Intellectual property law and the enforcement of patents have been changing rapidly in the past couple of years in China. IP protection is now clearly a part of China’s industrial policy. Does it bode well for American companies when we are weakening our IP protection while China is strengthening its?

Despite all of the rhetoric we are hearing from the Trump administration, is the trade war actually helping China promote its own agenda and economic development? President Trump’s playbook appears to be one that views China through the lens of the 2000s. Ten years ago, tariffs would have had a major effect on China’s economy. However, China has evolved since then to be more of a domestic-driven economy. Furthermore, President Trump’s actions have been accelerating China’s technological goals while quickly aligning China’s private sector with its industrial policies.

 

Is this trade war productive or counterproductive for America?

Author: Brian J. Donovan
January 2018

 

The Good: The Intent of Congress in Its Passage of the MDL Statute

The United States Judicial Panel on Multidistrict Litigation (“JPML”) traces its origins to the early 1960s when more than 1800 related civil actions involving price-fixing allegations in the electrical equipment industry flooded the federal courts. To coordinate discovery among the electrical equipment antitrust cases in the over thirty involved courts, Chief Justice Earl Warren created the Coordinating Committee for Multiple Litigation of the United States District Courts. At the end of its work, the Committee recommended a more formalized procedure for handling groups of similar cases. In response, in 1968, Congress enacted the Multidistrict Litigation Statute (28 U.S.C. § 1407), the statute to which the JPML owes its existence.

 

The multidistrict litigation (“MDL”) statute provides, in pertinent part, “When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation authorized by this section upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions. Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred.”

 

In plain English, the JPML was created to:

(a) determine whether civil actions pending in different federal districts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings;

(b) ensure such transfer of cases to one federal district will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions; and

(c) select the federal district and judge(s) best situated to handle the transferred cases.

 

Theoretically, the purpose of this transfer or “centralization” process is threefold:

(a) to avoid duplication of discovery;

(b) to prevent inconsistent pretrial rulings; and

(c) to conserve the resources of the parties, their counsel, and the judiciary.

 

The U.S. Supreme Court has held that a district court conducting pretrial proceedings pursuant to 28 U.S.C. §1407(a) has no authority to invoke 28 U.S.C. §1404(a) to assign a transferred case to itself for trial. See Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998).

 

Justice Souter, in delivering the opinion of the U.S. Supreme Court, explained 28 U. S. C. §1407(a) authorizes the Judicial Panel on Multidistrict Litigation to transfer civil actions with common issues of fact “to any district for coordinated or consolidated pretrial proceedings,” but imposes a duty on the Panel to remand any such action to the original district “at or before the conclusion of such pretrial proceedings.” “Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred.”

 

The Bad: The Refusal to Remand

Many federal judges and attorneys are vaguely aware that the number of cases in MDLs has grown, but few are aware of the rate of recent growth. As of September 30, 2015, there were a total of 341,813 civil cases pending in federal court of which 132,788 cases were pending in MDLs. In sum, 38.9% of the civil cases pending in the nation’s federal courts were consolidated in MDLs. As of September 2017, more than 40% of the civil cases pending in the nation’s federal courts are consolidated in MDLs. That percentage will only continue to increase.

 

Since its creation in 1968, the JPML has centralized 553,249 civil actions for pretrial proceedings. By the end of 2015, a total of 15,844 actions had been remanded for trial. In short, the JPML remanded only 2.86% of cases to their original districts.

 

Writing in dissent for the Ninth Circuit, Judge Alex Kozinski presaged the U.S. Supreme Court’s ruling in Lexecon by characterizing self-transfer as “a remarkable power grab by federal judges,” because the practice exceeded the authority Congress granted to transferee judges.

 

Pursuant to Congressional intent and U.S. Supreme Court decisions, the endgame for MDL is remand. Accordingly, although transferee judges deem settlement a hallmark of their success, I believe it is important to appreciate the potential advantages of remand, rather than focusing solely on what transferee judges allege to be “judicial efficiency.”

