04.pdf (April 5, 2005).

[87] Within the author’s knowledge, the Center held its first training program in the United States in June, 2004; it plans to hold its annual training program in Beijing in May, 2005.

[88] Gunning, supra n.78 at 93.