 

Remand’s scarcity is caused by the uniform interest of repeat players (transferee judges, cooperative attorneys appointed to PSCs, defendants and fund administrators) in settlement.

 

An MDL is not a litigation. Attorneys appointed to the PSC are not appointed by the transferee judge to be litigators. These attorneys are not selected for the purpose of zealously advocating on behalf of their clients. Attorneys appointed to the PSC are cooperative dealmakers. Describing an attorney appointed to the PSC as “cooperative” means the attorney would never consider rocking the metaphorical boat of judicial efficiency.

 

In short, the main criteria for membership in every multidistrict litigation PSC, is very simple:

(a) The attorney must be “cooperative;”

(b) The attorney should be a “repeat player;” and

(c) The attorney must have signed-up a large stable of clients which he or she is already directly representing.

 

It is helpful to remember what I refer to as “the three Cs” of any PSC: cooperation, control, and compensation. Greater cooperation (between the dealmakers) and control (in terms of a significant market share of plaintiffs) results in closing the deal faster with the defendant and clearing the docket faster which results in greater compensation. A happy transferee judge is a generous transferee judge. Obviously, I am referring to the compensation received by the members of the PSC. The hapless plaintiffs will most likely receive little or no compensation.

 

The Ugly: The Use of Victims’ Compensation Funds and Settlement Class Actions to Maximize Judicial Efficiency

One of the most egregious examples of blatant collusion in MDL involves the well-known BP oil well blowout in the Gulf of Mexico on April 20, 2010. In this on-going MDL, a relatively small group of repeat and self-interested “cooperative” PSC attorneys, who are permitted to be grossly over-compensated for merely acting as dealmakers, uses a victims’ compensation fund and a settlement class action to maximize judicial efficiency and limit the liability of BP.

 

The BP Victims’ Compensation Fund

Kenneth R. Feinberg, masquerading as a “Fund Administrator,” was employed by BP to limit its liability.

 

In the BP oil well blowout MDL, Feinberg used a “Delay, Deny, Defend” tactic against legitimate oil well blowout claimants/victims to limit BP’s liability. This tactic, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.”

 

The ultimate objective of Feinberg’s “Delay, Deny, Defend” tactic was to limit BP’s liability by obtaining a signed “Release and Covenant Not to Sue” from as many BP oil well blowout victims as possible.

 

The BP/Feinberg victims who executed a “Release and Covenant Not to Sue” (approximately 220,000 in number) were subsequently excluded from the settlement class action.

 

The BP Settlement Class Action

In February 2011, only 4 months after Judge Barbier appointed his cooperative attorneys to the BP oil well blowout MDL PSC and Plaintiff Executive Committee, settlement negotiations began in earnest. The PSC and BP negotiated a total amount which BP was willing to pay in order to settle the BP oil well blowout case.

 

The PSC and BP worked backwards from that agreed upon total amount to draft the terms and conditions of the settlement.

 

The BP Settlement Class Action Limits the Compensation Period to 2010

The Honorable Carl J. Barbier clearly states, “The long term effects [of the BP oil well blowout] on the environment and fisheries may not be known for many years.” Nevertheless, in order to limit BP’s liability, one tactic employed by BP and the PSC was to limit the compensation period to 2010.

 

Incredibly, Judge Barbier found that limiting the compensation period to 2010 is reasonable. He explains, “Certain objectors complain that the Economic Damage Claim Frameworks are unfair because they do not compensate persons who did not begin suffering losses until 2011. Yet this provision is reasonable for three reasons: (i) the Macondo well ceased flowing in July 2010; (ii) there is evidence that by late 2010, Gulf Coast tourism had returned to or surpassed 2009 levels; and (iii) as to claims by individuals and businesses in charter fishing, seafood processing, or other businesses relying on access to Gulf waters, nearly all federal and state waters were reopened for commercial fishing by November 2010. Thus, extending compensation to 2011 would cover losses not likely caused by the spill.”

 

The BP oil well blowout settlement contains various causation requirements for Business Economic Loss (“BEL”) claims. Two of the causation tests, the Modified V-test and the Decline-Only test, require a revenue calculation based on benchmark periods and, in addition, a decline in the share of total revenue generated by non-local customers or customers in Zones A to C as reflected in specified documentation.

 

The Settlement Includes a Magical RTP

Judge Barbier reassures BP oil well blowout claimants/plaintiffs that “the settlement claims program’s Risk Transfer Premium (“RTP”) enhances the compensation amount for, among other things, certain claimants whose damages could be recurring, to account for that risk of future damages.”

 

Judge Barbier further instructs, “RTP payments are meant to compensate class members for pre-judgment interest, the risk of oil returning, consequential damages, inconvenience, aggravation, the risk of future loss, the lost value of money, compensation for emotional distress, liquidation of legal disputes about punitive damages, and other factors.”

 

RTP payments are simply magical.

 

If an MDL which resorts to a settlement class action rather than remand has resulted in a loss of faith in the U.S. federal judicial system, then an MDL which employs a Kenneth R. Feinberg victims’ compensation fund and a settlement class action virtually guarantees the eventual meltdown of the U.S. federal judicial system.

 

The BP Oil Well Blowout MDL Ugly Numbers

(a) Kenneth R. Feinberg denied payment to approximately 61.46% of the claimants who filed claims.; the average total amount paid per approved claimant was a paltry $27,466.47.

 

(b) The Deepwater Horizon Claims Center (“DHCC”) denied payment to approximately 60.03% of the submitted claims; the average total amount paid per approved claim was a paltry $64,700.02.

 

(c) BP paid Kenneth R. Feinberg $24.7 million for serving as the victims’ compensation “Fund Administrator” from approximately June 15, 2010 to April 15, 2012.

 

(d) The total compensation paid to the 19 cooperative MDL 2179 PSC attorneys and their law firms is guesstimated to be $3.035 billion.

 

(e) Since 2011, Judge Barbier has declined to permit formal discovery on Feinberg. To date, the lawsuits filed against Feinberg have been put on ice for approximately 7 years.

The United States Judicial Panel on Multidistrict Litigation (“JPML”) traces its origins to the early 1960s when more than 1800 related civil actions involving price-fixing allegations in the electrical equipment industry flooded the federal courts. To coordinate discovery among the electrical equipment antitrust cases in the over thirty involved courts, Chief Justice Earl Warren created the Coordinating Committee for Multiple Litigation of the United States District Courts. At the end of its work, the Committee recommended a more formalized procedure for handling groups of similar cases. In response, in 1968, Congress enacted the Multidistrict Litigation Statute (28 U.S.C. § 1407), the statute to which the JPML owes its existence.

 

The JPML consists of seven sitting federal judges designated from time to time by the Chief Justice of the United States. No two JPML members may be from the same federal judicial circuit. The concurrence of four members shall be necessary to any action by the JPML.

 

The seven JPML members are appointed without any limitation on their terms (“designated from time to time”). However, in June 2000, then-Chief Justice William H. Rehnquist imposed some regularity and predictability on the appointment process by establishing staggered seven-year terms for each member. Chief Justice John G. Roberts, Jr. has continued his predecessor’s practice.

 

The multidistrict litigation (“MDL”) statute provides, in pertinent part:

 

“When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation authorized by this section upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions. Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred unless it shall have been previously terminated.”

 

In plain English, the JPML was created to:

(a) determine whether civil actions pending in different federal districts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings;
(b) ensure such transfer of cases to one federal district will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions; and
(c) select the federal district and judge(s) best situated to handle the transferred cases.

Buses no longer have to be boring. CRRC Zhuzhou Institute Co. has recently developed autonomous and semi-autonomous buses. The Autonomous-rail Rapid Transit (ART) system is able to be implemented at a fraction of the cost that it takes to construct lines for a new subway or light rail. The ART system can run with a single car or have 2-5 cars linked, allowing for up to a maximum of ~500 passengers.

The bus follows a guided route via lines painted on the road. This allows for the bus to follow a predetermined route more easily. The bus is equipped with multiple sensors that enable the bus to be able to drive autonomously even without the assistance of the guided dotted lines. A driver can override the system and take an alternate route when the bus notifies the driver that there is a traffic jam ahead.

The bus utilizes data from sensors along the road as well as data from other buses in operation. Sensors give priority to the bus as it approaches red lights, giving the bus green lights along its path. Passengers will be able to get to their destination more quickly.

Another feature of the bus is that each car has a permanent magnetic motor. This provides a smoother ride compared to traditional buses and allows for the bus to have a tight turning radius which is critical in urban settings.

It is ideal to use a high-occupancy vehicle lane (HOV) or a bus rapid transit (BRT) lane when operating the ART system. With a maximum speed of 43 mph (70 kmh), these buses will be able to travel just as efficiently as subways cars but at a fraction of the cost that it takes to construct rail for subways or light rail.

The rapid development of China’s subway network has been remarkable. The animation below shows the growth of China’s subways system since 1990, as well as the planned lines till 2020. As the intracity lines become better connected, China is constructing intercity lines connecting neighboring cities, in effect creating “megacities.”

China Subway System

Credit: Peter Dovak

Nobody should be above the law. Read our Memorandum of Law requesting transparency and accountability from the BP oil well blowout multidistrict litigation court. The PSC, BP, and Juneau colluded to intentionally mislead the plaintiffs just prior to the fairness hearing. Ken Feinberg denied payment to approximately 61.46% of the claimants who filed claims with the GCCF. Members of the PSC and their law firms in MDL 2179 are quadruple-dipping.

Attorneys have a duty to put their clients before their pockets.

Memorandum of Law to Request Transparency and Accountability from BP Oil Well Blowout MDL PDF

China Fintech BlossomingWhen I initially arrived in China towards the end of the summer of 2011, I felt like I was going back in time in terms of payment methods. Few vendors accepted credit or debit cards. Carrying cash felt strange as most payments in the U.S. were made with my card. In the past 6 years, China’s uptake in mobile payment has been incredible. It’s now both a cashless and cardless society. From buying a soda from a vending machine, a mango on the side of the road, or booking a hotel, QR codes are omnipresent. Leaving home without one’s wallet is no problem. Now when I return to the U.S. I feel like I’m walking back in time in terms of payment methods. China’s mobile payments market reached US$5.5 trillion in 2016, approximately 50 times larger than the size of the U.S. market. For a market that was nonexistent a few years ago, it is impressive that 425 million Chinese (65% of Chinese mobile users) utilize their phone as a wallet.
Chinese consumers have become accustomed to rapid change. In a country that is growing at China’s speed, a year’s time can yield a level of change that is difficult to fathom in developed countries. Consumer behavior and habit still have Americans reaching for their plastic cards instead of mobile phones. Mobile payment providers in the U.S. have realized that consumer behavior is difficult to break once habits are developed. China has in effect skipped the credit/debit card culture and has gone from cash directly to mobile payment.

 

International news outlets tend to focus solely on Apple Pay, Google Wallet, PayPal, or Amazon Pay when it discusses the rise of mobile payment. All of these companies represent a negligible percentage of the Chinese mobile payment market. For a company that prides itself on innovation, Apple entered the mobile payment market in China entirely too late. In the 4th quarter of 2016, Apple Pay failed to reach the top 10 in terms of market share.

China Mobile Payment Market ShareTo even further display Apple’s disconnect with the modern transformation of the Chinese economy, Apple partnered with UnionPay (the Visa of China). WeChat and Alipay dominate the mobile market with a combined 91% share of the mobile payment market. Apple Pay represents less than 1%. On China’s artificial holiday dubbed Single’s Day last year (November 11th), Alipay processed a staggering US$17.8 billion in online, mobile payments.

 

QR Codes are King in China
QR PaymentQR codes are by far the most preferred technology for completing a transaction. Consumers and vendors have two options for completing a transaction via scanning QR codes. The consumer can scan a QR code present at the shop, or the vendor can scan a QR code that is uniquely generated for each transaction on the customer’s phone. Near-field communication (NFC) is another means of completing a payment, but it’s adoption is very small in China. WeChat offers payments through the use of QR codes while Alipay and Baidu Wallet offer payments through the use of QR codes and NFC. Apple Pay only offers payments through the use of NFC, further limiting user uptake.

 

Two Giants: Apple and Tencent
Apple WeChat

Apple recognizes they’re losing in this arena but can’t seem to gain traction when it comes to breaking into the mobile payment or services market. Its latest move will only continue to push Chinese consumers away as it enforces a 30% tax on WeChat “tips” made on Apple devices. WeChat has an option that allows for users to tip writers of posts. WeChat is THE app to use when in China. Apple takes a 30% cut on in-app purchases so it argues that since WeChat was downloaded through its store, Apple should receive 30% of the tips. This is not sitting well with Tencent (the creator of WeChat). Apple is used to being the top dog; however, in China, Tencent is the more dominant company.

 

Apple has threatened to remove the WeChat app from its store. However, Apple needs WeChat to continue to grow in China. Chinese consumers can do away with an iPhone, but WeChat has almost become a necessity in China. The battle that is beginning to take place between Apple and Tencent will be even more interesting than the battle between Uber and Didi.

 

Apple is in a precarious position in China as it’s a brand that excels in China due to its perception as being innovative and as a symbol for affordable luxury. However, sales have slumped recently. China sales in 2016 totaled US$46.5 billion, representing a 24% dip from 2015. This year isn’t starting off well either. The first quarter of 2017 was down 14% compared to the same quarter in 2016. Apple succeeds in China largely due to its hardware design and not due to its services or software. This is Apple’s weakness.

 

Chinese consumers who do own Apple products rarely utilize the services such as iTunes or the App Store. Relying on these services makes it cumbersome for Americans in the U.S. to switch to an Android device after becoming dependent on Apple’s services. In China, only 50% of iPhone users who bought another phone in 2016 stayed with Apple. Hardware alone will not keep the Chinese consumers invested in Apple. The brand’s image is no longer sought after as much as just a few years ago. As more Chinese are able to afford the phone, the brand is beginning to lose its luster. The is not entirely different from Louis Vuitton’s rise and plateau in China as its widespread popularity has given it the title of the “secretary’s bag.”

 

Additionally, areas such as Shenzhen have taken the world’s best hardware and now are creating mutants that are giving Silicon Valley a run for its money. Companies such as Huawei are delivering reliable products with a beautiful design and innovative features. Huawei introduced a second camera on its P9 phones six months prior to Apple releasing the second camera on the iPhone 7. One thing China has proven time and again is that when it wants to produce hardware well, it has the capacity.

 

Keeping Consumers in the WeChat Ecosystem

Consumers have multiple options when it comes to mobile phones. Personal preferences are mostly subjective. However, one app that Chinese consumers increasingly cannot do without is WeChat. The app has penetrated the market in ways that Facebook can only dream of. This market penetration has allowed for WeChat to rapidly close in on Alipay’s market share.

 

It’s changing the way that Chinese users interact socially and professionally and even the way we think about using our mobile phones. Everything in China can be done through WeChat, from making an appointment with your doctor to booking a flight to ordering food delivery to paying for your electricity. WeChat is accomplishing what Facebook only dreams it can do in the U.S.

 

To further entice users to stay within the WeChat ecosystem, WeChat has added “mini programs” (Apple won’t allow for WeChat to use the term app) where users can use apps within WeChat without having to download a separate app. These apps are attractive to developers as they can work across Android and Apple devices.

 

Entering an Era with Real Innovation in China

Western companies have been attempting to emulate WeChat’s success in China. Facebook is trying to “copy” WeChat by integrating shops with its platform. WeChat has been offering integrated checkout since 2013. Additionally, chat bots seem to be all the craze in 2017. WeChat has also been offering chat bot services since 2013.

 

As China’s economy cools in some sectors, fintech and the internet of things will continue to accelerate. Copycats in China will continue to exist. The new challenge that western firms will have to compete with in China is not iteration but true innovation.